Aug 25/Gold and silver hold as options expire on the comex tonight/Peer to Peer lending capped in China: this is a major source of funding for Chinese housing/Portugal may lose its investment grade for its sovereign bonds: if they lose this, a major black swan event as ECB must disgorge all of Portuguese bonds/fed whisperer Hilsenrath slams the Fed in a surprising paper:Looks like the Fed wants fiscal stimulus/subprime auto loan delinquencies jump 17%/

Gold:1320.40 down $4.30

Silver 18.48  down 7 cents

In the access market 5:15 pm

Gold: 1322.00

Silver: 18.55

.

For the August gold contract month,  we had a huge sized 214 notices served upon for 21,400 ounces. The total number of notices filed so far for delivery:  14,100 for 1,410,000 oz or  tonnes or 43.866 tonnes.  The total amount of gold standing for August is 43.788 tonnes.

In silver we had 11 notices served upon for 55,000 oz. The total number of notices filed so far this month:  501 for 2,505,000 oz.

 

Options expiry for the gold and silver contracts ends today August 25. Options for the OTC and London’s LBMA contracts expire August 31.

Let us have a look at the data for today

.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

In silver, the total open interest FELL BY ONLY 419 contracts DOWN to 205,845. The open interest hardly fell   DESPITE THE FACT THAT THE SILVER PRICE WAS DOWN 36 CENTS IN YESTERDAY’S TRADING .In ounces, the OI is still represented by just over 1 BILLION oz i.e. 1.029 BILLION TO BE EXACT or 147% of annual global silver production (ex Russia &ex China).

In silver we had 11 notices served upon for 55,000 oz

In gold, the total comex gold fell 7077 contracts as the price of gold FELL BY $16.20 yesterday . The total gold OI stands at 565,896 contracts.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

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

GLD

we had a good sized withdrawal today at the GLD to the tune of 1.78 tonnes

Total gold inventory rest tonight at: 956.59 tonnes of gold

SLV

we had a withdrawal of 1.899 millio oz from  the SLV,  / THE SLV Inventory rests at: 356.894 million oz

.

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

1. Today, we had the open interest in silver fell by only 419 contracts down to 205,845 despite the fact that the price of silver FELL BY 36 cents with YESTERDAY’S trading.The gold open interest fell 7077 contracts down to 565,896 as the price of gold FELL $16.20 WITH YESTERDAY’S TRADING.

(report Harvey).

 

2 a) Gold/silver trading overnight Europe, Goldcore

(Mark OByrne/zerohedge

3. ASIAN AFFAIRS

i)Late  WEDNESDAY night/THURSDAY morning: Shanghai closed DOWN 17.55 POINTS OR 0.57%/ /Hang Sang closed DOWN 5.83 points or 0.03%. The Nikkei closed DOWN 41.35 POINTS OR 0.25% Australia’s all ordinaires  CLOSED DOWN 0.36% Chinese yuan (ONSHORE) closed DOWN at 6.6594/Oil FELL to 46.56 dollars per barrel for WTI and 48.80 for Brent. Stocks in Europe: in the RED  Offshore yuan trades  6.6673 yuan to the dollar vs 6.6594 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS HUGELY AS  MORE USA DOLLARS ATTEMPT   LEAVE CHINA’S SHORES  

REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) REPORT ON JAPAN

none today

b) REPORT ON CHINA

In China the biggest and most important asset class is housing and the guys who finance much of the housing is Peer to Peer lending.  Now the authorities are trying to clamp down and limit or cap this lending. In response to the new rules, China’s leading on line peer to peer plunged by 22%.

this will not end well….

( zero hedge)

4 EUROPEAN AFFAIRS

i)Whenever you see the CEO of Deutsche bank warn of “fatal consequences” for savers, you know that they are in trouble because of negative interest rates and of course their huge derivative plays:

( zero hedge)

ii)It sure looks like this will become a black swan.  The ECB continues to purchase the bonds of Portugal despite these guys being a basket case similar to Greece.  The only rating agency that gives it investment grade is the tiny Dun and Bradstreet.  If they downgrade then all rating agencies are non investment grade and the ECB must:

1. sell all Portuguese bonds in their possession

2  not purchase any Portuguese bonds

then Portuguese bonds will yield 10 -12% and totally annihilate the banks

( zero hedge)

iii)I have highlighted this commentary due to the huge bubble in the bond sector due to massive QE by just about everybody. Correctly Stockman describes the bond scene has basically a volcano of uncollectible capital gains.

However  I really want you to pay attention to the Bremen convertible bond issue of Germany which collapsed last week because the shipping industry that they cater to is basically in severe trouble

( David Stockman/ContraCorner)

5. RUSSIAN AND MIDDLE EASTERN AFFAIRS

none today

6.GLOBAL ISSUES

none today

7.OIL ISSUES

At around 1:30 pm est, stocks are sliding as oil falls into the 46 dollar handle. The Saudi just stated that there will not significant intervention;

(courtesy zero hedge)

8.EMERGING MARKETS

VENEZUELA

An excellent commentary by Shaun Bradley as he outlines the severe problems inside Venezuela and how this once proud rich nation succumbed to socialism:
(courtesy Bradley/The AntiMedia.org)

9.PHYSICAL STORIES

i)For those that missed this yesterday:

The CRIME SCENE IN BROAD DAYLIGHT

( zero hedge/Chris Powell)

ii)And now today:

gold hit for a second day with options expiry ending this evening.

( zero hedge)

iii)John Embry is correct:  the boys cannot support the stock market the bond market and the high real estate prices while at the same time suppress gold/silver. The economy is weakening terribly and thus they cannot support those high prices.

( John Embry/Kingworldnews)

iv)According to Macquarie, gold wins on 3 out of 4 scenarios.  None of the 4 are good for the economy:

( Schmid/Epoch times)

10.USA STORIES WHICH MAY INFLUENCE THE PRICE OF GOLD/SILVER

i)Do not expect much from the clowns at Jackson Hole: Zero hedge states that actually the rhetoric has been dovish and not hawkish.

( zerohedge)

iiThe flash service pMI for August tumbled : from 51.4 down to 50.9. Remember that service is 70% of USA GDP.  Markit warns that GDP growth is failing to accelerate in the third quarter from its weak 1.2% pace in the second quarter.

(Markit service pmi/zerohedge)

iii)The Fed whisperer Hilsenrath writes and slams the Fed for years of missteps. What is he after especially 1 day before Jackson Hole:  “Fiscal stimulus” or more bond issuance of which the Fed must buy.

(courtesy zero hedge)

a must read…

iv)Subprime auto delinquencies jump a good 17% in July. Also net losses soar by 28%. This is going to be a huge problem for major banks:

( zero hedge)

v)This is something that we have been harping on.  The Tennessee Insurance Commissioner now warns that Obamacare in his state is in near collapse. Blue Shield is the only insurer that is represented in every county/  The have lost considerable money and mostly likely will bull out of Obamacare.

( zero hedge)

Let us head over to the comex:

The total gold comex open interest FELL to an OI level of 565,896 for a LOSS of 7077 contracts as the price of gold FELL by $16.20 with yesterday’s trading. We are now in the active month of August.  I wrote the following at the beginning of the month: ” As I stated this month:”Somebody big is continually standing for the gold metal and continues to do so in August in the same manner as we have witnessed in May, June and July whereby the front delivery month increases in I standing for metal or a slight contraction.  We will no doubt see increases in amount standing in August and probably we will surpass the amount standing on first day notice. “

Tonight we saw another huge increase in the amount of gold ounces standing as somebody was in great need of gold.

The big active contract month of August saw it’s OI FELL by 321 contracts DOWN to 370.  We had 499 notices filed upon yesterday so we  gained 129 gold CONTRACTS  or an additional 12,900 ounces that will  stand for delivery in August.  The next contract month of Sept saw it’s OI fall by 185 contracts down to 3872.  The September contract still remains extremely elevated and we may have another of those high deliveries rare for a non active month. The next active delivery month is October and here the OI FELL by 254 contracts DOWN to 46,584.  The estimated volume today (which is just comex ales during regular business hours of 8:20 until 1:30 pm est) was FAIR at 183,909.  The confirmed volume yesterday (which includes the volume during regular business hours + access market sales the previous day was GOOD at 260,944 contracts ( WITH ALL OF THOSE RAID CONTRACTS). The comex is not in backwardation.

Today we had  214 notices filed for  21,400 oz of gold.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
And now for the wild silver comex results.  Total silver OI fell by only 419 contracts from 206,264 down to 205,845 despite the huge fall in  price of silver to the tune of 36 cents yesterday.  We are moving away from the all time record high for silver open interest set on Wednesday August 3:  (224,540). The non active month of August saw it’s OI remain constant at 16.  We had 10 notices served upon yesterday, so we gained 10 silver contract or an additional 50,000 will stand for silver in this non active delivery month of August.  The next active month is September and here the OI fell by only 8,918 contracts down to 45,704 .We have 4 days left before first day notice.  The volume on the comex today (just comex) came in at 90,084 which is  HUGE but many rollovers.  The confirmed volume yesterday (comex and globex) was also ABSOLUTELY HUGE  at 106,230( with many rollovers). Silver is not in backwardation.  London is in backwardation for several months.
we had 11 notices filed for 55,000 oz
INITIAL standings for AUGUST
 August 25.
Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil OZ
Withdrawals from Customer Inventory in oz  nil
nil
4070.66 oz
 manfra 2 kilobar
Scotia:
Deposits to the Dealer Inventory in oz 1,400.01 oz

Brinks

???  (.01 ??)

Deposits to the Customer Inventory, in oz 
  nil
No of oz served (contracts) today
214 notices 
21,400 oz
No of oz to be served (notices)
156 contracts
(15,600 oz)
Total monthly oz gold served (contracts) so far this month
14,100 contracts (1,410,000 oz)
(43.856 tonnes)
Total accumulative withdrawals  of gold from the Dealers inventory this month   NIL
Total accumulative withdrawal of gold from the Customer inventory this month    563,.881.1 OZ
Today:  tiny activity at the gold comex AND 2 KILOBAR ENTRIES//
Today we had 1 dealer DEPOSITS
 i) Into Brinks: 1400.01 oz ??  (xxx.01: to appease me???)
total dealer deposit: 1400.01    0z
Today we had  0 dealer withdrawals:
total dealer withdrawals:  nil oz
We had 0 customer deposit:
Total customer deposits: nil OZ
Today we had 2 CUSTOMER withdrawals
 ii) out of Manfra: 64.30 oz          2  kilobar
iii) Out of Scotia; 4006.36 oz
Total customer withdrawals  4070.66 OZ
Today we had 3 adjustment:
 i) Out of BRINKS:  19,965.15oz (621 kilobars) was adjusted out of the customer and this landed into the dealer account of BRINKS:
ii)Out of Delaware:  199.958 oz was transferred out of the customer account and this landed into the dealer account of Delaware
iii) Out of Scotia: 6800.127 oz was adjusted out of the dealer and this landed into the customer account of Scotia and a deemed settlement: .2115 tonnes
Note:
If anybody is holding any gold at the comex, you must be out of your mind!!!
since comex gold storage is unallocated , rest assured any gold stored at the comex will be compromised!
I also urge all of you do not place any option trades at the comex as these gangsters will gun you down.
If you are taking delivery of gold/silver please remove it from comex banks and place it in private vaults 
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 214 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 201 notices was stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the AUGUST  contract month, we take the total number of notices filed so far for the month (14,100) x 100 oz  or 1,410,000 oz , to which we  add the difference between the open interest for the front month of AUGUST  (370 CONTRACTS) minus the number of notices served upon today (214) x 100 oz   x 100 oz per contract equals 1,425,600 oz, the number of ounces standing in this active month. 
 
Thus the INITIAL standings for gold for the AUGUST contract month:
No of notices served so far (14,100) x 100 oz  or ounces + {OI for the front month (370) minus the number of  notices served upon today (214) x 100 oz which equals 1,425,600 oz standing in this non  active delivery month of AUGUST  (44.342 tonnes).
We gained 12,900  gold ounces that will stand for delivery in this  active delivery month of August.
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 +  21.452 TONNES FOR JULY + 12.3917 + 43.788 tonnes Aug +  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 1778 tonnes, JULY 28 .089 TONNES / JULY 29 .128 TONNES/ aUG 10// 0.219 TONNES/August 11: .3619 TONNES/ AUG 12/.05878/ aug 17. 6418, aug 23: .1756 tonnes/aug 25.2115/THEREFORE 93.015 tonnes still standing against 74.02 tonnes available.
 Total dealer inventor 2,379.889.895 oz or 74.02 tonnes
Total gold inventory (dealer and customer) =10,996,848.228 or 342.04 tonnes 
 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 342.04 tonnes for a  gain of 41  tonnes over that period. 
 

THE GOLD COMEX IS AN ABSOLUTE FRAUD. THE USE OF KILOBARS AND EXACT WEIGHTS MAKES THE DATA TOTALLY ABSURD AND FRAUDULENT!!

