06 February 2016 — Saturday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
After doing nothing in Far East trading on their Friday, the gold price ticked down a hair at the London open—and began to creep quietly higher from there. Then from shortly after 11 a.m. GMT in London—and until the job numbers were released, gold traded ruler flat. At that point the price got hammered for fifteen bucks by 9:05 a.m. EST, but began to crawl higher from there. The surprise was that the big rally of the day started around 2:45 p.m. in the thinly-traded electronic market—and virtually every dollar of Friday’s gains came during the next seventy-five minutes of trading. The buyer vanished at 4 p.m.—and it traded flat into the close.
The low and high ticks were recorded by the CME Group as $1,145.50 and $1,175.00 in the April contract.
Gold finished the Friday session in New York at $1,173.50 spot, up $18.10 from Thursday’s close. Net volume was sky high at just over 194,000 contracts, so ‘da boyz’ were out in force as sellers of last resort, just as they’ve been all week.
And here’s the 5-minute gold tick chart courtesy of Brad Robertson. Volume was very quiet in Far East and London trading, but began to inch higher in the last ten minutes or so going into the COMEX open, which is 6:30 a.m. Denver time on this chart. Then it exploded higher when the HFT traders and their algorithms put the boots to the gold price. But by 9:30 a.m. MST—11:30 a.m. in New York—volume had died down considerably. It picked up again in after-hours trading as the price soared, but by shortly after 2 p.m. MST, 4 p.m. in New York, volume collapsed to background levels. The vertical gray line is midnight in New York—add two hours for New York—and the ‘click to enlarge’ feature is still MIA.
And here’s the New York Spot Gold [Bid] chart so you can examine yesterday’s price action in more detail.
The price action in silver followed a similar path as gold, but prices were more subdued, which is just the way JPMorgan wants it to be. The after-hours rally took it above the $15 spot price, before the buyer either disappeared, or the rally got capped—you choose your favourite.
The low and high tick in silver was recorded as $14.67 and $15.065 in the March contract.
Silver closed the Friday session at $15.01 spot, up 16 cents on the day. Net volume was very decent once again at just under 42,500 contracts—and about 17 percent of the gross volume was roll-overs out of the March contract.
Platinum was more or less the same as far as price pattern was concerned—and it managed to close in positive territory after getting sold down on the day as well. It finished the week at $910 spot, up 2 bucks from Thursday.
Palladium made it up to $516 spot by 11 a.m. Zurich time—and then gave back most of those gains by the COMEX open. By the time the powers-that-be were done with it, they’d beaten it down to the $496 spot mark. Then, like the other three precious metals, it rallied into the close—and back above $500 spot, closing the Friday session at $502 spot—down 9 dollars from Thursday.
The dollar index closed late on Thursday afternoon in New York at 96.57—and made it as high as 96.68 in early morning trading in London. But it began to fade a bit from there—and really rolled over hard starting around 12:30 p.m. GMT, which was 7:30 a.m. in New York. The eye-watering 96.32 low tick [according to ino.com] came a minute or so before the job numbers came out—and at that point, the usual ‘gentle hands’ appeared. The 97.27 high tick came at, or just after, the London p.m. gold fix, which was around 10 a.m. in New York. From there it headed lower—and finished below the 97.00 mark at 96.95—up 38 basis points on the day—and miles of its high tick.
It was obvious once again that the PPT were there to hit the ‘Buy the DXY/Sell Precious Metals” button for the third day in a row. I don’t know why they don’t just march a brass band down Wall Street on their way to the COMEX, as that’s how conspicuous they’ve become.
Here’s the 6-month U.S. dollar index—and as you can see, the U.S. has devalued its currency a bit since Kuroda opened his month and announced negative interest rates in Japan. Jim Rickards’ “Currency Wars” are, as I said yesterday, moving at Warp speed now.
The gold stocks opened down, but were in the green to stay by 11 a.m. in New York trading. They had a temporary top around 11:45 a.m. EST, but then rallied strongly into the close once the shenanigans in the gold market began in electronic trading. The HUI closed virtually on its high of the day, up 5.70 percent.
The silver equities traded in a nearly identical manner—and Nick Laird’s Intraday Silver Sentiment Index really sailed, finishing the Friday session up 5.84 percent.
For the week, the HUI closed up an eye-watering 22.38 percent—and the ISSI closed up a very decent 18.87 percent as well.
The CME Daily Delivery Report showed that 40 gold and zero silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday. ABN Amro was the short/issuer on all of them—and HSBC USA stopped 22 of them for its own account—and JPMorgan scooped up 16 for its clients. The link to yesterday’s Issuers and Stoppers Report is here.
The CME Preliminary Report for the Friday trading session showed that gold open interest in February shed another 150 contracts, leaving 2,240 left, minus the 40 mentioned in the previous paragraph. February silver o.i. was up again, this time by 3 contracts, leaving 140 still open.
I know that Ted will have more to say about ‘all of the above’ in his weekly commentary to his paying subscribers on Saturday afternoon—and I’ll steal what I can.
For the fifth day in a row, an authorized participant added gold to GLD. This time it was 155,638 troy ounces. And as of 6:19 p.m. EST yesterday evening, there were no reported changes in SLV.
My back-of-the envelope calculations show that the gold price is up about $114 the ounce so far this year—and in silver that number is around $1.25. They’re up more than that actually, as that doesn’t include the post-COMEX close gains in either metal yesterday.
Month-to-date, which is the just the last five business days, there has been 939,860 troy ounces of gold added to GLD. Year-to-date that number is 1,804,469 troy ounces.
In SLV month-to-date, there has been 519,915 troy ounces of silver withdrawn—and year-to-date 8,935,071 troy ounces have been withdrawn.
Why is only Ted Butler—and by extension, myself—the only ones talking about this monstrous dichotomy?
