August 3/GOLD RECOVERS FROM LAST NIGHT’S 7 PM FLASH CRASH BUT STILL DOWN $3.65/SILVER DOWN 10 CENTS/DESPITE THE DROP IN PRICE OF GOLD YESTERDAY, OPEN INTEREST RISES BY OVER 7,000 CONTRACTS/WAR OF WORDS BETWEEN INDIA AND CHINA INTENSIFY AS INDIAN TROOPS ARE STATIONED ON DISPUTED CHINESE LANDS/TRUMP TO ANNOUNCE A TRADE WAR WITH CHINA TOMORROW: CHINA IS FURIOUS!/

GOLD: $1268.70  DOWN $3.65

Silver: $16.64  DOWN 10 cent(s)

Closing access prices:

Gold $1268.60

silver: $16.68

SHANGHAI GOLD FIX:  FIRST FIX  10 15 PM EST  (2:15 SHANGHAI LOCAL TIME)

SECOND FIX:  2:15 AM EST  (6:15 SHANGHAI LOCAL TIME)

SHANGHAI FIRST GOLD FIX: $1268.88 DOLLARS PER OZ

NY PRICE OF GOLD AT EXACT SAME TIME:  $1263.50

PREMIUM FIRST FIX:  $5.38

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SECOND SHANGHAI GOLD FIX: $1266,17

NY GOLD PRICE AT THE EXACT SAME TIME: $1262.30

Premium of Shanghai 2nd fix/NY:$3.47

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LONDON FIRST GOLD FIX:  5:30 am est  $1261.80

NY PRICING AT THE EXACT SAME TIME: $1262.25 

LONDON SECOND GOLD FIX  10 AM: $1268.10

NY PRICING AT THE EXACT SAME TIME. $1267.35 

For comex gold:

AUGUST/

NOTICES FILINGS TODAY FOR APRIL CONTRACT MONTH: 73 NOTICE(S) FOR  7,300  OZ.

TOTAL NOTICES SO FAR: 3212 FOR 321,200 OZ (9.990 TONNES) 

For silver:

AUGUST

 2 NOTICES FILED TODAY FOR

10,000  OZ/

Total number of notices filed so far this month: 413 for 2,065,000 oz

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

end

 

Last night, the crooks engineered another flash crash at 7:06 pm est which forced gold down to 1256.  However, as in other days, gold/silver slowly recover on the day.  The crooks only weapon now is the shorting of gold/silver equity shares trying to contain the actual metals price rise.

Let us have a look at the data for today

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In silver, the total open interest FELL BY A TINY 1023 contracts from 207,258 DOWN TO 206,233 WITH THE FALL IN THE PRICE THAT SILVER TOOK WITH RESPECT TO YESTERDAY’S TRADING (DOWN 5 CENT(S). WHEN YOU COMPARE THE HUGE GAIN IN OI FOR GOLD THEN YOU MUST ADMIT THAT IT SURE LOOKS LIKE BOTH THE SPECULATOR SHORTS AND THE BANKER SHORTS ARE HAVING SEVERE PROBLEMS TRYING TO COVER THEIR SHORTFALL WHICH CANNOT COME TO FRUITION. THE LONGS REMAIN STOIC AND NOTHING WILL BUDGE OUR SILVER LEAVES FROM DEPARTING OUR SILVER TREE. YESTERDAY’S TRADING IS EVIDENCE OF THAT.

 In ounces, the OI is still represented by just OVER 1 BILLION oz i.e.  1.030 BILLION TO BE EXACT or 147% of annual global silver production (ex Russia & ex China).

FOR THE NEW FRONT MAY MONTH/ THEY FILED: 2 NOTICE(S) FOR 10,000  OZ OF SILVER

In gold, the open interest ROSE by A MONSTROUS 6,896 despite the FALL in price of gold ($0.65 yesterday.)  The new OI for the gold complex rests at 455,605. Yesterday we had the bankers supplying a major amount of short paper to newbie longs who entered the arena again like gangbusters.  The specs shorts covered what they could. .No wonder a flash crash was orchestrated at 7.01 pm last night with the intention of cooling gold’s jets. It seems that the raid failed again.  The bankers are losing control over the precious metal markets

we had: 73 notice(s) filed upon for 7300 oz of gold.

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

GLD:

Today, no changes in gold inventory

Inventory rests tonight: 791.88 tonnes

IN THE LAST 15 DAYS: GLD SHEDS 45.62 TONNES YET GOLD IS HIGHER BY $45.20 . GO FIGURE!!

SLV

Today: : WE ANOTHER HUGE CHANGES IN SILVER INVENTORY TONIGHT: A WITHDRAWAL OF 1,181,000 OZ FROM THE SLV

INVENTORY RESTS AT 340.551 MILLION OZ

end

.

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

1. Today, we had the open interest in silver FALL BY A TINY  1023 contracts from 207,258 down to 206,233 (AND now A LITTLE FURTHER FROM THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787). THE FALL IN OPEN INTEREST WAS ACCOMPANIED BY A SMALL LOSS IN PRICE FOR SILVER WITH RESPECT TO YESTERDAY’S TRADING  (DOWN 5 CENTS ).  WHEN WE SEE THE MASSIVE RISE IN GOLD OPEN INTEREST YESTERDAY, WE NO DOUBT WITNESSED MORE SPEC LONGS ENTER THE ARENA (with political unrest) WITH THE MAJORITY OF THE  SPEC LONGS AGAIN BASICALLY REMAINING STOIC. THE SPEC LONGS SEEM TO BE TAKING ON THE BANKERS. THE SPEC SHORTS ARE DESPERATE TO COVER THEIR SHORTFALL BUT THEY ARE COMING IN CONTACT WITH A LARGE NUMBER OF NEW SPEC LONGS . THE BANKERS HAD NO CHOICE BUT TO COVER SOME OF THEIR MASSIVE  SHORT PAPER WITH THE 5 CENT LOSS FROM SILVER. THE NET RESULT: A COMEX SILVER OPEN INTEREST  SLIGHT DECREASE AND THE REASON FOR LAST NIGHT’S ATTEMPTED FLASH CRASH.

(report Harvey)

.

2.a) The Shanghai and London gold fix report

(Harvey)

 

2 b) Gold/silver trading overnight Europe, Goldcore

(Mark O’Byrne/zerohedge

and in NY:  Bloomberg

3. ASIAN AFFAIRS

i)Late WEDNESDAY night/THURSDAY morning: Shanghai closed DOWN 12.13 POINTS OR 0.37%   / /Hang Sang CLOSED DOWN 76.37 POINTS OR 0.28% The Nikkei closed DOWN 50.78 POINTS OR .25%/Australia’s all ordinaires CLOSED DOWN 0.37%/Chinese yuan (ONSHORE) closed UP at 6.7222/Oil UP to 49.61 dollars per barrel for WTI and 52.34 for Brent. Stocks in Europe OPENED MIXED , Offshore yuan trades  6.7283 yuan to the dollar vs 6.7222 for onshore yuan. NOW THE OFFSHORE IS WEAKER  TO THE ONSHORE YUAN/ ONSHORE YUAN STRONGER (TO THE DOLLAR)  AND THE OFFSHORE YUAN IS MUCH WEAKER TO THE DOLLAR AND THIS IS COUPLED WITH THE SLIGHTLY STRONGER DOLLAR. CHINA IS NOT HAPPY TODAY

3a)THAILAND/SOUTH KOREA/NORTH KOREA

i)NORTH KOREA//USA

b) REPORT ON JAPAN

c) REPORT ON CHINA

i)CHINA/INDIA

Last week we brought you the story about a spat between India and China concerning lands on their border.

China lambastes India claiming that they had better leave Chinese land or face war

( zero hedge)

ii)CHINA USA

China’s response to Trump’s salvo into a trade war with China (see below USA stories)
Remember China has huge reserves of gold and silver and demands to increase these levels. It is also my contention that China will demand back all of the silver it lent the USA
( zero hedge)

4. EUROPEAN AFFAIRS

i)UK/BANK OF ENGLAND

The pound plunges after the Bank of England votes to keep rates unchanged and at record lows.  However the Bank cut growth forecast.

( zero hedge)

ii)EURO/EU

 

The euro continues to strengthen and this is certainly not what Europe wants as the higher euro hurts their competitiveness.  If tomorrow’s job report is weak, then they expect the Euro to top 1.20 to the dollar and this would be good for our precious metals

 

( zero hedge)

5. RUSSIAN AND MIDDLE EASTERN AFFAIRS

LIBYA

 Hillary Clinton’s intervention in Libya has created a huge emergency as 1.3 Libyans are in need of assistance as their economy grinds to a halt

( zero hedge)

6 .GLOBAL ISSUES

Toronto, Ontario Canada

 

Home prices fall by almost 5% and what is far worse:   volume dropped over 40%.  The provincial tax on home purchases was a mainstay of the Ontario Government which needs that revenue badly.  Ontario has the worst debt structure from any sub sovereign anywhere in the world.

(courtesy zerohedge)

7. OIL ISSUES

8. EMERGING MARKET

INDIA

seems that the new GST tax introduced by Modi is killing their economy.  New PMI down to recession like 46.

 

9.   PHYSICAL MARKETS

i)Another flash crash in gold at exactly 7:06 last evening as the crooks try to influence gold and silver.  All night gold and silver was down but as soon as we approached physical time zones, the metals rebound..they are losing control

 

( zero hedge)

ib)Flash crash fails! Let’s see what happens tonight at 7:06

( zero hedge)

 

 

ii)No transparency whatsoever at the LBMA London’s vaults

 

( Ronan Manly/Bullionstar/GATA)

 

iii)Kaminska talks about the splitting of the Bitcoin cryptocurrency and how this a mirroring a pre crash banking system

 

( Kaminska/London’s Financial times/GATA)

 

iv)A must read interview of John Embry talking to Kingworldnews.  Embry discusses how gold and silver are gaining traction as the dollar loses its reserves currency status

 

 

( John Embry/Kingworldnews)

10. USA Stories

i)A study on USA public pension funds show a return of a measly .6% instead of the 7.6% assumption.  This has creates massive liabilities and will no doubt bankrupt them

( zero hedge)

 

ii)What a joke: we have two service PMI:

1/ USA PMI

2. ISM service PMI

and both provided polar opposite results.

However what is clear, is that we are starting to see a fall in soft data reporting.  Hard data continually falters

 

( zero hedge)

 

iii)An excellent commentary explaining why the USA may be in a technical default come Sept 29 or early October once they reach their debt limit;

 

( zero hedge)

 

It begins:  Trump to launch a trade war with China on intellectual property and then probably on steel and aluminium/

 

( zerohedge)

iv) here are the winners and losers when the trade war breaks out between China and the uSA. What everybody forgets is the fact that China knows the weakness of the uSA: their gold and silver and China will more than oblige by buying an increasing level of those precious metals and putting them on her shores

( zero hedge)

 

v)In case you missed this yesterday;  Seymour Hersh reveals the truth behind Russia gate:

( Seymour Hersh./zero hedge)

vi)This is the reason that gold spiked up 3 dollars in the access market this afternoon:

 

Mueller impanels a grand jury into the Russian probe:

( zerohedge)

Let us head over to the comex:

The total gold comex open interest ROSE BY A MONSTROUS 6,896 CONTRACTS UP to an OI level of 455,605 DESPITE THE FALL IN THE PRICE OF GOLD ($0.65 with YESTERDAY’S trading). We had a huge number of newbie longs enter the gold area to which our crooked bankers were more than happy to comply. The specs shorts covered as fast as their feet could carry them. The excitement in gold forced our crooks to engineer another flash crash at 7:06 pm last night in an attempt to cool gold/silver’s jets. The price slowly recovered as we entered the physical time zones.  The crooks are losing control over the pricing of these precious metals.

We are now in the contract month of August and it is the 3rd best of the delivery months after December and June.

The active August contract LOST 220 contract(s) to stand at 2752 contracts. We had 193 notices filed upon yesterday so we lost 27 contracts or an additional 2700 oz will not stand at the comex and 27 EFP’s were issued which entitles the long holder to a fiat bonus plus a futures contract and most probably that would be a London based forward.

The non active September contract month saw it’s OI gain by 53 contracts up to 1920.

The next active contract month is Oct and here we saw a loss of 97 contracts down to 48,233.

The very big active December contract month saw it’s OI rise by 96904 contracts up to 351,330.

We had 73 notice(s) filed upon today for   7,300 oz

For those keeping score: in the upcoming front delivery month of August:

LAST YEAR WE HAD A MONSTROUS 44.7 TONNES OF GOLD INITIALLY.  BY THE CONCLUSION OF THE AUGUST CONTRACT MONTH 44.358 TONNES STOOD FOR DELIVERY.

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And now for the wild silver comex results.  Total silver OI FELL BY A TINY 1023 contracts FROM 207,258 down to 206,233 WITH YESTERDAY’S 5 CENT LOSS (AND DESPITE CONSTANT TORMENT THESE PAST FEW WEEKS). JUDGING FROM THE HIGH OPEN INTEREST GAIN IN GOLD, IT SEEMS THAT OUR BANKER FRIENDS AGAIN ARE DESPERATELY TRYING TO COVER THEIR SHORTS IN SILVER BUT AS YOU CAN SEE THAT THEY HAVE NOT BEEN AS SUCCESSFUL AS THEY WOULD HAVE LIKED. THE NEW SHORT SPECULATORS HAVE BY NOW  COVERED THEIR SHORTS.  THE BANKERS AGAIN HAVE BEEN FORCED TO COVER A TINY AMOUNT OF THEIR MASSIVE SHORTFALL WITH THE 5 PRICE LOSS OF SILVER. HOWEVER THAT DID NOT STOP ANOTHER INCREASE IN THE AMOUNT STANDING FOR SILVER IN THE UPCOMING NON ACTIVE MONTH OF AUGUST (SEE BELOW)

We are now in the next big non active silver contract month of August and here the OI  FELL BY 105 contracts. We had 107 notices filed yesterday.  Thus we gained 2 contracts or an additional 10,000 oz will stand.  We are proceeding again where we left off last month (July) and the month before that (June), and finally the month before that(May), where the amount standing increases as the month proceeds and it begins right on day 2.

The next active contract month is September (and the last active month until December) saw it’s OI fall by 969 contacts down to 137,445.  The next non active contract month for silver after September is October and here the OI LOST 2  contacts DOWN TO 18. After October, the big active contract month is December and here the OI FELL by 55 contracts DOWN to 59,199 contracts.

We had 2 notice(s) filed for 10,000 oz for the AUGUST 2017 contract

VOLUMES: for the gold comex

Today the estimated volume was 117,256 contracts which is POOR/

Yesterday’s confirmed volume was 219,750 contracts  which is GOOD

volumes on gold are STILL HIGHER THAN NORMAL!

Initial standings for AUGUST

 August 3/2017.

Gold Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  
nil oz
Deposits to the Dealer Inventory in oz   oz
Deposits to the Customer Inventory, in oz 
nil oz
No of oz served (contracts) today
 
73 notice(s)
7300 OZ
No of oz to be served (notices)
2679 contracts
(267,900 oz)
Total monthly oz gold served (contracts) so far this month
3212 notices
321,200 oz
9.990 tonnes
Total accumulative withdrawals  of gold from the Dealers inventory this month   NIL oz
Total accumulative withdrawal of gold from the Customer inventory this month   nil  oz
Today we HAD  0 kilobar transaction(s)/ 
total dealer deposits: nil oz
We had nil dealer withdrawals:
total dealer withdrawals:  0 oz
we had 0  customer deposit(s):
total customer deposits;nil  oz
We had 0 customer withdrawal(s)
total customer withdrawals;  nil oz
 we had 0 adjustment(s)
 
For AUGUST:

Today, 0 notice(s) were issued from JPMorgan dealer account and 5 notices were issued from their client or customer account. The total of all issuance by all participants equates to 73  contract(s)  of which 0 notices were stopped (received) by j.P. Morgan dealer and 4 notice(s) was (were) stopped/ Received) by j.P.Morgan customer account.

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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 (3212) x 100 oz or 321,200 oz, to which we add the difference between the open interest for the front month of AUGUST (2752 contracts) minus the number of notices served upon today (73) x 100 oz per contract equals 589,300  oz, the number of ounces standing in this active month of AUGUST.
 
Thus the INITIAL standings for gold for the AUGUST contract month:
No of notices served so far (3212) x 100 oz  or ounces + {(2751)OI for the front month  minus the number of  notices served upon today (73) x 100 oz which equals 589,300 oz standing in this  active delivery month of AUGUST  (18.329 tonnes)
 we lost 27 contracts or an additional 2700 oz will stand for delivery and 27 EFP’s for August were issued.
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Total dealer inventory 758,510.492 or 23.59 tonnes  (dealer gold continues to disappear)
Total gold inventory (dealer and customer) = 8,692,764.684 or 270.38 tonnes 
 
Over a year ago the comex had 303 tonnes of total gold. Today the total inventory rests at 270.38 tonnes for a  loss of 33  tonnes over that period.  Since August 8/2016 we have lost 84 tonnes leaving the comex. However I am including kilobar transactions and they are very suspect at best.
I have a sneaky feeling that these withdrawals of gold in kilobars are being used in the hypothecating process  and are being used in the raiding of gold!

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 of hypothecated gold sent to other jurisdictions so that they will not be short with their underwritten derivatives in that jurisdiction.  This would be similar to the rehypothecated gold used by Jon Corzine at MF Global.
 
IN THE LAST 11 MONTHS  84 NET TONNES HAS LEFT THE COMEX.
end
And now for silver
AND NOW THE AUGUST DELIVERY MONTH
 
August initial standings
 August 3 2017
Silver Ounces
Withdrawals from Dealers Inventory  nil
Withdrawals from Customer Inventory
40,445.890 oz
CNT
Deposits to the Dealer Inventory
nil  oz
Deposits to the Customer Inventory 
 nil
oz
No of oz served today (contracts)
2 CONTRACT(S)
(10,000 OZ)
No of oz to be served (notices)
209 contracts
( 1,045,000 oz)
Total monthly oz silver served (contracts) 413 contracts (2,065,000 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 231,126.0 oz
today, we had  0 deposit(s) into the dealer account:
total dealer deposit: nil   oz
we had 0 dealer withdrawals:
total dealer withdrawals: NIL oz
we had 1 customer withdrawal(s):
ii) out of CNT: 40,445.89 oz
TOTAL CUSTOMER WITHDRAWALS:  40,445.89 oz
We had 0 Customer deposit(s):
***deposits into JPMorgan have stopped  again
In the month of March and February, JPMorgan stopped (received) almost all of the comex silver contracts.
why is JPMorgan bringing in so much silver??? why is this not criminal in that they are also the massive short in silver
total customer deposits: nil oz
 
 we had 0 adjustment(s)
The total number of notices filed today for the AUGUST. contract month is represented by 2 contract(s) for 10,000 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 413 x 5,000 oz  = 2,065,000 oz to which we add the difference between the open interest for the front month of AUGUST (211) and the number of notices served upon today (2) x 5000 oz equals the number of ounces standing
 

 

.
 