To me, the only thing that makes sense is the fact that “kilobars” are entries or hypothecated gold sent to other jurisdictions so that they will not be short in their derivatives like in England.  This would be similar to the gold used by Jon Corzine. If this is the case, this would be the greatest fraud perpetrated on USA soil.

 
 end
And now for silver
 
AUGUST INITIAL standings
 august 25.2016
Silver
Ounces
Withdrawals from Dealers Inventory NIL
Withdrawals from Customer Inventory
NIL
Deposits to the Dealer Inventory
 NIL OZ
Deposits to the Customer Inventory
1,780,980.510 OZ
HSBC
CNT
SCOTIA
No of oz served today (contracts)
11 CONTRACTS
(55,000 OZ)
No of oz to be served (notices)
5 contracts
25,000 oz)
Total monthly oz silver served (contracts) 501 contracts (2,505,000 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  10,150,179.0 oz
today we had 0 deposit into the dealer account:
 Total dealer deposits;  NIL oz
we had 0 dealer withdrawal:
:
total dealer withdrawals:  NIL oz
we had 0 customer withdrawal:
Total customer withdrawals: NIL oz
We had 3 customer deposit:
i) Into HSBC;  578,498.600 oz
ii) Into Scotia; 1,200,420.110 oz
iii) Into CNT: 2052.800 oz
total customer deposits:  1,780,980.510   oz
 
 
 
 we had 1 adjustment
i) Out of Delaware; 9312.913 oz was adjusted out of the customer and this landed into the dealer account
The total number of notices filed today for the AUGUST contract month is represented by 10 contracts for 50,000 oz. To calculate the number of silver ounces that will stand for delivery in AUGUST., we take the total number of notices filed for the month so far at (501) x 5,000 oz  = 2,505,000 oz to which we add the difference between the open interest for the front month of AUGUST (16) and the number of notices served upon today (11) x 5000 oz equals the number of ounces standing 
 
Thus the initial standings for silver for the AUGUST contract month:  501(notices served so far)x 5000 oz +(16 OI for front month of AUGUST ) -number of notices served upon today (11)x 5000 oz  equals  2,530,000 oz  of silver standing for the AUGUST contract month.
we gained 25,000 additional silver ounces that will stand for silver metal in this non active delivery month of August.
 
Total dealer silver:  27.444 million (close to record low inventory  
Total number of dealer and customer silver:   160.310 million oz (close to a record low)
The total open interest on silver is NOW close to its all time high with the record of 224,540 being set AUGUST 3.2016.  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.
END

And now the Gold inventory at the GLD
August 25/a withdrawal of 1.78 tonnes at the GLD/Inventory rests at 956.59 tones
August 24/NO CHANGE  in gold inventory at the GLD/inventory restsw at 958.37 tonnes
August 23/no change in gold inventory at the GLD/Inventory rests at 958.37 tonnes
August 22/ a deposit of 2.38 tonnes of gold into the GLD/Inventory rests at 958.37 tonnes
August 19/no changes at the GLD/inventory resets at 955.99 tonnes
August 18/a withdrawla of 6.24 tonnes of gold from the gLD/Inventory rests at 955.99 tonness
August 17/no change in gold inventory at the GLD/inventory rests at 962.23 tonnes
August 16/ a deposit of 1.78 tonnes of “paper gold” into the GLD/Inventory rests at 962.23 tonnes
August 15/what a farce!! a huge “paper gold’ withdrawal of 12.17 tonnes/inventory rests at 960.45 tonnes
August 12/no change in gold inventory at the GLD/Inventory rests at 972.62 tonnes
August 11/no changes in gold inventory at the GLD/Inventory rests at 972.62 tonnes
August 10/no changes in GLD/Inventory rests at 972.62 tonnes
August 9/we had a withdrawal of 1.18 tonnes of gold from the GLD inventory/inventory rests at 972.62 tonnes
August 8/a huge changes in the GLD/Inventory, a withdrawal of 6.54 tonnes of paper gold/ rests at 973.80 tonnes of gold/
August 5/ a huge deposit of 10.69 tonnes of gold (with gold down $22.40??)/GLD inventory rests at 980.34 tonnes
August 4/no change in inventory at the GLD/Inventory rests at 969.65 tonnes
August 3/a big deposit of 5.62 tonnes of paper gold/Inventory rests at 969.65 tonnes
August 2/no change in gold inventory at the GLD/Inventory rests at 964.03 tonnes
August 1/we had a huge paper deposit of 5.94 tonnes of gold into the GLD/Inventory rests at 964.03 tonnes
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
August 25/ Inventory rests tonight at 956.59 tonnes

end

Now the SLV Inventory
August 25/a withdrawal of 1.899 million oz from the SLV/Inventory rests at 356.894 million oz
August 24/no change in silver inventory at the SLV/Inventory rests at 358.793 million oz
August 23/no change in silver inventory at the SLV/Inventory rests at 358.793 million oz.
August 22/a huge addition of 3.324 million oz into the SLV/Inventory rests at 358.793 million oz
August 19/no change in silver SLV/Inventory rests at 355.469 million oz/
August 18/ a massive paper deposit of 2.185 million oz into the SLV/Inventory rests at 355.469 million oz
August 17/ we had a huge deposit of 1.519 million oz into the SLV/Inventory rests at 353.284 million oz/
August 16/no change in inventory/rests tonight at 351.765 million oz
August 15./amazing, we have a huge withdrawal in gold and yet nothing moves out of silver: no change in silver inventory at the SLV/Inventory rests at 351.765 million oz.
August 12/no change in silver inventory at the SLV/Inventory rests at 351.765 million oz
August 11/no change in silver inventory at the SLV/Inventory rests at 351.765 oz
August 10/no changes in silver inventory at the SLV/Inventory rests at 351.765 oz
August 9/a deposit of 950,000 oz into the SLV/Inventory rests at 351.765 oz
August 8/no change in silver inventory at the SLV/Inventory rests at 350.815 million oz.
August 4/no change in silver inventory at the SLV/inventory rests at 350.815 million oz
August 3/no change in silver inventory/inventory rests at 350.815 million oz
August 2/ we had a tiny withdrawal of 40,000 oz of silver/Inventory rests at 350.815 million oz
August 1/we had a huge paper deposit of 1.235 million oz into the SLV/Inventory rests at 350.955 million oz
.
August 25.2016: Inventory 356.894 million oz

NPV for Sprott and Central Fund of Canada

1. Central Fund of Canada: traded at Negative 4.7 percent to NAV usa funds and Negative 4.8% to NAV for Cdn funds!!!!  (the discount is starting to disappear)
Percentage of fund in gold 60.5%
Percentage of fund in silver:38.3%
cash .+1.2%( August 25/2016).
2. Sprott silver fund (PSLV): Premium rises to +0.28%!!!! NAV (august 25/2016) 
3. Sprott gold fund (PHYS): premium to NAV  falls TO  0.35% to NAV  ( august 25/2016)
Note: Sprott silver trust back  into POSITIVE territory at +0.28% /Sprott physical gold trust is back into positive territory at 0.35%/Central fund of Canada’s is still in jail.
 
 
 

end

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

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

Gold Futures See Massive $1.5 Billion “Non Profit” Liquidation In “One Minute”

Gold futures saw a massive $1.5 billion liquidation in “one minute” yesterday which had all the hallmarks of a “non profit” liquidation – a large seller trying to manipulate gold futures lower rather than maximise profits.

Subsequently, gold dropped throughout most of trade in New York and ended near its last minute low of $1323.80 with a loss of 1.1%. Silver slipped to as low as $18.535 and ended with a loss of 1.75%. Gold futures moved sideways in Asia prior to moving slightly lower in morning trade in London.

Smart money has seen this hundreds of times over the years and will use it accumulate cheaper physical gold and silver on the dip. As ever, best not to catch a falling knife and prudent to wait for at least two days of higher closes or to dollar, pound or euro cost average into bullion at these lower levels.

It was reported that Someone Puked $1.5 Billion Of Notional Gold, And The Selling Continues by ZeroHedge:

Gold continues to be pummeled… having broken through the 50-day moving-average at $1338…

As we detailed earlier, it made perfect sense – someone just decided in keeping with their fiduciary duty, 0840ET was the perfect time to unleash $1.5 billion of gold notional into the futures markets….

Over 10,000 contracts dumped in 1 minute… “normal”

New low prices are bringing in some dip-buyers…

And Silver dropped on heavy volume too…

The Gold Anti-Trust Action Committee  or GATA were even more questioning in their headline featuring the Zero Hedge article which read Nobody sells gold like this except to drive the price down in full view.

We have seen this repeatedly over the years and the timing is frequently before “important,” “all eyes on the all powerful Fed” central bank meetings. ‘Monetary High Priest’, Janet Yellen will divine the tea leaves at Jackson Hole tomorrow and the dumb money continues to lap up the silly sound bites which distract from and ignore the wider context of a U.S., UK, Japan and of course EU that is increasingly bankrupt.

It is interesting and telling that over the years, there have been very little massive futures buying in one minute which has propelled gold futures higher. Why is this concentrated futures activity always selling and always to the downside?

The questions that arise once again are who was responsible for the sudden bout of selling and was it a bank or fund acting on its own or with official sanction of a central bank such as the Fed or indeed the BIS.

GoldCore: 7 Key Storage Must HavesDownload Guide

Gold and Silver Bullion – News and Commentary

Gold Prices Edge Higher on Weaker Dollar (WSJ)

Gold futures finish higher in volatile trading (MarketWatch)

Gold attempts modest gains as traders look ahead to Yellen speech (Investing.com)

North Korea fires submarine-launched ballistic missile towards Japan (Reuters)

Earthquake Shakes Central Italy, at Least 12 Reported Killed (Bloomberg)

Inverse relationship between gold, stocks has never been this extreme (MarketWatch)

Monetary policy has nationalized Japanese stock market, CLSA analyst says (CNBC)

Tiny bead from Bulgaria may be world’s oldest gold artifact (Reuters)

India’s gold smugglers shut out refiners, banks  (Reuters)

Is the EU Volcano About to Erupt? (MishTalk)

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Gold Prices (LBMA AM)

24Aug: USD 1,337.30, GBP 1,010.73 & EUR 1,185.38 per ounce
23Aug: USD 1,338.50, GBP 1,015.25 & EUR 1,181.09 per ounce
22Aug: USD 1,334.30, GBP 1,018.20 & EUR 1,181.26 per ounce
19Aug: USD 1,346.85, GBP 1,026.30 & EUR 1,189.67 per ounce
18Aug: USD 1,347.10, GBP 1,023.93 & EUR 1,190.84 per ounce
17Aug: USD 1,342.75, GBP 1,031.23 & EUR 1,191.96 per ounce
16Aug: USD 1,349.10, GBP 1,039.89 & EUR 1,197.33 per ounce

Silver Prices (LBMA)

24Aug: USD 18.84, GBP 14.23 & EUR 16.70 per ounce
23Aug: USD 18.98, GBP 14.40 & EUR 16.75 per ounce
22Aug: USD 18.91, GBP 14.45 & EUR 16.74 per ounce
19Aug: USD 19.42, GBP 14.80 & EUR 17.14 per ounce
18Aug: USD 19.78, GBP 15.04 & EUR 17.47 per ounce
17Aug: USD 19.57, GBP 15.04 & EUR 17.37 per ounce
16Aug: USD 20.04, GBP 15.43 & EUR 17.77 per ounce


Recent Market Updates

– Germans Warned To ‘Stockpile’ Cash In Case Of ‘War’
– Ireland’s Biggest Bank Charging Depositors – Negative Interest Rate Madness
– Rothchilds Buying Gold On “Greatest Experiment” With Money In “History of the World”
– Gold – “Mother of All Bull Markets Has Only Just Begun” – Grandich
– 45th Anniversary Of Nixon Ending The Gold Standard
– Gold In UK Pounds Collapses 38% Versus Gold and 56% Versus Silver Year To Date
– Will Ireland Be First Country In World To See Bail-in Regime?
– Money “Madness” Negative Interest Rates Sees Gold Buying Surge
– Gold Investment Demand Reaches Record In First Half 2016 On “Perfect Storm”
– Peak Gold – Did Gold Production Peak in 2015?
– Financial Times: “Victory For Gold Bulls Is Only Just Beginning”
– Irish Banks Most Vulnerable In Stress Tests – Banking Contagion In EU Cometh
– Gold In Sterling 2.2% Higher After Bank Of England Cuts To 0.25% and Expands QE

Mark O’Byrne
Executive Director

end

 

For those that missed this yesterday:

The CRIME SCENE IN BROAD DAYLIGHT

(courtesy zero hedge/Chris Powell)

Nobody sells gold like this except to drive the price down in full view

Section:

See Zero Hedge’s report, headlined “Someone Just Puked $1.5 Billion of Notional Gold,” here:

http://www.zerohedge.com/news/2016-08-24/someone-just-puked-15-billion-n…

 

 

end

 

And now today:

gold hit for a second day with options expiry ending this evening.

(courtesy zero hedge)

Gold Slammed For Second Day As COMEX Options Expire

With COMEX option expiration looming, gold is being monkey hammered lower for the second day in a row on heavy volume…

Notably 1300 and 1310 Strikes seem most heavily held…

For now silver is less affected…

With Gold/Silver stabilizing modestly…

John Embry is correct:  the boys cannot support the stock market the bond market and the high real estate prices while at the same time suppress gold/silver. The economy is weakening terribly and thus they cannot support those high prices.

