Sept 1/Another huge withdrawal of 5.34 tonnes of gold from the GLD/No changes in SLV/Deutsche bank refuses to honour its custodial function in a Gold ETF and thus a default/Huge fallout from the Hanjin bankruptcy protection as 10 ships are frozen at various ports/Oil plunges into the 42 dollar handle/Poor USA figures for today: poor productivity, poor national mfg pmi/lackluster autosales/Wal-Mart laying off 7,000 poor souls/

Gold:1312.20 up $5.30

Silver 18.86  up 24 cents

In the access market 5:15 pm

Gold: 1313.80

Silver: 18.90


The Shanghai fix is at 10:15 pm est and 2:15 am est

The fix for London is at 2 am est (first fix) and 10 am est (second fix)

Thus Shanghai’s second fix corresponds within 15 minutes of London’s first fix.

And now the fix recordings:

First the Shanghai fix Sept 1

Shanghai morning fix (10:15 pm est last night):  $1313.81

(price in NY on access at the exact same time:  $1310.84)

Shanghai afternoon fix:  2: 15 am est (second fix/early this morning):$1310.39 

(New York price at the exact same time: $1308.00)


The two London fixes:

First fix:Sept 1 2016 am:$1305.70  (2 am est) vs Shanghai: 1310.39

 Second fix: pm Sept 1:$1309.50 (10 am est)  1310.00 USA gold price at 10 am


It seems that Shanghai pricing is higher than the other  two , (NY and London). The spread has been occurring on a regular basis and thus I expect to see arbitrage happening as investors buy the lower priced NY gold and sell to China at the higher price. This should drain the comex



The front September contract month we had a good sized 84 notices filed for 8400 oz

For the month of September we had a total of 277 notices filed for 1,385,000 oz

Let us have a look at the data for today



In silver, the total open interest fell by 581 contracts down to 188,835. The open interest again fell as the silver price was up 4 cents in yesterday’s trading .In ounces, the OI is still represented by just LESS THAN 1 BILLION oz i.e. .942 BILLION TO BE EXACT or 135% of annual global silver production (ex Russia &ex China). the crooks are doing a great job fleecing unsuspecting longs

In silver we had 277 notice served upon for 1,385,000 oz

In gold, the total comex gold fell by 3,669 contracts as  price of gold FELL BY $4.80 yesterday . The total gold OI stands at 554,729 contracts


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


we had a huge withdrawal  today at the GLD to the tune of 5.34 tonnes of gold

I would bet that this was a paper withdrawal and not real gold

Total gold inventory rest tonight at: 937.89 tonnes of gold


we had no changes with respect to inventory at the SLV / THE SLV Inventory rests at: 359.743million oz


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

1. Today, we had the open interest in silver fell by 581 contracts down to 188,835 as the  price of silver FELL by 18 cents with YESTERDAY’S trading.The gold open interest fell 3,669 contracts down to 554.729 despite the fact that the price of gold fell $10.90 IN YESTERDAY’S TRADING.

(report Harvey).


2 a) Gold/silver trading overnight Europe, Goldcore

(Mark O’Byrne/zerohedge

2b) FRBNY gold report



 i)Late  WEDNESDAY night/THURSDAY morning: Shanghai closed DOWN 22.19 POINTS OR 0.72%/ /Hang Sang closed UP 185.46 points or 0.81%. The Nikkei closed UP 39.44 POINTS OR 0.23% Australia’s all ordinaires  CLOSED DOWN 0.32% Chinese yuan (ONSHORE) closed DOWN at 6.6800/Oil ROSE to 44.74 dollars per barrel for WTI and 46.80 for Brent. Stocks in Europe: IN THE GREEN  Offshore yuan trades  6.6913 yuan to the dollar vs 6.6800 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS SLIGHTLY AS  MORE USA DOLLARS ATTEMPT   LEAVE CHINA’S SHORES  



This is a huge problem:  The bank of Japan has marked their bonds at face value and now most of the bonds because of negative interest rates now have a deficit or a guaranteed loss.  Right now the loss is around 9 trillion yen or 84 billion USA.  This will get worse has time goes on and it will surely wipe out all Bank of Japan reserves with their guaranteed loss:

( zero hedge)


My goodness! what took the Chinese so long to admit they they are going to have great difficulties in meeting economic targets: During the summer China had massive floods in the south where major manufacturing areas are located and that did not put a damper on numbers?