Thus the INITIAL standings for silver for the AUGUST contract month:  413 (notices served so far)x 5000 oz  + OI for front month of AUGUST(211 ) -number of notices served upon today (2)x 5000 oz  equals  3,110,000 oz  of silver standing for the AUGUST contract month. This is extremely high for a non active delivery month. Silver is being constantly demanded at the silver comex and we witness again the amount of silver increases daily right from the get go.
We gained 2 contracts or an additional 10,000 oz are standing for delivery and again 0 EFP’s were issued for the silver August month.
 
 
 
 
Volumes: for silver comex
Today the estimated volume was 34,885 which is GOOD
YESTERDAY’s  confirmed volume was 86,778 contracts which is HUGE
YESTERDAY’S CONFIRMED VOLUME OF 86,778 CONTRACTS WHICH EQUATES TO 433 MILLION OZ OF SILVER OR 62% OF ANNUAL GLOBAL PRODUCTION OF SILVER EX CHINA EX RUSSIA). IN OUR HEARINGS THE COMMISSIONERS STRESSED THAT THE OPEN INTEREST SHOULD BE AROUND 3% OF THE MARKET.
 
Total dealer silver:  38.544 million (close to record low inventory  
Total number of dealer and customer silver:   215.743 million oz
The record level of silver open interest is 234,787 contracts set on April 21./2017  with the price at that day at  $18.42
The previous record was 224,540 contracts with the price at that time of $20.44
end

NPV for Sprott and Central Fund of Canada

1. Central Fund of Canada: traded at Negative 7.1 percent to NAV usa funds and Negative 6.7% to NAV for Cdn funds!!!! 
Percentage of fund in gold 63.0%
Percentage of fund in silver:37.0%
cash .+0.0%( August 3/2017) 
2. Sprott silver fund (PSLV): STOCK   NAV RISES TO +0.23% (August 3/2017) 
3. Sprott gold fund (PHYS): premium to NAV RISES TO -0.66% to NAV  (August 3/2017 )
Note: Sprott silver trust back  into POSITIVE territory at +0.23/Sprott physical gold trust is back into NEGATIVE/ territory at -0.66%/Central fund of Canada’s is still in jail  but being rescued by Sprott.

Sprott’s hostile 3.1 billion bid to take over Central Fund of Canada

(courtesy Sprott/GATA)

Sprott makes hostile $3.1 billion bid for Central Fund of Canada

 Section: Daily Dispatches

From the Canadian Press
via Canadian Broadcasting Corp. News, Toronto
Wednesday, March 8, 2017

http://www.cbc.ca/news/canada/calgary/sprott-takeover-bid-central-fund-c…

Toronto-based Sprott Inc. said Wednesday it’s making an all-share hostile takeover bid worth $3.1 billion US for rival bullion holder Central Fund of Canada Ltd.

The money-management firm has filed an application with the Court of Queen’s Bench of Alberta seeking to allow shareholders of Calgary-based Central Fund to swap their shares for ones in a newly-formed trust that would be substantially similar to Sprott’s existing precious metal holding entities.

The company is going through the courts after its efforts to strike a friendly deal were rebuffed by the Spicer family that controls Central Fund, said Sprott spokesman Glen Williams.

“They weren’t interested in having those discussions,” Williams said.

 Sprott is using the courts to try to give holders of the 252 million non-voting class A shares a say in takeover bids, which Central Fund explicitly states they have no right to participate in. That voting right is reserved for the 40,000 common shares outstanding, which the family of J.C. Stefan Spicer, chairman and CEO of Central Fund, control.

If successful through the courts, Sprott would then need the support of two-thirds of shareholder votes to close the takeover deal, but there’s no guarantee they will make it that far.

“It is unusual to go this route,” said Williams. “There’s no specific precedent where this has worked.”

Sprott did have success last year in taking over Central GoldTrust, a similar fund that was controlled by the Spicer family, after securing support from more than 96 percent of shareholder votes cast.

The firm says Central Fund’s shares are trading at a discount to net asset value and a takeover by Sprott could unlock US$304 million in shareholder value.

Central Fund did not have any immediate comment on the unsolicited offer. Williams said Sprott had not yet heard from Central Fund on the proposal but that some shareholders had already contacted them to voice their support.

Sprott’s existing precious metal holding companies are designed to allow investors to own gold and other metals without having to worry about taking care of the physical bullion.

end

And now the Gold inventory at the GLD

August 3/no change in gold inventory at the GLD/Inventory rests at 791.88 tonnes

August 2/NO CHANGES IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 791.88 TONNES

Aug 1/NO CHANGE IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 791.88 TONNES

July 31/NO CHANGES AT THE GLD/INVENTORY RESTS AT 791.88 TONNES

July 28/ANOTHER MASSIVE WITHDRAWAL OF 3.54 TONNES OF GOLD WITH GOLD UP $9.15/INVENTORY RESTS AT 791.88 TONNES

July 27/LATE LAST NIGHT, A HUGE WITHDRAWAL OF 5.03 TONNES WITH GOLD UP $10.45 ON THE DAY/INVENTORY RESTS AT 795.42 TONNES

July 26/NO CHANGE IN GLD INVENTORY WITH GOLD DOWN $2.55/INVENTORY RESTS AT 800.45 TONNES

July 25/A MASSIVE 9.17 TONNES OF GOLD WITHDRAWN FROM THE GLD/INVENTORY RESTS AT 800.45 TONNES

July 24/A massive 9.62 tonnes withdrawal and yet the price remains constant (down only 25 cents)..inventory drops to 809.62 tonnes

July 21/with gold up $8.75 again, we had no changes in gold inventory at the GLD/inventory rests at 816.13 tonnes

July 20/WITH GOLD UP AGAIN TODAY ($3.50) WE HAD NO CHANGES IN GOLD INVENTORY AT THE GLD/INVENTORY RESTS AT 816.13 TONNES

jULY 19/STRANGE!! AGAIN WITH GOLD UP $0.50 WE HAD ANOTHER HUGE 5.32 TONNES WITHDRAWAL FROM THE GLD/INVENTORY RESTS AT 816.13 TONNES  THIS GOLD IS HEADING TO SHANGHAI

July 18/STRANGE AGAIN/WITH GOLD UP $7.50 WE HAD ANOTHER HUGE 5.62 TONNES WITHDRAWAL FROM THE GLD/INVENTORY RESTS AT 821.45 TONNES

July 17/strange again! with gold up $4.20 we had another huge withdrawal of 1.77 tonnes/inventory rests at 827.07 tonnes

July 14/strange@!!with gold up $12.00 today, we had a huge withdrawal of 3.55 tonnes/inventory rests at 828.84 tonnes

July 13/no change in gold inventory at the GLD/inventory rests at 832.39 tonnes

JULY 12/no change in gold inventory at the GLD/inventory rests at 832.39 tonnes

July 11/strange!@! we had a big withdrawal of 2.96 tonnes despite gold’s advance today/inventory rests tonight at 832.39 tonnes

July 10/no changes in gold inventory at the GLD/inventory rests at 835.35 tonnes

July 7/a massive withdrawal of 5.32 tonnes of paper gold were removed and this was used in the attack today/inventory rests at 835.35 tonnes

July 6/no changes in tonnage at the GLD/Inventory rests at 840.67 tonnes

July 5/A MASSIVE 5.62 TONNES OF GOLD LEFT THE GLD AND NO DOUBT WAS USED IN THE RAID THIS MORNING/INVENTORY REST

July 3/ A MASSIVE 7.37 TONNES OF GOLD LEAVE THE GLD/INVENTORY RESTS AT 846.29 TONNES

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
August 3 /2017/ Inventory rests tonight at 791.88 tonnes
*IN LAST 203 TRADING DAYS: 158.36 NET TONNES HAVE BEEN REMOVED FROM THE GLD
*LAST 144 TRADING DAYS: A NET  30.93 TONNES HAVE NOW BEEN WITHDRAWN FROM  GLD INVENTORY.
*FROM FEB 1/2017: A NET  17.74 TONNES HAVE BEEN WITHDRAWN.

end

Now the SLV Inventory

August 3/A WITHDRAWAL OF 1,181,000 OZ FROM THE SLV/INVENTOR RESTS AT 340.551 MILLION OZ/

August 2/NO CHANGES IN SILVER INVENTORY AT THE SLV

INVENTORY RESTS AT 341.732 MILLION OZ/

August 1/A HUGE WITHDRAWAL OF 945,000 OZ/INVENTORY RESTS AT 341.732 MILLION OZ/

July 31/no change in silver inventory at the SLV/inventory rests at 342.677 million oz

July 28/ A HUGE WITHDRAWAL OF 1.15 MILLION OZ OF SILVER LEAVES THE SLV DESPITE SILVER BEING UP 11 CENTS TODAY/INVENTORY RESTS AT  342.677 MILLION OZ

July 27/NO CHANGE IN SILVER INVENTORY/INVENTORY RESTS AT 343.812 MILLION OZ WITH SILVER UP 13 CENTS TODAY.

July 26/NO CHANGE IN SILVER INVENTORY/INVENTORY RESTS AT 343.812 MILLION OZ

July 25/A MASSIVE 3.309 MILLION OZ OF INVENTORY WITHDRAWN FROM THE SLV DESPITE SILVER’S 10 CENT RISE TODAY.

July 24/no change in silver inventory despite its 4 cent drop/inventory remains at 347.121 million oz

July 21/STRANGE! WITH SILVER UP AGAIN TODAY (11 CENTS), NO CHANGE IN SILVER INVENTORY AT THE SLV/inventory 347.121 million oz/

July 20/STRANGE! WITH SILVER UP AGAIN TODAY, THE SLV INVENTORY LOWERS BY 945,000 OZ/INVENTORY RESTS AT 347.121 MILLION OZ/

July 19/NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 348.066 MILLION OZ

July 18/a huge 946,000 oz withdrawal from the SLV despite silver’s 16 cent gain!

Inventory rests at 348.066 million oz

July 17/no change in silver inventory at the SLV/Inventory rests at 349.012 million oz

July 14/no change in silver inventory/inventory rests at 349.012 million oz/

July 13/no change in silver inventory/inventory at the SLV rests at 349.012 million oz/

JULY 12/another massive 1.986 million oz of silver added into the SLV/inventory rests at 349.012 million oz/the last 3 days saw 7.281 million oz added into the SV

July 11/ANOTHER MASSIVE INCREASE OF 2.364 MILLION OZ into the SLV inventory/inventory rests at 347.026 million oz

July 10/ A HUGE INCREASE OF 2.931 MILLION OZ OF SILVER DESPITE THE EARLY HIT ON SILVER THIS MORNING/INVENTORY RESTS AT 344.662 MILLION OZ.

July 7/Strange: no change in inventory (compare that with gold) Inventory rests at 341.731 million oz

July 6/ANOTHER MASSIVE DEPOSIT OF 2.126 MILLION OZ INTO THE SLV INVENTORY/INVENTORY RESTS AT 341.731 MILLION OZ.

July 5/STRANGE! NO CHANGE IN SILVER INVENTORY AT THE SLV/INVENTORY RESTS AT 339.605 MILLION OZ

July 3/strange! with the huge whacking of silver we got an increase of 379,000 oz into inventory.

August 3.2017:

 Inventory 340.551  million oz
end
  • 6 Month MM GOFO

    Indicative gold forward offer rate for a 6 month duration

    + 1.28%
  • 12 Month MM GOFO
    + 1.45%
  • 30 day trend

end

Here is a review of the 3 latest comex waterfall (whacks) on gold and silver not including the current one we are undergoing.  I have taken the nadir of the gold price before it started to rise again and compared it to OI in both gold and silver with the OPEN INTEREST.  The OI readings are the following day but we are always one day behind so this compares exactly to the nadir price.
First waterfall ended Oct 6 2016/ Nadir price of gold at that date Oct 6 2016 : $1254.70 / OI for gold Oct 7/2016: 511,340//OI for silver/Oct 7.2016: 194,811
Second waterfall ended Dec 15.2016:Nadir Price of gold Dec 15.2016:      $1128.20              //OI for gold Dec 16/2016 401,798// OI for silver: Dec 16/16 161,570
Third waterfall ended May 10/2017: Nadir Price of gold May 10 2016:   $1220.95              //  OI for gold May 11: 425,252//  OI for silver May 11/17: 199,826
and for comparison while we are undergoing another waterfall these past several weeks
 Today’s price of gold $1268.80                                                                                                    OI for gold today: 455,605//Oi for silver  206,233
The first waterfall corresponds to a silver price of $17.30 on Oct 6
The second waterfall corresponds to a silver price of $15.90 on Dec 15
The third waterfall corresponds to a silver price of $17.37 on May 10
and today:  silver price of $16.65
Since the bottom of the second waterfall the price of gold at its nadir is about the same ($1220 and $1226), but the OI for gold is much higher along with silver OI also much higher. (425,252 and 455,605 OI for gold) accompanying  199,826 and 206,233 for silver)
It seems the data suggests power manipulation to control the price through paper!

END

  Major gold/silver trading/commentaries for THURSDAY

GOLDCORE/BLOG/MARK O’BYRNE.

GOLD/SILVER

Gold Coins and Bars See Demand Rise of 11% in H2, 2017

Gold coins, bars see demand rise of 11% in H2, 2017 to 532 tonnes according to WGC Gold Demand Trends
– Gold investment demand strong in China, India & Turkey
– Demand in Turkey surges on double digit inflation
– Total gold demand declines in Q2 on slower U.S. ETF inflows
– Gold held in ETFs in Europe reached all time high of 978t
– U.S. ETF inflows slowed from last year’s record
– Central banks continue to buy – 94t of declared purchases
– Turkey joined Kazakhstan & Russia in buying gold
– Well balanced market: ETF inflows continue and jewellery, technology and bar & coin demand up
– Important to note this is all official, transparent and recorded demand. There is demand and flows of gold that cannot be and are not recorded – especially into the Middle East, India, Russia and of course China

Key findings included in the Gold Demand Trends Q2 2017 report are as follows:

  • Overall demand was 953t, a fall of 10% compared with 1,056t in Q2 2016
  • Total consumer demand rose by 9% to 722t, from 660t in the same period last year
  • Total investment demand (ETFs) fell 34% to 297t compared with 450t in Q2 2016
  • Gold coins and bars rebounded 13% in H1
  • Global jewellery demand grew 8% to 481 TONNES, from 447 TONNES in the same period last year
  • Central bank demand climbed 20% to 94t compared with 78t in Q2 2016
  • Demand in the technology sector increased 2% to 81t compared with 80t in Q2 2016
  • Total supply was down 8% to 1,066t, from 1,160t in the same period last year (HARVEY: EQUALS 2,200 TONNES PER YEAR)
  • Recycling fell 18% to 280t compared with 343t in Q2 2016

The Gold Demand Trends Q2 2017 report, which includes comprehensive data provided by Metals Focus, can be viewed at Gold Demand Trends.

News and Commentary

Gold could strengthen on seasonality in August and September – GoldCore via Marketwatch (MarketWatch.com)

Dow has its first close above 22,000 (Yahoo.com)

Trump Signs Russia Sanctions Bill, But Lays Out His Concerns About the Law (Bloomberg.com)

‘Zuma will use the army to cling to power if he loses next week’s no confidence vote’ – analyst (TheSouthAfrican.com)

Man claims to have found first silver piece minted by the U.S. (CTVNews.ca)

Source: Palisade via GoldCore

Turks Panic-Buy The Most Gold Ever In July (ZeroHedge.com)

What Is It About 1906ET That Spooks Precious Metals ‘Traders’? (ZeroHedge.com)

Dollar And Equities Will Plunge Together – While Gold Spikes (DollarCollapse.com)

Wont Be Long Now – Amazon and the New Tech Crash (DailyReckoning.com)

Crypto-currencies are mirroring pre-crash banking systems – Kaminska (FT.com)

Gold Prices (LBMA AM)

03 Aug: USD 1,261.80, GBP 952.41 & EUR 1,064.96 per ounce
02 Aug: USD 1,266.65, GBP 956.83 & EUR 1,069.56 per ounce
01 Aug: USD 1,267.05, GBP 957.76 & EUR 1,072.30 per ounce
31 Jul: USD 1,266.35, GBP 965.59 & EUR 1,079.06 per ounce
28 Jul: USD 1,259.60, GBP 961.96 & EUR 1,075.45 per ounce
27 Jul: USD 1,262.05, GBP 960.29 & EUR 1,076.53 per ounce
26 Jul: USD 1,245.40, GBP 956.72 & EUR 1,071.29 per ounce

Silver Prices (LBMA)

03 Aug: USD 16.47, GBP 12.50 & EUR 13.91 per ounce
02 Aug: USD 16.67, GBP 12.60 & EUR 14.09 per ounce
01 Aug: USD 16.74, GBP 12.67 & EUR 14.17 per ounce
31 Jul: USD 16.76, GBP 12.77 & EUR 14.29 per ounce
28 Jul: USD 16.56, GBP 12.66 & EUR 14.15 per ounce
27 Jul: USD 16.79, GBP 12.77 & EUR 14.34 per ounce
26 Jul: USD 16.37, GBP 12.54 & EUR 14.06 per ounce


Recent Market Updates

– Greenspan Warns Stagflation Like 1970s “Not Good For Asset Prices”
– What Investors Can Learn From the Japanese Art of Kintsukuroi
– Bitcoin, ICO Risk Versus Immutable Gold and Silver
– This Is Why Shrinkflation Is Making You Poor
– Gold A Good Store Of Value – Protect From $217 Trillion Global Debt Bubble
– Why Surging UK Household Debt Will Cause The Next Crisis
– Gold Seasonal Sweet Spot – August and September – Coming
– Commercial Property Market In Dublin Is Inflated and May Burst Again
– Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing
– Millennials Can Punt On Bitcoin, Own Gold and Silver For Long Term
– “Time To Position In Gold Is Right Now” says Jim Rickards
– Bloomberg Silver Price Survey – Median 12 Month Forecast Of $20
– “Bigger Systemic Risk” Now Than 2008 – Bank of England

end

Another flash crash in gold at exactly 7:06 last evening as the crooks try to influence gold and silver.  All night gold and silver was down but as soon as we approached physical time zones, the metals rebound..they are losing control

 

(courtesy zero hedge)

It’s 7pm In New York, Do You Know Where Your Precious Metals Manipulators Are?