(courtesy John Embry/Kingworldnews)

Stagnant economy won’t support high stock, bond, real estate prices, Embry says

Section:

12:45p ET Wednesday, August 24, 2016

Dear Friend of GATA and Gold:

Sprott Asset Management’s John Embry tells King World News today that the “deep state” is striving to suppress the price of the monetary metals while supporting stocks, bonds, and real estate. But, Embry adds, a stagnant economy won’t support the latter valuations forever. His remarks are excerpted at KWN here:

http://kingworldnews.com/john-embry-warns-the-deep-state-shadow-governme…

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

 

 

end

 

According to Macquarie, gold wins on 3 out of 4 scenarios.  None of the 4 are good for the economy:

(courtesy Schmid/Epoch times)

Gold Wins In Three Out Of Four Scenarios, Macquarie Warns “None Of Them Are Good For The Economy”

Submitted by Valentin Schmid via The Epoch Times,

Warren Buffett claims that gold is worthless because it doesn’t produce anything. Fair point, but what if the other sectors of the economy also stop producing?

“If you think of gold, the only way gold loses is if normal business and private sector cycles come back. If that is the case, gold goes back 100 dollars per ounce. The other outcomes, deflation, stagflation, hyperinflation are good for gold,” said Viktor Shvets, global strategist for investment bank Macquarie Group. So gold wins in three out of four scenarios, but none of the three are particularly appealing. 

He believes aggressive action by the world’s central banks after the financial crisis has covered up a lack of private sector productivity.

Also, the movements of central banks and governments have replaced private sector investment signals such as earnings and employment data. So everything comes down to confidence in central banks.

“If people become more confident, gold will ease back. But when the chickens come home to roost, gold will come back,” he said. Gold futures have rallied 26 percent this year after the Federal Reserve shook confidence in its ability to manage the economy by raising interest rates last December. Junior gold mining stocks, the companies most sensitive to gold price increases rallied 155 percent this year.

Price changes in selected future contracts (Barchart.com)

The lack of success of conventional monetary policies in spurring economic activity has prompted some Fed officials to call for more unconventional methods in case the economy turns south again.

“Conventional monetary policy has less room to stimulate the economy during an economic downturn,” San Francisco Fed President John Williams wrote in an essay.“This will necessitate a greater reliance on unconventional tools like central bank balance sheets, forward guidance, and potentially even negative policy rates. In this new normal, recessions will tend to be longer and deeper, recoveries slower and the risks of unacceptably low inflation…will be higher.” 

Especially the topic of negative interest scares some of the most high-profile money managers. Lord Jacob Rothschild, the chairman of Rothschild Investment Trust, wrote in a letter to clients:

“The six months under review have seen central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world. We are therefore in uncharted waters, and it is impossible to predict the unintended consequences of very low-interest rates, with some 30 percent of global government debt at negative yields, combined with quantitative easing on a massive scale.”

According to Shvets, this may just be the beginning as investors and citizens reject these policies and are looking for alternatives like gold, physical cash, bitcoin, and real estate.

Viktor Shvets, global strategist of Macquarie Group being interviewed by Bloomberg in an undated screenshot. (Bloomberg)

“Bitcoin and gold can both be prohibited by the government. How do you force people to do things they are reluctant to do? The way to do it is to close down alternatives like real estate, cash, and gold. You could force people underground, hoarding cash with warehouse receipts, or warehousing gold illegally,” he said.

In some ways, this is already happening. When a Swiss pension fund asked one of the bigger Swiss banks to pay out a larger amount of cash to save the negative rate penalty, the bank denied the request, according to a report by Schweizer Radio und Fernsehen in March.

Where will all this lead? Shvets believes there has to be reset of the financial system to get rid of a couple hundred trillion dollars of debt. 

“Right now we are still on the U.S. dollar standard. Since the Bretton Woods system ended in 1971, we are on the U.S. dollar standard. How will the monetary system rebase itself? Is it going to be gold, is it going to be a global currency? British economist John Maynard Keynes was already suggesting in 1944 to create a global currency,” said Shvets.

The new global currency could only be the derivative of five international currencies issued by the International Monetary Fund (IMF). It is called Special Drawing Rights (SDR). It represents the right to draw on members of the IMF and get paid in the components of the basket, which is made up of dollar, euro, yen, pound, and as of Oct. 1, 2016, Chinese yuan.

Globalist academics, central bankers, as well as the IMF itself and other international organizations have started amassive publicity campaign in 2016 to push for the SDR as a global currency. It culminated in the first issuance of a private SDR bond worth $2.8 billion by the World Bank in the Chinese bond market in August.

Are we going to have a global currency? “Countries would have to give up their domestic independence. Country’s are reluctant to do that. So usually that’s done after the war,” said Shvets. What about a return to the gold standard? Maybe, but also only after the war. 

 

end

(courtesy Chris Powell/GATA)

Just wait until it’s hypothecated into 145 tonnes

Section:

Australian Prospector Unearths 145-Ounce Gold Nugget

By Timna Jacks
The Age, Melbourne, Australia
Thursday, August 25, 2016

At first glance the small lump in the earth looked like worthless scrap.

On closer examination, the prospector guessed it was the tip of an old horseshoe.

He dug deep into the soil — unearthing 30 centimetres — before finding the unthinkable: Gold — 145 ounces of it — valued at more than A$250,000.

“I really couldn’t believe my eyes,” said the prospector, who wanted to remain anonymous. “It’s like catching a big fish and not knowing what to do with it. Where do we put it? I washed it in water, covered it in aluminum foil, and kept it in my oven on the first night.”

The hobbyist found the “colossal” nugget while scouring Victoria’s Golden Triangle on Friday. …

… For the remainder of the report, including a photograph of the “nugget”:

http://www.theage.com.au/victoria/i-couldnt-believe-my-eyes-victorian-pr…

 

 

end

 


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

 
 

:

1 Chinese yuan vs USA dollar/yuan  DOWN to 6.6594(SMALL DEVALUATION SOUTHBOUND  /CHINA UNHAPPY TODAY CONCERNING USA DOLLAR RISE/MORE $ USA DOLLARS LEAVE CHINA/OFFSHORE YUAN WIDENS TO 6.6673) / Shanghai bourse  DOWN 17.55 OR 0.57%   / HANG SANG CLOSED DOWN 5.83 or 0.03%

2 Nikkei closed DOWN 41.35 OR .25% /USA: YEN FALLS TO 100.40

3. Europe stocks opened  IN THE RED (     /USA dollar index DOWN to 94.66/Euro UP to 1.1289

3b Japan 10 year bond yield: FALLS TO  -.085%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 100.20

3c Nikkei now JUST BELOW 17,000

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

3e WTI::  46.46  and Brent: 48.80

3f Gold DOWN  /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa./“HELICOPTER MONEY” ON THE TABLE 

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund RISES to -.077%   German bunds BASICALLY negative yields from  10+ years out

 Greece  sees its 2 year rate RISE to 7.39%/: 

3j Greek 10 year bond yield RISE to  : 8.06%   (YIELD CURVE NOW  UPWARD SLOPING)

3k Gold at $1324.40-/silver $18.55(7:45 am est)   SILVER FINAL RESISTANCE AT $18.50 BROKEN 

3l USA vs Russian rouble; (Russian rouble UP 35/100 in  roubles/dollar) 64.91-

3m oil into the 46 dollar handle for WTI and 48 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 SMALL DEVALUATION UPWARD from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 100.40 DESTROYING WHATEVER IS LEFT OF OUR YEN CARRY TRADERS

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9649 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0893 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p BRITAIN VOTES AFFIRMATIVE BREXIT

3r the 10 Year German bund now NEGATIVE territory with the 10 year RISES to  -0.077%

/German 10+ year rate BASICALLY  negative%!!!

3s The Greece ELA NOW a 71.4 billion euros,AND NOW THE ECB WILL ACCEPT GREEK BONDS (WHAT A DISASTER)

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 1.550% early this morning. Thirty year rate  at 2.236% /POLICY ERROR)

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

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

HELICOPTER MONEY STILL ON THE TABLE/JAPANESE STIMULUS PLAN DISAPPOINTS

Global Stocks Decline Along With The Dollar, As Jackson Hole Begins

Global stocks declined broadly, led by European equities which fell for the first time this week, suffering their biggest fall in three weeks, while currency markets continued their subdued tone even as the recent 4-day rally in the USD appears to have topped out, as investors took to sidelines ahead of the Jackson Hole meeting which begins tonight. Japanese and Chinese stocks had suffered modest drops in Asia.  S&P 500 Index futures slipped 0.2%, continuing yesterday’s modest selloff.

Stubbornly low oil prices and warnings about steel demand kept the pressure on miners, while pharma stocks were also hit with traders citing social media comments from U.S. presidential candidate Hilary Clinton chastising EpiPen price hikes

A rally that’s driven global equities to their highest level in a year has petered out as the prospect of higher U.S. rates risks thwarting efforts by other central banks to stimulate growth by cutting borrowing costs. While German business confidence dropped to the lowest level in six months in August, a U.S. report on Thursday will probably show a pickup in durable goods orders.

Once again, all attention remains focused on the Jackson Hole symposium which begins tonight with a speech by the Kansas Fed’s George. “There is renewed caution ahead of Yellen’s appearance at Jackson Hole tomorrow,” said Michael Ingram, a market strategist at BGC Partners in London. “It won’t take a great deal for sentiment to turn from glass half full to glass half empty.” Michael Hewson of CMC Markets said that “there is basically just a bit of risk aversion ahead of Jackson Hole. I think expectations are way too high, though, I don’t think Yellen sets as much importance on Jackson Hole as Ben Bernanke did.”

Equity markets retreated in Europe after the August Germany IFO data fell, printing weaker than survey estimates, which called for increases; the drop was broad-based, across business climate, current assessment and expectations components.  “Business confidence in Germany has clearly worsened,” Ifo head Clemens Fuest said in a statement. “The German economy has fallen into a summer slump.”

Iron ore fell on the prospect of shrinking steel production in China and crude oil traded near a one-week low. The Bloomberg Dollar Spot Index snapped a four-day winning streak as investors await comments by Federal Reserve Chair Janet Yellen at a symposium in Jackson Hole, Wyoming, on Friday.

In Asian equities, Japan’s Nikkei ended down 0.3 percent following on from losses on Wall Street overnight. Chinese stocks fell 1 percent to extend their slide this week as investors took profit on recent red hot property shares which dropped 2 percent. Banks stumbled too ahead of earnings and a crackdown on some lending practices. “The whole (property) sector had surged more than 20% at one point this month, and falls in share prices this morning were purely a result of investors’ trading strategy as they want to lock in profits,” said Joe Qiao, a Shanghai-based analyst at Xiangcai Securities.

Europe’s Stoxx 600 slid 0.8% in early trading. Glencore Plc and Anglo American Plc led a gauge of miners to the worst performance on the equity gauge as iron ore retreated. Total SA dragged energy producers lower as oil held near its lowest close in a week. Jimmy Choo Plc jumped 5.3 percent after the maker of luxury shoes posted higher first-half revenue and earnings and said it remains optimistic on this year’s prospects. CRH Plc rose 2.6 percent after the Irish construction company posted higher-than-expected first-half sales and profit.

S&P 500 Index futures slipped 0.2%, after a late selloff in drugmakers helped drag U.S. equities down 0.5 percent on Wednesday. HP Inc. dropped 6.7 percent in early New York trading after the seller of personal computers and printers forecast fiscal fourth-quarter profit that may fall short of analysts’ estimates.

West Texas Intermediate crude rose 0.3% to $46.89 a barrel on the back of the dollar’s modest decline. It dropped 2.8% in the last session as data showed U.S. inventories unexpectedly rose last week.

2Y Treasuries were little changed with their yield at a two-month high of 0.76%. The securities are the cheapest they’ve been relative to 30-year notes since the start of 2008 following a run of hawkish comments from Fed officials including Vice Chairman Stanley Fischer and the heads of the New York and San Francisco branches. The rate on 10-year Treasuries fell one basis point to 1.55%. Fed fund futures indicate a 54 percent chance of a U.S. interest-rate hike this year, up from 36 percent at the start of August. The yen was little changed at 100.37 per dollar and South Korea’s won gained 0.6 percent.