( zero hedge)



The battle lines are now formed:  Immigration limits is the first BREXIT red line that cannot be crossed.

( Bloomberg)

ii)Europe in General

A new wave of refugees cross the Med into Italy and other European destinations.
This is a huge nightmare for them. Plus Turkey still holds a huge number of migrants
(courtesy zero hedge)

iii)Italy: Monte di Paschi

My goodness..
( zero hedge)


Saudi Arabia


Saudi Arabia fires 10,000 substitute Imams to save money.  A banking crisis looms as interbank rates skyrocket as banks are afraid to loan to each other.

( zero hedge)


Hanjin/global shipping

i)This is a big story:  As we reported yesterday the 7th largest shipping company in the world filed for bankruptcy protection leaving many ships and assets stranded off many ports.  Today we learn that 3 Hanjin ships are stranded off the California coast:

( zerohedge)

ii)As indicated above the Hanjin bankruptcy is certainly taking its toll on the global economy. We now have 10 ships frozen in ports and goods are not flowing at all. No doubt it will take 2 to 3 months to sort out but you can just imagine the losses as buyers of those goods will not have Christmas inventory to sell:

a mess…
( zero hedge)


i)Oil initially plunges into the 43 dollar handle as the short squeeeeze is over.

( zero hedge)

ii)Then into the 42 dollar handle:

( zero hedge)



The impeachment of Rousseff is the least of Brazil’s worries.  Today we learn that unemployment has reached 11.6% and that the GDP is in serious  contraction at -3.6%

( zerohedge)


i)The big story of the day.  Deutsche bank who is trying to merge with the other large German bank Commerzbank due to its massive derivative losses plus its problems dealing with negative rates, has another problem:  it refuses to give delivery of physical gold on demand per contract.

(courtesy zero hedge)


ii)Koos Jansen explains why Chinese banks are holding huge amounts of gold

Basically, the banks and its customers deal in 5 categories:

  1. Gold savings that belong to the banks’ customers
  2. Gold inventory for the banks’ retail gold business
  3. Gold leasing business
  4. Gold held for hedging purposes
  5. Gold held outside China

(courtesy Koos Jansen/Bullionstar)


iii)I agree with Lawrie on the fact that China has accumulated much greater than 5,000 tonnes as much of their gold is hidden in bank accounts and government accounts. Yesterday we learned from Tom Cloud that once the Chinese yuan is included into the SDR’s next month, China will state that it has more gold than the USA. Then we will see excitement:

(Lawrie Williams/Sharp’s Pixley)



i)Another big story today.  This caused an initial spike northbound in gold once released:  USA productivity on the decline again from -.5% to a final -.6% and its 3rd consecutive quarterly decline.  Janet;  not a good time to raise rates:

( zero hedge)

ii)Gold finally reacted properly when the USA announced a huge crash in their manufacturing PMI (national)

Oh Janet!! I think you have a problem!

( zero hedge)

iii)Hillary’s approval rating plunges

( Mish Shedlock/Mishtalk)

iv)No comment necessary:  the last 7 times this happened, the USA entered a recession: construction spending growth on the decline:

( zero hedge)

v)Black America Consumer confidence just crashed the most in 15 years: Janet we have a problem!

( zero hedge)

vi)Bellwether stock Apple is now forcing suppliers to accept price cuts and volume reductions. This gives us a good idea as to how the global economy is behaving!

( zero hedge)
vii)Dear Janet and Stanley:  Sorry to burst your bubble but it seems that we have a major problem:  Bellwether Wal-Mart is set to fire 7,000 workers( zero hedge)


viii)Dear Janet and Stanley:  Sorry to bother you again, but we now have an auto sector disaster as sales are not rising at all

( zero hedge)

Let us head over to the comex:

The total gold comex open interest FELL to an OI level of 554,729 for a LOSS of 3669 contracts as the price of gold FELL by $4.80 with yesterday’s trading. We are now in the NON active month of SEPTEMBER/

The contract month of Sept saw it’s OI fall by 1813 contracts down to 618. We had 1773 notices filed yesterday so we lost 40 contracts or 4,000 additional oz will not stand for delivery.  The next delivery month is October and here the OI fell by 363 contracts down to 44,836. This level is extremely high and no doubt many of these will wait it out and take delivery at the end of the month. The next contract month of December showed a decrease  of 3353 contracts down to 413,031.The estimated volume yesterday at the comex: 152,830(fair).  Confirmed volume yesterday: 194,576, which is good.

