22 August 2015 — Saturday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
As I mentioned in The Wrap in yesterday’s column, it appeared that in light of world-wide decline in stock markets in both the Far East and Europe on Friday, the powers-that-be weren’t going to let the precious metals rise in the face of that. They capped the Far East rally at 11 a.m. Hong Kong time—and then leaned on the price until just after the 10:30 a.m. BST morning gold fix in London. The subsequent rally, complete with a minor sell-off at the London p.m. gold fix, crawled higher from there, but was obviously kept on a short leash, despite the fact that U.S. dollar was crashing.
The high and low ticks were reported by the CME Group as $1,167.90 and $1,148.50 in the December contract.
Gold finished the Friday session at $1,160.40 spot, up $7.30 from Thursday’s close. Gross volume was over the moon at 206,700 contracts—and it netted out to a still monstrous 185,900 contracts.
Here’s the 5-minute gold tick chart courtesy of Brad Robertson once again. You can see the decent rally in the early going in Hong Kong trading, along with the obvious price-capping at 11 a.m. local time—and then when HFT boyz and their algorithms showed up at 2 p.m. Hong Kong time. There was very little volume in the sell-off that ended just after the London a.m. gold fix but, as usual, the big volume was in the COMEX trading session. Midnight EDT is the vertical gray line at the 22:00 Denver time mark on this chart. Add two hours for EDT—and don’t forget the ‘click to enlarge‘ feature. This chart is worth a minute of your time today.
Silver got the same treatment, but was already down on the day by the time that London opened. From there it traded flat into the London p.m. gold fix—and JPMorgan et al smacked it for two bits at that point. It recovered a bit of that by 11:10 a.m., but then chopped sideways for the remainder of the Friday session.
The high and low ticks were reported as $15.715 and $15.105 in the September contract, which was an intraday trading range of almost 4 percent.
Silver closed yesterday afternoon in New York at $15.35 spot, down 22.5 cents from Thursday’s close. Gross volume was 78,694 contracts, but it netted out to a slightly under 38,000 contracts.
Platinum’s chart looked very similar to the silver chart in most respects—and that precious metal was closed at $1,018 spot, down 13 bucks on the day.
But “da boyz” really laid the lumber on the palladium price, which isn’t all that difficult to do, as it’s a very tiny market even compared to silver. Most of the damage was done between 9:30 and 10:30 a.m. in Zurich trading, as “da boyz” clubbed this metal lower to the tune of 20 dollars the ounce, closing it at $602 spot.
The dollar index closed late on Thursday afternoon in New York at 95.77—and then did a 30 basis point face plant between 10 and 11 a.m. in Hong Kong trading on their Friday morning. From there it traded pretty flat until just after the 10:30 a.m. BST London gold fix, then down it went, crashing through the 95.00 level around noon in New York. After a feeble recovery attempt above that mark during afternoon trading, the index ended up closing right on its 94.82 low tick—down 95 basis points on the day.
The fact that the precious metals did so poorly in the face of the big down-draft in the world’s premiere reserve currency is testament to the powers of JPMorgan et al—and proof that precious metal prices are set in the paper market on the COMEX—and have “Zip-a-Dee-Doo-Dah” to do with the currency markets, if that’s the charts that “da boyz” want to print. Here’s the 3-day dollar chart to put this week’s activity in some sort of perspective.
And here’s the 2-year U.S. dollar index chart so you can see where we are, along with the potential of where we could end up.
The gold stocks gapped up a bit over 2 percent at the open—and began to head south and into negative territory immediately, helped along by the slight down-draft in the gold price at the London p.m. fix. They rallied back to exactly unchanged by 11:50 a.m. EDT—and then rolled over along with the general equity markets, despite the fact that the gold price continued to crawl higher as the New York session moved along. A thoughtful buyer was there right at the close—and they cut HUI’s losses on the day to down only 2.72 percent.
The silver equities followed a similar path, but they got smoked even more at the 10 a.m. EDT London p.m. gold fix, as “da boyz” peeled two bit off the price in seconds at that point. The subsequent rally never got a sniff of unchanged and, like the gold shares, began to head south at 11:50 a.m. EDT. Nick Laird’s Intraday Silver Sentiment Index got nailed to the tune of 4.42 percent.
For the week just ended, the HUI closed up 8.80%—and Nick’s ISSI finished up only 0.42%. It’s obvious that “da boyz” are trying to keep the silver price subdued for the moment.
The CME Daily Delivery Report showed that zero gold and zero silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday. Without counting First Day Notice, which is Monday, August 31—there are only 3 business day left in the August delivery month for the short/issuers in gold to come up with the 1,500-odd contracts that have to be delivered. Why they’re leaving it to the virtual last minute is very intriguing—and I’m already wondering who it might be that’s holding out.