* * *

Market Snapshot

  • S&P 500 futures down less than 0.2% to 2171
  • Stoxx 600 down 0.6% to 343
  • FTSE 100 down 0.2% to 6819
  • DAX down 0.6% to 10556
  • German 10Yr yield up less than 1bp to -0.08%
  • Italian 10Yr yield up 2bps to 1.14%
  • Spanish 10Yr yield up less than 1bp to 0.94%
  • S&P GSCI Index up 0.2% to 362.3
  • MSCI Asia Pacific up 0.1% to 139
  • Nikkei 225 down 0.2% to 16556
  • Hang Seng up less than 0.1% to 22827
  • Shanghai Composite down 0.6% to 3068
  • S&P/ASX 200 down 0.4% to 5542
  • U.S. 10-yr yield down less than 1bp to 1.55%
  • Dollar Index down 0.19% to 94.61
  • WTI Crude futures up 0.6% to $47.04
  • Brent Futures up 0.5% to $49.29
  • Gold spot up less than 0.1% to $1,325
  • Silver spot up 0.5% to $18.64

Global Headline News

  • Apple’s Cook Reaped $373m in Stock in Five Years as CEO: He met his performance goal of beating two-thirds of S&P 500. About half of Cook’s original grant has vested so far
  • Nordea Plans More Synthetic Swaps After Doing $9.5b Deal: Scandinavia’s biggest bank says it’s planning to do more deals to remove risk from its balance sheet through synthetic swaps after completing the region’s first such transaction.
  • Shanghai Said to Plan More Curbs to Cool Home, Land Prices: City to hold meetings to discuss stepped-up cooling measures
  • Mobius Says Helicopter Money Will Be Japan’s Next Big Experiment: Templeton investment guru sees BOJ acting after more yen gains
  • High-Speed Trader IMC Under China Stock-Index Futures Probe: Dutch firm is in discussions with regulator, says spokesman
  • European Health Stocks Fall on Negative U.S. Drug Price Comments: SXDP falls as much as 2.3%, the most since June 24, with all but two members declining.
  • As Welspun Awaits Wal-Mart Review, Investors Brace for Worst: Target cuts ties to supplier over cotton sheet product claims
  • Alipay Owner Said to Plan Hong Kong IPO in 1H 2017: Ant Financial’s Shanghai listing said to face hurdles

Looking at regional markets, Asian stocks traded in a choppy fashion with participants cautious ahead of the Jackson Hole symposium and following the weak lead from Wall St. in which commodities were pressured and gold shed USD 13/oz. The downbeat tone saw Nikkei 225 (-0.3%) and ASX 200 (-0.4%) open lower, with weakness in energy adding to the glum after WTI fell below USD 47/bbl in the wake of an unexpected build in DoE Inventories, however markets then recovered from their lows amid widespread indecisiveness. Chinese markets were also subdued with the Shanghai Comp (-0.6%) underperforming after dismal earnings from large industry names including PetroChina, CNOOC and Citic Securities, while the Hang Seng (0.0%) was resilient and recovered from early losses to return flat. 10yr JGBs were marginally higher amid the cautiousness seen across stocks, while at today’s enhanced liquidity auction for 10yr, 20yr and 30yr attracted a greater number of bids vs. the prior month.
Japanese PPI (Jul) Y/Y 0.40% vs. Exp. 0.10% (Prey. 0.20%); highest reading in 10 months. PBoC injected CNY 140bIn in 7-day reverse repos and CNY 80bIn in 14-day reverse repos; which is the 2nd consecutive day the PBoC utilised 14-day reverse repos after a 6-month halt. PBoC set CNY mid-point at 6.6602 (Prey. 6.6420).

Top Asian News

  • Shanghai Said to Plan More Curbs to Cool Home, Land Prices: City to hold meetings to discuss stepped-up cooling measures
  • Mobius Says Helicopter Money Will Be Japan’s Next Big Experiment: Templeton investment guru sees BOJ acting after more yen gains
  • High-Speed Trader IMC Under China Stock-Index Futures Probe: Dutch firm is in discussions with regulator, says spokesman
  • Alipay Owner Said to Plan Hong Kong IPO in 1H 2017: Ant Financial’s Shanghai listing said to face hurdles
  • Galaxy’s Profit Beats Estimates as New Resorts Woo Tourists: Quarterly profit up 22% on Galaxy Macau expansion, Broadway
  • Monsanto Withdraws GMO Cotton Seed Application in India: Application pulled because of “regulatory uncertainties”

In Europe, equities are trading in the red as traders and analysts await the outcome from the Jackson Hole Symposium. Adding to the negative sentiment, German IFO data added to the subdued start to the session with equities trading lower (Euro Stoxx -1%) and the DAX (-1.3%) is the major laggard as the as stronger EUR weighs on the exporting names in the index. The worst performing sector this morning is healthcare, after Hilary Clinton stated that the price of Mylan’s Epipen was too high and needed to be reviewed. In terms of fixed income markets, there has been not too much supply of Europe, while Bunds have failed to benefit from the downside in equities and continue to trade within a tight range.

Top European News

  • Nordea Plans More Synthetic Swaps After Doing $9.5b Deal: Scandinavia’s biggest bank says it’s planning to do more deals to remove risk from its balance sheet through synthetic swaps after completing the region’s first such transaction.
  • European Health Stocks Fall on Negative U.S. Drug Price Comments: SXDP falls as much as 2.3%, the most since June 24, with all but two members declining.
  • BMW, Daimler Downgraded; Peak Auto Demand in Sight, Redburn Says: Market has been anticipating peak auto demand for 18 months, growing evidence this peak is now visible, Redburn analysts write in note. BMW stock down 1.9%, Daimler down 1.8% at 10:04am in Frankfurt, vs Stoxx 600 down 1%

In FX, The Bloomberg Dollar Spot Index declined 0.1 percent, after climbing 0.8 percent over the last four trading sessions. “The market’s just trying to get through the whole event risk” of Yellen’s speech, said Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia. “But after that, what’s driving the market is back to the search for yield and it’s good for emerging markets in general.” Emerging markets rebounded, with South Africa’s rand leading gain, advancing 0.7 percent. South Korea’s won strengthened 0.6 percent and Turkey’s lira rose 0.5 percent. Currencies tumbled on Wednesday as political and security concerns resurfaced in South Korea, South Africa and Turkey. A JPMorgan Chase & Co. gauge that measures the volatility of developing-nation currencies was the highest since July 6. The flare-ups eroded returns on carry trades, borrowing where interest rates are relatively low and investing the proceeds where they are higher. Turmoil in South Africa’s leadership sent the rand tumbling, cutting the return on this quarter’s best carry trade in half from 10 percent.

In commodities, West Texas Intermediate crude rose 0.3 percent to $46.89 a barrel. It
dropped 2.8 percent in the last session as data showed U.S. inventories
unexpectedly rose last week. Iron ore dropped 2.8 percent in Singapore after Li Xinchuang, a vice chairman at the China Iron & Steel Association, said falling steel production in China should weigh on prices for the raw material. The price is still up by about 40 percent for the year.  Gold was little changed at $1.324.17 an ounce, after sliding 2.1 percent over the last four days.

Bulletin Headline Summary from RanSquawk and Bloomberg

  • The Jackson Hole Symposium remains firmly in focus, with European equities experiencing downside this morning with a softer than expected German IFO survey
  • FX markets remain in a tight range as August trade continues and European newsflow remains light
  • Looking ahead, German IFO, US weekly job report, Services PMI, Durable Goods and the Jackson Hole Symposium begins
  • Treasuries show upside bias in overnight trading amid global equity weakness, while crude oil still trades below $47/bbl; Treasury concludes this week’s auctions with sale of $28b 7Y notes, WI 1.400%.
  • German business sentiment unexpectedly declined the most in more than four years in August in a sign that companies took some time to weigh the consequences of Britain’s decision to quit the EU
  • China’s central bank watchers have something new to puzzle over. The PBOC sold 50 billion yuan ($7.5 billion) of 14-day reverse-repurchase agreements on Wednesday, its first offering of anything with a tenor other than seven days since February
  • The world’s biggest bond traders are getting fed up with Fedspeak as weeks of conflicting economic reports have whipsawed investors seeking to handicap the path of interest rates
  • Not everyone’s a fan, but Thomas Jordan has little choice when it comes to negative interest rates. Since his principal headache is the exchange rate, they’re the best available tool — along with currency interventions — for the SNB
  • Recent flare-ups in political risk in emerging markets weakened their currencies and helped send returns on carry trades tumbling from the highest in a year
  • Scandinavia’s biggest bank says it’s planning to do more deals to remove risk from its balance sheet through synthetic swaps after completing the region’s first such transaction
  • U.S. companies feeling pain in short-term debt markets are seeking relief by borrowing longer term, pushing already- high levels of corporate bond issuance toward fresh records

US Event Calendar

  • 8:30am: Durable Goods Orders, July P, est. 3.4% (prior -3.9%)
  • 8:30am: Initial Jobless Claims, Aug. 20, est. 265k (prior 262k)
  • 9:45am: Markit US Services PMI, Aug. P, est. 51.8 (prior 51.4)
  • 9:45am: Bloomberg Consumer Comfort, Aug. 21 (prior 43.6)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Kansas City Fed Manufacturing Activity, Aug., est. -2 (prior -6)
  • 6:30pm: Fed’s George speaks at Jackson Hole conference

* * *

DB’s Jim Reid concludes the overnight wrap

Markets continue to behave like they’ve eaten too much cake and need to lie in the corner and do nothing in order to recover. Inactivity rules. However a late day US sell-off after a notable fall in oil and also the wider commodity complex, along with the prospects of Yellen’s speech tomorrow are at least giving us something to discuss.

Indeed the S&P 500 closed -0.52% yesterday which is actually the fourth biggest move up or down this month. Still, it marked the 33rd consecutive session that the index has failed to break +/- 1%. The excitement came in Oil again though where WTI tumbled -2.77% and back below $47/bbl. A surprise pick up in US crude inventories took the blame although it was actually a broadly weaker day all round in commodity markets. Gold and Silver slumped -1.00% and -1.41% respectively while it was a similar story for base metals with Aluminium (-1.38%), Copper (-1.66%) and Nickel (-2.63%) all sharply lower. It was hard to gauge what was driving that weakness although the USD did rebound after a couple of stagnant sessions which perhaps weighed on metals.

All in all though it was largely a day for single news stories rather than any broader macro themes. Healthcare names across the pond where under pressure following a tumble for Mylan shares (-5.45%). That came after Presidential candidate Hilary Clinton commented on the rising drug prices debate in Washington, referring specifically to the furor over EpiPen price increases. The Nasdaq BioTech index slumped -3.37% as a result while the broader Nasdaq composite index was -0.81%. Another interesting stat is that the Nasdaq index has now gone 41 consecutive sessions without declining for two consecutive days. That is the longest such streak since 1978.

In contrast to markets across the pond, it was actually a broadly stronger session in Europe with the Stoxx 600 closing +0.39% as financials once again led the charge (Stoxx 600 Banks +2.00%). The Bank index is quietly back to within just 7% of its pre-Brexit level having at one stage been down as much as -23%. The one caveat to the stronger performance in Europe yesterday was the UK where the FTSE 100 fell -0.48% after Glencore fell -3.06% following its latest earnings report.

Staying with the U.K., yesterday our economics team put out a fascinating report yesterday boldly predicting a UK Industrial Revolution 2.0. The premise for the report is that Brexit is a structural shock. Monetary policy is unsuitable to deal with this and Theresa May’s government is already laying the organisational groundwork for a more suitable response – an industrial strategy. Governments here and abroad have tried this before. What’s different this time? There is a better opportunity for the UK today. There is a confluence of events that should increase the success of an industrial strategy. First, a clear,  comprehensive and most importantly committed plan should help counterbalance Brexit-related uncertainties. Second, sterling has depreciated and will fall further. Production costs are already low in the UK. A good industrial policy can cement these benefits. Third, public sector funding costs are low and QE has re-started. We should probably view the Chancellor’s “reset” of UK fiscal policy through the lens of the industrial strategy.

In our opinion the UK does have a unique opportunity to reset policy that is not necessarily as easy for other countries. Brexit provides the perfect excuse to change course. It could all still go wrong but there is an opportunity. Back to yesterday, the other interesting news story came in emerging markets and specifically in South Africa where Finance Minister Pravin Gordhan reportedly refused to heed to police over allegations regarding his actions when he ran the national tax agency. After falling 3% on Tuesday after Gordhan had been issued with a warning statement, the South African Rand was down another 1% yesterday and is at the lowest level since July 28th.

Elsewhere Treasury markets were a touch weaker but continue to trade in a super tight range. Apologies to our readers for the absence of the chart in the PDF as promised yesterday. We’ve added it today and as a reminder it shows the monthly 10y Treasury range which is currently at its lowest for a decade. We’ll see if Yellen changes this tomorrow.

Looking at markets this morning that weaker tone on Wall Street last night is generally weighing on the Asia session, while Oil is also holding that decline from yesterday. The Nikkei (-0.25%), Shanghai Comp (-0.86%), ASX (-0.08%) and Kospi (-0.23%) are all in the red, while the Hang Seng is little changed. FX markets are generally lacking any obvious direction while sovereign bond markets are flat.

With regards to the data flow yesterday, in the US existing home sales were weaker than expected in July (-3.2% mom vs. -1.1% expected) resulting in a drop in the annualized rate to 5.39m from 5.57m. It was actually the first monthly drop in sales since February with the blame seemingly being put on a lack of inventory. The other data out in the US yesterday was the FHFA house price index for June which rose +0.2% mom.