Today we had  84 notices filed for  8400 oz of gold.
And now for the wild silver comex results.  Total silver OI fell by 581 contracts from 189,416 down to 188,835 despite the rose in price of silver to the tune of 4 cents yesterday.  We are moving away from the all time record high for silver open interest set on Wednesday August 3:  (224,540).  We are now into the next active month of September and here the OI fell by 901 contracts down to 2503. We had 257 notices filed yesterday so we lost 652 contracts or 3,260,000 additional oz will not stand for delivery in this active month of September.  The next non active delivery movement of October hardly moved falling by 20 contracts down to 220 contracts.  The next big delivery month will be December and here it fell marginally , down 79 to 163,766. The volume on the comex today (just comex) came in at 36,755 which is fair.  The confirmed volume yesterday (comex and globex) was excellent  at  46,893 . Silver is not in backwardation.  London is in backwardation for several months.

today we had 277 notices filed for silver: 1,385,000 oz

 SEPT 1.
Withdrawals from Dealers Inventory in oz   192.90OZ


6 kilobars

Withdrawals from Customer Inventory in oz  nil
3215.000 oz
100 kilobars
Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz 
 3825.85 oz
119 kilobars
No of oz served (contracts) today
84 notices 
8400 oz
No of oz to be served (notices)
534 contracts
(53,400 oz)
Total monthly oz gold served (contracts) so far this month
1857 contracts
185,700 oz
5.5776 tonnes
Total accumulative withdrawals  of gold from the Dealers inventory this month   192.90 oz
Total accumulative withdrawal of gold from the Customer inventory this month    3215.000 oz
Today:  tiny activity at the gold comex AND 4 KILOBAR ENTRY//
Today we had 0 dealer DEPOSITS
total dealer deposit: nil   0z
Today we had  1 dealer withdrawal:
i) Out of Brinks:  192.90 oz
total dealer withdrawals:  192.90 oz
We had 1 customer deposit:
i) Into JPMorgan: 3825.85 oz  119 kilobars
Total customer deposits: 3825.85  OZ
Today we had 1 CUSTOMER withdrawals
i) Out of Scotia:  3215.00 oz
100 kilobars
Total customer withdrawals  3215.00 OZ
Today we had 1 adjustment:
i) Out of Brinks:  we had 11,574.000 oz was adjusted out of the customer into the dealer account of Brinks  360 kilobars.
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 84 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 6 notices was stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the SEPT  contract month, we take the total number of notices filed so far for the month (1857) x 100 oz  or 185,700 oz , to which we  add the difference between the open interest for the front month of SEPT  (618 CONTRACTS) minus the number of notices served upon today (84) x 100 oz   x 100 oz per contract equals 243,100  oz, the number of ounces standing in this NON active month. 
Thus the INITIAL standings for gold for the SEPT contract month:
No of notices served so far (1857) x 100 oz  or ounces + {OI for the front month (618) minus the number of  notices served upon today (84) x 100 oz which equals 239,100 oz standing in this non  active delivery month of SEPT  (7.437 tonnes).
Since the comex allows GLD shares to be used for settling, it may take quite a while for the physical gold to enter the comex vaults.  So far I have seen little evidence of any settling of contracts but I will continue to monitor it for you. 
We 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 + 44.348 tonnes Aug +7.437  tonnes SEPT, (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/aug 26: 1.3530/ AUG 29 .126 TONNES/THEREFORE 98.965 tonnes still standing against 75.25 tonnes available.
 Total dealer inventor 2,451,491.832 or 75.25 tonnes
Total gold inventory (dealer and customer) =10,932,872.579 or 340.05 tonnes 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 340.05 tonnes for a  gain of 37  tonnes over that period. 
Ladies and Gentlemen:  the comex is beginning to lose some of its gold.


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.