Most certainly SLV is owed silver, but why is it not being deposited? And why is an authorized participant [read JPMorgan] allowed to short SLV shares in lieu of depositing real metal as demanded by the prospectus? Another question that goes begging for an answer.
Why the nut-ball lunatic fringe won’t touch these issues with the proverbial 10-foot cattle prod is beyond me. But they won’t.
There was a tiny sales report from the U.S. Mint yesterday. They sold 4,000 gold eagles—and that was all. They posted this on their website so late in the day, that I almost missed it.
Month-to-date the mint has sold 12,500 troy ounces of gold eagles—2,000 one-ounce 24K gold buffaloes—and 1,045,500 silver eagles. And retail bullion sales still stink to high heaven, at least in North America.
There was no in/out gold activity over at the COMEX-approved depositories on Thursday.
But it was another huge day in silver, as 1,166,803 troy ounces were reported received—and 1,684,431 troy ounces were shipped out. Of that amount, there was a transfer of 610,408 troy ounces from Scotiabank’s vault—and into the loving arms of JPMorgan. And while their stench is still in the air, I should mention that they shipped out 300,514 troy ounces as well. The link to all this activity is here.
Over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday, they reported receiving 2,802 of them—and shipped out 183. With the exception of 2 kilobars received at Loomis International, all the rest of the action was at Brink’s, Inc. as per usual—and the link to that, in troy ounces, is here.
The Commitment of Traders Report, for positions held at the close of trading on Tuesday, was what Ted expected in silver, but was worse than he expected in gold.
But before I go into the details, you should have already figured it out for yourself that what I have to say below is totally “yesterday’s news”—as the big rallies that began the day after the cut-off, has rendered the data virtually meaningless. I’m just going to comment on the headline numbers in the Legacy COT Report—and forget about what’s “under the hood”.
In silver, the Commercial net short position only rose by 350 contracts, which is hardly worth mentioning. They did this by increasing their long position by 1,739 contracts, but they also increased their short position by 2,089 contracts as well. The difference is the 350 contract deterioration. The Commercial net short position in silver is now up to 45,474 contracts, or 227.4 million troy ounces of paper silver. This is getting to be a big number—and it’s materially worse since the close of trading on Friday.
Ted said that the Big 4 traders increased their short position by a further 800 contracts or so—and for that reason [plus the data from the new Bank Participation Report] he pegs JPMorgan’s net short position at a bit over 18,000 contracts. The raptors [the Commercial traders other than the Big 8] sold 100 long contracts—and the ‘5 through 8’ largest traders decreased their short position by 500 contracts.
In gold, the Commercial net short position increased by a very chunky 17,522 contracts, or 1.75 million troy ounces. They did this by increasing their long position by 1,126 contracts, but they also increased their short position by 18,648 contracts—and the difference between these two numbers is the increase in the net short position. The Commercial net short position in gold now stands at 7.74 million troy ounces. A small number by historical standards, but miles off its low of several months ago and, like silver, materially worse now.
Ted said that the Big 4 added about 1,600 contracts to their short position, the ‘5 through 8’ largest traders added a chunky 13,000 contracts to their short positions—and the raptors sold about 2,600 of their long contracts.
I used the term “materially worse” to describe the deterioration in the Commercial net short positions in both gold and silver since the Tuesday cut-off, but we still have two more trading days to go in the reporting week—and I have no idea what may happen between now and the cut-off.
Here, by special request from reader Dennis Rehm, is a chart showing the futures positions of the three categories of traders in the Legacy COT Report—the Commercials, the Non-commercials [which includes the Manged Money traders]—and the Nonreportable/small traders, which is the thin black line. As you can tell from the red bars, we’re still a long way off being in an overbought condition on an historical basis. I’m sorry, but the ‘click to enlarge’ feature still doesn’t work—and there’s no word from the folks over at wordpress.com as to when it will be fixed.
Here’s Nick Laird’s “Days to Cover” chart updated with yesterday’s COT data. It shows the days of world production that it would take to cover the short positions of the Big 4 and Big 8 traders in each physically traded commodity on the COMEX.
And as I said in last Saturday’s column—the positions of the Big 4 and 8 traders in silver continues to redefine the meaning of the words ‘obscene’ and ‘grotesque.’ The Big 4 are short 112 days of world silver production—and the ‘5 through 8’ traders are short 56 days of world silver production. And as an aside, the two largest silver shorts on Planet Earth—JPMorgan and Canada’s Scotiabank—are short about 80 days of world silver production between them. That amount represents about 70 percent of the length of the red bar in silver. The other two traders in the Big 4 category are short, on average, about 16 days of world production apiece.
And the CFTC, the CME Group—and the silver miners—say and do nothing, even though it only takes Grade 3 arithmetic to figure this stuff out.
The Bank Participation Report [BPR] data is extracted directly from the above Commitment of Traders Report Report. It shows the COMEX futures contracts, both long and short, that are held by all the U.S. and non-U.S. banks as of last Tuesday’s cut-off. For this one day a month we get to see what the world’s banks are up to in the COMEX futures market, especially in the precious metals—and they’re usually up to quite a bit.
In gold, 5 U.S. banks are net short 45,014 COMEX gold contracts. In January’s Bank Participation Report [BPR], that number was 43,060 contracts, so they’ve increased their collective short positions by just 1,954 contracts during the reporting period. This isn’t a lot. Three of the five banks would include JPMorgan, Citigroup—and HSBC USA. As for who the fourth and fifth bank might be—I haven’t a clue, although Goldman Sachs comes to mind as one of them. And if they are in that group, my guess is that they would be long gold.
Also in gold, 19 non-U.S. banks are now net short 20,350 COMEX gold contracts. In the January BPR they were net short only 2,199 COMEX contracts in gold, so the month-over-month change is quite a bit. As I’ve stated for years, it’s reasonable to assume that a goodly chunk of this short position in gold is owned by Canada’s Scotiabank, but it’s also a good bet that most of the remaining 18 non-U.S. banks are now net long gold the COMEX futures market.