It appears the machines have found a new pattern to follow…

Last night we pointed out the ‘odd’ – in the sense that nothing amazes us anymore, but still, behavior in precious metals futures markets.

At 1906 ET last night, Silver futures flash-smashed higher, running the day’s high-stops, before plunging back to earth…

Gold futures also followed suit tonight…

 

This would normally be shrugged off as just another example of the utter farce that global capital markets have become. However, a glance back in recent history at the silver market’s most recent chaos moment – on July 6th – and a ‘funny’ thing stood out!!!

Gold also followed suit that night too…

h/t @TFMetals

At exactly 1906 ET on July 6th, Silver futures flash-crashed (some say over 10%, though many data feeds have been subsequently ‘cleansed’ of that sin), before normalizing.

*  *  *

And sure enough, tonight, at exactly 1906ET once again, ‘someone’ went to town on Silver & Gold futures…

 

And it even looks like the machines tried to front-run each other a little into the 1906ET mini-flash-crash

So, we ask again, what is it about 1906ET that sends the algos in overdrive? Or is it all just coincidence? Probably nothing, right?

It’s now deja deja vu all over again…

 

 

END

 

Flash crash fails! Let’s see what happens tonight at 7:06

(courtesy zero hedge)

Gold Erases Flash-Crash Losses As Dollar, Bond Yields Slide After Dismal ISM Data

When even the ‘soft’ survey data is disappointing – catching down to collapsing ‘hard’ data – it seems markets can’t ignore reality any longer. While stocks are marginally lower following the collapse in ISM Services, Bond yields and the dollar are tumbling as gold lifts…

The Dolar Index is testing yesterday’s lows (and cycle lows)…

 

And the 30Y yield is back at two week lows…

 

And gold has erased all of its flash crash losses overnight

So let’s see what happens at 1906ET tonight?

end

 

No transparency whatsoever at the LBMA London’s vaults

 

(courtesy Ronan Manly/Bullionstar)

Ronan Manly: Little transparency in LBMA’s London vault report

 Section: 

7:45a ET Wednesday, August 2, 2017

Dear Friend of GATA and Gold:

This week’s report by the London Bullion Market Association about the gold and silver held in London-area vaults brings little transparency to the issue and even contradicts itself, gold researcher Ronan Manly writes today.

Manly concludes: “The amount of gold in the London LBMA gold vaults (including the Bank of England’s) that is not central bank gold, that is not exchange-traded fund gold, and that is not institutional allocated gold is quite a low number. The actual number is difficult to determine because a) the LBMA will not produce a proper vault report that shows ownership of gold by category of holder, and b) neither will the Bank of England in its gold vault reporting provide a breakdown between the gold owned by central banks and the gold owned by bullion banks.

“So there is still no real transparency in this area — just a faint chink of light into a dark cavern.

“On the topic of London-vaulted silver, there appears to be a lot more silver in the LBMA vaults than even GFMS thought there was. It will be interesting to see how GFMS and the LBMA will resolve their apparent contradiction on the amount of silver stored in the London LBMA vaults.”

Manly’s analysis is headlined “LBMA Gold Vault Data — How Low Is the London Gold Float?” and it’s posted at Bullion Star here:

https://www.bullionstar.com/blogs/ronan-manly/lbma-gold-vault-data-relea…

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

 

END

 

Kaminska talks about the splitting of the Bitcoin cryptocurrency and how this a mirroring a pre crash banking system

 

(courtesy Kaminska/London’s Financial times)

 

 

Izabella Kaminska: Crypto-currencies are mirroring pre-crash banking systems

 Section: 

By Izabella Kaminska
Financial Times, London
Tuesday, August 1, 2017

https://www.ft.com/content/9b464912-76ae-11e7-90c0-90a9d1bc9691

When bitcoin, the crypto currency, first arrived on the scene in 2009 it sold itself on a simple principle.

Unlike central bank money, the supply of which could be expanded on the whim of a non-democratically elected committee, bitcoin’s supply would remain capped at 21 million coins at any cost. This would be effected by way of a decentralised protocol, making it theoretically impossible for any single authority to override or control it.

This, ultimately, was bitcoin’s promise to the world: a currency manufactured and supported by the users for the users, which no single entity could manipulate, and which no third party was required to intermediate. Understandably the pledge appealed most to those who might describe themselves as hard-money enthusiasts. Their view was that uncontrolled money creation was the probable cause of most economic instability in the world and must therefore be constrained. Bitcoin offered them the perfect conduit for this vision.

More than eight years after bitcoin’s arrival, most of these principles have fallen by the wayside. Bitcoin spawned a litany of copycat systems — each with its own profiteering opportunity for early adopters. It no longer matters, for example, that the system is being engulfed by rogue and untethered private-money creation. Nor does it seem to matter that it’s been a long time since bitcoin could be honestly described as a decentralised system, free of intermediaries

Economies of scale, as is their habit, have ensured only a handful of professional mining outfits and pools control the bitcoin production scene — they can collude oligopolistically if they want. What matters is that the crypto scene’s popularity and profitability are soaring, especially for those who have become the new bitcoin power elite.

Even bitcoin is succumbing to the pressure. As of Tuesday a bitter ideological dispute over how the protocol should scale in the future has led to a breakaway version of the original currency. Because of the way bitcoin is designed, if this breakaway copy gains traction with miners, corporations and users — something we could know within a few hours or days — it could immediately expand bitcoin’s lifetime money supply to 42 million from 21 million.

Dubbed “bitcoin cash,” this money-creating breakaway ironically owes its existence to the more puritanical part of the community, who insist that replica bitcoin systems (known as sidechains) should never be allowed to tie themselves to the core system without limit; that would replicate the conventional and inflationary banking system.

Unsurprisingly, it is the miners, corporations, and intermediaries who support these sidechains: Only by forgoing some of their core principles can they remain profitable in this sector. Bitcoin purists tend to be the staunchest critics of the expanded crypto scene, pointing out that almost every day a new token or coin is being issued into the market on the flawed assumption that full convertibility and liquidity can be guaranteed.

Today’s crypto system is beginning to replicate the pre-crisis financial system of the United Kingdom, when banks — as long as they had acceptable assets to pledge at the central bank — could receive whatever official liquidity they demanded. For everything else, such as self-created assets, there was the wholesale funding market. We know many of these assets were self-valued at entirely fantastical rates. When the wholesale market froze up, only the central bank had the capacity to support them. The purists understand that the crypto scene will not have that saving grace.

That makes the bitcoin fork a judgment-of-Solomon moment. Only a decisive win by either side will prevent bitcoin from splitting itself apart. Who, if anyone, gives way in the event of a standoff will be a telling indicator of what really motivates the community.

END

A must read interview of John Embry talking to Kingworldnews.  Embry discusses how gold and silver are gaining traction as the dollar loses its reserves currency status

 

 

(courtesy John Embry/Kingworldnews)

 

Dollar’s loss of reserve status will goose monetary metals, Embry tells KWN

 Section: 

7:40p ET Wednesday, August 2, 2017

Dear Friend of GATA and Gold:

Sprott Asset Management’s John Embry tells King World News today that the U.S. dollar may become the primary cause of breakouts in gold and silver as the dollar gradually loses its status as the world reserve currency. Embry’s comments are excerpted at KWN here:

http://kingworldnews.com/john-embry-we-are-about-to-enter-a-period-that-…

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


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 STRONGER 6.7222(REVALUATION NORTHBOUND   /OFFSHORE YUAN MOVES WEAKER TO ONSHORE AT   6.7283/ Shanghai bourse CLOSED DOWN 12.13 POINTS OR 0.37%  / HANG SANG CLOSED DOWN 76,37 POINTS OR 0.28% 

2. Nikkei closed DOWN 50.78 POINTS OR .25%    /USA: YEN FALLS TO 110.48

3. Europe stocks OPENED MIXED  TO RED      ( /USA dollar index RISES TO  93.02/Euro DOWN to 1.1838

3b Japan 10 year bond yield: FALLS  TO  +.069%/ GOVERNMENT INTERVENTION    !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 114.34/ THIS IS TROUBLESOME AS BANK OF JAPAN IS RUNNING OUT OF BONDS TO BUY./JAPAN 10 YR YIELD FINALLY IN THE POSITIVE/BANK OF JAPAN LOSING CONTROL OF THEIR YIELD CURVE AS THEY PURCHASE ALL BONDS TO GET TO ZERO RATE!!

3c Nikkei now JUST BELOW 17,000

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

3e WTI::  49.61 and Brent: 52/34

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” OFF THE TABLE FOR NOW /REVERSE OPERATION TWIST ON THE BONDS: PURCHASE OF LONG BONDS  AND SELLING THE SHORT END

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

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

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10yr bund FALLS TO  +.485%/Italian 10 yr bond yield DOWN  to 2.016%    

3j Greek 10 year bond yield FALLS to  : 5.483???  

3k Gold at $1267.00  silver at:16.54 (8:15 am est)   SILVER BELOW  RESISTANCE AT $18.50 

3l USA vs Russian rouble; (Russian rouble DOWN 2/100 in  roubles/dollar) 60.58-

3m oil into the 49 dollar handle for WTI and 52 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 SIZED REVALUATION NORTHBOUND 

JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 110.48 DESTROYING JAPANESE CITIZENS WITH HIGHER FOOD INFLATION

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning  0.9696 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1477 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/LOWER PARLIAMENT APPROVES BREXIT COMMENCEMENT/ARTICLE 50 COMMENCES MARCH 29/2017 

3r the 10 Year German bund now POSITIVE territory with the 10 year FALLING to  +0.483%

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 2.2549% early this morning. Thirty year rate  at 2.8390% /POLICY ERROR)GETTING DANGEROUSLY HIGH

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

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

Tech Stumble Drags Global Markets Lower; All Eyes On The BOE

E-mini futures are fractionally lower this morning (0.08%) after Apple’s surge helped the DJIA climb above 22,000 for the first time on Wednesday; Global shares declined for the first time in 4 days pressured by tech stocks: Asian shares fell, while Europe pared opening losses to trade unchanged.

Global markets fell on Thursday, as the MSCI All-Country World Index declined for the first time in four days, led by a tumble in tech shares as investors locked in recent gains after Wall Street’s Dow Jones Industrial Average broke the 22,000 barrier for the first tim. Despite the Dow’s record close above 22,000, caution crept into Asian trading as the MSCI’s index of Asia-Pacific shares ex-Japan fell 0.7%, with China, HK, Japan and Australia all down, while South Korean stocks plunged 1.7%, the biggest drop since November on plans to raise taxes for big corporations. The Kospi index fell as much as 2.2 percent, the most since Nov. 9. Samsung Electronics Co., which has the largest weighting on the index, dropped 2.5 percent. Japan’s Topix index closed little changed near a two-year high as investors parse through recent earnings results.  Australia’s S&P/ASX 200 Index lost 0.2 percent as Rio Tinto shares tracked their London stock lower. Hong Kong’s Hang Seng Index was down 0.3 percent and the Shanghai Composite Index fell 0.4 percent.

“We haven’t seen a major correction in tech shares so far this year so they may be hitting a speed bump,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

In Europe, stock markets opened broadly lower, with Germany’s DAX slipping 0.6 percent and France’s CAC 0.4 percent lower, however initial losses have been since recouped with energy shares dragging as investors digested a rebound in American oil output that had crude prices fluctuating. Germany’s DAX falls 0.5%, testing 3-month lows hit on Tuesday, with heavyweight Siemens dropping 2.8% after posting mixed quarterly results. Furthermore, Germany’s July composite PMI slid to 54.7, the lowest since September, vs the flash reading of 55.1, well below the euro-area July composite PMI at 55.7. Data show Germany trailed euro-area peers for first time in 12 years. Technology stocks in Europe slipped 0.3 percent. “I don’t see too much in the way of downside for European stocks because economic data is strong – take a look at the Italian data today,” said Michael Hewson, chief market analyst at CMC Markets. The British pound strengthened before a rates decision.

The Bloomberg Dollar Spot index held near a 15-month low ahead of Friday’s U.S. payrolls data. In the overnight session, both the Aussie and Kiwi slid against the dollar as investors prepared for the RBA statement Friday, and RBNZ meeting on Aug. 10, as the dollar keeps trying to recover from a 31-month low against euro. In Europe, the pound rose to the highest level since September against the dollar amid bets for a hawkish tilt in BOE’s rates outlook.  The dollar inched away from a 15-month low versus a basket of currencies, but was still looking wobbly due to doubts about whether there will be another U.S. interest rate rise this year. The dollar index, which measures the greenback’s value against a basket of six major currencies, rose about 0.12 percent to 92.951. On Wednesday, it slid to 92.548, its weakest level since May 2016.

Of note, the ruble extended its drop against the dollar to a sixth day as oil fell and U.S. President Donald Trump signed into law Russian sanctions aimed at squeezing financing of the country’s energy industry. The Russian currency dropped 0.2% to 60.72 per dollar, taking losses over the past six sessions to 2.4%.  While immediate market impact of the new law is “negligible,” and most of the longer term impacts are “theoretical and debatable,” some negative market impact due to worsened perceptions of Russian political risk for international investors is still possible, Sberbank CIB analysts Cole Akeson and Andrey Kuznetsov write in research note.

European government bond yields edged slightly higher, with Germany’s 10-year yield rising less than one basis point to 0.49% . The yield on 10-year Treasuries dipped one basis point to 2.26%. The U.K.’s FTSE 100 Index gained less than 0.1 percent.

As Bloomberg notes, while corporate results have been largely dominating sentiment this week, Friday’s report on the U.S. employment market may provide the next inflection point.  Investors are looking for clues on the strength of the world’s largest economy and the Federal Reserve’s next policy move, not least to see if the dollar will get any respite.

“Despite the recent pull back, the dollar remains broadly overvalued, and the starting point matters,” UBS strategists including Manik Narain wrote in a client note. “Expensive valuation reduces the likelihood of a further broad dollar rally.”

Today’s main event is the BoE inflation report and rate decision (no change overwhelmingly expect). The focus is likely to be on how the members voted and clues on inflation and rates outlook. Back in the June meeting, the 5-3 vote was more hawkish than expected, partly given growing concerns that the inflation overshoot was more pronounced than expected. Since then, macro data has not changed much, but Q2 CPI was actually more in-line with the BOE May inflation report, which should partly reduce the weight of the hawkish argument on inflation. Further, the composition of the committee is also changing, with Silvana Tenreyro now replacing Kisten Forbes who previously favoured a hike. For now, analysts do not expect BOE to tighten rates until Brexit related uncertainties have been sufficiently reduced. We shall get more clues shortly.

In commodities, West Texas Intermediate crude increased 0.4 percent to $49.78 a barrel after falling as much as 1 percent. Gold fell 0.3 percent to $1,263.44 an ounce, heading for a fourth day of declines after a second day in a row of slamdowns just after 7pm ET.

Today’s economic data include initial jobless claims, durable goods orders, Markit PMI readings. Earnings from Kraft Heinz, Allergan, Viacom Inc. and Yum! Brands , Duke Energy are due.

Bulletin Headline Summary from RanSquawk

  • European bourses pare opening losses to trade relatively mixed.
  • GBP rises after better than expected Services PMI.
  • Looking ahead, highlights include the BoE QIR.

Market Snapshot

  • S&P 500 futures down 0.2% to 2,469.75
  • STOXX Europe 600 down 0.2% to 377.93
  • MSCI Asia down 0.6% to 160.49
  • MSCI Asia ex Japan down 0.7% to 527.52
  • Nikkei down 0.3% to 20,029.26
  • Topix down 0.03% to 1,633.82
  • Hang Seng Index down 0.3% to 27,531.01
  • Shanghai Composite down 0.4% to 3,272.93
  • Sensex down 0.4% to 32,337.95
  • Australia S&P/ASX 200 down 0.2% to 5,735.12
  • Kospi down 1.7% to 2,386.85
  • German 10Y yield rose 0.9 bps to 0.495%
  • Euro down 0.2% to 1.1837 per US$
  • Italian 10Y yield fell 0.4 bps to 1.723%
  • Spanish 10Y yield rose 2.1 bps to 1.479%
  • Gold spot down 0.4% to $1,261.58
  • Brent Futures unchanged at $52.36/bbl
  • U.S. Dollar Index up 0.2% to 92.97

Top Headlines

  • Germany’s economy slowed more than initially estimated at the start of the third quarter, leaving it trailing the euro region’s other large nations
  • Britain’s economy has moved into a phase of “steady but sluggish” growth and is at risk of a further slowdown, according to IHS Markit.
  • Iceland’s central bank is ready and willing to lower its guard against fast cash with the country’s balance sheet on a firm footing and a stimulus unwinding underway in global capital markets
  • China Tries to Calm U.S. Trade Spat While Readying Retaliation
  • Fed Front-Runner Cohn Could Be Trump’s Bulldog in Egghead World
  • Tronox Sells Alkali Chemicals to Genesis Energy for $1.325B
  • Guggenheim Is Said to Be in Fund Sale Talks With Invesco
  • Costco July Comp Sales up 6.2%, Est. Up 5%
  • GM China July Vehicle Sales Rise 6.3% on Year
  • Venator Materials Prices IPO at $20.00/Share: Huntsman Corp
  • Glaxosmithkline Moves China Neuroscience Research to U.S
  • Fox Is Said in Talks With Ion Media to Operate Local TV Stations
  • Goldman Highlights Call Strategy That Has Done ‘Unusually Well’
  • Sibanye May Cut 7,400 Jobs as It Restructures Gold Operations
  • U.K. Shows ‘Steady But Sluggish’ Growth as Services Expand

The momentum from the DJIA’s 22,000 milestone was lost on Asia as the region traded negative across the board, with sentiment dampened amid earnings and a miss by the Chinese Caixin Services PMI:

  • Chinese Caixin Services PMI (Jul) 51.5 vs. Exp. 51.9 (Prey. 51.6). (Newswires)

ASX 200 (-0.16%) was subdued by commodity names with Rio Tinto (-2.49%) shares down after the Co. missed on H1 underlying profit, while Nikkei 225 (-0.25%) was also lower and eyed a test of the 20,000 level to the downside. KOSPI (-1.68%) was the worst performer on tighter regulation to cool the housing sector, coupled with continued geopolitical concerns after the US told its citizens to leave North Korea by September 1st amid a travel ban and reports the US tested an intercontinental ballistic missile from California, which officials denied was in response to provocation from North Korea. Hang Seng (-0.28%) and Shanghai Comp (-0.37%) also conformed to the down beat tone following the miss on Chinese Services PMI and the PBoC cutting its liquidity injection by half. Finally, 10yr JGBs only saw minimal gains despite the dampened risk sentiment in the region, with upside capped by a weaker 10yr inflation-indexed auction.