In Europe the sole release came in Germany where we got confirmation that Q2 GDP grew +0.4% qoq and +1.8% yoy. Our Europe economists noted however that the details were weaker than the solid headline suggests. Net exports compensated for a small decline of final domestic demand, but only due to tumbling imports. Investment growth was weaker than expected. They believe that payback to strong Q2 net exports will weigh on Q3 GDP, while domestic demand should pick up again. Still, they have toned down their outlook for the next couple of quarters taking account of muted external demand weighing on sentiment, weaker than expected wage dynamics lifting real income gains and a slower than expected refugee influx.

In terms of the day ahead, the early data this morning will come from France where the August confidence indicators are due out. Shortly following that Germany will release its August IFO survey where a modest improvement in the headline business climate reading is expected which would be consistent with what the PMI’s largely showed. Later this morning the UK will then release the CBI Distributive Trades Survey which will present another post-Brexit indicator. This afternoon in the US the main data of note is the flash durable and capital goods orders report for July. Market expectations are for a +3.4% mom increase in headline durable goods orders thanks to firmer aircraft orders, while core capex orders are expected to rise a more modest +0.2% mom. Elsewhere, the latest weekly initial jobless claims reading is due along with the remaining US flash PMI’s (services and composite) and finally the Kansas City Fed’s manufacturing survey.

 

ASIA MARKETS

i)Late  WEDNESDAY night/THURSDAY morning: Shanghai closed DOWN 17.55 POINTS OR 0.57%/ /Hang Sang closed DOWN 5.83 points or 0.03%. The Nikkei closed DOWN 41.35 POINTS OR 0.25% Australia’s all ordinaires  CLOSED DOWN 0.36% Chinese yuan (ONSHORE) closed DOWN at 6.6594/Oil FELL to 46.56 dollars per barrel for WTI and 48.80 for Brent. Stocks in Europe: in the RED  Offshore yuan trades  6.6673 yuan to the dollar vs 6.6594 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE NARROWS HUGELY AS  MORE USA DOLLARS ATTEMPT   LEAVE CHINA’S SHORES  

FIRST  REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) JAPAN ISSUES

b) REPORT ON CHINA

In China the biggest and most important asset class is housing and the guys who finance much of the housing is Peer to Peer lending.  Now the authorities are trying to clamp down and limit or cap this lending. In response to the new rules, China’s leading on line peer to peer plunged by 22%.

this will not end well….

(courtesy zero hedge)

China’s “Answer To LendingClub” Plunges Most On Record After Regulator Imposes Peer-To-Peer Caps

Over the years, China has valiantly struggled to convince the international public it will end its debt addiction any minute now, with the Politburo vowing year after year that it would if not delever in the immediate future, then surely limit the issuance of household loans. So far, every such attempt has been a failure, for one simple reason: as goes China’s debt, so goes the most important asset in China’s economy, its housing stock.

So while there are ample reasons to be skeptical, overnight China’s Banking Regulatory Commission unveiled its latest attempt to halt the country’s relentless debt load when it imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks in one part of the loosely-regulated shadow-banking sector. An individual can borrow as much as 1 million yuan ($150,000) from P2P sites, including a maximum of 200,000 yuan from any one site, the CBRC said in Beijing on Wednesday. Corporate borrowers are capped at five times those levels.

The regulator added, in what we doubt was an attempt to reassure industry watchers, that China had found problems in 1,778 online lending platforms, accounting for 43.1% of total.

China’s authorities are rightfully concerned about defaults and fraud among the nation’s 2,349 online lenders. In December, the country’s biggest Ponzi scheme was exposed after Ezubo, which until then had been China’s largest P2P lender, defrauded more than 900,000 people out of the equivalent of $7.6 billion and promptly folded (the response was hardly enthusiastic, as we revealed in a clip from February.)

The measures will probably leave about 200-300 P2P platforms by this time next year, said James Zheng, chief financial officer of Lufax, the top lending platform in China. “That’s okay because they’re cracking down on all the bad guys,” he said at a conference in Hong Kong. “What doesn’t kill will make you stronger. That’s the case for us.” Good luck.

Under the new rules, P2P lenders are barred from taking public deposits or selling wealth-management products and must appoint qualified banks as custodians and improve information disclosure.

“The P2P business is not very strictly regulated yet, but you can see the regulator is taking a step forward,” said Xu Hongwei, chief executive officer of Shanghai-based Yingcan Group, which tracks the industry. Products offered by P2P platforms in China can include anything from loans for weddings, guaranteed against the cash gifts that couples expect to receive, to high-yield lending for risky property or mining projects.

As Bloomberg notes, China’s P2P industry brokered 982 billion yuan of loans in 2015, almost quadruple the amount in 2014 and an approximately 10-fold increase from 2013, according to Yingcan. P2P firms attracted more than 3.4 million investors and 1.15 million borrowers in July, with loans extended at an average interest rate of 10.3 percent, according to Yingcan. Still, despite its torrid growth, P2P lending is still a tiny fraction of the overall loan market, and certainly of the broadest Total Social Financing universe, which infamously saw $1 trillion dollar in aggregate new loans created in the first quarter of 2016, providing a global credit impulse, which has since faded.

In any case, it appears that in this particular case, China is eager to halt this problem before it becomes too big. In April, China’s cabinet launched a campaign to clean up illicit activities in Internet finance, focusing on areas such as third-party payments, peer-to-peer lending, crowdfunding and online insurance. It suspended the registration of all new companies with finance-related names.

And we have our doubts that this latest “debt cap” will last, because earlier today, Peer 2 Peer lender Yirendai, the company which Bloomberg has dubbed “China’s answer to LendingClub” plunged 22%, the most on record since its December 2015 IPO, on massive volume, following yesterday’s imposed P2P limits. For a sense of scale, YRD created some $680 million in loans in Q2, up 118% Y/Y, with net revenue more than doubling to $110 million, or 140% Y/Y.

Needless to say, the company acts, and is priced like, a growth stock. The problem, as the chart below shows, is that the growth suddenly stopped.

Furthermore, if the company is indeed China’s answer to the recently devastated LendingClub, this is just the beginning, as the bubble has now popped with a little help from the government.

So will the CBRC relent, and lift the caps? It depends on just one thing, the only thing that the politburo is more worried about than asset bubbles – social unrest.

If enough people protest, get angry or downright violent as a result of the collapse in P2P stocks, and eventually, the entire industry, or simply are unable to obtain loans elsewhere should the industry falter, then Beijing will promptly undo what it has done. Until then, however, keep an eye on risk levels in China, where suddenly the most permissive marginal source of lending – and this risk asset upside –  was just advised ordered to go into a state of near hibernation.

 

end

EUROPEAN AFFAIRS

Whenever you see the CEO of Deutsche bank warn of “fatal consequences” for savers, you know that they are in trouble because of negative interest rates and of course their huge derivative plays:

(courtesy zero hedge)

Deutsche Bank CEO Warns Of “Fatal Consequences” For Savers

Deutsche Bank’s war of words with the ECB is not new: it was first unveiled in February when, as we wrote at the time “A Wounded Deutsche Bank Lashed Out At Central Bankers: Stop Easing, You Are Crushing Us.” Europe’s largest bank, with the massive derivatives book, then upped the ante several months later in June, when its chief economist Folkerts-Landau launched a shocking anti-ECB rant inwhich it warned of social unrest and another Great Depression.

Ironically, these infamous diatribes hurt more than helped: telegraphing to the market just how hurt DB was as a result of the ECB’s monetary policy, the market punished its stock, which has been recently trading within spitting distance of all time lows, in effect making Deutsche Bank’s life even harder as it now has to contend not only with its own internal profitability problems, but also has to maintain a market-facing facade that all is well. So far, it has not worked out very well, prompting numerous comparisons to another infamous bank.

So, in what may have been DB’s loudest cry for help against the ECB’s unwavering commitment to rock-bottom interest rates, the bank’s CEO, John Cryan, warned in a guest commentary ahead of the Handelsblatt Banking Summit titled, appropriately enough “Banks in Upheaval”, to be held in Frankfurt on August 31 and September 1, that “monetary policy is now running counter to the aims of strengthening the economy and making the European banking system safer.

However, his most striking warning was not aimed at Mario Draghi, but at Germany itself – and ostensibly his own clients – implicitly suggesting that if Deutsche Bank goes down it is taking everyone down with it, when, as cited by Bloomberg, he warned of “fatal consequences” for savers and pension plans while “companies refrain from investments due to ongoing uncertainty and demand less loans.”

The details are known to those who have followed the paradox of central bank failure – if only for the economy and ordinary people –  summarized earlier today by Citi’s Matt King.

Quoted by Handelsblatt, Cryan warned that “the ECB’s policy is squeezing the margins of Europe’s struggling banks, making it harder for insurers to find profitable investments and dangerously distorting financial market prices.” Meanwhile, he added, the hoped-for benefits haven’t materialized. “Given the continued uncertainty, companies are holding back on investments and are hardly seeking any credit anymore,” he wrote.

He added that it was unacceptable that financial regulators demanded that banks increase their safety cushions but then imposed punitive interest rates on these additional reserves.

Many agree with Cryan:”The hoped for pan-European investment boost hasn’t happened, and neither have the expected structural reforms in the affected euro member states,” said Georg Fahrenschon, president of the German Savings Bank Association. Instead, uncertainty is growing throughout the euro zone in light of the “horrendous sums of money the ECB is now directly pumping into the markets,” he added.

While Cryan admits that the ECB’s intervention did avoid an all out collapse in Europe it has done so at extreme costs, like negative rates on most German debt. Which is why, Cryan writes it is high time for a change in direction at the ECB. He would say that: his bank is in the midst of a painful restructuring and battling to keep the confidence of investors, so the side effects of the ECB’s policy are causing it particular pain. That’s one reason why Mr. Cryan is particularly critical of the negative interest rate on bank deposits at the ECB. He said net interest income, traditionally the most important pillar of bank earnings in the euro zone, had fallen by 7 percent since 2009.

Martin Lück, strategist at Blackrock, the world’s largest asset manager, agrees with Cryan and fears that the ECB’s actions are having the opposite effect of the spending spree intended. With interest rates falling, people have to save more rather than less to secure their pensions. And the punitive banks are weakening banks and forcing them to curb their lending, he said. Insurers and pension funds were also being hit because they had to enter ever higher risks to secure returns on their investments. This has become evident with the slide in yields into negative territory on many sovereign bonds including 10-year German government paper. These securities are the backbone of the insurers’ investments.

Private investors face the same problem. If they don’t want to take higher risks, for example by investing in stocks, “then they must save substantially more than before to secure their pension,” said Frank Engels, head of fixed income fund management at Union Investment.

Meanwhile, the beneficiaries of the ECB’s asset reflation policy are few: only around nine million Germans own stocks, just over 10 percent of the population. The risk is now that savings will lie dormant in bank accounts without earning interest. Germany’s central bank, the Bundesbank, has calculated that Germany had a savings ratio of 9.7 percent for 2015, the highest level since 2010, and it’s likely to rise further in 2016. In the first quarter it was up 0.2 percentage points above the year-earlier level.

Worse may come if Cryan’s fatalistic warning comes true: after all, few CEOs ever talk of “fatal consequences”, especially since the context of these words has become so very clear.

* * *

So what, according to the CEO, is the only lifeline available to European banks, and to savers, in Europe? In his guest comment, Cryan said that an EU banking union was an important step that should be followed by a capital markets union, which become more important in order to provide the much needed funding for companies as banks shrink their balance sheets. In short, a continent-wide backstop system.

The warnings for savers could not be any clearer.

END

 

 

 

It sure looks like this will become a black swan.  The ECB continues to purchase the bonds of Portugal despite these guys being a basket case similar to Greece.  The only rating agency that gives it investment grade is the tiny Dun and Bradstreet.  If they downgrade then all rating agencies are non investment grade and the ECB must:

1. sell all Portuguese bonds in their possession

2  not purchase any Portuguese bonds

then Portuguese bonds will yield 10 -12% and totally annihilate the banks

(courtesy zero hedge)

Is Portugal The Next “Shoe To Drop” In Europe?

The fate of Portugal rests in the hands of DBRS, the last remaining credit rating agency assigning an investment grade rating to its sovereign debt (Fitch, Moody’s and S&P have all lowered the country’s debt rating to junk).  Due to a requirement that participant countries have an IG rating from at least 1 rating agency, the DBRS rating is literally the only thing allowing Portugal’s bonds to remain eligible for the European Central Bank’s 1.7 trillion euro bond buying program.  DBRS is set to update its Portugal rating on October 21 and investors in Portugal sovereign risk are starting to get a little nervous.

Portugal 10 Year

Until last week there seemed to be little worry about a potential downgrade among investors.  That changed when the release of 2Q 2016 GDP showed minimal growth.  Fergus McCormick, head of sovereign ratings at DBRS, recently noted in an interview with Reuters that although Portugal’s debt carries a “stable” rating that the situation appears to be deteriorating.

Friday’s Q2 GDP release (which showed growth at just 0.2 percent) raised our concerns about growth prospects, which appear to be slowing into the third quarter,” he told Reuters in an interview.

“Therefore, the outlook remains stable, but pressures appear to be mounting from these various fronts,” he added, also citing European Commission demands that an unwilling Lisbon implement more spending cuts.