Here’s Nick’s chart of the Bank Participation Report for gold going back to 2000. Charts #4 and #5 are the key ones here. Note the blow-out in the short positions of the non-U.S. banks [the blue bars in chart #4] when Scotiabank’s COMEX gold positions [both long and short] were outed in October of 2012. The ‘click to enlarge’ still doesn’t work—and there’s not a thing I can do about it.
In silver, 4 U.S. banks are net short 20,040 COMEX silver contracts—and it’s Ted’s back-of-the-envelope calculation from yesterday that JPMorgan holds a bit over 18,000 contracts of that short position all by itself, so it’s a mathematical certainty that at least one of the other U.S. banks is also net short the silver market. My money is on HSBC USA. But it’s also a very safe bet that one or more of these U.S. banks are net long the COMEX silver market as well. The short position of these 4 U.S. banks was 18,632 contracts in the January BPR, so there’s been about a 1,400 contract increase/deterioration month-over-month.
Also in silver, 13 non-U.S. banks are net short 21,446 COMEX contracts—and that’s a huge increase from the 10,917 contracts that these same banks held net short in the January BPR. I’d be prepared to bet big money that Canada’s Scotiabank is the proud owner of most of this short position. That means that almost all of the other 12 non-U.S. banks are net long the COMEX silver market.
Here’s the BPR chart for silver. Note in Chart #4 the blow-out in the non-U.S. bank short position [blue bars] in October of 2012 when Scotiabank was brought in from the cold. Also note August 2008 when JPMorgan took over the silver short position of Bear Stearns—the red bars. It’s very noticeable in Chart #4—and really stands out like the proverbial sore thumb it is in chart #5.
In platinum, 4 U.S. banks are net short 6,548 COMEX contracts—but their long position [in total] is a laughable 192 contracts! So except for those 192 long contracts—their positions are held entirely on the short side. In the January BPR, these same banks were short 8,318 COMEX platinum contracts, so they’ve decreased their short position by a considerable amount—1,770 contracts, or 21 percent.
I’d guess that JPMorgan holds the lion’s share of that 6,548 contract net short position.
Also in platinum, 17 non-U.S. banks are net short 8,006 COMEX contracts, an increase of 2,190 contracts, or about 38 percent more than they were net short in the January BPR.
Looking at all the banks in total, both U.S. and foreign, there was virtually no change in their short positions on a net basis compared to what they were short in the January BPR.
If there is a large player in platinum amongst the non-U.S. banks, I wouldn’t know which one it is. However I’m sure there’s at least one big one in this group. The reason I say that is because before mid-2009 when the U.S. banks showed up, the non-U.S. banks were always net long the platinum market by a bit—see the chart below—and now they’re net short. The remaining 16 non-U.S. banks divided into whatever contracts are left, isn’t a lot, unless they’re all operating in collusion—which I doubt. But from the numbers it’s easy to see that the platinum price management scheme is an American show as well, with one big non-U.S. bank involved. Scotiabank perhaps?
In palladium, 4 U.S. banks were net short 2,152 COMEX contracts in the February BPR, which is a 33.7 percent decline from the 3,248 COMEX contracts they held net short in the January BPR.
Also in palladium, 17 non-U.S. banks are net short only 681 palladium contracts—which is down from the 1,076 COMEX contacts they held net short in January’s BPR. So their positions, divided up more or less equally, are immaterial, just like they are in platinum.
It should be noted—and it’s obvious in the chart below—that the banks, both U.S. and foreign, appear to be heading for the exits in the palladium market, as their net short positions haven’t been this low since back in late 2012.
Here’s the BPR chart for palladium. You should note that the U.S. banks were almost nowhere to be seen in the COMEX futures market in this metal until the middle of 2007—and they became the predominant and controlling factor by the end of Q1 of 2013. But as I mentioned in the previous paragraph, their footprint is pretty small now, as, collectively, they are only net short 10.8 percent of total open interest in that metal. But I would still be prepared to bet big money that, like platinum, JPMorgan holds the vast majority of the U.S. banks’ remaining short position in this precious metal as well.
As I say every month at this time, the three U.S. banks—JPMorgan, Citigroup, HSBC USA—along with Canada’s Scotiabank— are the tallest hogs at the price management trough. Until they decide, or are instructed to stand back, the prices of all four precious metals are going nowhere—supply and demand fundamentals be damned!
JPMorgan and Canada’s Scotiabank still remain the #1 and #2 silver shorts on Planet Earth in the COMEX futures market.
It appears that China may be releasing its withdrawals from the Shanghai Gold Exchange, but on a monthly, rather than a weekly schedule. Koos Jansen has a piece about that at the bottom of the Critical Reads section—and although I’d like to be a believer that all is sweetness and light again, I’ll remain camped out smack dab in the middle of Missouri until further notice. Here’s Nick’s chart now configured for monthly withdrawals.
I have a decent number of stories for you today—and I hope you have enough time between now and when the Super Bowl festivities get underway, to read the ones that interest you.
Hiring trends in some industries just don’t add up
The U.S. jobs report for January appears to show a big slowdown in hiring at first glance. But changes in monthly employment can be quite fickle and a few things looked fishy.
Here are four reasons you should view the January employment report in a different light — and wait another month or two to see if the labor market is really in retreat.
Every so often a monthly employment report is full of so many irregularities that it pays to discount the report. This might be one of those times.
“It just seems there is a lot of stuff in this report that makes you think it’s an anomaly,” said JJ Kinahan, chief strategist of TD Ameritrade.
Well, dear reader, they’re all b.s. as far as I’m concerned—and this one is no different. This news item put in an appearance on the marketwatch.com Internet site at 12:55 p.m. on Friday afternoon EST—and I thank Scott Linn for today’s first story. If you don’t read the story, the photo pretty much sums it up. This article is also linked here.