Top Asian News

  • The Conglomerate That Troubles China
  • Korea Stocks Slump Most This Year as Rally Wanes on Moon Reforms
  • Copper’s Rally Has Room to Run as Chinese Demand Accelerates
  • Taiwan Futures Plunge 10 Percent After Brokerage’s Algo Error
  • Global Bond Selloff Risk Puts Japan’s Chiba Bank on Defense
  • Hong Kong’s Tiny Flats Pile Up as Property Market Dangers Grow
  • Kishida Exits Japan Cabinet, Paving Way for Him to Challenge Abe
  • Macquarie, GIC Bid $1.3 Billion for Philippine Renewable Stake

European bourses trade mixed. Sector specific energy continues to lag despite the recent bullish pressure in oil, with European equity earnings being the large driver in markets. The Dax companies highlighted the morning, with earnings form the likes of Deutsche Telekom, Siemens and Adidas all influencing the continued to see down days, with a test of 1255.00 seen overnight. German major. Deutsche Telekom’s beat in Adj. EBITA and revenues leave the telecoms giant to outperform in the Dax, however, a weak report from Siemens leaves the Dax in the red. European Composite and Services PMI data has largely been ignored by markets, with EGBs finding little direction. Peripheral debt have recovered following firm results in today’s Spanish auction with the GE/ES spread tightening slightly.

Top European News

  • Macron Vows Millionaire Minister Will Cut Worker Protection
  • UniCredit CEO Defies Doubters With Surprise Profit Surge
  • French Budget Minister Rejoices at Neymar’s Taxes Prospect
  • ECB Says Incoming Data Point to Solid, Broad-Based Growth Ahead
  • Nomura’s Buckley Sees Multiple Reasons for BOE Rate Hike
  • Next’s Shares Surge as Sales Rebound Unnerves Short Sellers

In currencies, the lack of price action from today’s European services and composite data is evident in the anticipation on the BoE. FX trade has been subdued through the European morning, with much of the volatility seen overnight and through yesterday’s US trade. GBP did see a slight bid following the slightly higher than expected Market Services and PMI data, aided by the +0.30% GDP growth. GBP/USD broke through yesterday’s high tripping some stops on the way through.

In comodities, a recent bid has been seen in WTI and Brent crude futures with no fundamental news. However, the price has broken yesterday’s high of 49.65 getting closer towards the USD 50/barrel, which may be a target to test. Global demand for gold fell 14% in the first half of this year, largely due to a decline in the purchasing of the yellow metal by exchange traded funds.

Looking at the day ahead, Thursday’s will round out July PMI data for the week. In Europe we get the final July services and composite PMIs for France , Germany and the Eurozone as well as a first look at UK’s service and composite PMI and other European countries. Thereafter, focus should shift to the BoE policy meeting (no change expected). Over in the US we should also get jobless claims data followed by the ISM non-manufacturing composite for July (56.9 expected). Thereafter we will get factory orders data as well as the final readings for durable and capital goods orders for June. Onto other events, the ECB will publish its economic bulletin. Notable US companies reporting include: Allergan, Viacom, Aetna, Kraft, Kellogg and ICE. Notable European companies reporting include: Siemens, Deutsche Telecom, ING and Adidas

US Event Calendar

  • 7:30am: Challenger Job Cuts YoY, prior -19.3%
  • 8:30am: Initial Jobless Claims, est. 243,000, prior 244,000; Continuing Claims, est. 1.96m, prior 1.96m
  • 9:45am: Bloomberg Consumer Comfort, prior 48.6
  • 9:45am: Markit US Services PMI, est. 54.2, prior 54.2; Markit US Composite PMI, prior 54.2
  • 10am: ISM Non-Manf. Composite, est. 56.9, prior 57.4
  • 10am: Factory Orders, est. 3.0%, prior -0.8%; Factory Orders Ex Trans, prior -0.3%
    • Durable Goods Orders, est. 0.0%, prior 6.5%; Durables Ex Transportation, prior 0.2%
    • Cap Goods Orders Nondef Ex Air, prior -0.1%; Cap Goods Ship Nondef Ex Air, prior 0.2%

DB’s Jim Reid concludes the overnight wrap

In the first 41 years of my life I bought one car at a total cost of around £12k. When I saw some of my peers and colleagues spend multiples of that on a regular basis I shook my head and wondered why you ever needed anything more extravagant to get you from A to B. I also made a mental note to rub it into these people when I retired many years before they did due to my frugal car habit. Then I got married, then I got a dog, then I had my first child and now the twins are coming in the next month. As a result yesterday saw me buy my second car in two years!! One for me and now a big family one. In doing so I broke another of my golden rules and that is to never buy a brand new car. Sigh! Part of the reason is that there is only one car we like with 3 isofixes in one row and that’s the Audi Q7. However only the latest model has this configuration so it could only be around 18 months old max. We did look at second hand ones but then a dealer gave us a spectacular deal if we took out finance on a new one! To be honest it was  so crazy that it makes me particular worried about how easy and cheap it is to buy a car on credit in this country. It really does leave you a little worried about consumer debt. Anyway let’s hope I’m 3 and done. I’ll leave it to you to decide whether I mean kids or cars. On balance I think my wife would want it to be the first and me the second.

Maybe one shouldn’t be so worried about cheap and plentiful credit when the US equity market is setting a new record of some kind virtually every day. Or maybe that’s when you should be worried. Yesterday saw the Dow (+0.3%) clear 22000 for the first time, meaning that Mr Trump can now add it to his collection of stock market landmarks on his watch. The Dow first touched 19000 just over a week after his election victory. The S&P 500 (+0.05%) edged higher but both were slightly flattered by Apple (+4.73%) after its optimistic guidance the previous evening. Of the S&P 500, 299 stocks actually declined.

Interesting Bloomberg reported that yesterday marked 3 months (70 trading sessions) since the S&P 500 increased by more than 1% in any one day. So this leg of the rally has been pretty steady but relentless. This is the longest such stretch since the 79-day stretch back between November 2006 – March 2007. As we’ll see below, European equities aren’t quite keeping up at the moment and this morning our European equity strategist Sebastian Raedler highlights that European equities have fallen by around 5% from their May peak. He expects the tactical pull-back to continue to 360 on the Stoxx 600 (around 5% below current levels), as Euro area PMIs fade from elevated levels and euro strength weighs on European earnings. He re-iterates his long-standing year-end target of 375 on the Stoxx 600 (around 1% below current levels), as lower projected EPS growth (8% versus the previous forecast of 10% and consensus at 12.5%) is offset by a higher P/E target (14.6x, up from the previous target of 14.2x, due to our economists’ recent growth upgrade). He also lowers his FTSE 100 target (from 7,750 to 7,500, 1% upside from current levels) and raises his DAX target (from 11,800 to 12,400, 1% above current levels). See the following link for more details.

Moving onto today, we have the services PMIs and ISM to look forward to (preview at the end). Elsewhere we have the BoE inflation report and rate decision (no change overwhelmingly expect). The focus is likely to be on how the members voted and clues on inflation and rates outlook. Back in the June meeting, the 5-3 vote was more hawkish than expected, partly given growing concerns that the inflation overshoot was more pronounced than expected. Since then, macro data has not changed much, but Q2 CPI was actually more in-line with the BOE May inflation report, which should partly reduce the weight of the hawkish argument on inflation. Further, the composition of the committee is also changing, with Silvana Tenreyro now replacing Kisten Forbes who previously favoured a hike. For now, DB’s strategist do not expect BOE to tighten rates until Brexit related uncertainties have been sufficiently reduced. We shall get more clues this afternoon.

Onto the markets, US bourses continue to edge ahead as noted earlier. Within the S&P, losses in telco (-1.3%) and real estate (-0.5%) were broadly offset by gains in the IT, utilities and industrials sectors. The Stoxx 600 fell 0.4%, impacted by the rising EUR as well as weakness in materials and banks (StanChart -6%; SocGen -4% after results). Across the region, markets also softened, with the DAX (-0.6%), FTSE 100 (-0.2%), CAC (-0.4%) and Italian FTSE MIB (-0.2%). Turning to currency, the Euro continues to strengthen against the greenback, up 0.5% yesterday to another 30 month high. Sterling gained 0.2%, while the US dollar index continues to fall (-0.2%).

Government bond yields were little changed post Tuesday’s larger moves lower. USTs (2Y: unch; 10Y: -1bps), Bunds (2Y: +1bp; 10Y: -1bps), BTPs (2Y: unch; 10Y: unch) and OATs (2Y: unch; 10Y: unch) were broadly flat although Gilt yields were slightly higher (2Y: +2bp; 10Y: +2bps).

In commodities, WTI oil gained 0.9%, following the latest EIA report pointing to lower US crude inventories. This somewhat contradicts reports of higher oil supply from the American Petroleum Institute report and Reuters July survey the day before. As we type, oil has dipped 0.3% this morning. Elsewhere, precious metals were broadly unchanged (Gold -0.2%; Silver -0.1%) while industrial metals were slightly higher (Copper +0.1%; Aluminium +1%).

Away from the markets, two Fed Chiefs have updated the market on their latest thinking. San Francisco Fed Chief Williams has said overnight that inflation should close in on the Fed’s 2% target “within the next year or two”, while Cleveland’s Fed Chief Mester sees it approaching that level “over the next year”, but wanted to see more data (on Fed’s preferred measure, the PCE deflator, inflation is 1.4% currently). On balance sheet unwind, Williams acknowledged that to keep the economy on a sustainable path of growth, we need to gradually reduce the monetary stimulus and that it will be appropriate to start unwinding the  balance sheet this autumn, noting the normalisation process should take four years. On the interest rates outlook, both reiterated the gradual path FOMC has communicated is appropriate and Williams thought the ‘new normal’ interest rate is around 2.5%.

Elsewhere, on the US debt ceiling, a leading House conservative has backed away from his earlier demands that any increase should be paired with steep spending cuts. Now, Republican Meadows just wants to “get it done sooner rather than later”. Turning to tax reform, expect the news-flow to slowly build but in an interview yesterday, representative Yoho said “there is no detail (on the tax reform)…it is a problem…”. For now, we wait and see. The market will hope it doesn’t end up being a replica of the healthcare bill in terms of ability to pass.

This morning Asian equity markets have broadly softened, the Kospi fell 1.5% impacted by Samsung (-3%) and property shares given additional government measures to cool the housing market. Elsewhere, the Nikkei (-0.3%), Hang Seng (-0.2%) and two of the Chinese bourses were down ~0.2%.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the headline ADP employment change for July was lower than expectations at 178k (vs. 190k expected), although the underlying trends are still solid given the June figure has been revised upwards by 33k. With US growth having picked up in 2Q, but inflation continuing to disappoint, DB’s Peter Hooper updated his outlook for the US economy and sees growth ahead slightly softer than prior expectations and the pace of rate hikes slightly slower. More details here. Over in Europe, the Eurozone PPI for June was in line with expectations at -0.1% mom (vs. -0.1% expected) and 2.5% yoy (vs. 2.5% expected). However, UK’s CIPS construction PMI for July missed expectations at 51.9 (vs. 54 expected), partly reflecting the uncertainty associated with Brexit.

Looking at the day ahead, Thursday’s will round out July PMI data for the week. In Europe we get the final July services and composite PMIs for France (55.7 expected for composite), Germany (55.1 expected for composite) and the Eurozone (55.8 expected for composite) as well as a first look at UK’s service and composite PMI (53.6 and 53.8 expected respectively) and other European countries. Thereafter, focus should shift to the BoE policy meeting (no change expected). Over in the US we should also get jobless claims data followed by the ISM non-manufacturing composite for July (56.9 expected). Thereafter we will get factory orders data as well as the final readings for durable and capital goods orders for June. Onto other events, the ECB will publish its economic bulletin. Notable US companies reporting include: Allergan, Viacom, Aetna, Kraft, Kellogg and ICE. Notable European companies reporting include: Siemens, Deutsche Telecom, ING and Adidas

 END

3. ASIAN AFFAIRS

i)Late WEDNESDAY night/THURSDAY morning: Shanghai closed DOWN 12.13 POINTS OR 0.37%   / /Hang Sang CLOSED DOWN 76.37 POINTS OR 0.28% The Nikkei closed DOWN 50.78 POINTS OR .25%/Australia’s all ordinaires CLOSED DOWN 0.37%/Chinese yuan (ONSHORE) closed UP at 6.7222/Oil UP to 49.61 dollars per barrel for WTI and 52.34 for Brent. Stocks in Europe OPENED MIXED , Offshore yuan trades  6.7283 yuan to the dollar vs 6.7222 for onshore yuan. NOW THE OFFSHORE IS WEAKER  TO THE ONSHORE YUAN/ ONSHORE YUAN STRONGER (TO THE DOLLAR)  AND THE OFFSHORE YUAN IS MUCH WEAKER TO THE DOLLAR AND THIS IS COUPLED WITH THE SLIGHTLY STRONGER DOLLAR. CHINA IS NOT HAPPY TODAY 

3a)THAILAND/SOUTH KOREA/NORTH KOREA

NORTH KOREA/USA

b) REPORT ON JAPAN

end

c) REPORT ON CHINA

CHINA/INDIA

Last week we brought you the story about a spat between India and China concerning lands on their border.

China lambastes India claiming that they had better leave Chinese land or face war

(courtesy zero hedge)

China Threatens India Over Border: “Leave Chinese Land Or Face War”

While the world’s eyes are focused on Syria, Russia, Ukraine, and North Korea; there is another – much more tense – fight between two nuclear powers that is getting far too little attention. The world’s two most populous nations, China and India, have been engaged in a border dispute for decades but in recent months it has flared once again with a Chinese Ministry of Defense official now warning explicitly that Indian troops must leave the contested Doklam area if they do not want war.

The latest standoff started more than a month ago after Chinese troops started building a road on a remote plateau, which is disputed by China and Bhutan Indian troops countered by moving to the flashpoint zone to halt the work, with China accusing them of violating its territorial sovereignty and calling for their immediate withdrawal.

China then added a large number of troops to the region:

The crossing of the mutually recognised national borders on the part of India… is a serious violation of China’s territory and runs against the international law,” Chinese defence ministry spokesman Wu Qian told a press conference quoted by AFP, adding that “the determination and the willingness and the resolve of China to defend its sovereignty is indomitable, and it will safeguard its sovereignty and security interests at whatever cost.”

 

He also said that “border troops have taken emergency response measures in the area and will further step up deployment and trainings in response to the situation,” without giving any details about the deployment.

And now, as RT reports, during a heated TV debate between a retired Indian Army major general and now defense commentator, Ashok Mehta, and the director of the Chinese Defense Ministry’s Center for International Security Cooperation, Senior Colonel Zhou Bo; tempers frayed.

Speaking first, Mehta fired off a lengthy yet passionate tirade, accusing the Chinese of fanning anti-Indian sentiments in an overly aggressive way.

“Chinese media, think tanks, Xinhua, Global Times, PLA Daily have written the most aggressive and most belligerent stories about threatening India, taking India to war, opening a two-front conflict, teaching India a lesson,” the former general complained.

 

“I mean, that kind of language is not being used in India!” Mehta added.

Asked by the news anchor if he could provide any proof and name specific Chinese articles featuring warmongering rhetoric, the Indian expert failed to cite any, but instead recalled his professional background.

Zhao interrupted…

General, you have been talking too much! This is not the right way of having this conversation,”

 

“Let me just use a few seconds – you [Indian troops] are on Chinese territory, so if you do not want a war, you’ve got to go away from Chinese territory,” the senior colonel remarked.

In a statement on Wednesday, Beijing said Indian troops were still present on Chinese territory, and that China had acted cautiously, demanding that Delhi pull out its forces.

“But the Indian side not only has not taken any actual steps to correct its mistake, it has concocted all sorts of reasons that don’t have a leg to stand on, to make up excuses for the Indian military’s illegal crossing of the border,” the Chinese Foreign Ministry said, as cited by Reuters.

As we noted previouslythis isn’t the first time that these two nations have been at each other’s throats over their borders. In 1962 their armies clashed, leading to defeat of the Indian army, and thousands of casualties on both sides. Based on the rhetoric coming out of Beijing’s state sponsored media, it appears that China is willing to replicate that conflict.

end
China’s response to Trump’s salvo into a trade war with China (see below USA stories)
Remember China has huge reserves of gold and silver and demands to increase these levels. It is also my contention that China will demand back all of the silver it lent the USA
(courtesy zero hedge)

An Angry Beijing Responds: “We Will Never Dance To Trump’s Tune”

With just one day to go until the Trump administration launches the first salvo in what could develop into a full-scale trade war between the US and China, there is the issue of a diplomatic (hopefully) resolution of escalating situation in North Korea, one which Citi today said is “increasingly likely” to involve military action. On this issue, China is becoming increasingly displeased with Trump’s relentless twitter badgering, and as AFP reports, “Trump-style outbursts are no way to get China to bend to the US’s will.”

The animosity between D.C. and Beijing has been building up for months, as the two capitals have long traded blame over the failure to rein in the North, but last week’s breakthrough in North Korean missile technology has raised the specter of a strike by Pyongyang on American cities, escalating the rhetoric.

“I am very disappointed in China,” President Donald Trump tweeted after the North boasted last week that the entire mainland US was within range of its intercontinental ballistic missiles. “Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk.”

While China – North Korea’s main trade partner and ally – has repeatedly countered that it does not hold the key to the crisis and has rejected Trump’s attempts to link the issue to the trade relationship, keeping official responses to Trump’s 140-character outbursts restrained, state media has been less muted.

“Trump is quite a personality,” an opinion piece published Monday by the Xinhua state news agency said. “But emotional venting cannot become a guiding policy for solving the nuclear issue … and even less should (the US) stab China in the back.”