And now for silver
SEPT INITIAL standings
 SEPT 1.2016
Inventory movements not available today from the CME/
Withdrawals from Dealers Inventory NIL
Withdrawals from Customer Inventory
421,717.410 oz
Deposits to the Dealer Inventory
 600,444.39 OZ
Deposits to the Customer Inventoryxxx
 3016.070 oz
No of oz served today (contracts)
(1,385,000 OZ)
No of oz to be served (notices)
2226 contracts
(11,130,000 oz)
Total monthly oz silver served (contracts) 534 contracts (2,670,000 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  45,697.4 oz
today we had 1 deposit into the dealer account:
 i) into CNT: 600,444.39 oz
 Total dealer deposits;  600,444.39 oz
we had 0 dealer withdrawal:
total dealer withdrawals:  NIL oz
we had 3 customer withdrawal:
 i) Out of Brinks:  4,879.100 oz
ii) Out of JPMorgan”: 316,556.500 oz
iii) out of Scotia:  421,717.410 oz
Total customer withdrawals: 421,717.410  oz
We had 1 customer deposit:
i) Into CNT: 3016.070 oz
total customer deposits:  3016.070   oz
 we had 2 adjustments
i) Out of Scotia:  15,756.47 oz was adjusted out of the dealer and this entered the customer account and should be deemed a settlement
ii) 533,538.690 oz was adjusted out of the dealer account of CNT and this landed into the customer account of Brinks and a deemed settlement/
The total number of notices filed today for the SEPT contract month is represented by 277 contract for 1,385,000 oz. To calculate the number of silver ounces that will stand for delivery in SEPT., we take the total number of notices filed for the month so far at (534) x 5,000 oz  = 2,670,000 oz to which we add the difference between the open interest for the front month of SEPT (2503) and the number of notices served upon today (277) x 5000 oz equals the number of ounces standing 
Thus the initial standings for silver for the SEPT contract month:  534(notices served so far)x 5000 oz +(2503 OI for front month of SEPT ) -number of notices served upon today (277)x 5000 oz  equals  13,800,000 oz  of silver standing for the SEPT contract month.
we lost 652 contracts or an additional 3,260,000 will not stand as these guys were bought out for cash plus a fiat bonus.
Total dealer silver:  27.019 million (close to record low inventory  
Total number of dealer and customer silver:   162.921 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.
And now the Gold inventory at the GLD
SEPT 1/another montrous withdrawal of 5.34 tonnes/Inventory rests at 937.89 tonnes
August 31/ a monstrous 13.36 tonnes of gold leaves the GLD/inventory rests at 943.23 tonnes
august 30/no change at the GLD/Inventory rests at 956.59 tonnes
August 29/no changes at the GLD/Inventory rests at 956.59 tonnes
August 26./no changes at the GLD/inventory rests at 956.59 tonnes
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
SEPT 1/ Inventory rests tonight at 937.89 tonnes


Now the SLV Inventory
SEPT 1/no change in inventory at the SLV/Inventory rests at 359.743 million oz/
August 31/we had a monstrous addition of 1.899 million oz into the SLV/this would be a paper addition/inventory rests at 359.743 million oz//why the difference in gold and silver: one reduces dramatically and the other increases dramatically
August 30/no change in silver inventory/inventory rests at 357.844 million oz/
August 29/we had a good sized deposit of 950,000 oz at the SLV/Inventory rests at 357.844 million oz/
August 26/no change in silver inventory at the SLV/Inventory rests at 356.894 million oz
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
SEPT 1.2016: Inventory 339.743 million oz

NPV for Sprott and Central Fund of Canada

1. Central Fund of Canada: traded at Negative 3.9 percent to NAV usa funds and Negative 4.0% to NAV for Cdn funds!!!!  (the discount is starting to disappear)
Percentage of fund in gold 60.1%
Percentage of fund in silver:38.7%
cash .+1.2%( SEPT 1/2016).
2. Sprott silver fund (PSLV): Premium rises to +0.15%!!!! NAV (SEPT 1/2016) 
3. Sprott gold fund (PHYS): premium to NAV  rises TO  0.13% to NAV  ( SEPT 1/2016)
Note: Sprott silver trust back  into POSITIVE territory at +0.15% /Sprott physical gold trust is back into positive territory at 0.13%/Central fund of Canada’s is still in jail.


Federal Bank of New York/Earmarked gold report on how much gold leaves NY.

Reading last month:  7910.00 million dollars worth of gold at $42.22 oz

Reading this month:  7883 million dollars worth of gold at $42.22 per oz

Total amount of gold leaving the shores of NY;  27 million dollars worth at $42.22 per oz

In oz:  639,507 oz

In  tonnages:  19.89 tonnes

Last month: 30 tonnes

Since Germany is the only one official nation to ask for its gold back, you can safely say that it is this nation who is repatriating their gold to their shores.


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

Trading in gold and silver overnight in Asia and Europe
Mark O’Byrne/David Russell
Big story today!