The CME Preliminary Report for the Friday trading session showed that gold open interest in August only declined by 19 contracts, leaving 1,476 left. And, not surprisingly, silver o.i. tumbled by the 242 contracts that were posted on such short notice yesterday. There are 25 contracts in silver still open.
There was another deposit in GLD on Friday, this time an authorized participant added 76,649 troy ounces. And as of 7:38 p.m. EDT yesterday evening, there were no reported changes in SLV. Ted mentioned on the phone yesterday that because JPMorgan et al have kept the silver price somewhat subdued compared to gold, there hasn’t been all that much buying of SLV stock lately. But, without a doubt, that particular ETF is still owed some silver, but it’s a little too soon to state that JPMorgan is shorting the shares in lieu of depositing real metal. I’ll wait until mid-week next week before commenting on it again.
There was no sales report from the U.S. Mint.
Month-to-date the mint has sold 30,500 troy ounces of gold eagles—5,500 one-ounce 24K gold buffaloes—and 3,367,500 silver eagles. The mint is running at maximum production capacity on all these bullion coins—and is effectively rationing sales, whether they say so officially or not.
It was another very quiet day in gold over at the COMEX-approved depositories on Thursday as nothing was reported received—and only 4 kilobars were shipped out.
But the activity in silver more than made up for it as 601,423 troy ounces were reported received—and 1,298,371 troy ounces were shipped out the door for parts unknown. The only warehouse that didn’t report any in/out activity was JPMorgan’s. The link to the action is here.
It was reasonably quiet over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday. They reported receiving 1,526 kilobars—and shipped out 200 kilobars. As usual, all of the action was at the Brink’s, Inc. depository—and the link to that activity, in troy ounces, is here.
The Commitment of Traders Report for positions held at the close of COMEX trading on Tuesday showed increases in the Commercial net short positions in both silver and gold. Ted’s comments to me were based on the assumption that all of the data from Tuesday’s big down-day were reported in a timely fashion. Having been born in Missouri in another life, I had my doubts. But, having said that, what’s in this report is sort of “yesterday’s news” already, because of the price action since the cut-off, so it’s important not to get overly concerned about what these numbers show.
In silver, the Commercial net short position increased by 1,166 COMEX contracts, or 5.83 million ounces. The Commercial net short position is now up to 117.0 million troy ounces. The Commercial traders added 2,965 contracts to their long positions—but also increased their short position by 4,131 contracts—and the net of that amount is the 1,166 contract reported change.
Under the hood in the Managed Money category, there wasn’t much change there either. They reduced their long positions by 1,935 contracts, but also reduced their short position by 1,845 contracts, for a net difference of only 90 contracts, which isn’t even a rounding error. The “Other Reportables” reduced their net long position by 2,713 contracts—and the small traders in the “Nonreportable” category increased their net long to the tune of 3,969 contracts. All-in-all it was a neutral report in silver.
Scrolling down through copper on the way to gold, I note that for the reporting week the Commercial traders decreased their long position by a very decent 4,695 contracts—and added only one short contract.
In gold, the Commercial net short position in that precious metal increased by 5,490 contracts, or 549,000 troy ounces of the stuff. They went about this by adding 42 long contracts plus they bought 5,532 short contracts from the Managed Money traders. The net of those two numbers is 5,490. The Commercial net short position in gold now sits at 2.99 million troy ounces, still a very low number indeed—but considerably more than that now since the Tuesday cut-off.
Under the hood, it was pretty ugly in the Managed Money camp, as they not only purchased 3,568 long contracts, they also reduced their short position by 9,779 contracts, for a total swing of 13,347 contracts. This deterioration was mitigated somewhat by the traders in the “Other Reportables” and “Nonreportable” categories, as they collectively reduced their net long position by 6,585 contracts.
But as I said at the beginning, all this activity above has been trumped by the big rallies on Wednesday and Thursday, plus what happened on Friday. However, it should be noted that the Commercial net short position continues to rise by the week in both gold and silver, so it’s obvious to all and sundry that these rallies are not doing unopposed. JPMorgan et al—the Commercial traders—are standing by to provide whatever “liquidity” is necessary to prevent “disorderly markets”—which is their cute of way of saying that they’re there to prevent price explosions to the upside, which is precisely what would happen if they weren’t.
Here’s Nick’s updated “Days of World Production to Cover Short Positions” of the 4 and 8 largest traders in each physically traded commodity in the COMEX futures market. The four precious metals still hold down their usual spot, as does silver, which has been in the #1 position almost without a break for the last fifteen plus years.