It’s not just Trump who has repeatedly urged China to use its economic sway over North Korea to curb the regime’s nuclear program, even as Beijing insists dialogue is the only practical way forward. Recently Rex Tillerson derided China and Russia as “economic enablers” that bear “unique and special responsibility” for the growing threat posed by the North. And the US’s ambassador to the United Nations, Nikki Haley, spurned a UN response to the latest ICBM launch in favor of bomber flights and missile-defense-system tests, saying the time for talk on North Korea was “over.”

Such admonishments will not change the way China operates, analysts say.

“Trump might be brash and have an ‘in your face’ blunt style, but Beijing’s approach to Washington stays relatively the same,” Xu Guoqi, a China-US relations expert at the University of Hong Kong, told AFP.

“While Trump tweets his positions to the world, Beijing keeps its cards closer to its chest. (China) will never dance to Trump’s tune.” And with “today’s America weaker and more isolated in the world,” China has even less reason to respond, he said.

Meanwhile, Beijing authorities have reacted with caution to Trump’s unpredictable remarks, which have ranged from describing the country as a “currency manipulator” to calling President Xi Jinping “a very good man.” Relations had warmed following Trump’s pledge to honor the key “One China” policy and Xi’s visit to Trump’s Mar-a-Lago estate in Florida this April, but they have since soured again over North Korea.

Worse, if the US does not ease off against an implacable China, observers believe a deterioration is inevitable. “If the Americans continue to blame China while shifting away from its own obligation to defuse the crisis, the two powers are likely to have more quarrels,” said Zhong Zhenming, a China-US relations expert at Shanghai’s Tongji University. “(This is) exactly the result Pyongyang hopes to see,” he told AFP.

* * *

And while we await for the official announcement of Trump’s trade probe into China’s intellectual property and trade practices, it already took steps to further antagonize Beijing when in June the US slapped unprecedented sanctions on a Chinese bank accused of laundering North Korean cash after Trump tweeted that China’s efforts to curtail North Korea’s nuclear program had “not worked out.”

Still, some analysts believe Trump would stop short of following through on repeated threats to start a trade war, his main and perhaps last bargaining chip: “Neither China nor America could afford a trade war,” Zhong said.

Perhaps, but to the increasingly irrational White House, this may be the only option. An editorial in the state-run Global Times, a nationalistic tabloid, warned that the US would lose in a trade dispute with China, which as the top holder of US Treasury bonds “is actually supporting the dollar.”

“Washington had better not threaten China with trade since China has the tools to safeguard its economic interests,” it said.

4. EUROPEAN AFFAIRS

UK/BANK OF ENGLAND

The pound plunges after the Bank of England votes to keep rates unchanged and at record lows.  However the Bank cut growth forecast.

(courtesy zero hedge)

Pound Plunges After BOE Votes 6-2 To Keep Rates Record Low, Cuts Growth Forecast

The whispers about a potential rate hike by the recently hawkish BOE ended up being wrong, when moments ago the Bank of England announced that in a 6-2 decision it kept rates unchanged at 0.25%, largely as expected. Saunders and McCafferty dissented in favor of an immediate interest-rate increase, with Haldane refusing to join the dissenters.

In separate unanimous decisions, the central bank also kept its bond purchase programs unchanged at GBP10BN and GBP435BN for corporate and government bonds respectively.

MPC holds  at 0.25%, maintains government bond purchases at £435bn and corporate bond purchases at £10bn.

The pound tumbled on the news…

… sliding as low as 1.3158, a 0.5% drop, as did 10Y Gilt yileds.

While the decision was largely as expected, what has mostly hit the pound is the BOE’s cut of its 2017 GDP forecast to 1.7%, and the trim of 2018 from 1.7% to 1.6%. It also slashed wage forecasts – the bank now sees 2018 wage growth at 3% now (vs. 3.5% in May).

The BOE also announced that it would end term funding drawdown in February 2018 – this may have a small impact upon long term OIS.

As the cable plunged, the FTSE 100 index rose as much as 0.5%, testing its 50-DMA, on the back of the BOE’s dovish U-turn.

The BOE did caution again, however, that “if the economy follows a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.” So far that’s not happening.

The monetary policy statement is below:

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.  At its meeting ending on 2 August 2017, the MPC voted by a majority of 6-2 to maintain Bank Rate at 0.25%.  The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion.  The Committee voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.  The Committee voted unanimously to close the drawdown period for the Term Funding Scheme (TFS) on 28 February 2018, as envisaged when the scheme was introduced.

 

The MPC’s overall assessment of the outlook for inflation and activity in the August Inflation Report is broadly similar to that in May.  In the MPC’s central forecast, GDP growth remains sluggish in the near term as the squeeze on households’ real incomes continues to weigh on consumption.  Growth then picks up to just above its reduced potential rate over the balance of the forecast period.  Net trade and business investment firm up, and consumption growth recovers in line with modestly rising household incomes.  Net trade is bolstered by strong global growth and the past depreciation of sterling.  The combination of high rates of profitability, especially in the export sector, the low cost of capital and limited spare capacity supports investment by UK firms over the forecast period, offsetting the effect of continued uncertainties around Brexit.

 

CPI inflation rose to 2.6% in June from 2.3% in March, as expected.  The MPC expects inflation to rise further in coming months and to peak around 3% in October, as the past depreciation of sterling continues to pass through to consumer prices.  Conditional on the current market yield curve, inflation is projected to remain above the MPC’s target throughout the forecast period.  This overshoot reflects entirely the effects of the referendum-related falls in sterling.  As the effect of rising import prices on inflation diminishes, domestic inflationary pressures gradually pick up over the forecast period.  As slack is absorbed, wage growth is projected to recover.  In addition, margins in the consumer sector, having been squeezed by the pickup in import prices, are projected to be rebuilt.  Consequently, inflation remains at a level slightly above the 2% target. 

 

As in previous Reports, the MPC’s projections are conditioned on the average of a range of possible outcomes for the United Kingdom’s eventual trading relationship with the European Union.  The projections also assume that, in the interim, households and companies base their decisions on the expectation of a smooth adjustment to that new trading relationship.  Other important judgements include:  that the lower level of sterling continues to boost consumer prices broadly as projected, and without adverse consequences for inflation expectations further ahead;  that regular pay growth remains modest in the near term but picks up over the forecast period;  and that subdued household spending growth is largely balanced by a pickup in other components of demand.

Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years.  Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth.  For this reason, the MPC’s remit specifies that, in exceptional circumstances, the Committee must balance any trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity.  Through most of the forecast period, the economy operates with a small degree of spare capacity and CPI inflation is well above the target.  By the end of the forecast, that trade-off is eliminated.  Spare capacity is fully absorbed, and inflation remains above the target.

The Committee judges that, given the assumptions underlying its projections including the closure of the drawdown period of the TFS, and allowing for the effects of the recent prudential decisions of the Financial Policy Committee and the Prudential Regulation Authority, some tightening of monetary policy would be required to achieve a sustainable return of inflation to the target.  Specifically, if the economy follows a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.

 

In light of these considerations, six members thought that the current policy stance remained appropriate to balance the demands of the MPC’s remit.  Two members considered it appropriate to increase Bank Rate by 25 basis points.  All members agreed that any increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.  The Committee will continue to monitor closely the incoming evidence, and stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target.

end

 

EURO/EU

 

The euro continues to strengthen and this is certainly not what Europe wants as the higher euro hurts their competitiveness.  If tomorrow’s job report is weak, then they expect the Euro to top 1.20 to the dollar and this would be good for our precious metals

 

(courtesy zero hedge)

 

ING: “It Can Only Be Described As Euro Madness”

One day after ING asked why Trump is “making everyone (else) great again” (MEGA) by crushing the USD, and just hours after Bloomberg’s Richard Breslow explained that “it’s all about the Euro“, here is ING again, pointing out that when it comes to currency markets, the “EUR madness” goes on, courtesy of chief FX strategist, Chris Turner.

EUR: The “EUR madness” goes on

 

It cannot be described as other than “EUR madness”. EUR/USD briefly broke above the 1.1900 level on virtually no market moving news – in an environment where German bund yields have actually been nudging lower.

 

 

Our short-term fair value model indicates a remarkable 2.5% EUR/USD overvaluation. It is not purely about the USD weakness as USD is in fact up against non-European G10 currencies. Sentiment and technical seem to be the prime drivers.

His conclusion:Unless we see a strong US labour market report tomorrow, trading could be at 1.200 by the weekend. Expected solid EZ June retail sales to keep bullish EUR trend in place.”

 

 

5. RUSSIA AND MIDDLE EASTERN AFFAIRS

LIBYA

Hillary Clinton’s intervention in Libya has created a huge emergency as 1.3 Libyans are in need of assistance as their economy grinds to a halt

(courtesy zero hedge)

 

Summer Of “Mass Displacement” Continues: 1.3 Million Libyans In Need Of Emergency Assistance

Though Western media and much of the entire world have long forgotten about Libya, we never will. While the Nobel Peace Prize winning “humanitarian” minded architect of the 2011 US-NATO intervention (and author of Libya’s current hell) continues to pen his presidential memoir in the midst of an epic retirement tour of yachts, golf courses, and hidden celebrity islands, Libya still burns out of control.

As we’ve recently noted, the mass flow of migrants and asylum seeking refugees is not going away and remains a political flashpoint for European front line countries reeling from the immigrant wave. In an updated situation report on Libya issued earlier this summer, the United Nation’s World Food Program (WFP) published some shocking numbers:

Civilians in Libya continue to suffer as a result of conflict, insecurity, political instability and a collapsing economy. According to the 2017 Humanitarian Response Plan, 1.3 million people are in need of emergency humanitarian assistance.

July 2017 UN figures. Source: UN World Food Program (WFP)

This means 20% of the entire Libyan population (estimated at 6.4 million according to the UN) is still in dire need of basic necessities of life such as food and housing. The WFP further notes on its main Libya page that Africa’s fourth largest country enjoyed economic stability and independence until 2011 – the year Gaddafi was overthrown and murdered at the hands of NATO sponsored militants (bold emphasis is WFP’s):

At that time Libya, as one of the world’s most prolific oil-producing nations, maintained large trade surpluses. Although the country’s oil wealth did not percolate down to the wages of ordinary citizens, until 2011 the cost of food at household level was offset to some extent by a welfare state that offered free education and healthcare. Now, the country has a trade deficit and is gripped by a civil war opposing tribal groups, Islamist groups, various other militias and administration forces.

 

Libya’s population is suffering a major humanitarian crisis. This involves poverty, insecurity, gender-based violence, mass displacement, shortages of food and cash in banks, and frequent power cuts.

In 2010, a year before the NATO war, the UN Development Programme (UNDP) assigned a Human Development Index (HDI) ranking of 53 to Libya (out of 169 countries ranked, Libya ranked highest on the African continent). The HDI is a composite statistic which measures comparative quality of life around the world with regard to education, lifespan, wages, and general standard of living. For example, Libya ranked above Saudi Arabia, Turkey, Brazil, and South Africa for multiple years running through 2010 and was categorized as having “High Human Development”. Libya has now fallen to 102 in the world according to the UN’s 2016 HDI report.

Right up until the eve of NATO’s air campaign against the Libyan state, international media outlets understood and acknowledged the country’s high human development rankings, though it later became inconvenient to present the empirical data. A February 2011 BBC report summarized as follows:

During Muammar Gaddafi’s 42-year rule, Libya has made great strides socially and economically thanks to its vast oil income, but tribes and clans continue to be part of the demographic landscape.

 

Women in Libya are free to work and to dress as they like, subject to family constraints. Life expectancy is in the seventies. And per capita income – while not as high as could be expected given Libya’s oil wealth and relatively small population of 6.5m – is estimated at $12,000 (£9,000), according to the World Bank.

 

Illiteracy has been almost wiped out, as has homelessness – a chronic problem in the pre-Gaddafi era, where corrugated iron shacks dotted many urban centres around the country.

Libya went from an HDI ranking of 53 (with an HDI Value shown above) in 2010 to 102 in 2016. The UN identifies 2011 as the beginning of a continuing “mass displacement” of Libyans as the country remains in war-torn chaos. Chart source: Actualitix.

World Bank GNI numbers through 2016.

The 2011 war and aftermath essentially created a failed state with a once economically independent population now turned largely dependent on foreign aid and relief. Now considered to be at “emergency levels” of need, prior to NATO intervention Libya was not even on the WFP’s radar:

Before the crisis, the World Food Programme (WFP) had a minimal presence in Libya, with the country operating only as a logistics corridor between Sudan and Chad.

How’s that for “Arab Spring” blossoming of democracy, freedom, and prosperity courtesy of France, Britain, and the US?

Via Wiki Commons, “History of Libya under Muammar Gaddafi” Gross Domestic Product (based on Purchasing Power Parity methodology)

Not surprisingly, as of this week there are still “respected” members of the press willing to defend regime change experiments and “democracy promotion” abroad while quoting Iraq War architects like Elliot Abrams (thankfully Trump nixed him for a State Dept. position). They will perpetually live on in their own fanciful unreality while filling up columns in places like the Washington Post.

The ever-insightful Adam Curtis characterized the state of unreality under which most in the West still live when he concluded a 2012 post-mortem analysis on Libya – a very fitting conclusion to the still unfolding yet already forgotten about story of NATO’s dirty little “humanitarian” war:

The question at the heart of this whole story is – Who was the ventriloquist? And who was the dummy?

 

Maybe we were the dummy? By allowing perception management with its simplifications, falsehoods and exaggerations to create a simplified vision of the world – we fell into a fake universe of certainty when really we were just watching a pantomime.

 

And now as the Arab Spring unfolds and reveals the true chaos and messiness of the real world – above all the horror of what is happening in Syria – we find ourselves completely unable to understand it or even know what to do. So those stories get ignored while we follow others with clearer and more simplified dramas which have what seem to be obvious goodies and baddies – thank god for Iran, North Korea and Jimmy Savile.

It is unlikely that even the hard empirical data will awaken either neocons or liberal interventionists from their pantomime regime change fantasies.

6 .GLOBAL ISSUES

Toronto, Ontario Canada

 

Home prices fall by almost 5% and what is far worse:   volume dropped over 40%.  The provincial tax on home purchases was a mainstay of the Ontario Government which needs that revenue badly.  Ontario has the worst debt structure from any sub sovereign anywhere in the world.

(courtesy zerohedge)

 

Toronto Housing Market Implodes: Prices Plunge Most On Record

Until mid 2017, it appeared that nothing could stop the Toronto home price juggernaut:

And yet, In early May we wrote that “The Toronto Housing Market Is About To Collapse“, when we showed the flood of new home listings that had hit the market the market, coupled with an extreme lack of affordability, which as we said “means homes will be unattainable to all but the oligarchs seeking safe-haven for their ‘hard’-hidden gains, prices will have to adjust rather rapidly.

Exactly three months later we were proven right, because less than a year after Vancouver’s housing market disintegrated – if only briefly after the province of British Columbia instituted a 15% foreign buyer tax spooking the hordes of Chinese bidders who promptly returned after a several month hiatus sending prices to new all time highs – just a few months later it’s now Toronto’s turn.

On Thursday, the Toronto Real Estate Board reported that July home prices in Canada’s largest city suffered their biggest monthly drop on record amid government efforts to cool the market and the near-collapse of Home Capital Group spooked speculators.

The benchmark Toronto property price, while higher 18% Y/Y, plunged 4.6% to C$773,000 ($613,000) from June. That was biggest monthly drop since records for the price index began in 2000, according to Bloomberg calculations, and brought prices down in the metro area to March levels.

More troubling than the price drop, however, was the sudden paralysis in the market as buyers and sellers violently disagreed about fair clearing prices and transactions tumbled 40.4% to 5,921, the biggest year-over-year decline since 2009, led by the detached market segment.

Separately, the average price, which includes all property types, rose 5% to C$746,218 from July 2016, less than a third of the 17% increase at this time last year.

Commenting on the sudden collapse of Toronto’s real estate market, Toronto Real Estate Board President Tim Syrianos said that “a recent release from the Ontario government confirmed TREB’s own research which found that foreign buyers represented a small proportion of overall home buying activity in the GTA. Clearly, the year-over-year decline we experienced in July had more to do with psychology, with would-be home buyers on the sidelines waiting to see how market conditions evolve.

As Bloomberg notes, local government introduced housing regulations since October that have pushed out many potential buyers. The measures were seen as necessary to cool prices climbing at an unsustainable pace. Meanwhile, shares of Home Capital Group imploded in the spring after the alternative mortgage lender failed to disclose the extent of fraudulent mortgage activity, leading to a dramatic bank run which nearly left the company insolvent until a last minute bailout by Warren Buffett rescued the company, and – according to some – the Canadian housing sector.

As the top chart shows, Toronto prices were breaking records each month and deals were booming. In March, sales were up 18% and the average home price soared 33% from the prior year to C$916,567. That began to turn the following month when listings jumped 34 percent. Average prices started cooling in May, rising 15% and then up only 6% in June.

To slow down the housing bubble, in April the province of Ontario introduced sweeping rental regulations that included capping rent increases and introducing a foreign investor tax. The move came after the federal government in October put restrictions on insured mortgages, and the nation’s financial regulator also proposed restricting uninsured home loans this year.

So is this the end of Canada’s housing bubble? Now that upward price momentum is broken, it will take a long time before the blistering price gains seen in recent months in Toronto resume. What is more concerning is if the downside – either in Toronto or elsewhere – accelerates. With the Bank of Canada finally rising rates after a 7 year hiatus, making mortgages more expensive and adding further downward pressure to home prices, the Toronto home price crash could not have come at a worse time for a country where the housing bubble is a key component to preserving the illionsary “stability” status quo.

end

7. OIL ISSUES

8. EMERGING MARKET

INDIA

seems that the new GST tax introduced by Modi is killing their economy.  New PMI down to recession like 46.

 

(courtesy zerohedge)

India’s Economy Crashes After “Mind-Bogglingly Inane” Tax System Strikes Back

With just a hint of schadenfreude, we note that, following our discussion of “how to destroy an economy”, India’s Composite PMI collapsed to 46.0 in July – its lowest on record (well below the kneejerk lows after demonetization in November) as the “mind-bogglingly inane” new tax system and demonetization efforts continue to crush the poor and feed the wealthy.

As Goldman Sachs notes India’s Nikkei Markit services PMI contracted in July after reaching a 8-month high in June, following a decline of manufacturing PMI on Tuesday. The fall was led by a significant decline in new business, suggesting a worsened business sentiment after the GST implementation on July 1.