Hillary’s Approval Rating Plunges To Record Low, Neck And Neck With Trump

Submitted by Michael Shedlock via,

Hillary Clinton’s approval rating has plunged in the past few weeks to an all-time low.

56% have an unfavorable opinion of Hillary and only 41% have a favorable opinion.

Among registered voters, 59% hold an unfavorable opinion. That’s neck-and-neck with Trump at 60%.

Approval Ratings

The Washington Post reports A record number of Americans now dislike Hillary Clinton.

Hillary Clinton hit her stride after the Democratic National Convention, riding to a double-digit lead over Donald Trump in some national and swing-state polls — her highest of the year. As of today, though, Americans’ views of her just hit a record low.

A new Washington Post-ABC News poll shows 41 percent of Americans have a favorable impression of Clinton, while 56 percent have an unfavorable one. That’s the worst image Clinton has had in her quarter-century in national public life.

Interestingly, Clinton’s numbers appear to have dropped since that early August poll mostly in groups that have been very supportive of her:

  • Her favorable rating among women dropped from 54 percent to just 45 percent.
  • Among Hispanics, it went from 71 percent to 55 percent.
  • Among liberals, it went from 76 percent to 63 percent.

It’s not clear quite what might have caused Clinton to fall further than ever before. It’s likely that she simply got an extended bounce after the Democratic convention that has finally faded. It’s also possible that adverse headlines last week about the Clinton Foundation and thousands of newly discovered emails from the private email server Clinton used as secretary of state reinforced the reasons views of her had been worsening prior to the July conventions.

Clinton is keeping this race competitive with her own personal problems. And right now, the voters who will determine the next president don’t like her much more than they like Trump.

Not Satisfied

Excluding Trump, Hillary is the most unpopular major-party presidential nominee in US history. Registered voter disapproval: 59% vs. 60%

Shifting Odds

Nate Silver 2016-08-31

Nate Silver continues his silly projections. Supposedly Trump only had a 10.8% chance of winning on August 14.

Had the election been on August 30, I would have agreed. However, the election is on November 8.

Support for Hillary is dropping fast.

Winding Path

Nate Silver 2016-08-31A

I like that chart. It’s a great representation. And it looks ominous.

But mentally shift Florida, North Carolina, and Ohio to trump’s column. It will not nearly look as bad.

Those states are not totally independent. If one shifts they likely all will shift. And they have been shifting.

In fact, those states shifted enough for Silver to move Trump’s odds from 10.8% to 24.8% in just two weeks!

Silver presumes he knew what was happening (with 89% confidence) on August 14. Was he wrong then, or now, or both.

If you said both you are correct.

Silver’s Model Fatally Flawed

Attempts to project rapidly changing attitudes months in advance is ridiculous.

Silver’s model is fatally flawed for at least two reasons.

  • In the nomination process, Silver never incorporated the role of attitudes.
  • Silver now neglects the factor of time.

The further away from an event, the less confident one “should” be.

@nntaleb The election is not a tennis match between players of known skills. Changing attitudes and a huge time factor are in play!


Bellwether stock Apple is now forcing suppliers to accept price cuts and volume reductions
This gives us a good idea as to how the global economy is behaving!
(courtesy zero hedge)

“All Components Face Price Pressure” – Apple Forces Suppliers To Accept Price Cuts, As JPM Cuts Production Estimates

In the latest confirmation that the long-awaited rebound in demand for AAPL products keeps getting delayed, even as a surge in low-priced Chinese competition continues to steal market share, overnight the WSJ reported that the tech giant is forcing its suppliers to accept both price cuts and volume reductions in order to preserve profit margins: “as Apple Inc. grapples with falling iPhone sales this year, it is pushing to cut better deals for parts with its suppliers, while carriers in the crucial China market have mobilized to push iPhone sales with deep discounts. In recent months, Apple suppliers say the Cupertino, Calif., company has told them to accept price cuts for parts destined for the next-generation iPhone while cutting forecasts for order volume. This is likely to hurt some suppliers’ earnings in the second half of the year.”

And while AAPL is preparing to wage tax battle in Europe, it is engaged in a far more critical for its future profitability war in China, where in the past two weeks, China Telecom has started selling unlocked 16-gigabyte iPhone 6s models for 4,288 yuan (US$642), based on checks at its retail outlets, the WSJ reports. That is below a price of 5,288 yuan listed on Apple’s China website. Rival carriers China Mobile and China Unicom Corp. have also offered fresh iPhone discounts, although they aren’t as steep as China Telecom’s. In the U.S., major telecommunications operators sell the unlocked 16-gigabyte iPhone 6s for US$649.