The nation’s trade deficit rose 2.7% in December as exports fell again, capping the first year since 2009 in which U.S. exports have declined.
The U.S. trade gap increased to a seasonally adjusted $43.4 billion from $42.2 billion in November, government data show. That was in line with the MarketWatch forecast.
U.S. exports dipped 0.3% to $181.5 billion. They fell 4.8% in 2015 to mark the largest decline since the final year of the Great Recession.
Exports have tumbled because of a weak global economy and a strong dollar that’s made American-supplied goods and services more expensive. The worsened trade picture contributed to slower U.S. economic growth in the second half of 2015.
This is the second story in a row from Scott Linn—and it’s also from the marketwatch.com Internet site. It showed up there at 8:52 a.m. EST yesterday morning. Another link to this article is here.
Oil prices have plunged by roughly 70% since mid-2014, but global production has barely budged.
“There has been minimal production shut-in so far in this downturn” for prices, according a report Friday from research firm Wood Mackenzie. It said only about 0.1% of global oil production, or less than 100,000 barrels a day, of production has been shut in so far.
That’s hard to believe, given that prices for West Texas Intermediate crude traded Friday under $32 a barrel, down from more than $106 in June of 2014. Brent oil trades at less than $35.
Canadian production from oil sands and conventional onshore production were “taking the most pain due to the high costs and distance from [the] market place,” the report said. Other reductions have been seen from so-called U.S. “stripper” wells, which are onshore ultra-low output wells, and in the North Sea, where some operators have ceased production of aged fields.
This is the third Marketwatch offering in a row from Scott Linn. This one was posted on their website at 1:08 p.m. EST Friday afternoon. Another link to the article is here.
The global oil industry is caught in a self-feeding downward spiral as falling prices cause producers to boost output even further in a scramble to service $3 trillion of dollar debt, the world’s top watchdog has warned.
The Bank for International Settlements fears that a perverse dynamic is at work where energy companies in Brazil, Russia, China and parts of the US shale belt are increasing production in defiance of normal market logic, leading to a bad “feedback-loop” that is sucking the whole sector into a destructive vortex.
“Lower prices have not removed excess capacity from the market, but instead may have exacerbated it. Production has been ramped up, rather than curtailed,” said Jaime Caruana, the general manager of the Swiss-based club for central bankers.
The findings raise serious questions about the strategy of Saudi Arabia and the core Opec states as they flood the global crude market to knock out rivals in a cut-throat battle for export share. The process of attrition may take far longer and do more damage than originally supposed.
This very interesting commentary from Ambrose Evans-Pritchard showed up on the telegraph.co.uk Internet site at 6:33 p.m. GMT on Friday evening in London, which was 1:33 p.m. in New York—EST plus 5 hours. It’s the first offering of the day from Roy Stephens. There’s another link to this story here.
We were on the 16th floor of a new apartment building, looking out over the East River. With us was President Reagan’s former budget advisor and Wall Street veteran David Stockman – a man who has been closer to the Bubble Epoch than almost anyone.
The Dow rose 183 points on Wednesday – or just over 1% – after starting the day in the red.
“I was there at the creation,” said David.
“After leaving government, I went to Salomon Brothers in the late 1980s. We were just starting to put together packages of mortgage-backed debt.”
Bubble finance has taken many shapes and sizes. Mortgage-backed derivatives. Private equity. Junk bonds. Student debt. Subprime auto loans. Stock buybacks. This debt was a curse to most Americans. But it blessed Manhattan.
This short commentary appeared on the acting-man.com yesterday sometime—and it’s certainly worth reading. I thank Roy Stephens for his second contribution in a row. Another link to this article is here.
Since 1994 U.S. debt outstanding is up by $45 trillion compared to a $11 trillion gain in GDP. If debt were the elixir, why has real final sales growth averaged just 1.0% per annum since Q4 2007—–a level barely one-third of the peak-to-peak rates of growth historically?
If the $10 trillion of U.S. debt growth since the eve of the Great Recession was not enough to trigger “escape velocity”, just exactly how much more would have done the job?
Our 200 financial rulers have no answer to these questions for an absolutely obvious reason. To wit, they are monetary carpenters armed with only a hammer. Their continued rule depends upon pounding more and more debt into the economy because that’s all a central bank can do; it can only monetize existing financial claims and falsify the price of financial assets by driving interest rates to the zero bound or now, outrageously, through it.
But debt is done. We are long past the peak of it. After 84 months of ZIRP, Ms. Brainard’s call for “watchful waiting” at 25bps is downright sadistic.
Where does she, Janet and the rest of their posse get the right to confiscate the wealth of savers in their tens of millions?
David Stockman is at the top of his game in this short novel that was posted on his website on Thursday. It’s certainly worth reading if you have the time—and it had to wait for today’s column for length reasons. I thank Roy Stephens for sending it along. Another link to this article is here.
As I type, the news media is breathlessly awaiting the result of the Iowa caucus. It begins the ritual of citizens believing they are electing the most powerful person on the planet.
Each candidate does the same dance. Like Paul Revere they shout that danger lurks ahead. Like Mighty Mouse, just in the nick of time, they are the best choice to fly in and save the day. Same old story!
Election cycles do not coincide with economic cycles. In good and bad economic times, the incumbent party is considered responsible. When the public is angry, they fire the people in charge. The next president has a good chance of being run out of town after their first term.
While the president and congress are deemed responsible for the economic health of the nation, in my opinion, the Federal Reserve pulls the strings.
This commentary by my good friend Dennis showed up on the milleronthemoney.com Internet site on Thursday. Another link to this article is here.
When developers at a top U.S. stock exchange needed help debugging a program that puts time stamps on quotes and trades in July, they could have hired a high-profile consulting firm.