Main points:

  • India’s Nikkei Markit services PMI contracted to 45.9 (the lowest reading since September 2013). Combined with the manufacturing PMI reported on Tuesday, the July composite PMI fell to 46.0, the lowest reading since March 2009.
  • Among subcomponents, the new business index fell the most to 45.2 (from 53.3 in June), reflecting disruptions caused by the GST.
  • As the press release from Markit Economics mentioned, “Most of the contraction was attributed to the implementation of the goods & services tax and the confusion it caused”.
  • The employment index for services fell to 48.9 (from 51.8 in June).
  • That said, the index for business expectations rose to a 11-month high to 62.3, suggesting optimism from services providers about the future once they have more clarity about the new tax system.
  • The output price index rose to 54.6 (from 51.0 in June), while the input price index moderated to 51.7.
  • Overall, PMI data for July suggest a significant drag on new business activity post the GST implementation. That said, optimism expressed by both manufacturers and services providers about the future is encouraging and suggest a potential improvement in activity once businesses adjust to the new tax system.

From 8-month highs to record lows… why does any one put any faith in the useless ‘soft’ surveys?

 

But expect more of this insanity to come, as one Indian businessman told us

Given that the incumbent government has been winning elections despite steps like demonetization and the opposition is in complete disarray (Modi is a great orator), they have been emboldened to introduce measures that would be viewed as draconian by normal standards.

 

In this context, I have to mention Modi has been able to mesmerize voters to an extent that he can make even pain appear as something that is pleasurable and he has been able to conquer state after state and has an invincible aura about him now.

 

Such acts always bring Goebbels to my mind.

 END

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

Euro/USA   1.1838 DOWN .0014/REACTING TO  + huge Deutsche bank problems + USA election:/TRUMP HEALTH CARE DEFEAT//ITALIAN REFERENDUM DEFEAT/AND NOW ECB TAPERING BOND PURCHASES/ /USA FALLING INTEREST RATES AGAIN/EUROPE BOURSES ALL MIXED 

USA/JAPAN YEN 110.48 DOWN 0.265(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/   HELICOPTER MONEY  ON THE TABLE AND DECISION ON SEPT 21 DISAPPOINTS WITH STIMULUS/OPERATION REVERSE TWIST/LABOUR PARTY LOSES IN LOCAL ELECTIONS

GBP/USA 1.3154 DOWN .0073 (Brexit  March 29/ 2017/ARTICLE 50 SIGNED

THERESA MAY FORMS A NEW GOVERNMENT/STARTS BREXIT TALKS

USA/CAN 1.2600 UP .0029 (CANADA WORRIED ABOUT TRADE WITH THE USA WITH TRUMP ELECTION/ITALIAN EXIT AND GREXIT FROM EU/TRUMP INITIATES LUMBER TARIFFS ON CANADA)

Early THIS THURSDAY morning in Europe, the Euro FELL by 14 basis points, trading now ABOVE the important 1.08 level  FALLING to 1.1838; Europe is still reacting to Gr Britain HARD 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 Italian referendum defeat AND NOW THE ECB TAPERING OF ITS PURCHASES/ THE USA’S NON tightening by FAILING TO RAISE THEIR INTEREST RATE AND NOW THE HUGE PROBLEMS FACING TOO BIG TO FAIL DEUTSCHE BANK + THE ELECTION OF TRUMP IN THE USA+ TRUMP HEALTH CARE BILL DEFEAT AND MONTE DEI PASCHI NATIONALIZATION / Last night the Shanghai composite CLOSED  DOWN 12.13 POINTS OR .37%     / Hang Sang  CLOSED DOWN 76.37 POINTS OR 0.28% /AUSTRALIA  CLOSED DOWN 0.37% / EUROPEAN BOURSES OPENED  MIXED 

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 WEDNESDAY morning CLOSED DOWN 50.78 POINTS OR .25%

Trading from Europe and Asia:
1. Europe stocks  OPENED ALL MIXED  

2/ CHINESE BOURSES / : Hang Sang CLOSED DOWN 76.37 POINTS OR 0.28%  / SHANGHAI CLOSED DOWN 12.13 POINTS OR 0.37%   /Australia BOURSE CLOSED DOWN 0.37% /Nikkei (Japan)CLOSED DOWN 50.78  POINTS OR .25%   / INDIA’S SENSEX IN THE RED

Gold very early morning trading: 1263.75

silver:$16.51

Early THURSDAY morning USA 10 year bond yield: 2.2549% !!!  DOWN 1  IN POINTS from WEDNESDAY night in basis points and it is trading JUST BELOW resistance at 2.27-2.32%.

 The 30 yr bond yield  2.8390, DOWN 1  IN BASIS POINTS  from WEDNESDAY night.

USA dollar index early WEDNESDAY morning: 93.02 UP 18  CENT(S) from WEDNESDAY’s close.

This ends early morning numbers  THURSDAY MORNING

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And now your closing THURSDAY NUMBERS

Portuguese 10 year bond yield: 2.859% DOWN 1 in basis point(s) yield from WEDNESDAY 

JAPANESE BOND YIELD: +.069%  DOWN  1   in   basis point yield from WEDNESDAY/JAPAN losing control of its yield curve

SPANISH 10 YR BOND YIELD: 1.452% DOWN 1/ 2   IN basis point yield from WEDNESDAY 

ITALIAN 10 YR BOND YIELD: 1.982 DOWN 3 POINTS  in basis point yield from WEDNESDAY 

the Italian 10 yr bond yield is trading 53 points HIGHER than Spain.

GERMAN 10 YR BOND YIELD: +.453% DOWN 3  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/12:30 PM 

Euro/USA 1.1869 UP .0019 (Euro UP 19 Basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/

USA/Japan: 110.15 DOWN 0.607(Yen UP 61 basis points/ 

Great Britain/USA 1.3130 DOWN  0.0088( POUND DOWN 88

basis points) 

USA/Canada 1.2572 UP .0009 (Canadian dollar DOWN 9 basis points AS OIL FELL TO $49.43

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This afternoon, the Euro was UP  by 19 basis points to trade at 1.1869

The Yen FELL to 110.44 for a LOSS of 1/2  Basis points as NIRP is STILL a big failure for the Japanese central bank/HELICOPTER MONEY IS NOW DELAYED/BANK OF JAPAN NOW WORRIED AS AS THEY ARE RUNNING OUT OF BONDS TO BUY AS BOND YIELDS RISE  /OPERATION REVERSE TWIST ANNOUNCED SEPT 21.2016

The POUND ROSE BY 33  basis points, trading at 1.3240/ 

The Canadian dollar FELL by 28 basis points to 1.2549,  WITH WTI OIL FALLING TO :  $49.43

The USA/Yuan closed at 6.7171/
the 10 yr Japanese bond yield closed at +.069%  DOWN  1 IN  BASIS POINTS / yield/ 

Your closing 10 yr USA bond yield DOWN  2  IN basis points from WEDNESDAY at 2.2351% //trading well ABOVE the resistance level of 2.27-2.32%) very problematic  USA 30 yr bond yield: 2.816 DOWN 2 in basis points on the day /

Your closing USA dollar index, 92.81  DOWN 3 CENT(S)  ON THE DAY/1.00 PM 

Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for THURSDAY: 1:00 PM EST

London:  CLOSED UP 63.34 POINTS OR 0.85%
German Dax :CLOSED DOWN 26.76 POINTS OR 0.22%
Paris Cac  CLOSED UP 23.24 POINTS OR 0.46% 
Spain IBEX CLOSED UP  35.20 POINTS OR 0.33%

Italian MIB: CLOSED UP 220.11 POINTS/OR 1.02%

The Dow closed UP 9.85 OR 0.04%

NASDAQ WAS closed DOWN 22.30  POINTS OR 0.35%  4.00 PM EST

WTI Oil price;  49.48 at 1:00 pm; 

Brent Oil: 52.23 1:00 EST

USA /RUSSIAN ROUBLE CROSS:  60.24 DOWN 32/100 ROUBLES/DOLLAR (ROUBLE HIGHER BY 32 BASIS PTS)

TODAY THE GERMAN YIELD FALLS TO  +0.453%  FOR THE 10 YR BOND  4.PM EST EST

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 5:00 PM:$48.93

BRENT: $51.92

USA 10 YR BOND YIELD: 2.217%  (ANYTHING HIGHER THAN 2.70% BLOWS UP THE GLOBE)

USA 30 YR BOND YIELD: 2.793%

EURO/USA DOLLAR CROSS:  1.1873 up .0022

USA/JAPANESE YEN:109.96  DOWN  0.779

USA DOLLAR INDEX: 92.78  down 5  cent(s) 

The British pound at 5 pm: Great Britain Pound/USA: 1.3140 : DOWN 86 POINTS FROM LAST NIGHT  

Canadian dollar: 1.2584 down 13 BASIS pts 

German 10 yr bond yield at 5 pm: +0.453%

END

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

TRADING IN GRAPH FORM FOR THE DAY

S&P Slumps To Slowest Market In 90 Year History As Dow Hits 7th Straight Record Close

While hard data has been hovering at 2-year lows, soft data has been rebounding recently… until today – The ISM Services index saw its steepest m/m decline this month since the financial crisis.

 

Mueller headlines spooked stocks at the end of the day but the machines had one message for investors…

 

Trannies had a great day – what were you all worried about? as oil tumbled; NOTE the dip on Mueller headlines…

 

But The Dow 20,000 was rescued again with a healthy VIX clubbing…even as it plunged on news that Mueller would impanel a grand jury in the Russia probe…

 

The Dow is extremely overbought…

 

The Dow is up 8 days in a row and 7 record closes in a row, dramatically outperforming everything else…

 

We note that the Russell 2000 broke below and closed below its 50DMA… (more reliant on US domestic revenues as opposed to the handful of names driving the Dow higher every day that are dominated by overseas revenue)

 

And for now Trannies are trading between their 100- and 200-DMA for the last 5 days…

 

While there has been some wild action in Nasdaq and The Dow, the S&P has gone nowehere in the last 11 days…

 

Making for the lowest closing range this year…

 

In fact – the last 11-days have been the quietest in the 90 year history of Bloomberg’s S&P data…

this is the lowest max-min range for 11 days of closing S&P 500 levels in history, log scale used to show just how extreme this ‘slowness’ is.

Of course, the day wouldn’t be complete without some market shenanigans – this happened to AAPL around 1245ET…

 

Treasury yields tumbled once again on weak data and the Mueller headlines…

 

This kicked 30Y yields to 5-week lows…

 

Meanwhile yields on US Corporate High Yield bonds dropped to 3-year (near record) lows…

 

The Dollar Index ened the day lower once again, kneejerked lower on ISM early and Mueller later…

 

EURUSD remains unsure if it wants to break up or down…

 

Gold bounced back to almost unch from its flash-crash last night and crude slipped back to post-Inventory data lows as the oil market’s biggest bull shuttering his fund sent WTI to its lowest close in a week…

“When you don’t have a lot to go on, sometimes a headline like that can be enough to get a few people to cover and get a few computers to light up,” says Phil Flynn, senior market analyst at Price Futures Group.

Let’s see what happens with Gold tonight at 1906ET?

Reminder – its payrolls tomorrow – so buy any reaction dip!

*  *  *

Finally, it is perhaps worth noting that ‘Murica is becoming less relevant in the world of stocks too… US market cap as a percentage of world market cap dropped to its lowest since May 2015 this week…

 

Bonus Chart: The Trump-Anxiety-O-Meter hits a record high…

END

 

A study on USA public pension funds show a return of a measly .6% instead of the 7.6% assumption.  This has creates massive liabilities and will no doubt bankrupt them

 

(courtesy zero hedge)

 

 

What Ponzi Scheme? Public Pensions Average 0.6% Return In 2016 Despite 7.6% Assumption

We’ve frequently argued that public pension funds in the U.S. are nothing more than thinly-veiled ponzi schemes with their ridiculously high return assumptions specifically intended to artificially minimize the present value of future retiree payment obligations and thus also minimize required annual contributions from taxpayers…all while actual, if immediately intangible, underfunded liabilities continue to surge.

As evidence of that assertion, we present to you the latest public pension analysis from the Center for Retirement Research at Boston College.  As part of their study, Boston College reviewed 170 public pension plans in the U.S. and found that their average 2016 return was an abysmal 0.6% compared to an average assumed return of 7.6%.

Meanwhile, per the chart below, the average return for the past 15 years has also been well below discount rate assumptions, at just 5.95%.

 

All of which, as we stated above, continues to result in surging liabilities and collapsing funding ratios.

 

But, perhaps the most telling sign of the massive ponzi scheme being perpetrated on American retirees is the following chart which shows that net cash flows have become increasingly negative, as a percentage of assets, as annual cash benefit payments continue to exceed cash contributions.

 

Conclusion, you can hide behind high discount rates and a “kick the can down the road” strategy in the short-term…but in the long run actual cash flows matter.

Read the full report here:

 

end

 

What a joke: we have two service PMI:

1/ USA PMI

2. ISM service PMI

 

and both provided polar opposite results.

However what is clear, is that we are starting to see a fall in soft data reporting.  Hard data continually falters

 

(courtesy zero hedge)

 

US Services Economy Crashes To 11-Month Lows (Or Surges To 6-Month Highs) – You Decide

Following mixed US manufacturing survey data earlier in the week (and disappointing French/German PMIs), US Services were even more mixed with PMI printing at 6-month highs (new business expanding at its fastest in two years), and ISM collapsing to 11-month lows.

Despite the ongoing collapse in ‘hard’ economic data (against even weaker expectations), surveys of US Services employers by PMI are ebullient, but it seems the people that ISM are talking to are dysphoric

ISM Respondents do not seem to be as exuberant as PMI respodents.

“A typical and expected midsummer slowdown in hiring activity by employers is causing a normal slowdown in business for this time of year. We expect a sharp ramp-up of business activity over the next three months.” (Management of Companies & Support Services)

 

“Business volume slowed some in June.” (Health Care & Social Assistance)

 

“Business in third quarter is looking up, but it may be delayed from slower than expected second quarter. The next couple of months will determine the outcome.” (Professional, Scientific & Technical Services)

There is one thing to pay attention to however: Input costs paid by service providers continued to rise in July, thereby extending the trend seen every month since data collection began in October 2009.

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

“The PMI surveys have now shown growth accelerating for four consecutive months, meaning the economy started the third quarter with the strongest momentum since January.

 

“This is also a broad-based improvement, with the upturn in service sector activity coming on the heels of news of faster manufacturing growth.

 

“With inflows of new business into the vast service sector rising at the fastest rate for two years, the survey data support the view that the economy is on course for solid growth in the third quarter.

 

“Hiring meanwhile remains encouragingly buoyant, with the July PMI surveys indicating a payroll rise in the region of 200,000. Firms retained a strong hiring appetite in response to widespread optimism of future growth and the need to deal with rising backlogs of existing orders, underscoring the current positive mood in the business sector.”

As Williamson concludes, at current levels, the surveys are indicative of GDP rising at an annualised rate of approximately 2%, but if growth accelerates further in line with the upturn in new business, the third quarter could be even stronger.

 

But the ISM data crushes that hope. with 7 of the compondents tumbling…

 

And while new business is flourishing in Markit’s world, ISM sees new orders collapsing…

 

And the 53.9 print below the lowest economist estimate (of 54.9)…missing expectations by 6 standard deviations…

 

 

end

 

An excellent commentary explaining why the USA may be in a technical default come Sept 29 or early October once they reach their debt limit;

 

(courtesy zero hedge)

“The US Is Staring Down A Technical Default” – Here Are The Five Debt Ceiling Scenarios

In a note released on Monday commenting on the looming US debt ceiling showdown and the growing threat of a government shutdown and technical default by the US, Compass Point analyst Isaac Boltansky said he is becoming increasingly concerned that fall deadlines for federal government funding and the debt ceiling will prove tougher than the market currently expects, resulting inmarkets roiled heading into 4Q and Fed’s policy normalization trajectory facing complications.” He adds that the increasingly fragmented legislative landscape may be set to “transition from inaction to dysfunction”, citing such factors as:

  • Lawmakers return in Sept. with no clear strategy
  • GOP leaders will likely be forced to rely on sizable contingents of Democrats
  • Current spending caps for FY2018 are “despised” by both Democrats, Republicans, but for wholly different reasons
  • White House’s position remains unclear as Treasury Sec. Steven Mnuchin has repeatedly called for a clean debt ceiling increase, but over the weekend President Donald Trump and OMB Director Mick Mulvaney suggested putting legislative activity on hold until health care is addressed

As a result, Boltansky sees odds of govt shutdown as materially higher than the likelihood of reaching debt ceiling as core components of spending fight (including border wall funding) are “meaningfully more politically complicated” than raising debt ceiling; his base case is for the federal government to face a brief shutdown in early October.

While that may be a little extreme, the reality is that with Congress critically fragmented, and with increasingly more politicians chosing to ignore anything that comes out of the mouth of the president, a happy ending is by no means assured and, as Boltansky suggests, “market event” may be necessary to spur Congress into action, similar to the passage of the TARP bill.

For a more nuanced look we go to SocGen’s Stephen Gallagher which lays out the debt ceiling events over the next 2 months, as well as the 5 scenarios on how the debt ceiling drama, 2017 edition, will play out:

Debt limit divisions & decisions

The House is in recess until early September, but lawmakers will return with just 12 legislative calendar days in which to raise the debt limit or risk a technical default, . Unlike the 2011 and 2013 episodes, however, this time is indeed different, with Republicans in charge of Congress and the White House. Nevertheless, intraparty politics are still fraught with dangers. Here are some of the details of the debt limit, as well as the political dynamics involved in getting a deal done. In addition, we look at how politically-induced volatility could impact rates.

Debt limit background

As part of the negotiations that produced the Bipartisan Budget Act of 2015, which was signed into law in early November 2015, the debt limit was suspended at $18.1 trillion until March 2017. The suspension allowed the Treasury to borrow whatever it needed in the interim so that it could continue to make payments and meet its obligations. In March, the debt limit was reset higher to account for the additional amount Treasury had borrowed, at the new level of $19.8 trillion. However, the reset did not allow Treasury to exceed that limit. Treasury resorted to a tactic, known as “extraordinary measures,” that it has used in the past to continue issuing new debt to pay for existing bills. However, these extraordinary measures only provide temporary relief for the Treasury. If Congress does not either suspend the debt limit until some future date, or raise the level of the debt limit, Treasury will have far less cash on hand than needed to meet its obligations on time, an outcome that ratings agencies in the past have said would amount to a technical default.