Here’s a chart, one of many that Nick Laird passed around last night, that I thought of interest. It shows the current bull market in gold that started in 2000—and compares it to the bull market that began in 1970. He had some comments about this and the other charts—and here’s what he had to say: “It’s my contention that the Dow/Gold Ratio has just topped out in its uptrend—and is soon to head down to new lows (perhaps down to 2:1 or 1:1). The following charts will show why I think that this epic turn has just happened—and what should follow. Perhaps I’m early in calling this turn but the recent market action points to the turn having happened.”
That all depends if JPMorgan et al allow it to unfold that way, but for the moment it’s “so far, so good!”
And, as usual, here is the chart showing the weekly withdrawals from the Shanghai Gold Exchange. For the week ending August 24, they reported a very chunky withdrawal of 65.301 tonnes. I thank Nick Laird for this as well.
I really hacked and slashed as far as the number of stories is concerned—and I have them down to a very reasonable number for a Saturday column, so I hope you can find the time in what’s left of your weekend to read the ones you like.
CRITICAL READS
Stocks Plunge Sharply for a Second Day on Wall Street
Stock prices around the world continued to plunge on Friday, threatening to end one of the longest bull runs in the history of the United States stock market.
A searing six-year rally in United States stocks had advanced into the summer months, shrugging off challenges like the dispute over Greece’s debt that nearly led to the country crashing out of the euro. But in the last two weeks, world markets tumbled as investors grew increasingly concerned about economic conditions in China, which unexpectedly devalued its currency last week, and the outlook for the economies of other large developing countries.
As the selling accelerated Friday afternoon, some benchmark indexes were at or near 10 percent below their recent peaks — a “correction” in Wall Street parlance. “This is likely going to go down as the first meaningful correction in four years,” said David Rosenberg, an economist and strategist at Gluskin Sheff.
Sell-offs in the financial markets need not cause harm in the real economy. In many cases in the postwar period, the United States stock market has recovered after reacting negatively to problems overseas. Strong employment numbers and other economic indicators suggest that the United States economy remains resilient.
The bought and paid for press at The New York Times tried to keep a stiff upper lip yesterday, but I doubt they’re fooling too many people with this Pollyanna bulls hit. I thank Patricia Caulfield for today’s first ‘story’.
Dow drops more than 500 points as U.S. markets plummet amid global sell-off
U.S. stock markets dropped dramatically on Friday afternoon, dragging overall global markets to their worst week of the year as concerns about the health of the Chinese economy rattled investors across the world.
All of the main U.S. indices closed down more than 3% on Friday, the fourth consecutive day of falls. The Dow Jones Industrial Average closed down 531 points, or 3.1%, to 16,460 – the S&P 500 lost 3.2% to 1,971 and the NASDAQ closed down 3.5% to 4,706.
Most major markets around the world also suffered bruising losses as new data suggested Chinese factory activity had slowed to levels last seen in 2009 and added to investors’ fears about the country’s economy since Beijing devalued its currency last week.
U.S. oil prices also crashed down to below $40 a barrel a one point, a level not seen since the financial crisis.
This is The Guardian‘s spin on things—and this item put in an appearance on their website at 9:39 p.m. GMT on their Friday evening, which was 4:39 p.m. in New York. It’s the second offering in a row from Patricia Caulfield.
It’s Not Just China You Should Be Worried About — Bill Bonner
Chinese stocks fell hard on Tuesday. The Shanghai Composite plunged more than 6% – the biggest fall in three weeks. Our research team in Beijing is downcast. “Nobody here wants to hear about stocks,” they tell us.
And the junkiest – and riskiest – part of the U.S. bond market has taken a dive too. Here’s that chart of the big U.S. junk bond ETF that Chris highlighted in yesterday’s Market Insight. It has completely rolled over this year.
iShares iBoxx High Yield Corporate Bond ETF (HYG), daily. HYG is down 6% from its high for the year (this chart shows solely the price of HYG, it is not a total return chart including coupon payments) – click to enlarge.
Meanwhile, U.S. corporate earnings have plateaued. And according to Deutsche Bank’s David Bianco, earnings are actually falling when you exclude companies’ slick accounting adjustments to “smooth” their numbers.
The only thing left propping up Wall Street stocks, as we explained yesterday, is insider trading.
This longish commentary by Bill Bonner showed up on the acting-man.com Internet site on Thursday—and it’s definitely worth reading. It’s the first offering of the day from Roy Stephens.
Plunge Protection Teams of the World, Unite! — Charles Hugh Smith
The herd must be turned away from selling by any means available, and at this point, that means coordinated buying by all the world’s Plunge Protection Teams.