Instead, they called a customer who runs a company out of a small office in a Chicago suburb who had weeks earlier called the exchange’s dealings with high-frequency trading firms “completely illegal” on Twitter.
The customer, Eric Scott Hunsader, and a colleague did the work in a few days — for free.
Hunsader occupies an unusual position in the investing world. Founder of a software company called Nanex, he is a market data expert whose tools for spotting patterns and solving puzzles are indispensable to traders. But he’s also a vocal critic of market structures he believes punish investors, and he frequently assails high-frequency traders, exchanges and government regulators.
This very long, but very interesting essay was posted on the marketwatch.com Internet site on Wednesday, but for length and content reasons, it had to await my Saturday column. I’ve only read part of it, but it’s on my must read list this weekend for sure. It’s the fourth offering of the day from Scott Linn. Another link to this article is here.
WikiLeaks founder Julian Assange will demand that he be allowed to leave the Ecuadorian embassy in London a free man, after a U.N. panel ruled on Friday he was detained arbitrarily there.
“WikiLeaks founder Julian Assange has been arbitrarily detained by Sweden and the United Kingdom since his arrest in London on 7 December 2010,” the United Nations Working Group on Arbitrary Detention ruled.
The panel also said that Assange’s detention “should be brought to an end, that his physical integrity and freedom of movement be respected, and that he should be entitled to an enforceable right to compensation.”
Assange, who enraged the United States by publishing hundreds of thousands of secret U.S. diplomatic cables, has been holed up in the embassy since 2012 to avoid a rape investigation.
It’s about bloody time. What a travesty of justice this whole thing was! This news item appeared on the france24.com Internet site yesterday—and it’s another contribution from Roy Stephens. There’s another link to that story here. Roy Stephens sent another article on this event written by John Pilger. It showed up on the counterpunch.org Internet site yesterday. It’s headlined “Freeing Julian Assange: the Final Chapter“—and if John wrote it, you can bet it’s worth reading.
While there are numerous financial institutions in the world that are full of hidden NPLs and over-leveraged, trading at extreme levels of risk, the FSA’s “Too-Interconnected-To-Fail” list of systemically critical banks is where global investors’ attention is really focused.
BMO Capital Markets breaks down the world’s most systemically critical financial institutions using their own “special sauce” of CDS levels, CDS term structure, equity price, liquidity, and spread trends.
Frankly, as we explained previously, these are the “Musketeer” banks – “one for all—and all for one” as any system failure in Deutsche, Credit Suisse, or Bank of China will leak immeasurably and contagiously around the world via the interconnectedness of the collateral chains used to fund these behemoths.
This interesting chart put in an appearance on the Zero Hedge Internet site at 2:40 p.m. EST yesterday afternoon—and this news item is courtesy of Richard Saler. The chart is certainly worth a minute of your time—and there’s another link to the story here.
We warned earlier in the week that the credit risk of the world’s financial institutions were on the rise and that trend has worsened as the week ends.
European Bank Risk is blowing out in Core and Peripheral nations…and China Bank credit risk has broken to new cycle highs…
Deutsche Bank – Europe’s largest derivatives exposure (and thus epicenter of collapse should things turn out as bad as the bank’s CoCos suggest) – is suffering seriously… It is becoming very clear that banks are buying protection on DB to hedge their counterparty exposure…
This 7-chart Zero Hedge article showed up on their Internet site at 3:50 p.m. EST on Friday afternoon—and it’s the second offering in row from Richard Saler. The charts are definitely worth a minute of your time. There’s another link to this story here.
Credit Suisse Group AG shares slumped to a two-decade low as bigger-than-expected restructuring charges and trading losses prompted investors to question Chief Executive Officer Tidjane Thiam’s plan to turn around the company.
The shares dropped as much as 13 percent on Thursday in Zurich after the bank posted a fourth-quarter loss of 5.8 billion Swiss francs ($5.8 billion), worse than analysts’ estimates. Global markets, which houses most of the Zurich-based firm’s trading business, had the biggest quarterly loss among the company’s divisions as Thiam cited “legacy positions” hurt by jittery markets.
Thiam signaled confidence in his target of more than doubling pretax profit by 2018, which he wants to achieve by shrinking the volatile trading business and building up wealth management in Asia. Citing the “particularly challenging environment” since he announced a strategic overhaul in October after his appointment as CEO, Thiam said he would accelerate staff reductions, with 4,000 jobs cut by the end of this year.
This Bloomberg article appeared on their Internet site at 8:48 a.m. Denver time on Thursday morning—and it’s something I ‘borrowed’ from yesterday’s edition of the King Report. Another link to the article is here.
Bank Julius Baer of Switzerland will pay a $547 million penalty as two bankers individually plead guilty. The bank itself is charged with helping U.S. taxpayers hide billions in offshore accounts and cheating the IRS. The Bank’s deferred prosecution agreement admits that it knowingly assisted U.S. taxpayer-clients in evading taxes. The deal requires the bank to pay $547 million right away.
Under the deferred prosecution deal, if the bank flies right for the next three years, the charges will be dismissed. The charges are serious, including conspiracy to defraud the IRS, to file false tax returns and to evade federal income taxes.
Two Julius Baer client advisers, Daniela Casadei and Fabio Frazzetto, each plead guilty to one count of conspiracy to defraud the IRS, to evade federal income taxes, and to file false federal income tax returns. Ms. Casadei and Mr. Frazzetto each face a maximum sentence of five years in prison. They are each scheduled to be sentenced on August 12, 2016.
This news item was posted on the forbes.com Internet site late Thursday morning EST—and it’s another contribution from Scott Linn. Another link to this article is here.