Where we stand today on the debt limit

On Friday, Treasury Secretary Mnuchin sent a letter to Congress informing lawmakers that he currently expects that Treasury will exhaust the extraordinary measures by September 29, so Congress must address the debt limit prior to that date. Meanwhile, the CBO recently indicated that Treasury would have enough cash on hand to pay its bills until early-to-mid OctoberIn either case, the House is currently on recess until early September. When lawmakers return, they will have 12 legislative days before September 29 in which to raise the debt limit.

In recent years, raising or suspending the debt limit has become a partisan weapon. During the Obama presidency, conservative Republicans threatened not to raise the debt limit on several occasions unless the increase was accompanied by substantial cuts in domestic spending, or unless the President agreed to scale back or repeal the Affordable Care Act. This brinksmanship led to the downgrade of the creditworthiness of US sovereign debt in 2011, played a role in the episode that resulted in the 2013 government shutdown, and was also at the center of negotiations that resulted in the Bipartisan Budget Act of 2015.

However, this time is indeed different. Republicans control both chambers of Congress and the White House. In theory, that should make it easier for them to tackle the debt limit. Instead, intraparty infighting over how to address the debt limit has already raised concerns that a resolution will come down to the very last minute, a scenario that has the potential to roil markets.

Fiscal deadlines collide

Treasury Secretary Mnuchin has indicated that the White House wants to see the debt limit increased with no strings attached. However, the so-called Freedom Caucus, a group of approximately 30-40 conservative Republicans who consistently voted against debt ceiling increases during the Obama years, have vowed to oppose an increase without deep spending cuts. Republican leaders in the House cannot afford to lose more than about two dozen votes, so if the Freedom Caucus withholds its votes, Speaker Ryan would need to pivot to get support from Democrats, who will likely demand something in return, as the GOP did during the 2011, 2013, and 2015 debt limit standoffs. As if those were not already difficult enough dynamics, further complicating matters are two other important, and related, issues, both of which will require help from Democrats in the Senate.

First, the government must pass a new budget for Fiscal Year 2018 by the end of September or risk a government shutdown that begins on October 1. Republicans remember that they were largely blamed by the public for the 2013 shutdown, so leadership will be keen to avoid a repeat, especially in light of their failure to advance a health care bill.

Second, Republicans passed four of twelve appropriations bills in the House recently. One of those bills increased outlays on the military by $70 billion. However, if spending at that level makes its way into a final bill in Congress, it would put military spending above agreed-upon spending caps that were part of the Budget Control Act of 2011 (BCA). Any change to the caps will require the aid of Democrats in the Senate, as it will need 60 votes to pass. Democrats will be unwilling to boost military spending without a corresponding rise in non-defense discretionary spending (an agreement to raise caps on both areas was actually accomplished in the Bipartisan Budget Act of 2015, but it was only for two years). Additionally, the House-passed bills include money for the border wall, something that Democrats have long opposed

What might Congress do?

The House needs to get to 218 votes on the debt limit, and the Senate will need 60 votes to find a resolution. Of course, the problem for Republicans in recent years has been that a compromise in the Senate that garnered 60 votes on fiscal issues alienated a number of conservatives in the House and required the help of a substantial number of House Democrats to pass. Indeed, when the Freedom Caucus consistently voted against prior debt limit deals, former Speaker Boehner relied on votes from Democrats to reach the magic number. Below, we provide a few scenarios for passing the debt limit and place (admittedly subjective) probabilities on them. We caution that these scenarios are by no means exhaustive. Negotiations between the two parties will likely only get underway in earnest in a few weeks, so the situation remains very fluid.

  • Scenario 1: Raising the caps on both defense and non-defense spending (35%)

Under this scenario, the debt limit would be increased as part of a budget deal that raised both defense and non-defense spending by equal amounts, similar to what occurred as part of the Bipartisan Budget Act of 2015. It would almost certainly be opposed by the Freedom Caucus, but it will likely garner the support of Democrats in both chambers. Those negotiations could still be imperiled by poison pills (e.g. money for the border wall), but if the result is an increase in non-defense spending, Democrats may be willing to go along. The 2015 Act could serve as a blueprint, both parties would get the types of increased spending they desire, and most importantly, it could allow the GOP to move past these fiscal issues and focus their energy on getting tax reform passed in both chambers before the end of the year.

  • Scenario 2: Kicking the can down the road (25%)

Passing a continuing resolution (CR) that extends funding for the government at current levels and also suspends/increases the debt limit for some time may be an appealing option for both parties if no resolution to the issue seems likely. However, the length of the CR is up for debate. On the one hand, Democrats may be unwilling to offer Republicans a reprieve of several months, fearing that it may give the GOP enough time in which to pass their top legislative priority and score a “win.” On the flip side, Republicans are unlikely to be held hostage to short-term increases in the debt limit. Still, a short-term CR (e.g. one month) could provide some breathing room to reach a broader deal on the budget and debt limit that mirrors Scenario 1.

  • Scenario 3: A straight increase with no strings attached (20%)

This may be the easiest approach, but it also relies on Republicans needing only eight votes from Democrats in the Senate. A no strings attached bill to increase the debt limit would be politically unpalatable to the Freedom Caucus, but it could garner the support of Democrats in the House who we suspect may not want to be seen as playing politics with the health of the economy and financial markets, something that they continually chastised Republicans for during prior debt limit negotiations. That is also true of the number of Senate Democrats at risk in the 2018 mid-terms. Additionally, it would allow Democrats to claim that they can work in a bipartisan manner, and it would also allow them to focus their firepower on the budget negotiations, where they have leverage.

All that being said, if it becomes clear that a substantial number of votes from Democrats are needed, they may unite in opposing a straight increase unless they get something in return. As Minority Leader Pelosi noted in early June, “I don’t have any intention of supporting a lifting of the debt ceiling to enable the Republicans to give another tax break to the wealthy in our country.” The margin of error for Republicans here will be key.

  • Scenario 4: Attaching a debt-limit amendment to must-pass legislation (15%)

This scenario is currently being contemplated in the Senate, which will likely take the lead on the debt limit given that the Senate is in session until mid-August while the House is away until early September. Majority Leader McConnell has floated the idea of tying a debt limit increase to a must-pass bill like the Veterans Choice program. That piece of legislation was enacted in response to long wait times at Veterans hospitals, and the program may run out of funding this fall. It would create a difficult vote for Democrats in the Senate, but they could balk it given the partisan nature of the move.

  • Scenario 5: A budget resolution that allows for a simple majority to raise the limit (5%)

Had the House passed a budget resolution, the Senate could have attached a debt limit increase to it and passed it with a simple majority vote. As of now, there is no budget resolution as House Republicans continue to wrangle over cuts to mandatory programs. The House is in recess now, but if they are able to agree on a budget resolution and pass one when they return in September, it could allow the Senate to pass a debt limit increase with just 50 votes (with Vice President Pence casting a tie-breaking vote). Given the divisions in the House on what exactly the budget resolution should contain, we place low odds on this scenario.

In any case, all of these scenarios are likely to become clearer over the next two weeks, as the Senate could move on scenario 3 before mid-August. If it fails, then it would increase the odds of the first two scenarios being the likely vehicle for a debt limit increase. Regardless, as has been the case in recent years, it could become a volatile time for markets.

* * *

Debt ceiling vs Fed balance-sheet unwind – let the games begin!

All indications are that the Fed will announce a change to its reinvestment policy “relatively soon”, implying an announcement at the September meeting. The next FOMC meeting is scheduled for 20 September just ahead of the deadline for raising the debt ceiling, which we estimate will be reached in early October. Treasury Secretary Mnuchin emphasised in a speech last week that “There’s also an implied cost of uncertainty into the market. And the longer we wait, that more that uncertainty will be” and urged Congress to increase the debt ceiling before the August recess. This cost is already being borne by the government as the 3m and 6m T-bills auctioned last week due to expire in early October tailed by 2bp as the 3m/6m curve inverted (see Graph 1). Primary dealer Treasury bill holdings rose sharply (see Graph 2) as investors shied away from bills maturing in October. While we believe that this inversion is owing to demand dynamics in the bill market and the curve is already on its way to normalising, it is the first warning shot for border market repercussions related to the debt ceiling deadline.

Is this time different?

Unlike prior debt ceiling episodes, what complicates the debate around raising the debt ceiling in the autumn is that these negotiations coincide with the contentious FY18 budget discussionsThis meaningfully increases the odds of a government shutdown in early October akin to what we saw in October 2013.

Looking back in time, we have had three instances of a federal government shutdown since the mid-1990s. The shutdown in November 1995 came about when President Clinton vetoed the CR, causing the government to be shutdown on 13-19 November 1995. The second shutdown was shortly after, from 15 December 1995 to 6 January 1996. The third was during President Obama’s second term, from 30 September to 17 October 2013, which coincided with the debt ceiling and exacerbated the impact on the bond market. Looking at the bond market reaction to prior episodes of government shutdowns, it is not surprising that in every instance bonds rallied as investors flocked to the safety of bonds.

end

 

It begins:  Trump to launch a trade war with China on intellectual property and then probably on steel and aluminium/

 

(courtesy zerohedge)

 

 

 

Trump To Launch Trade War With China On Friday, Beijing Vows Retaliation

Yesterday, the WSJ reported that the Trump administration is planning to begin a probe of what the U.S. sees as violations of intellectual property by China. Against a backdrop of Trump’s frustrations with domestic policy, sliding approval ratings and disagreement with China over North Korea, the chances of protectionist action are rising, as is the probability of a “hot”, retaliatory trade war. This morning we now learn when Trump is set to fire the first shot. Reuters reports, citing White House officials, that President Trump is expected to make a speech and sign a memorandum at the White House on tomorrow, Friday, that will target China’s intellectual property and trade practices, effectively firing the first shot in what could escalate into a major US-China trade war.

This will be the opening salvo to several months of trade actions, and is expected to be followed by actions on steel and aluminum dumping — which could include tariffs and quotas — and subsequent measures to protect services, and comes at a time when Trump has become increasingly frustrated with the level of support from Beijing to pressure Pyongyang to give up its nuclear and missile program.

Trump has said in the past that China would get better treatment on trade with the United States if it acted more forcefully against Pyongyang. Beijing has said its influence on North Korea is limited. China has countered that trade between the two nations benefits both sides, and that Beijing is willing to improve trade ties. A senior Chinese official said on Monday there was no link between North Korea’s nuclear program and China-U.S. trade.

As Axios adds, administration officials say Trump is doing this because of complaints he’s heard from Silicon Valley executives saying Chinese IP theft is one of their biggest challenges. Allegedly, Peter Thiel has been involved in crafting this new step.

In a rare show of bipartisanship, on Wednesday three top Democratic senators urged the president to stand up to Beijing, perhaps in hopes of further deteriorating the US economy and thus shortening Trump’s tenure even more. Senate Democratic leader Chuck Schumer pressed the Republican president to skip the investigation and go straight to trade action against China.

“We should certainly go after them,” said Schumer in a statement. Senators Ron Wyden of Oregon and Sherrod Brown of Ohio also urged Trump to rein in China.

That’s all Trump needed to hear.

So what happens next? About a week after Trump’s announcement, the U.S. Trade Representative, Robert Lighthizer, is expected to announce that he’s initiating an investigation into unfair Chinese trade practices — using a rarely-used tool, section 301 of the Trade Act of 1974. The investigation paves the path to the U.S. taking potentially aggressive retaliatory actions against China such as tariffs on Chinese imports or rescinding licenses for Chinese companies wanting to do business in the U.S.

U.S. Section 301 investigations have not led to trade sanctions since the WTO was launched in 1995. In the 1980s, Section 301 tariffs were levied against Japanese motorcycles, steel and other products. “This could merely be leverage for bilateral negotiations,” James Bacchus, a former WTO chief judge and USTR official, said of a China intellectual property probe.

To be sure, Chinese IP theft is nothing new, and has long been an issue for major US tech companies like Microsoft and prior administrations. It’s also a major issue for agriculture and manufacturing – and any sector that has proprietary information related to their production practices. However, in the past, U.S. administrations and companies have been wary about publicly confronting the Chinese government, preferring to do things behind closed doors and in a more diplomatic approach.

Meanwhile, China denied all accusations. Ministry of Commerce spokesman Gao Feng said Thursday that China pays “high attention” to intellectual property and wants to maintain good cooperation with the U.S, Bloomberg reported. Still, China has for some time had countervailing measures at the ready in case a trade spat erupts, including legal constraints on foreign companies and import curbs on specific sectors.

And just to make sure that Beijing’s position on trade war is loud and lear, China state media signaled the nation would hit back against any trade measuresas it has done in past episodes. This time around, the need to project strength domestically is compounded by the looming twice-a-decade leadership reshuffle that may further entrench President Xi Jinping’s power.

Chinese officials have mulled stemming U.S. imports should retaliation be necessary. Under a draft plan, soybeans have been singled out as the top product that can be dialed back, according to people familiar with the matter. Autos, aircraft and rare-earth commodities have also been identified as potential categories for restriction, the people said.

Still, Trump’s offensive comes at a very sensitive time for Beijing: just weeks ahead of the 19th Party Congress, when Xi Jinping wants everything in his economy to be perfect.

“Ahead of the 19th Party Congress, the last thing that China will want is a trade war,” said Callum Henderson, a managing director for Asia-Pacific at Eurasia Group in Singapore. “It is also important that Beijing does not look weak in this context. As such, expect a cautious, proportional response.”

Of course, ultimately the big question – as Bloomberg puts it – is whether the Trump administration is willing to risk a trade war as it ups the ante. The International Monetary Fund warned last month that “inward-looking” policies could derail a global recovery that has so far been resilient to raising tensions over trade. The problem, for both the US and China, is that as Trump gets increasingly more focused on distracting from his numerous domestic scandals, he is likely to take ever more drastic action in the foreign arena, whether that means “hot war” with North Korea, or trade war with China.

“So far, it’s all been posturing, with little action,”’ said Scott Kennedy, a U.S.-China expert at the Center for Strategic and International Studies in Washington. “Pressure is building to do something, so the U.S. doesn’t look like a complete paper tiger.”

Finally, as discussed last night, a quick analysis of US winners (few) and losers (many) from any US-China trade war, reveals that most adversely impacted would be the states of Mississippi, Georgia, Illinois and  California, all of which maintain deficits at more than 3% of GDP.

end

 

here are the winners and losers when the trade war breaks out between China and the uSA. What everybody forgets is the fact that China knows the weakness of the uSA: their gold and silver and China will more than oblige by buying an increasing level of those precious metals and putting them on her shores

(courtesy zero hedge)

 

Winners And Losers When Trade War Breaks Out Between The US And China

The small of trade war between China and the US is becoming ever more rancid.

In the latest development, this morning we reported that the Trump administration is planning a probe of what the U.S. sees as violations of intellectual property by China. Against a backdrop of Trump’s frustrations with domestic policy, sliding approval ratings and disagreement with China over North Korea, the chances of protectionist action are rising according to Bloomberg while CNBC adds that the official start date of the trade war will be this Friday.

But who stands to lose – and win – if the U.S. takes aim at the unbalanced trade relationship? Bloomberg has done the math and found that with total trade of more than half a trillion dollars a year, the list of potential losers is very long. The most notable examples include:

  • U.S. companies such as Apple Inc., which assemble their products in China for sale in the U.S., and those tapping demand in China’s expanding consumer market.
  • U.S. agricultural and transport-equipment firms, which meet China’s demand for soy beans and aircraft.
  • Manufacturing firms from the U.S. that import intermediate products from China as an input into their production process.
  • Retailers including Wal-Mart Stores Inc. and the U.S. consumers that benefit from low-price imported consumer electronics, clothes and furniture.
  • Other trade partners caught in the crossfire of poorly-targeted tariffs. On steel, for example, U.S. direct imports from China account for less than 3% of the total — below Vietnam.

And while conventional wisdom is that the US has a chronic trade deficit with China – it does – the U.S. also runs a nearly $17 billion trade surplus with China for agricultural products. China consumes about half of U.S. soybean exports, America’s second largest planted field crop. Soybean farms are mostly located in the the upper Midwest (Illinois, Iowa, Indiana, Minnesota and Nebraska). The volumes are so significant that a spike in soybean exports was a noticeable contributor to GDP growth in the second half of last year as readers may recall. China is also a major buyer of U.S. aircraft, perhaps the only areas of manufacturing where the U.S. retains a competitive edge (though not for much longer). The U.S. also has an $8 billion dollar trade surplus with China in the transportation equipment category.

U.S. Trade Balance With China by Product

How about geographially?

It may come as a surprise that on a state-by-state basis, eight U.S. states are running surpluses with China, six of which supported Trump in last year’s presidential election, including West Virginia. In 2016, Louisiana registered the largest surplus, at 2.9% of the state’s GDP. Louisiana’s exports to China are likely inflated given that 60% of U.S. soybean exports are shipped through the Gulf coast. Washington state was second at 1.6% of GDP, largely due to aerospace exports.

Tennessee maintains the largest trade deficit with China at 6.5% of GDP, meaning tariff-induced increases in the price of imports could have the biggest impact on this state.

The biggest losers? Mississippi, Georgia, Illinois and  California, all of which maintain deficits at more than 3% of GDP.

For the sake of brevity, we will not discuss another, more troubling, aspect of conventional wisdom, namely that trade wars almost inevitably lead to real wars. Aside for the US military industrial complex, there are no winners there

 

 

END

 

In case you missed this yesterday;  Seymour Hersh reveals the truth behind Russia gate:

 

(courtesy Seymour Hersh./zero hedge)

 

Seymour Hersh: “RussiaGate Is A CIA-Planted Lie, Revenge Against Trump”

Submitted by Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of  CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.

During the latter portion of a phone-call by investigative journalist, Seymour Hersh, Hersh has now presented “a narrative [from his investigation] of how that whole fucking thing began,” including who actually is behind the ‘RussiaGate’ lies, and why they are spreading these lies.