DBRS’s October review will come just a week after Portugal is scheduled to provide the Commission with a list of those new cuts to get its budget deficit back under 3 percent of GDP.

Uncertainties over the make-up of those measures and their impact on the delicate political balance were a concern McCormick said, as was the possibility that more taxpayer money may be needed to prop up banks including Caixa Geral de Depositos and BCP.

“Will the far-left parties support these two initiatives? This is unclear.”

The socialist minority government that came to power in November 2015 has not helped the situation by raising the minimum wage, increasing the number of public holidays and reversing other key reforms, that will make it more difficult for the country to meet its EU fiscal targets.  To be sure, the collapse in oil prices have indirectly taken a toll on Portugal as well with exports to it’s 4th largest trading partner, Angola, falling by 42% in the first half of 2016.

As we said yesterday in a post entitled “Something “Unexpected” Happened When Seattle Raised The Minimum Wage“:

Seemingly no amount of empirical evidence can convince progressives that raising minimum wages to artificially elevated levels is a bad idea.  Somehow the basic idea that raising the cost of a good ultimately results in lower consumption of that good just doesn’t compute.

Though it does seem odd that progressives in states like California lean heavily on higher taxes as a way to curb, for example, fuel consumption.  Could it be that the left actually does understand the basic economics of the minimum wage debate but don’t find the math behind it to be particularly “politically expedient” in certain instances?

Seems that politicians will stick to their narratives even when faced with the collapse of their country’s economic well being.

 

end

 

I have highlighted this commentary due to the huge bubble in the bond sector due to massive QE by just about everybody. Correctly Stockman describes the bond scene has basically a volcano of uncollectible capital gains.

However  I really want you to pay attention to the Bremen convertible bond issue of Germany which collapsed last week because the shipping industry that they cater to is basically in severe trouble

 

(courtesy David Stockman/ContraCorner)

Bubbles In Bond Land—-A Central Bank Made Mania, Part 3

The Giant Volcano Of Uncollectible Capital Gains In Global Bond Markets

…….In short, the global bond market has become a giant volcano of uncollectible capital gainsFor example, long-term German bunds issued four years ago are now trading at 200% of par.

Yet even if the financial system of the world somehow survives the current mayhem, the German government will never pay back more than 100 cents on the dollar.

What that means is there will eventually be a multi-trillion dollar bond implosion as speculators and bond fund managers alike scramble to cash-in their capital gains at the first sign that the global bond markets are breaking and heading back to par or below. And it is not just the “winners” who will be stampeding for the exists.

There will also be an even larger and sorrier band of “losers” in an even greater state of panicked flight. We refer here to all the Johnny-come-lately bond managers on the planet who are today buying trillions of bonds at a premium to par. For example, the premium price of the 4% coupon Italian bonds that have traded up to a 1.2% yield owing to Mario Draghi’s $90 billion per month buying spree will get absolutely monkey-hammered when the ECB’s Big Fat Bid finally ends.

To be sure, these befuddled money manages claim to have no choice or that these premium bonds still have a slightly better yield than subzero. Yet what they are actually doing is strapping on a financial suicide vest. These premiums absolutely must disappear before maturity, and most probably suddenly, violently and all at once when the great global bond bubble finally implodes.

Likewise, there is nearly $3 trillion of junk bonds and loans outstanding in the US alone, and that is double the level extant on the eve of the great financial crisis. But double the money embodies far more than double the risk.

That’s partially because the drastic, central bank induced compression of benchmark bond yields has been transmitted into ultra-low absolute levels of junk bond yields via spread pricing. Compared to all of modern history, current junk bond yields in the 5-6% range are just plain ridiculous.

After all, long-term junk bond losses have been in the 3-4% range, inflation is still running close to 2% on a trend basis and taxes have not yet been abolished. So the sheer math of it is that the average single B junk bond today has negative value——and that’s before the next default cycle really kicks into gear..

And junk bond defaults like never before in history are coming with a vengeance. That’s because a very substantial portion of current junk credit outstandings went into speculations that even LBO shops wouldn’t have entertained 15 years ago.

To wit, it was used to fund radical commodity price speculations in the shale patch, mining and other commodity plays, subprime auto lending schemes and financing for stock buybacks and dividend recaps by highly leveraged companies. Accordingly, the embedded business and credit risk in the $3 trillion of outstanding US junk bonds and loans is off the charts.

BofA Merrill Euro High Yield Index 2016

Already by mid-year 2016, defaults in the shale patch had taken down 40% of outstandings. Even cautious rating agencies like Fitch now project high yield bond defaults will hit nearly $100 billion in 2016 or double last year’s already elevated levels.

But as usual the rating agencies are far behind the curve. Standard and Poor’s, for example, projects that by June 2017 today’s rapidly rising defaults will only hit the 4-7% range. But they are smoking the same thing they were in 1989, 1999, and 2007!

In fact, the junk bond sector will soon be hit by a double whammy that will push loss rates to unprecedented levels. That’s because there is already a deeply embedded loss due to the distortions of ZIRP/NIRP on benchmark bond pricing. When the central banks of the world are eventually forced to shut down their printing presses and permit rates to normalize, these losses will be transmitted across the entire credit spectrum.

On top of that, the massive global deflation/ recession currently unfolding means defaults will easily soar far above the prior 11-12% peaks. And the next peak default cycle will last far longer than the historic results shown in the chart because this time the central banks will not be in a position to reflate the bond and other financial markets.

The prior default peaks shown below are part of the two-decade long super-cycle of global credit and investment growth. Each junk bond market break was quickly reversed by successive rounds of central bank money printing.

But the world economy is now stranded at Peak Debt and the central banks are out of dry powder. The latter have reached the limits of subzero rates, the credibility of QE is fading fast and Bernanke’s fleet of helicopter money drops will never get off the ground in the US or Germany, and that’s mainly what matters.

So this time recessionary conditions will persist and the implied revenue growth in most junk bond deals will never happen. The resulting cumulative build-up of cash flow shortfalls, therefore, will be immense. This means that a far larger share of issuers will eventually default—-especially given the elevated credit risk already embedded among commodity oriented issuers.

Moreover, as the junk bond default rate continues to rise, the “extend and pretend” market, which has forestalled defaults in the last few cycles, will also dry-up.   Consequently, hidden defaults will finally come to the surface and issuers will resolve their inability to pay in the bankruptcy courts, not in the junk refinancing markets.

Financial Explosive Devices (FEDs) And The Coming Financial Carnage

Yet the junk bond sector is only a small section of the coming bond market carnage. The scramble for yield generated by central bank financial repression, in fact, has systematically impregnated the global markets with FEDs (financial explosive devices).

Even as approximately 200 principal central bankers and senior staff have spent the last seven years pushing interest rates toward the zero bound or below, there have been millions of financial operators and capital users scouring the earth for ways to escape it.

Recently, one of these zero bound escape routes blew sky high when the 9.5% contingent convertible bond of 2049 issued by an obscure German bank, Bremer Landesbank (BLB), plunged by 40% from 120 to 73 in just minutes—–a move which has, in turn, spooked broader global markets.

It turns out that Bremen LB is a $29 billion German state-owned bank heavily invested in shipping loans that is now facing massive write downs and the need to raise capital from its principal owners—-German Landesbank NordLB, the city of Bremen, and the savings banks association in Northrhine Westphalia.

Here’s the thing. All the parties involved had stumbled into risk that extended way over the end of their financial skis. Indeed, the cliff diving bonds shown below were at the very end of a long chain of mispricings emanating from today’s central banking regime.

It originated awhile back when central banks made cheap debt available to households in the US and Europe. That caused a consumption boom there, and an oversized export boom in China and the far east.

Next, more cheap capital enabled by the Asian central banks funded an artificially large investment boom in China and among its EM supply chain, which, in turn, caused demand for bulk, crude oil and container ship capacity to surge.

Needless to say, still more cheap capital generated a massive excess of highly leveraged ship-building capacity that needs cash flow to service its debt. So the huge state enabled ship-building industries of China and South Korea built new ships like there was no tomorrow and, to move the iron, priced them near marginal cost.

Then, even more yield hungry capital hooked-up with the growing surplus of these “new builds”, funding on high leverage what is ultimately a day rate commodity (i.e. shipping capacity).

Even then, the daisy chain was not done. The bank arrangers and other intermediaries who bought and financed the surplus ships that the central bankers indirectly built needed to enhance their own returns. So they funded their newly acquired “assets” with yield-bait like the Bremen LB contingent bonds which blew sky high on a moments notice.

The one thing that is absolutely true in a $300 trillion global financial market is that Bremen LB is not a one-off. After a $20 trillion central bank printing spree and 90 months on the zero bound these kind of FEDs exist in their tens of thousands.

Soon we will know their names.

After all, creating this kind of fiery demise is what central banks ultimately do……

 

end

 

RUSSIAN AND MIDDLE EASTERN AFFAIRS

none today

GLOBAL ISSUES

Facts:

  1. there are 25 trillion equiv. USA dollars of financial assets held by central banks
  2. there are a total of $12 trillion bonds (corporate and sovereign) with negative yield (28%)
  3. there is a total of 8 trillion sovereign bonds trading at negative yields (54%)

“Central Banks Now Own $25 Trillion Of Financial Assets”

With 85% of Wall Street telling Citi they expect a “dovish hike signal” from Yellen tomorrow, which means a polite request for another BTFD opportunity, even if as BofA says “expectations for a dovish Fed are coinciding with macro strength in the US (most obviously in housing & consumer spending) as well as highest level of wage inflation since Jan’10“…

… here is a quick reminder of where we currently stand from BofA’s Michael Hartnett, from a brief note titled The Liquidity Supernova & the “Keynesian Put.”

* * *

Risk assets are now supported by the new ”Keynesian Put”, the expectation that fiscal measures will be deployed to combat any renewed weakness in the economy/markets (independently of any larger political projects). But asset prices remain primarily supported by excess monetary abundance across the world:

  1. There have been 667 interest rate cuts by global central banks since Lehman;
  2. G7 central bank governors Yellen, Kuroda, Draghi, Carney & Poloz have been in their current posts for a collective 17 years, yet only one (Yellen in Dec’15) has actually hiked interest rates during this time;
  3. Central banks own $25tn of financial assets (a sum larger than GDP of US + Japan, and up $12tn since Lehman);
  4. There are currently $12.3tn of negative yielding global bonds (28% of total);
  5. There is currently $8tn of negative yielding sovereign debt (54% of total).

Do not expect any unwind of this $25 trillion in risk asset support to be unwound any time soon, or perhaps ever, or else…

The Crab Nebula supernova

 

end

EMERGING MARKETS

VENEZUELA

An excellent commentary by Shaun Bradley as he outlines the severe problems inside Venezuela and how this once proud rich nation succumbed to socialism:
(courtesy Bradley/The AntiMedia.org)

Total Societal Collapse: What The Media Isn’t Telling You About Venezuela

Submitted by Shaun Bradley via TheAntimedia.org,

Life in Venezuela now consists of empty grocery stores, record rates of violent crime, and widespread shortages of just about everything. The economic and political conditions have been deteriorating for years, but recent stories coming from this once-rich nation are astonishing. Bars haverun out of beer, McDonald’s can’t get buns for their Big Macs, and rolling blackouts are a regular occurrence. The average person spends over 35 hours a month waiting in line to buy their rationed goods, and even basics like toilet paper and toothpaste are strictly regulated.

The fiasco began when the price of oil collapsed and sent Venezuelan finances into chaos. The oil-dependent nation, despite its imposing government policies, couldn’t prevent the fallout. The current problems are further compounded by rampant corruption throughout the Venezuelan government. The likelihood of a peaceful resolution is decreasing by the day, and political dissents are likely to be met with brutal crackdowns.

The desperation of the masses could explode violently under the right circumstances, and there are few things more dangerous to a nation than a hungry population.

The food lines seen throughout Venezuela are reminiscent of the Great Depression. Thousands fill the sidewalks and wait for hours to get their hands on basic staples. Tensions have risen so dramatically that several people have been killed in recent food riots and lootings. Dogs, cats, and birds are finding themselves on the menu, and a group even broke into the Caracas’ Caricuao Zoo to slaughter the animals for meat.

In an effort to relieve some of the pressure, President Nicolas Maduro briefly opened the border with Colombia, prompting over one hundred thousand people to pour across in search of products that have gone extinct in their own country. The border was originally sealed back in 2014 in an attempt to prevent the smuggling of food and people. The uncertainty of what the future holds has forced people to spend what little savings they have on securing enough food to get by. Without access to the resources needed for production and distribution, commerce has come to a complete standstill, and food shortages aren’t the only consequence.

The Venezuelan healthcare system, once a symbol of socialism’s success, has been crippled by vast medical supply shortages. Gloves, soap, and antibiotics have all vanished, with power often only working one or two days a week. The economic woes have created a full-blown public health emergency. Malnutrition combined with doctors’ inability to treat patients effectively has led to outbreaks of diseases like tuberculosis and malaria. With such extremely limited resources, many patients are falling through the cracks. Even simple illnesses are going untreated, leading to dangerous complications.