While carriers typically discount iPhones before new-model launches, it is rare for iPhones to be cheaper in China than in the U.S., as a combination of import duties on components and value-added taxes boosts prices.

While Apple’s recent woes in China are nothing new, these moves highlight the difficulties Apple faces to shore up demand for its products as global demand slows and upstart Chinese companies become serious rivals. As a reminder, in Q3, Apple’s profit slumped 27% from a year earlier amid weaker sales especially in China. Meanwhile, Samsung, its biggest rival, reported its most profitable quarter in two years in the second quarter as it got a head start on shipping its latest Galaxy S7 smartphones.

Worse, by forcing its supply-chain to “eat” the decline in top line growth in order to preserve margins, Apple risks alienating key suppliers as well as adversely impacting their own supply-chains and operations, resulting in further production delays.

But the biggest surprise is not the price cut demands, but the corresponding volume declines: according to the WSJ, suppliers say this year Apple pushed to cut both component prices and order volume. The company told suppliers that despite the volume cuts, orders would rise significantly after new-device launches. But given that iPhone sales have been falling this year, suppliers say they are wary about betting on a smash hit. The demands for discounts have irked some suppliers, many of whom get a large proportion of their sales from iPhone parts.

“The reason why everybody is extremely unhappy about it recently is because they played a ‘double cut,’ cutting both the price and the volume of orders,” said a person at one of Apple’s suppliers.

While the ongoing cuts may help boost near-term results, over the long run AAPL’s strategy is likely to backfire: analysts say the discounted parts will likely help shore up Apple’s earnings in the second half, but damp profit outlooks for suppliers including iPhone assembler Foxconn Technology Group, metal casing manufacturer Catcher Technology Co. and chip-processing company Advanced Semiconductor Engineering Inc. While a few hard-to-replace Apple suppliers have strong bargaining positions—such as chip maker Taiwan Semiconductor Manufacturing Co. and camera lens module maker Largan Precision Co.—Apple has multiple sources for other components, giving it leverage to seek better prices.

Negotiations over cuts in component prices started in January, suppliers said, and have already begun to affect earnings figures for Apple and parts makers. The price cuts helped Apple beat analysts’ estimates in its latest quarter, analysts said, with gross margins coming in at 38%, in line with its estimate of 37.5% to 38%. Apple has forecast gross margins of 37.5% to 38% for the current quarter that ends in September.

Some component makers say Apple told them it could cultivate less-costly Chinese suppliers if they didn’t accept the price cuts.

Apple generally cultivates several secondary suppliers for each component, except for a few important parts—such as the processor—for which it is hard to find alternatives given the complexity in manufacturing.

“With global smartphone growth slowing, Apple needs to find a way to maintain its high gross margins,” Fubon Financial analyst Arthur Liao wrote in a note in July. “In our discussions with…the supply chain for the iPhone 7, all components except [the camera lens] face price pressure.”

Finally, adding insult to injury, in related news moments ago JPM analyst Narci Chang released a note in which he warned of “hiccups” in iPhone 7/7 Plus production, and cut its iPhone 7 production estimate for H2 to 70mm, down from 85-90mm last year for new models.

Based on our recent supply chain visits, we believe there could be supply hiccups at certain components (i.e. display BLU, casing, and EMS assembly); hence we expect some modest change to iPhone production build. Our expectation of iPhone 7/7 Plus build in 2H16 is now approaching 70mn units, down from 85-90mn level last year for new models, also down slightly from our previous expectation of 75-80mn units. However, total iPhone build stays roughly unchanged at ~110mn units in 2H16, suggesting strength in iPhone SE. For total iPhone production build, we now expect 45mn in 3Q and around 65mn in 4Q, respectively. Upside risks include (1) Impact from Apple Upgrade Program and (2) More Apple Store openings. New iPhone unpack event is scheduled for September 7, 2016.

Should this adverse trend continue, Tim Cook may be forced to do the unthinkable, and begin considering broader iPhone price cuts around the world, not just China, something which many have warned over the years, could be the beginning of the end for the company’s heretofore untouchable business model.


Well that is all for today

I will see you tomorrow night


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