In a youtube video upload-dated August 1st, he reveals from his inside FBI and Washington DC Police Department sources — now, long before the Justice Department’s Special Counsel Robert Mueller will be presenting his official ‘findings’ to the nation — that the charges that Russia had anything to do with the leaks from the DNC and Hillary Clinton’s campaign to Wikileaks, that those charges spread by the press, were a CIA-planted lie, and that what Wikileaks had gotten was only leaks (including at least from the murdered DNC-staffer Seth Rich), and were not from any outsider (including ’the Russians’), but that Rich didn’t get killed for that, but was instead shot in the back during a brutal robbery, which occurred in the high-crime DC neighborhood where he lived. Here is the video

… and here is the transcript :

* * *

About the kid, I’ll tell you what I know. What I know comes off an FBI report. Don’t ask me how. You can figure it out, I’ve been around a long time. The kid, just, I don’t think he was murdered, I, I don’t think he was murdered because of what he knew. The kids a nice boy, 27, he was not IT expert, but he learned stuff. He was a data programmer, but he learned stuff. And so he’s living on one street, someone, in my eyes,- he’s living in a ruff neighborhood and in the exact where he’d been living, as I’m sure you know, there have been about 8 or 9 or 10 violent, uh not robberies, most of them with somebody brandishing a gun and it’s the kids hands, I’m telling you look, I’m sure you know what, his hands are marked up, the cops concluded he fought off the people, tried to run they shot him twice in the back with a 22 small caliper. And then, they, the kids that did it ran, they got scared, they didn’t take his wallet.

 

Ok. So what the cops do is this: And this is where nobody knows, what I’m telling you, and maybe you know something about it. When you have a death like that DC cops, if you’re dead, you don’t just generally go yep I know (unintelligible) you have to get in to the kids apartment and see what you can find. If he’s dead you don’t need a warrant but most cops get a warrant because they don’t know if they’ve guys has, has a, a roommate. You need a warrant. So they get a warrant. I’m just telling you, there is such a thing. They go in the house and they can’t do much with this computer. It’s (unintelligible) the cops don’t know much about it. So the DC cops they have a cyber unit in DC and they’re more sophisticated. They come and look at it. The idea is maybe he’s a series of exchanges with somebody who says I’m going to kill you motherfucker over a girl or… and they can’t get in. The cyber guys do a little better but they can’t make sense of it so they call the, they call the FBI cyber unit, the DC unit.

 

The Washington field office is a hot shit unit. The guy running the Washington field office he’s like, he’s like, you know, he’s like a three star at an army base he’s already looking for four, you know what I mean? He’s gonna go in a top job. There’s a cyber unit there that’s excellent, given. What you get in a warrant is, the public information you get in a warrant doesn’t include, uh, it does not include the affidavit underlying what, why you are you going in, what the reasons are that.. That’s almost never available, um, I, I can tell you that the existence of a warrant is a public document 99% of the time. So, um, on the same warrant, they call in the feds. The feds get through, and this is what they find. This is according to the FBI report. What they find is he makes cont- first of all this is what you have to know, you have to know some basic facts, one of the basic factors, in that there’s no DNC or Podesta emails that exist beyond May 22nd. May 21st, May 22nd is the last email from either one of those groups. And so what the reports says is that sometime in late spring, we’re talking June you know summers in June 21st, late spring would be after, I presume, I don’t know, I’d just say late spring, early summer and he makes contact with Wikileaks. That’s in his computer and he makes contact.

 

Now, I have to be careful because I, I’ve know, I, met Julian 10 or 12 years (ago?) I stay the fuck away from people like that, you know. He’s invited me, and when I’m in London I always get a message “Come see me at the Ecuadorian” but I say fuck no I’m not going there I’ve got enough trouble without getting photographed. And he’s under total surveillance by everybody but anyways. So, they found what he’d done. He had submitted a series of documents, of emails. Some juicy emails from the DNC, and you know, by the way all this shit about the DNC, um, you know, whether it was hacked or wasn’t hacked, whatever happened, the democrats themselves wrote this shit, you know what I mean? All I know is that he (Seth) offered a sample, an extensive sample, you know I’m sure dozens of email and said “I want money”. Then later Wikileaks did get the password, he had a Dropbox, a protected Dropbox, which isn’t hard to do, I mean you don’t have to be a wizard IT, you know, he was certainly not a dumb kid. They got access to the Dropbox. He also, and this is also in the FBI report, he also let people know, with whom he was dealing, and I don’t know how he dealt, I’ll tell you about Wikileaks in a second. I don’t know how he dealt with the Wikileaks and the mechanism but he also, the word was passed according to the NSA report, “I’ve also shared this box with a couple of friends so if anything happens to me it’s not going to solve your problem”. Ok. I don’t know what that means.

 

I don’t know whether you- Anyways, Wikileaks got access, and before he was killed- I can tell you right now Brennan is an asshole. Uh, I’ve known all these people for years. Clapper is sort of a better guy but not rocket scientist, the NSA guy’s a fucking moron, and they don’t- you know the trouble with all of those guys is that the only way they’re going to make it to a board or two and get hired by (?) and get some fat cat contracts is if Hillary stayed in. With Trump they’re gone, they’re done, they’re going to live on their pension, they’re not going to make it. And I gotta tell you guys, they don’t want to live on their pension, they want to be on boards.

 

I have somebody on the inside, you know I’ve been around a long time, and I write a lot of stuff. I have somebody on the inside who will go and read a file for me. This person is unbelievably accurate and careful, he’s a very high-level guy and he’ll do a favor. You’re just going to have to trust me. I have what they call in my business a long-form journalism, I have a narrative of how that whole fucking thing began, it’s a Brennan operation, it was an American disinformation and fucking the fucking President, at one point when they, they even started telling the press, they were back briefing the press, the head of the NSA was going and telling the press, fucking cock-sucker Rogers, was telling the press that we even know who in the GRU, the Russian Military Intelligence Service, who leaked it. I mean all bullshit. They were telling the studp- I worked at the New York Times for fucking years, and the trouble with the fucking New York Times is they have smart guys, but they’re totally beholden on sources. If the president or the head of the (???) to actually believe it. I was actually hired at the time to write, to go after the war in Vietnam War in 72 because they were just locked in. So that’s what the Times did. These guys run the fucking Times, and Trump’s not wrong. But I mean I wish he would calm down and had a better a better press secretary, I mean you don’t have to be so. Trump’s not wrong to think they all fucking lie about him.

The media-coverage of this matter is focusing on allegations that Seth Rich was murdered in order to silence him. All such media-coverage ignores much of what Hersh said on the phone (where Hersh makes clear that Rich was, indeed, murdered in a regular robbery), and therefore should be viewed as an example of what the Washington Postand others in the mainstream press call ‘fake news’, but which actually applies to themselves, on both the left and right, above all.

The purpose of those distorting ‘news’ stories might be a desire, on the part of both the Democratic Party aristocrats and the Republican Party aristocrats, to distract the public’s attention away from the far deeper understanding that drives the “narrative” that Hersh, in that clip, is describing: rot by the U.S. aristocracy, which controls both of America’s political Parties, to deceive the American public. The objective is to protect the aristocracy. That’s not publishable; it is American samizdat. Corruption rules America. The public do not. This fact is what Hersh is describing in his “narrative.”

END

 

This is the reason that gold spiked up 3 dollars in the access market this afternoon:

 

Mueller impanels a grand jury into the Russian probe:

(courtesy zerohedge)

 

Mueller Impanels Grand Jury In Russia Probe

Stocks slumped, and VIX spiked following news that Special Counsel Robert Mueller has impaneled a grand jury in Washington to investigate Russia’s interference in the 2016 elections, the WSJ reports, adding that “this is a sign that his inquiry is growing in intensity and entering a new phase.” The grand jury is said to have begun work in recent weeks, suggesting Mueller’s inquiry is ramping up and “that it will likely continue for months.”

Some details: “grand juries are powerful investigative tools that allow prosecutors to subpoena documents, put witnesses under oath and seek indictments, if there is evidence of a crime. Legal experts said that the decision by Mr. Mueller to impanel a grand jury suggests he believes he will need to subpoena records and take testimony from witnesses.”

This is yet a further sign that there is a long-term, large-scale series of prosecutions being contemplated and being pursued by the special counsel,” said Stephen I. Vladeck, a law professor at the University of Texas. “If there was already a grand jury in Alexandria looking at Flynn, there would be no need to reinvent the wheel for the same guy. This suggests that the investigation is bigger and wider than Flynn, perhaps substantially so.”

Speaking to the WSJ, Ty Cobb – special counsel to the president – said he wasn’t aware that Mueller – who is investigating Russia’s efforts to influence the 2016 election and whether President Donald Trump’s campaign or associates colluded with the Kremlin – had started using a new grand jury. “Grand jury matters are typically secret,” Mr. Cobb said. “The White House favors anything that accelerates the conclusion of his work fairly.…The White House is committed to fully cooperating with Mr. Mueller.

The WSJ adds that prior to Mueller’s assignment as special counsel, federal prosecutors had been using at least one other grand jury, located in Alexandria, Va., to assist in their criminal investigation of Michael Flynn, a former national security adviser. That probe, which has been taken over by Mr. Mueller’s team, focuses on Mr. Flynn’s work in the private sector on behalf of foreign interests.

A grand jury in Washington is also more convenient for Mr. Mueller and his 16 attorneys—they work just a few blocks from the U.S. federal courthouse where grand juries meet—than one that is 10 traffic-clogged miles away in Virginia.

Does this mean the worst is coming for Trump?

Thomas Zeno, a federal prosecutor for 29 years before becoming a lawyer at the Squire Patton Boggs law firm, said the grand jury is “confirmation that this is a very vigorous investigation going on.”

“This doesn’t mean he is going to bring charges,” Mr. Zeno cautioned. “But it shows he is very serious. He wouldn’t do this if it were winding down.”

Another sign the investigation is ramping up: Greg Andres, a top partner in a powerhouse New York law firm, Davis Polk & Wardwell LLP, has joined Mr. Mueller’s team.

 

Mr. Andres, a former top Justice Department official who also oversaw the criminal division of the U.S. attorney’s office in Brooklyn, wouldn’t leave his private-sector job for a low-level investigation, Mr. Zeno said.

The latest news comes amid news that Congress is seeking to protect Mueller’s independence after Sens. Thom Tillis (R., N.C.) and Chris Coons (D., Del.) introduced legislation Thursday making it harder for Trump to fire Mueller. Under the legislation, a special counsel could challenge his or her removal, with a three-judge panel ruling within 14 days on whether the firing was justified.

As a reminder, Mueller has assembled a team of prosecutors and lawyers specializing in criminal and national security law. Twelve attorneys are on temporary assignment to the special counsel’s office from the Justice Department or FBI, and three came from Mr. Mueller’s firm of WilmerHale.

Trump has repeatedly questioned the neutrality of Mr. Mueller’s office, telling Fox News he is concerned that Mueller’s prosecutors are “Hillary Clinton supporters” and that Mueller and Comey are friends. Comey was a top Justice official in the George W. Bush administration when Mr. Mueller was the FBI director; both are Republicans.

Adding some credence to Trump’s allegations is that at least eight members of Mr. Mueller’s team have given to Democratic candidates, including the presidential campaigns of Obama and Clinton, according to Federal Election Commission records, although at least one, James Quarles, an original member of the Watergate Special Prosecution Force, donated to politicians in both parties.

While we await Trump’s response, this is how the market reacted to the news.

 

How The Fed Enabled Corporate Kingpins To Scalp Billions

Here’s a comparison that is surely vertigo inducing. On the one hand, the financial system is implicitly held to be so incredibly stable and healthy that volatility on the S&P 500 has been driven to 50-year lows.

Indeed, that lovely condition is apparently expected to persist indefinitely as signaled by implied volatility. During the last 6,000 trading days (since the early 1990s), the VIX Index closed below 10 on 26 occasions or just 0.4% of the time. No less than 16 out of those 26‘below-10’ closes occurred in the last three months!

Yet this insensible bullish calm is happening even as Wall Street is showing itself to be in the throes of unhinged leveraged speculation.

With respect to the unhinged part, consider an incisive post by Wolf Richter on the present carnage in the retail sector. His point was that virtually every one of the rash of companies filing bankruptcy in the sector during the recent past had been strip-mined by private equity operators:

Nearly every retail chain caught up in the brick & mortar meltdown is an LBO queen – acquired in a leveraged buyout by a private equity firm either during the LBO boom before the Financial Crisis or in the years of ultra-cheap money following it.

But Richter’s real point is that the private equity operators in the retail space brought down a double-whammy of leverage on the companies they ransacked. That is, they first loaded up the companies with buyout debt, and then came back for second and third helpings:

Much of the money needed to buy the retailer comes from debt the retailer itself has to issue to fund the buyout, which leaves the retailer highly leveraged.The PE firm then makes the retailer issue even more junk bonds or leveraged loans to fund a special dividend back to the PE firm. Come hell or high water, the PE firm has extracted its money.

Then the PE firm charges the retailer hefty management fees on an ongoing basis.

Accordingly, since 2010, retail chains controlled by private equity firms issued $91 billion in junk bonds and leveraged loans.

Needless to say, in drastically falsifying debt prices in order to stimulate housing and other investments, the Fed had no clue about the collateral effects of its massive and persistent intrusion in the delicate clockwork of capital markets pricing.

So when Janet Yellen & Co profess to see no bubbles they prove their own clueless incompetence. Do they actually think that this would happen in a free market with honest money and market-clearing interest rates?

The question answers itself.

In fact, the asset stripping pattern is every bit as irrational and toxic as were the slicing and dicing of subprime mortgage pools in the run-up to the 2008 financial crisis.

Needless to say, so-called “investors” piled into the flood of dodgy paper because they were desperate for yield, and had been made so by the massive interest rate repression of the Fed and other central banks. In the dollar fixed income markets, $3.5 trillion of the Fed’s U.S. Treasury and other securities purchases after September 2008 drove real interest rates so low that it virtually forced money managers to scramble out the risk curve in order to attach minimally attractive yields.

So doing, they enabled strip-mining transactions that resulted in the eventual destruction of the junk debt issuers and vast windfall distributions to a few hundred corporate kingpins.

What possessed institutional investors such as state pension funds to not only invest in such shaky operations, but to then shower the kingpins with 20% of the profits in return for zero percent of the capital and retained risk?

The answer to this seeming mystery is simply that institutional investors have been completely corrupted by the casino environment that has resulted from three decades of Bubble Finance. In clamoring for yield, institutions have been induced to embrace sweetheart deals for the kingpins that would be laughed out of court in an honest market.

For example, Payless Inc, which was a shoe retailer with 22,000 employees and 4,000 stores, filed for bankruptcy last April. That was less than five years after its original $670 million LBO in 2012. But it was not at all surprising since the company was heading for the wall from the get-go.

But the Payless bankruptcy was apparently dismissed as a victim of bad luck and timing.

I don’t think so. The two LBO firms that did the deal — Golden Gate Capital and Blum Capital Partners — are serial asset strippers and crony capitalist rip-off outfits.

The latter was founded in 1975 by one Richard Blum of San Francisco. He is a classic crony capitalist who parlayed his contacts in the world of California and national democratic politics — ranging from Jimmy Carter to his wife, Senator Diane Feinstein, into billions of funding from political controlled institutions.

Thus, upwards of $1 billion in capital was supplied to Blum’s fund by the California Public Employees’ Retirement System, the California State Teachers’ Retirement System and the Los Angeles County Employee Retirement System, among others. That Blum served as a long-time regent of the giant University of California System is surely not coincidental.

Nor is the fact that his fund was among a pack of hedge fund jackals that ran up the stock prices of for-profits education companies to absurd heights based on growth momentum that was totally unsustainable. In fact, these outfits harvested hundreds of billions of student loans from hapless enrollees — of which 33% of the tuition proceeds went to selling bonuses and expenses, 33% to operating profits and the left-overs to the purported cost of education.

Needless to say, the ranks of veterans and blue collar youth were soon populated with debt serfs living in mom and pop’s basement, where they spent their time dodging loan collectors and looking for part-time gigs that rarely paid a fraction of what had been advertised by the for-profit tuition salesmen.

But Richard Blum is not unique. Another of the retail bankruptcies is the Gymboree Corp, and it conveys the same story.

As described by Wolf Richter, crony capitalism is an equal opportunity patron. In this case the fees and dividends were stripped out by Bain Capital — the outfit started by Mitt Romney, and which retains the deep political ties which have opened the door to billions of institutional money.

These considerations pose an obvious question. Why in the world were there so many retail LBO’s in recent years when anyone could see the scorched earth juggernaut of Amazon barreling down the pike?

After all, it is no secret that during the last decades its sales have grown by 1,100%. And that it has laid waste to whole sections of the retail market in the process of this unprecedented expansion.

AMZN Revenue (TTM) Chart

The answer is that the capital markets are deeply and perhaps irreparably broken by the Fed’s massive falsification of financial asset prices. Not only was the Amazon threat well known, but so was the fact that U.S. brick and mortar retail was drastically overbuilt — and mainly because so much cheap debt had flowed into the commercial real estate market.

But there is no way to reconcile that leveraged finance boom with current projection that nearly 30,000 retail stores will close in the coming three years.

The latter is not happening by the economic equivalent of immaculate conception. It has been baked into the cake all along — the inherent consequence of systemic financial repression by central banks.

There is another thing baked into the cake as suggested above. Namely, all this financial engineering has starved the real main street economic for capital investment — even as the cash flows shunted back to Wall Street have showered the fast money operators and gamblers with massive windfalls.

That is, the chart below isn’t a consequence of Reagan/GOP tax cuts. It measures the pre-tax distribution of U.S. income, and the monumental “trickle-up” to the top 1% of households was born and bred in the Eccles Building.

At the end of the day, the retail sector has been hit with a triple whammy owing to monetary central planning. First, the Amazon grim reaper is not an instrument of “creative destruction.” It’s a giant engine of predatory pricing and malinvestment enabled by an unhinged casino that is absurdly valuing its net income at 190X.

Secondly, the resulting prematurely broken economic furniture and deadweight economic loss has been compounded by decades of over-investment in malls and other retail venues. In the face of huge fixed operating and debt costs, the collision of Amazon and these egregiously excessive levels of brick and mortar capacity is pushing retail pricing and margins to sub-economic levels.

That is, negative cash flows are signaling a need for tsunami of bankruptcies, job-layoffs and store liquidations that significantly exceed the fundamentals of the sector.

Finally, the scramble for yield among money managers has fostered the financial liquidation of retail sector equity for the sole purpose of redistributing windfalls to the top of the economic ladder.

Despite all that, Keynesians like Fed Vice-Chairman Fischer are still wondering, unaccountably, why trend economic growth has sunk to the sub-basement of history and why outlaw politicians like the Donald are suddenly arising to disrupt the perfect nirvana of the central planners’ statistical full employment.

Here’s a hint: look at the brick and mortar retail industry.

Regards,

David Stockman
for The Daily Reckoning

end

WELL THAT ABOUT DOES IT FOR TONIGHT

 

Harvey.

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