Jason Marczak, director of the Latin America Economic Growth Initiative, spoke about the crisis:

“When people are literally going hungry and children are dying at birth because there aren’t the right medical supplies … when basic things like Tylenol aren’t even available … this causes a huge amount of angst in the population.”

Yet another disturbing pattern has developed since traditional forms of birth control have become unavailable in stores. Record numbers of women are resorting to sterilization to prevent unplanned pregnancies. Local clinics have hundreds on the waiting lists for appointments. Aside from the financial burden, the possibility of watching their children starve is too much to handle and has prompted many women to take drastic action. This means the current economic depression is going to have long-term effects on generations to come.

Life in Venezuela is now built around waiting in lines. As much as the lines have become the key to survival, they are also hotbeds for violence. Crimes are often committed in broad daylight, with assailants meeting little resistance. For other people in line, the risk of leaving their spot to intervene is just too high. Their dependence on government has literally robbed them of their ability to help others in need.

“These days, you have to put the line above everything,” said pharmacist Haide Mendoza, who witnessed a murder in the line at her store, CBS News reported.

The hyperinflation currently affecting the Venezuelan currency, the bolivar, is undermining every function of the government and economy. The inflation rate is now the highest in the world and is expected to hit 1,600% by next year. Despite the government raising the minimum wage three times to appease workers, the move has only fueled a rise in prices. In a highly controversial move, the government imposed forced labor policies to keep food production going. Maduro’s emergency decreepromises severe punishments for those who refuse to work in the fields without pay. The social contract appears to have no end when it comes to the ‘greater good.’

It’s always interesting to see the selective coverage the media rolls out, but the struggle of people on the ground is getting too severe for them to ignore. The same policies increasingly pushed by Western governments are on display in Venezuela as the country descends into chaos.

In the coming months, this story of societal collapse will likely force its way into the mainstream. Food shelves haven’t been restocked, the police haven’t restored order, and the food lines continue to grow.The faith in the State that was the cornerstone of stability under Hugo Chavez has been completely eroded. If oil prices surge, it may provide some relief, but the symptoms plaguing their economy are past the point of no return.  The only way to remedy this type of repression is to hold the criminal government officials in power responsible for their contributions to the crisis.

 

end

 

OIL ISSUES

At around 1:30 pm est, stocks are sliding as oil falls into the 46 dollar handle. The Saudi just stated that there will not significant intervention;

(courtesy zero hedge)

Stocks Slump, Oil Slides To $46 Handle After Saudis Say No “Significant Intervention Necessary”

Having short-squeezed crude oil prices higher on the back of a hope-filled statement, the Saudi energy minister just dropped another tape-bomb, warning that “no discussions of substance” have taken place on OPEC production levels, adding that he “does not believe any significant intervention in market is necessary.”

  • RTRS: SAUDI ENERGY MINISTER AL-FALIH SAYS NO ‘DISCUSSIONS OF SUBSTANCE’ YET ON OPEC PRODUCTION LEVELS
  • SAUDI ENERGY MINISTER AL-FALIH SAID DOES NOT BELIEVE ANY SIGNIFICANT INTERVENTION IN MARKET NECESSARY
  • SAUDI ENERGY MINISTER AL-FALIH SAID DEMAND IS ‘PICKING UP NICELY’ AROUND THE WORLD – RTRS INTERVIEW

And the market’s reaction so far… (the earlier bounce was on Iran comments)

 

Of course, not wanting to show his hand fully, he added:

  • *AN OIL OUTPUT FREEZE WOULD BE POSITIVE IF IT HAPPENS: AL-FALIH(no shit!)
  • *`NOTHING HAS BEEN DECIDED’ ON OIL OUTPUT: AL-FALIH
  • *A FREEZE WOULD SIGNAL THAT MARKET IS BALANCED: AL-FALIH

Does this look balanced?

 

As a gentle reminder:

  • OIL AT RISK OF `WASH-OUT’ IF OPEC DOESN’T FREEZE: CITI’S MORSE

And it seems stocks are catching on..

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

Euro/USA   1.1289 UP .0029 (STILL  REACTING TO BREXIT/REACTING TO BRITISH CUT IN INTEREST RATE TO .25%

USA/JAPAN YEN 100.40  DOWN .159(Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER/KURODA HELICOPTER MONEY  ON THE TABLE BUT DISAPPOINTS WITH STIMULUS

GBP/USA 1.3188 DOWN .0048 

USA/CAN 1.2921 DOWN .0009

Early THIS THURSDAY morning in Europe, the Euro ROSE by 29 basis points, trading now well above the important 1.08 level RISING to 1.1289; Europe is still reacting to Gr Britain 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 DOWN 17.55 POINTS OR 0.57%    / Hang Sang CLOSED DOWN 5.83 POINTS OR 0.03%     /AUSTRALIA IS LOWER BY .36% / EUROPEAN BOURSES ALL  IN THE RED 

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

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

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

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

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

The NIKKEI: this THURSDAY morning CLOSED DOWN 41.35 POINTS OR 0.25%  

Trading from Europe and Asia:
1. Europe stocks ALL IN THE RED

2/ CHINESE BOURSES / : Hang Sang CLOSED DOWN 5.83 POINTS OR 0.03%  ,Shanghai CLOSED DOWN 17.55  POINTS OR 0.57%    / Australia BOURSE IN THE RED: /Nikkei (Japan)CLOSED IN THE RED   /INDIA’S SENSEX IN THE RED 

Gold very early morning trading: $1324.30

silver:$18.52

Early THURSDAY morning USA 10 year bond yield: 1.550% !!! DOWN 1  in basis points from WEDNESDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield RISES SLIGHTLY to 2.236  in basis points from TUESDAY night. 

USA dollar index early THURSDAY morning: 94.66 DOWN 12 CENTS from WEDNESDAY’s close.

This ends early morning numbers THURSDAY MORNING

END

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And now your closing THURSDAY NUMBERS

Portuguese 10 year bond yield: 2.98%  UP 1 in basis points from WEDNESDAY  (does not buy the rally)

JAPANESE BOND YIELD: -0.085% UP 2 in   basis points from WEDNESDAY

SPANISH 10 YR BOND YIELD:0.922% DOWN 1 IN basis points from WEDNESDAY (this is totally nuts!!/

ITALIAN 10 YR BOND YIELD: 1.13  PAR in basis points from WEDNESDAY 

the Italian 10 yr bond yield is trading 20 points HIGHER than Spain.

GERMAN 10 YR BOND YIELD: -0.07% UP  2 IN  BASIS POINTS ON THE DAY

END

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IMPORTANT CURRENCY CLOSES FOR THURSDAY

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

Euro/USA 1.1282 UP .0022 (Euro UP 22 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japan: 100.57 UP 0.008(Yen DOWN 1/10 basis points/

Great Britain/USA 1 .3175 DOWN 0.0061 ( Pound DOWN 61 basis points/BREXIT DECISION AFFIRMATIVE/QE TO START AGAIN/UK DOWNGRADED/NEW PRIME MINISTER T. MAY/GR BRITAIN LOWERS INTEREST RATES/

USA/Canada 1.2927 DOWN 0.0004 (Canadian dollar UP 4 basis points AS OIL ROSE(WTI AT $46.76). Canada keeps rate at 0.5% and does not cut!

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This afternoon, the Euro was UP by 22 basis points to trade at 1.1282

The Yen FELL to 100.57 for a LOSS of 1/10 basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY IS NOW DELAYED 

The POUND was DOWN 61 basis points, trading at 1.3175 AS PRIME MINISTER THERESA MAY TAKES OFFICE/CARNEY CUTS INTEREST RATE TO ONLY  .25%

The Canadian dollar ROSE by 4 basis points to 1.2927, WITH WTI OIL AT:  $47.40

CANADIAN RATES WERE NOT CUT

The USA/Yuan closed at 6.6553

the 10 yr Japanese bond yield closed at -.085% DOWN 2 IN BASIS POINTS / yield/

Your closing 10 yr USA bond yield:UP 2 IN basis points from WEDNESDAY at 1.5576% //trading well below the resistance level of 2.27-2.32%)

USA 30 yr bond yield: 2.264 UP 2 in basis points on the day /

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

Your closing USA dollar index, 94.76  DOWN 2 CENTS  ON THE DAY/4 PM 

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

London:  CLOSED DOWN 18.88 OR 0.28%
German Dax :CLOSED UP 93.38 OR  0.88%
Paris Cac  CLOSED UP 28.86  OR 0.65%
Spain IBEX CLOSED UP 56.00 OR 0.65%
Italian MIB: CLOSED UP 180.85 POINTS OR 1.07%

The Dow was DOWN 33.07 points or 0.18%

NASDAQ DOWN   5.49 points or 0.11%
WTI Oil price; 47.39 at 4:30 pm;

Brent Oil: 49.68

USA DOLLAR VS RUSSIAN ROUBLE CROSS:  64.74 (ROUBLE UP  52/100 ROUBLES PER DOLLAR FROM FRIDAY) 

TODAY THE GERMAN YIELD RISES TO -0.07%  FOR THE 10 YR BOND

END

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

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

WTI CRUDE OIL PRICE 5 PM:47.34

BRENT: 49.67

USA 10 YR BOND YIELD: 1.577% 

USA DOLLAR INDEX: 94.77 down 1 cents

The British pound at 5 pm: Great Britain Pound/USA: 1.3185 down .0051 or 51 basis pts.

German 10 yr bond yield at 5 pm: -0.07%

END

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

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

 

EpiPen-demonium Drags Stocks To Worst Drop Since Brexit

Janet “Stallone” Yellen better not let go tomorrow…

 

Trannies lost ground despite Crude’s gains; Small Caps clung to gains (on another squeeze)…

 

On the week Small Caps also managed to hold green… This is the biggest 2day drop in stocks since Brexit.

 

The big weight on US stocks was healthcare…

 

Dominated by Biotech bust…

 

VIX pushed up against 14 and was dismissed for the 3rd time… (notably the VIX term structure is flattening quickly from 4 year highs)…

 

Close-up on today shows the ridiculous closing collapse in VIX…

 

VIX remains drastically mispriced relative to credit markets…

 

Treasury yields rose today – despite equity weakness – as it appears some ‘easing’ bias was removed ahead of Yellen tomorrow… NOTE: 2Y underperformed +3bps on the day

 

The 2s30s curve has now broken to fresh cycle lows…flattest curve since Dec 2007

 

Notably, the ‘yield curve’ between 12M Libor and 10Y Treasuries inverted today for the first time since Lehman…

 

Stocks and bond yields continue to dance…

 

The USD Index went nowhere today (despite cable weakness)…holding the flatline for the week…

 

Gold was hit at the open on OPEX, Silver slipped, Copper leaked lower but Crude bounced…

 

Crude bounced on Iran headlines and pretty much ignored Saudis…

 

Charts: Bloomberg

Bonus Chart: Macro is rolling over…

 

END

 

Do not expect much from the clowns at Jackson Hole: Zero hedge states that actually the rhetoric has been dovish and not hawkish.

(courtesy zerohedge)

Heading Down The J-Hole: “The Fed Isn’t Hawkish”

The Fed isn’t hawkish, exclaims Bloombergs Mark Cudmore. In fact, in relative terms, recent rhetoric has been long-term dovish, which means the dollar will likely break the lower end of its range soon.

“Rubbish,” I hear you cry. “Look at all the headlines we’ve had from Fed speakers in the past week. Look at Fed futures! The probability of a rate hike by year end has climbed.”

Beyond the consistent headlines talking up an imminent Fed hike or regurgitating the truism that every meeting is “live,” the substance of recent commentary from policy makers has been notable for its balance, and that’s a dovish shift.

While they’ve desperately tried to assure the market that they still hope to raise rates soon, they’ve also reiterated that the neutral rate is perhaps much lower than envisioned.

By citing the many issues potentially preventing a sustained hiking cycle, they’re subtly acknowledging the “one and massive pause” theory that the market has been pushing for a while.

That’s why the yield curve has flattened further even as the probability of a 2016 move increases… “fool me a 4th time and I lose all faith in The Fed”

The dollar rallied hard for 18 months from mid-2014 on the premise that the Fed was on the verge of beginning a wholehearted hiking cycle.

It finally raised rates in December 2015, and the dollar has weakened since then. What happened?Everyone realized that the hiking cycle would be significantly slower than anticipated.

The market has consistently been more dovish than the Fed, and correctly so. The next step is for the committee to converge to the fact that a sustained hiking cycle is a myth. Sure, a hike this year is very possible, as well as perhaps another one next year. But rates are not roaring higher any time soon.

Fed rhetoric is tacitly starting to admit this fact through all the statements questioning the whole policy framework. Indeed, that is the whole focus of this weekend’s Jackson Hole economic symposium.

The most hawkish people left are the media who love the excitement of a will-they-won’t-they story.Once the real story emerges, the dollar may face serious long-term downside.

The 1,150 support in the Bloomberg Dollar Index has held repeatedly during the past 18 months…

It’s unlikely to hold much longer and could even be broken as soon as Jackson Hole comments are assessed.