The New Cold War has suddenly got worse and now “the clock is ticking down to three minutes to midnight.” This is the theme of this week’s podcast by Batchelor and Cohen, and the change is coming from Washington where it is now evident that President Obama has ended his vacillation and indecisiveness to come out on the side of the war party. He has, through his Department of Defence, just announced a massive quadrupling of spending to rearm NATO in Europe, upping the current spending from $750 million to $3 billion for arms and rotating brigades on a permanent basis that will be based mostly in the Baltic States and Poland – right up against the Russian borders. As a result the die is cast towards further provocations against Russia with Cohen pointing out that NATO is committed to directly building up a military presence along Russia’s European borders “for the first time in history”. As expected, this policy was accompanied by the usual nonsense statements: “to combat and prevent Russian aggression”.
Cohen also sees some other setbacks from this in Ukraine, Syria and Turkey. In Ukraine President Poroshenko seems enlivened to rebuke Germany’s Merkel over proceeding with enacting the Minsk2 Accords. Turkey’s President Erdogan is openly denying its guilt in shooting down the Russian Su-24, and frequently and provocatively mentions NATO Article 5 (with no censure from NATO). Probably related to this Russia is sending four high performance Su-35 fighter jets to Syria that only have a primary function of shooting down other fighters. All of this suggests that Washington is supporting Kiev and the status quo in Ukraine, and may send in more forces as it plans to do in northern Europe (and we may have an explanation for why Canadian troops are still active there), and Turkey’s Erdogan is not being discouraged by Washington against more provocations against Russia. These are massive changes from last week, and Cohen carefully points out that there is no real effort on the part of the MSM in the United States to discuss it, nor is the topic raised in any kind of debate with the presidential candidates.
How did we ever get to this point?
In the beginning Obama and his predecessors revealed a pugnacious foreign policy that was thwarted by Russia in Iran and then in Syria. These events (following the Wolfowitz Doctrine) initiated Washington’s aggressive foreign policy towards Russia beginning in Ukraine when our pundits debated whether the goals were a proxy war with Russia or a NATO (USA) war directly with Russia. That question may now be answered.
There is haste to all of these events that is disturbing as well, and it may be due to recognition that a lot of the EU is tired of the Russian sanction situation, and that the refugee crisis is a massive disincentive for support for Washington. Washington is running out of time. The politics there have now succumbed to the business model of the US Military Industrial Complex. However, there were two developments that mitigated the war party goals, the growing realization in Washington that its proxy army of ISIS was now out of control, and demonstrations of Russian military advances in weaponry in Syria revealed a superiority that made taking on Russia militarily more risky. Apparently, Obama, in his remaining year of his presidency, may have decided to take that risk at least to the extent of throwing money at weapons production. This only makes sense when one understands that preparing for and wining or losing a war is all profitable to this business model, and that risking all life on the planet need not be part of the decision if the public is not informed with any kind of public debate. Morality may not have any role here at all.
I posted this 40-minute audio interview in Wednesday’s column because I just didn’t want to wait until Saturday, because the subject material covered was so important. I promised to include it again in today’s column—and here it is. I thank Ken Hurt for the link, but the big THANK YOU goes out to Larry Galearis for the above executive summary. And if you don’t want to spend the time listening, then that makes the above summary a must read, especially for any serious student of the New Great Game. Another link to this interview is here.
Foreign Minister Sergey Lavrov held his annual press conference before an audience of about 150 journalists, including the BBC correspondent Steve Rosenberg and many other well-known representatives of mainstream Western media. The purpose of this traditional event is to review issues faced by his Ministry in the past year and to give his appraisal of results achieved.
The Minister’s opening remarks were concise, lasting perhaps 15 minutes, and the remaining two hours were turned over to the floor for questions. As the microphone was passed to journalists from many of the different countries represented in the room, the discussion covered a great variety of subjects. By way of example, I would name here the negotiations over re-convening the Syrian peace talks in Geneva, David Cameron’s comments on the findings of a U.K. public inquest into the Litvinenko murder, the possibilities for reestablishing diplomatic relations with Georgia, the likelihood of a new ‘re-set’ with the United States, and prospects for resolving conflicting claims over the Southern Kurile islands so as to conclude a peace treaty with Japan.
To the best of my knowledge, not a single report of the event has yet appeared on major online American, French, British, German newspaper portals or television channels. This was not for lack of substance or newsworthy sound bites, including the headline ‘no business as usual’ remark. As the sharp-tongued Foreign Ministry spokeswoman Maria Zakharova commented not long ago with respect to a similar news blackout that followed another major Russian press briefing: what are all these accredited Western reporters doing in Moscow if nothing gets published abroad? Do they have some other occupation?
The entire 3-hour video is posted on youtube.com, but there’s also a link to the transcripts in both English and Russian embedded in this article. If you don’t have that kind of time, then the linked cover story is an absolute must read from one end to the other—and that’s irrespective of the fact that you may or may not be a serious student of the New Great Game! It was posted on the russia-insider.com Internet site last Saturday—and for obvious reasons, had to wait for this Saturday’s column. The first reader through the door with this story was Patricia Caulfield—and I thank her for bringing it to my attention—and now to yours. There’s also a link to the article here.
China is burning through its foreign-currency reserves at such a blistering pace that the country will run down its cushion in a few months, forcing the government to wave the white flag and float the yuan, says Société Générale global strategist Albert Edwards.
“The market remains content that massive firepower remains to support the renminbi. It does not,” Edwards, a perma-bear with a propensity for doom-and gloom-prognoses, said in a report published Thursday.
Société Générale, using the International Monetary Fund’s rule of thumb on reserve adequacy, estimates that China’s foreign-currency reserves are at 118% of the recommended level. But that cushion is likely to evaporate soon on a combination of capital flight and the continuing effort by financial authorities to stem a dramatic drop in the currency.
This news item was posted on the marketwatch.com Internet site on Thursday afternoon—and Albert Edwards is not the first one that has said this in the last few days. It’s inevitable that China will devalue—and it will probably happen sooner rather than later. It’s the last contribution of the day from Scott Linn—and I thank him on your behalf. There’s also a link to the article here.