Central bankers are watching Marx’s dictum “all that is solid melts into air” play out in global stock markets with a terror informed by the scalding memories of 2008’s global financial meltdown.
Once the trap-door opens, there is no bottom without prompt action by the world’s Plunge Protection Teams–the plausible-deniability action heroes of the hyper-speculative status quo who leap into action when global stock markets threaten to melt down.
After half a decade of ceaseless saves, we all know the mechanics of Plunge Protection.
As Chris Powell said back in April 2008—“There are no markets anymore, only interventions.” This short, but must read commentary appeared on the oftwominds.com Internet site yesterday—and I thank reader U.D. for passing it around.
U.S. Manufacturing PMI Tumbles to 22-Month Low: “Lack of Growth” and Deflation Blamed
Not even the seasonally-adjusted sentiment surveys can give a glimmer of hope any more. A few weeks after the July ISM manufacturing report printed at the lowest since March, moments ago the Markit mfg PMI index was released, printing at just 52.9, below the expected 53.8, and down from last month’s 53.8. This was the lowest level since October 2013 and the biggest miss in exactly two years, with output, new orders and employment all expand at slower rates in August; Markit adds that “Input cost inflation picks up fractionally, but remains well below the survey average.”
The report also notes that the latest rise in production volumes was the weakest since the weather-related slowdown recorded in January 2014 – perhaps someone can blame it on the record hot July. Some survey respondents cited a cyclical slowdown in new business growth, as well as heightened uncertainty regarding the demand outlook in August.
Most notably, now that even highly subjective survey data can no longer be rigged to boost confidence, there is only one recourse: beg and plead for the Fed to not hike rates or better yet, as Bank of America did overnight, just hint that QE4 is just around the corner if the market crashes enough.
This Zero Hedge article showed up on their Internet site at 9:57 a.m. on Friday morning EDT—and it’s courtesy of reader M.A.
Peter Foster: Twilight over COP 21
If wind and solar were uneconomic when oil was $100 a barrel, they are wildly uneconomic now.
A decade ago, Houston investment banker Matt Simmons (since deceased) received a too-respectful hearing from a bunch of Harvard alumni in Toronto for his theories about “peak oil.” His take, outlined in his book “Twilight in the Desert,” was that the Saudis, the world’s largest producers, had been lying about their reserves, which were on the point of catastrophic decline. He predicted oil prices would hit $200 a barrel by 2010 (all prices in US$). His “solution” was Soviet levels of control of people’s lives. Simmons confirmed that peaksters neither understand nor like markets, which he described as a “500-pound wrecking ball.”
Canada acquired its own peak fanatic in the shape of Jeff Rubin, sometime chief economist at CIBC, who provided further proof that anti-consumerist moralism could quickly drain all traces of Economics 101 from even a professional’s noggin. In the fall of 2007, Rubin predicted $100-per-barrel oil, and sure enough, oil soon hit $100. In January of 2008 he was predicting $150 oil within five years. It almost reached that level within a few months. On a roll, he predicted oil at $200 by 2012.
Oops.
Given Rubin’s prediction record, it takes some gall to suggest, as he did this week in a jointly authored article with David Suzuki (who once described economics as a form of brain damage), that Stephen Harper had been guilty of overestimating the potential of the oil sands, and was thus personally responsible for the Alberta boom that has now gone into very sharp reverse.
This very interesting energy-related story showed up on the financialpost.com Internet site on Thursday—and had to wait for a spot in today’s column. I thank Roy Stephens for his second contribution of the day.
Far left splits from Tsipras as Greece heads to elections
Rebels opposed to Greece’s international bailout walked out of the leftist Syriza party on Friday, formalising a split after its leader Alexis Tsipras resigned as prime minister and paved the way for early elections.
Greece’s president gave the conservative opposition a chance to form a new government following Tsipras’s resignation on Thursday, but the country appears almost certain to be heading for its third election in as many years next month.
Tsipras is hoping to strengthen his hold on power in a snap election after seven months in office in which he fought Greece’s creditors for a better bailout deal but had to cave in and accept more onerous terms.
One day after money began flowing from Greece’s third bailout program, a much-needed period of political and economic certainty remained as elusive as ever, drawing concerned calls from the euro zone that Athens must stick to commitments given under the rescue deal.
This Reuters article, filed from Athens, was posted on their website at 12:55 p.m. EDT on Friday—and I thank Patricia Caulfield for sharing it with us.