Even more interesting, perhaps, is the relative call to be made between the Fed policy shift and the macro environment. BofAML’s Michael Hartnett lays out a framework for thinking about this relationship below:

  • Dovish Fed & stronger macro: yield curve bull steepens (short-rates fall faster than long-rates)…bullish combo for risk assets = OW equities, credit, commodities & EM equities until market corrects as investors think the Fed is “behind the curve”;
  • Hawkish Fed & stronger macro: yield curve bear steepens (long-rates rise faster than short-rates)…renewed animal spirits & proof of “Quantitative Success” = OW US$, value, banks/cyclicals & EAFE equities;
  • Dovish Fed & weaker macro: yield curve bull flattens (long-rates fall faster than short-rates)…secular stagnation worries deepen = OW govt bonds, gold, growth & US equities;
  • Hawkish Fed & weaker macro: yield curve bear flattens (short-rates rise faster than long-rates)…recession risk rises = OW cash, vol and defensives.

Right now we have “hawkish” Fed pricing into Fed Funds with a drastically-weakening macro picture…

We suspect – post J-Hole – that the market’s realization of a “dovish”-er Fed and a weaker macro backdrop will be realized, and as BofA just explained – that is good for bonds, gold, and bull-flattening collapse in the curve (which is already starting).

 

end

 

This is something that we have been harping on.  The Tennessee Insurance Commissioner now warns that Obamacare in his state is in near collapse. Blue Shield is the only insurer that is represented in every county/  The have lost considerable money and mostly likely will bull out of Obamacare.

(courtesy zero hedge)

Tennessee Insurance Commissioner Warns Obamacare “Very Near Collapse”

end

 

The flash service pMI for August tumbled : from 51.4 down to 50.9. Remember that service is 70% of USA GDP.  Markit warns that GDP growth is failing to accelerate in the third quarter from its weak 1.2% pace in the second quarter.

(Markit service pmi/zerohedge)

Services PMI Tumbles To 6-Month Lows: “GDP Growth Is Failing To Accelerate In Q3”

Following Manufacturing PMI’s drop from a two-month bounce, Services PMI also tumbled. Against expectations of a rise from 51.4 to 51.8, Services dropped to 50.9 – lowest since Feb 2016. With the lowest jobs data in 20 months,new orders at their weakest since May, as Markit warns, “GDP growth is failing to accelerate in the third quarter from the weak 1.2% pace seen in the second quarter.”

“but but but , the Services economy will save us…”

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at Markit said:

“The ongoing lacklustre economic growth signalled by the flash PMI suggests GDP growth is failing to accelerate in the third quarter from the weak 1.2% pace seen in the second quarter.

Historical comparisons indicate that the PMI is signalling an annualised GDP growth rate of just under 1% in the third quarter, based on the data for July and August.

“With job creation also waning alongside subdued price pressures (the August PMI is consistent with non-farm payrolls rising by just under 130,000), the survey data will fuel expectations that the Fed will be in no rush to tighten policy again.

“However, as anecdotal evidence from the survey suggests that business activity is being dampened by uncertainty due to the upcoming presidential election, there’s a good chance that the economy will pick up speed again after the vote, leaving a December rate hike on the table.”

Who could have seen that coming? A recessionary collapse in manufacturing led to a services economy plunge? Just don’t tell Obama, The Fed, or CNBC.

 

end

When this is fully operational it is without a doubt the killer dagger into the heart of the USA dollar:  Block technology is going to be introduced by these 4 European giant banks and that technology will bypass the USA Swift system;

(courtesy Black/SovereignMan)

Four More Mega-Banks Join The Anti-Dollar Alliance

end

The Fed whisperer Hilsenrath writes and slams the Fed for years of missteps. What is he after especially 1 day before Jackson Hole:  “Fiscal stimulus” or more bond issuance of which the Fed must buy.

(courtesy zero hedge)

a must read…

“The Great Unraveling” – Hilsenrath Slams The Fed: “Years Of Fed Missteps” Foster US Populism, Distrust

For years we have argued that the main reasons for rising social anger, populist sentiment, and general disillusion with the US economy boils down to one thing: the Federal Reserve, which as we have argued since 2009, has approached the crisis aftermath in a wrong way, generated unprecedented wealth inequality through its monetary policy favoring a tiny fraction of the population – those invested in risk assets – and instead of reflating another debt bubble, should have allowed the system to undergo a debt purge and start afresh.

For this we have been branded perpetual conspiracy theorists and permabears.

Moments ago, none other than the WSJ’s Fed “whisperer”, Jon Hilsenrath admitted these allegations have been correct in an article titled “Years of Fed Missteps Fueled Disillusion With the Economy and Washington“, and which as the WSJ notes “helps explain one of the US’s most unpredictable, populist political years.”

In other words, it is the Fed’s policies that have led to the current failed economic regime (as noted again yesterday by Citi’s Matt King and today by former Fed governor Kevin Warsh), and which are responsible for the rise of such candidates as Donald Trump. Which, incidentally, is also something we have predicted over the years would happen. As such we are delighted that one of the most popular establishment Fed watchers now agrees with our assessment.

This is what Hilsenrath writes:

In the 1990s, a period known in economics as the “Great Moderation,” it seemed the Fed could do no wrong. Policy makers and voters saw it as a machine, with buttons officials could push to heat or cool the economy as needed.

Now, after more than a decade of economic disappointment, the central bank confronts hardened public skepticism and growing self-doubt about its own understanding of how the U.S. economy works, a development that helps explain one of the most unpredictable and populist political seasons in modern history.

Some highlights from the piece focus on the Fed’s own admissions:

“There are a lot of things that we thought we knew that haven’t turned out quite as we expected,” said Eric Rosengren, president of the Federal Reserve Bank of Boston. “The economy and financial markets are not as stable as we previously assumed.”

… The rise of Trump:

For anyone seeking to explain one of the most unpredictable political seasons in modern history, with the rise of Donald Trump and Bernie Sanders, a prime suspect is public dismay in institutions guiding the economy and government. The Fed in particular is a case study in how the conventional wisdom of the late 1990s on a wide range of economic issues, including trade, technology and central banking, has since slowly unraveled.

Here, unwittingly, Hilsenrath admits that by perpetuating the status quo policies, Yellen is explicitly furthering Hillary’s presidential campaign.

Meanwhile, revulsion against the Fed is rising:

Once admired globally for their command of the economic system, central bankers now are blamed by the left and right for bailouts during the financial crisis and for failing to foresee and manage forces suffocating the global economy in its aftermath.

Populist protest movements called “Fed Up,” “End the Fed” and “Occupy Wall Street” lashed out at the bank’s policies, and in the case of End the Fed, its very existence. Lawmakers of both parties want to subject it to more scrutiny or curb its powers.

Confidence in the Fed – and all other US institutions – has collapsed, for good reason:

“I certainly myself couldn’t have imagined six, seven years ago that we would be employing the policies we are now,” Fed Chairwoman Janet Yellen said to a packed ballroom in New York earlier this year. She lamented the government has leaned so heavily on the Fed to stimulate the economy while tax and spending policies were stymied by disagreements between Congress and the White House.

Confidence in the central bank’s leadership has dropped. An April Gallup poll found 38% of Americans had a great deal or fair amount of confidence in Ms. Yellen, while 35% had little or none. In the early 2000s, confidence in Chairman Alan Greenspan often exceeded 70%.

Even the Fed now admits it no longer knows what it is doing, with the main culprit being the massive debt overhang:

“What was missing to me was the in-depth understanding of how much risk and leverage had grown in the financial system and basically how lacking in resilience the financial system as a whole was to this kind of shock,” Mr. Williams said in a recent interview.

And then there is the question of what happens if the Fed loses control, something one of its staffers earlier this week said would require another $4 trillion or more in QE:

Still looming is potentially the biggest reversal of all in the modern conventions of central banking. If another recession hits, it isn’t clear the Fed has the tools available to mend the economy, a subject Ms. Yellen could address in Jackson Hole.

Traditionally the Fed cuts interest rates in a downturn. With its benchmark short-term rate near zero, it can’t be pushed much lower. If recession hits, the Fed will likely resort to unpopular tools used after the financial crisis, including Treasury-bond purchases and more promises to keep short-term rates low far into the future.

“We should be extremely worried,” Mr. Summers said. “We are essentially on a fairly dangerous battlefield with very little ammunition.”

* * *

But why put this “stunning” admission out now, one day before Jackson Hole, and why confirm that the Fed is losing control in its “fight for the economy”, and is responsible for the current sad state of affairs? Simple: this is the grand pivot to push for “fiscal stimulus.” The irony: “fiscal stimulus” is merely a phrase for issue more debt, at least a trillion dollars more, according to a Reuters analysis.

And all that debt will ultimately need to be purchased, or monetized, by someone. Someone like the Fed.

In other words, all this Hilsenrath mea culpa, which most certainly was greenlighted by the Fed, seeks to achieve is to give the Fed ammunition to ultimately double down on the same policies that even it admits have not worked, where following the brief infatuation with a rate hike, it will once again resort to monetizing, what else, more debt.

The real conclusion? As Matt King pointed out yesterday, when he correctly predicted that all central banks will do, is “double up”…

…  is that “the distortions will get even bigger.”

 

end

 

Subprime auto delinquencies jump a good 17% in July. Also net losses soar by 28%. This is going to be a huge problem for major banks:

(courtesy zero hedge)

 

Subprime Auto Delinquencies Jump 17% In July, Net Losses Soar 28%

There was a troubling development at the end of July, when as we noted at the time, the largest US subprime auto lender delayed its Q2 earnings released due to “Accounting matters”, an event which promptly raised red flags not only over the fate of the company (whose stock plunged as a result), but the entire US subprime auto space.

This is what SC said as justification for its 10-Q filing delay:

Santander Consumer USA Holdings Inc. (NYSE: SC) (“SC” or the “Company”) announced today that it will delay the release of its Q2 2016 financial results, previously scheduled for Wednesday, July 27, 2016, because the Company’s financial statements for the quarter have not yet been completed.

 

The Company is in discussions with its current and previous independent accountants regarding certain accounting matters, primarily related to the Company’s discount accretion and credit loss allowance methodologies. The resolution of these matters may impact prior period financial statements and the timing of the filing of the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2016 (the “Form 10-Q”).

 

The Company is working diligently to file the Form 10-Q and schedule its earnings call as soon as practicable.

One month later, the accountant discussions continue, as yesterday the company provided the following terse update in which it said that it delays its 10-Q past the August 15 deadline, adding that “the Company will file the Form 10-Q as soon as possible” and that “the aforementioned accounting matters relate only to non-cash items in our financial statements .”

Santander Consumer USA Holdings Inc. (NYSE: SC) (“SC” or the “Company”), is delaying the filing of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 (the “Form 10-Q”) beyond the August 15, 2016 extended filing date.

 

As previously disclosed by the Company in its Form 12b-25 filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2016, the Company is in the pre-filing submission process with the SEC’s Office of the Chief Accountant, regarding the Company’s accounting treatment for consideration of net discount in estimating the allowance for credit losses. The resolution of this and other accounting matters disclosed in the Form 12b-25 is expected to impact prior period financial statements. The Company will file the Form 10-Q as soon as possible.

 

The Company has reviewed all critical relationships and does not foresee a material interruption in or change to normal business activities related to the delayed filing. In addition, the aforementioned accounting matters relate only to non-cash items in our financial statements. If the outcome of the pre-filing submission process is consistent with the Company’s proposed accounting treatment, the Company expects to file its Form 10-Q immediately.

So we continued to wait. Meanwhile, today Fitch released its latest auto subprime report according to which things in the auto subprime space are going from bad to worse, warning that “the seasonably slow summer months are translating to notable increases in annualized losses and delinquencies for U.S. subprime auto loan ABS.”

The details: subprime 60+ day delinquencies rose 13% month-over-month (MOM) in July to 4.59%, and were 17% higher versus a year earlier. This rate was just shy of the record peak 5.16% level recorded in early 2016.

Fitch also adds that subprime ABS annualized net losses (ANL) hit 7.39% in July rising 17% MOM,and were 28% higher year-over-year (YOY).

The summer months typically produce weaker asset performance as consumers head for vacation. Increased losses are emanating from weaker collateral pools in the 2013-2015 transactions, which have weaker credit quality including lower FICO scores, higher amounts of extended loan terms (over 60 months) and higher LTVs. Further, early defaults on extended term loans in pools are driving loss severity higher along with loss rates in 2016.

What is curious is that Fitch states that used vehicle values “continue to defy expectations in 2016 and remain healthy.” This is rather different from what we reported recently when we observed that used car prices have been sliding. Perhaps Fitch is using a different database, however despite its assessment,  Fitch expects used vehicle values will be pressured in the latter stages of 2016 and come down from current levels. “Rising used vehicle supply, including from notable increases in residual returns expected in 2016 and early 2017, will constrain values and contribute to losses rising.”

This means that the auto industry, always pressured by a substantial inventory overhang, will be hit by the double whammy of both declining residuals and the ongoing subprime crunch as increasingly more loans shift to delinquent status. It also means that it is only a matter of time, and accumulated defaults, before the only silver lining in the US manufacturing sector turns dull.

In the meantime, we eagerly look forward to Santander’s delayed 10-Q to be finally filed.

end

 

See you tomorrow night

h

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