China is particularly keen on using the Party’s various media mouthpieces to counter perceived threats to the country and to calm the masses whose nerves are increasingly frayed amid the equity market collapse and the decelerating economy.
Last month for instance, a hilariously absurd “op-ed” appeared in People’s Daily carrying the title “Declaring war on China’s currency? Ha ha.” In it, Beijing calls George Soros – who said at Davos that he’s betting against Asian currencies and that China is experiencing a hard landing – a “financial crocodile” whose “war on the renminbi cannot possibly succeed.”
Of course Soros isn’t the only one waging “war” on the yuan. Kyle Bass is also betting against the currency.
China’s banking system, Bass told CNBC on Wednesday, is a $34 trillion ticking time bomb, and when it explodes, Beijing will need to plug the holes. $3.3 trillion in FX reserves will be woefully inadequate, he contends.
“Very few people have looked at what the cause of the problem is,” Bass begins. “They’ve let their banking system grow 1,000% in 10 years. It’s now $34.5 trillion.”
This interesting and probably right-on-the-money commentary from Kyle showed up on the Zero Hedge website at 10:55 p.m. on Thursday night EST—and I thank Richard Saler for finding it for us. There’s another link to this story here.
Nomura Asset Management Co. stopped accepting investments into some money-market funds as the $1.4 trillion dollar industry grapples with the negative interest rates introduced by the Bank of Japan last week.
The brokerage said Friday it will suspend orders for its Money Management Fund and Free Financial Fund from Feb. 9 following the BOJ decision to set the rate on some excess reserves held by financial institutions at the central bank at minus 0.1 percent. Daiwa Asset Management Co. and Mitsubishi UFJ Financial Group Inc. made similar announcements on Monday.
“Although the negative rate is applicable only to a part of current accounts that financial institutions hold at the Bank of Japan, yields are falling in the domestic short-term market, which is the main investment of the funds,” Nomura said in a statement.
This Bloomberg story from Thursday was picked up by the finance.yahoo.com Internet site—and it’s the second offering of the day that I borrowed from yesterday’s edition of the King Report. There’s another link to this news item here.
Financial stocks have mutated from market darlings to shorts. Such sensational shifts in market psychology are devastating for stock prices, market confidence and liquidity more generally. And as “Risk Off” appeared to attain critical momentum, this week saw heightened panic out of Crowded favorites. The NASDAQ 100 (NDX) fell 6.0%, increasing y-t-d losses to 12.4%. The biotechs (BTK) sank 5.4%, raising 2016 losses to 28.1%. The Morgan Stanley High Tech Index was hit 7.2% (down 15.7% y-t-d). The small cap Russell 2000 lost 7.2% this week (down 13.2% y-t-d).
The ongoing worldwide collapse in financial stocks provides powerful support for the bursting global Bubble thesis. After a brief respite, this week saw contagion effects return with a vengeance. Last year’s commodities and EM downfall anticipated the faltering Chinese Bubble. These days, “developed” markets have begun to discount the vulnerability of Europe, the U.S. and the rest of the world to Bubble contagion effects originally emanating from the China/commodities/EM downturns. The dominoes have started falling.
Few are yet willing to accept the harsh reality that the world has sunk back into crisis. The VIX ended the week at a somewhat elevated but non-crisis 23.38. Credit spreads have widened meaningfully but for the most part remain at a fraction of 2008 crisis levels. Indeed, markets remain hopeful that “whatever it takes” central banking is waiting in the wings to trigger rallies at the moment things turn disorderly. My view that crisis has reemerged is based on the analysis that de-risking/de-leveraging dynamics have reached a point of self-reinforcing momentum beyond the control of central bank policies. In short, The Adjustment Cycle has commenced and there’s little left at this point to hold it back.
Doug’s weekly Credit Bubble Bulletin always falls into the must read category for me, but this week’s edition falls into the absolute must read category—and if I had to pick just one article for you to read out of my entire column today, this would be it. There’s another link to this commentary here.
Venezuela’s central bank has begun negotiations with Deutsche Bank AG to carry out gold swaps to improve the liquidity of its foreign reserves as it faces heavy debt payments this year, according to two sources familiar with the talks.
Low oil prices and a decaying state-led economic model have weakened the OPEC nation’s currency reserves and spurred concerns that it could default on bonds as it struggles to pay $9.5 billion in debt service costs this year.
Around 64 percent of Venezuela’s $15.4 billion in foreign reserves are held in gold bars, which limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.
In December, Deutsche and Venezuela’s central bank agreed to finalize a gold swap this year, the sources said. The sources did not confirm the volume of the operation in discussion. Neither Deutsche nor the central bank responded to requests for comment.
This Reuters news item, filed from Caracas, appeared on their Internet site at 8:08 a.m. on Friday morning EST—and I found it embedded in a GATA release. There’s another link to this story here.
Gold researcher and GATA consultant Koos Jansen reports that the Shanghai Gold Exchange, which recently discontinued publishing weekly gold withdrawal totals, appears to have resumed reporting monthly withdrawals.
There’s a question mark at the end of Jansen’s headline—and I think that’s well deserved until we have more information. His report is headlined “SGE Continues to Publish Withdrawal Figures?” and it was posted on the bullionstar.com Internet site yesterday sometime. It’s another gold-related news item that I found on the gata.org Internet site. There’s another link to this article here.
The PHOTOS and the FUNNIES
I think I’m being fair to say that the idea that silver (and gold) might be manipulated in price on the COMEX is accepted by just as many, if not more of those who take the time to study the issue. Of course, there will always be those who reject it out of hand, probably because they can never admit to a changed opinion on anything. Also to be fair, most of these findings were complicated in nature and needed time and effort to think through; these were not conclusions that came to someone without careful consideration.
But this COMEX physical silver turnover is different in that it’s not that complicated. Enormous quantities of metal have been moved into and out from the COMEX silver warehouses on a weekly basis for nearly five years. Early on I fully admitted that I didn’t predict such a physical movement would develop and also admitted that it might stop at some point (although its cessation after so many years should also invite explanation). I was just reporting on a highly unusual development that was capable of being verified daily and asking out loud what it meant, offering my conclusion that it had to be an indication of physical tightness.
Just to remind you, my main, if not sole motivation in holding silver as an investment asset is because I believe it will go into a pronounced physical shortage at some point. A physical shortage is the most powerfully bullish force possible for any commodity, bar none. If I were to ignore any legitimate sign of physical tightness that could lead into outright shortage, I should be tarred and feathered. — Silver analyst Ted Butler: 03 February 2016
Today’s pop ‘blast from the past’ is in remembrance of Earth, Wind & Fire co-founder Maurice White, who passed away yesterday. This 1979 tune was one of their greatest hits—and it’s linked here. Enjoy, as I’m sure it brings back a lot of memories.
Today’s classical ‘blast from the past’ is a short work by Georg Friedrich Händel. It’s from his oratorio ‘Solomon’ that he composed in 1749. Everybody knows it—and the link is here.
The fact that both gold, silver and platinum were able to recover all their losses and close up on the day after the beating laid on them by the powers-that-be when the jobs numbers were released, certainly speaks volumes to me.
The rallies that occurred after the COMEX close, especially on a Friday afternoon, was certainly worth noting, as there was very decent volume associate with those price moves, particularly in gold. Whether it was a trader quietly going long, or covering an existing short position when they thought few people would be looking, is unknown. But it certainly made me stand up and take notice.
Of course, not to be forgotten in all of this is the continued deterioration in the Commercial net short positions in both silver and gold, as JPMorgan et al have certainly been standing by the door providing whatever ‘liquidity’ was required by the Managed Money traders as they covered short positions and went long.
We’re still quite some distance away from being overbought, at least when you look at the ‘Gold – Futures COT‘ chart in my discussion on this week’s Commitment of Traders Report in the first section of today’s column. And whether it’s ‘different this time’ or the ‘same old, same old’ remains to be seen.
But as Ted Butler has been pointing out recently, this price management scheme is getting very long in the tooth—and at some point the numbers in the COT Report won’t matter, as the possibility exists that ‘da boyz’ will get over run. But as Ted has also pointed out for the last fifteen year, when and if it does happen, it will be for the very first time. However, if there was ever a time for it to happen, it is upon now, as we watch the world’s financial system float off the rails.
Here are the 6-month chart for the Big 6+1 commodities, complete with their respective 50 and 200-day moving averages. The after-hours price moves in the three precious metals discussed above, don’t show up on these charts because they only show data up to the 1:30 p.m. EST COMEX close, so they’re somewhat deceiving in that respect.
One thing that Ted Butler pointed out, which doesn’t show up on the gold chart above, is that gold closed above its 200-day moving average on a weekly basis for the first time since early January 2015. That particular rally got hammered by ‘da boyz’ shortly after—and it remains to be seen if the current rally suffers the same fate.
I doubt that—and that’s because the current economic, financial and monetary system is in melt-down mode—and ‘shovel ready’ as I stated in The Wrap in last Saturday’s column. However, I do reserve the right to be wrong, as the world’s central banks and their ilk, won’t go down without a fight to the death in the precious metal price management scheme.
But, having said that, I’m in total agreement with Doug Noland when he had this to say in his weekly Credit Bubble Bulletin posted in the Critical Reads section above—“My view that [the] crisis has reemerged is based on the analysis that de-risking/de-leveraging dynamics have reached a point of self-reinforcing momentum beyond the control of central bank policies. In short, The Adjustment Cycle has commenced and there’s little left at this point to hold it back.”
Amen to that!
As I’ve said countless time over the years—“if the powers-that-be weren’t propping up everything that wanted to crash and burn—and suppressing the price of everything that wanted to blow sky—the world’s economic, financial and monetary system would be a smouldering ruin within five business days.”
That’s exactly what Doug said, except in different words—and also what David Stockman and others have been saying for years as well.
But it goes back even further than that. British economist Peter Warburton in his classic April 2001 essay “The Debasement of World Currency: It is inflation, but not as we know it” put it this way in the three most important paragraphs ever written on this subject….
Central banks are engaged in a desperate battle on two fronts
What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value, not only of the U.S. dollar, but of all fiat currencies. Equally, they seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.
It is important to recognize that the central banks have found the battle on the second front much easier to fight than the first. Last November I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil, and commodity markets? Probably, no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world’s large investment banks have over-traded their capital [bases] so flagrantly that if the central banks were to lose the fight on the first front, then the stock of the investment banks would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices.
Central banks, and particularly the U.S. Federal Reserve, are deploying their heavy artillery in the battle against a systemic collapse. This has been their primary concern for at least seven years. Their immediate objectives are to prevent the private sector bond market from closing its doors to new or refinancing borrowers and to forestall a technical break in the Dow Jones Industrials. Keeping the bond markets open is absolutely vital at a time when corporate profitability is on the ropes. Keeping the equity index on an even keel is essential to protect the wealth of the household sector and to maintain the expectation of future gains. For as long as these objectives can be achieved, the value of the U.S. dollar can also be stabilized in relation to other currencies, despite the extraordinary imbalances in external trade.
Well, dear reader, “all of the above” is in the process of being put to the test.
With a good chunk of the western world diverted by the Super Bowl on Sunday afternoon—and China basically closed most of next week for their New Year festivities—I’ll be more than interested in what transpires once trading begins at the 6:00 p.m. EST open in New York.
As I said before, the safety catch is now off the world’s financial system—and all we can do is hope that our preparations have been enough—and that we don’t end up as collateral damage as the world we’ve known all our lives, melts down before us.
That’s all I have for the day—and the week—and I’ll see you on Tuesday.