The Ukraine Imbroglio: John Batchelor Interviews Stephen F. Cohen
The present broadcast asks the question whether the civil war in Ukraine has moved from the diplomatic stage to the military stage again. On the ground we see lots more military action with vastly increased shelling of the Donbass (Donetsk area), and troop and armour movements eastward and in the Mariupol area – lots of indications of a major Kiev offensive in the offering. On the diplomacy side there is a visit by Putin and Medvedev, the Russian prime minister, to the Crimea (and a humourous response to this from Poroshenko, the president of Ukraine). But while Washington remains outwardly supportive of the Kiev military, congressman John Conyers managed to pass a resolution in the U.S. Congress banning the training and arming of right sector battalions in Ukraine – and was soundly vilified in the American press for doing this. And Hilary Clinton again emerges with anti-Putin statements as a most deplorably, non-diplomatic presidential candidate. And finally the Normandy Four (without Putin) are meeting next week to discuss the developments in Ukraine against the Minsk2A.
And that brings the discussion in the broadcast to the serious military developments and speculations as to how quickly a new offensive could become a flash point to war with Russia. We are reminded that Washington now directly backs more of this offensive than ever. Drones and radar have been provided to Kiev forces (counter battery?) by NATO allies (not specifically Washington or NATO). Cohen discusses in superb detail Kiev’s chances of winning a new offensive on its military abilities, how well its mobilization has performed, and finally why it must continue the war regardless of outcome. The latter is discussed under three possibilities (actually four) and they can be summed up with: because it sees no choice for it but war. Cohen goes on to exclaim that Kiev’s new offensive “ is such madness”, but given Western support in training and materiel, a defeat (assume some Western allies casualties) may draw in a NATO military response. He goes on to speculate what is the likely type of military response this will be. And how Putin would react. At worst we will find out if Washington rhetoric is just that, or is prepared to go to war with Russia.
And that just brings us to the halfway point! The rest of the discussion focuses on the various groups in the West and Russia and Kiev who are considering a war option (and not). The Russian concept of the “August Syndrone” is raised – Russians think bad things happen in August…This speaks to a mindset of historical inevitability of events in Russia. Russians expect more war. It would also seem that Merkel and indeed, all of the E.U., have weakened in their efforts to solve this crisis.
With hostilities coming to some sort of head in the Donbass area of the Ukraine, this 39-minute audio interview with Stephen F. Cohen should be on your “to do” list this weekend if you have the time. It was posted on the johnbatchelorshow.com Internet site on Tuesday—and I thank Larry Galearis for sending it our way. For length and content reasons, it had to wait for my Saturday missive.
Insouciance Rules The West — Paul Craig Roberts
Europe is being overrun by refugees from both Washington and Israel’s hegemonic policies in the Middle East and North Africa that are resulting in the slaughter of massive numbers of civilians. The inflows are so heavy that European governments are squabbling among themselves about who is responsible for the refugees.
Hungary is considering constructing a fence, like the US and Israel, to keep out the undesirables. Everywhere in the Western media there are reports deploring the influx of migrants; yet nowhere is there any reference to the cause of the problem.
The European governments and their insouciant populations are themselves responsible for their immigrant problems. For 14 years, Europe has supported Washington’s aggressive militarism that has murdered and dislocated millions of peoples who never lifted a finger against Washington. The destruction of entire countries, such as Iraq, Libya, Afghanistan, and now Syria and Yemen, as well as the continuing US slaughter of Pakistani civilians with the full complicity of the corrupt and traitorous Pakistani government, produced a refugee problem that the moronic Europeans brought upon themselves.
In the Western world, insouciance rules governments as well as people, and most likely everywhere else in the world, as well. It remains to be seen whether Russia and China have any clearer grasp of the reality that confronts them.
This commentary by Paul falls into the absolute must read category for everyone—and not just serious students of the New Great Game. It showed up on the sputniknews.com Internet site at 2:01 a.m. Moscow time on their Thursday morning, which was 7:01 p.m. Wednesday evening in Washington—EDT plus 7 hours. I thank U.K. reader Tariq Khan for bringing it to our attention.
U.S. Has Been Planning to Wipe Out Russia Since 1945 — Paul Craig Roberts
An article on the sputniknews.com Internet site by Ekaterina Blinova, provides a history of U.S. and British plans to destroy the Soviet Union with nuclear weapons in the early post-World War II years before the Soviets got the bomb and prior to President John F. Kennedy reining in the plans to use nuclear weapons against Soviet civilian populations. If truth be known, the Cold War was entirely a Washington creation.
The military/security complex, against which President Dwight Eisenhower warned the American people to no avail, has found that its profits cannot survive the end of the Cold War and has orchestrated its resumption. Washington has revived its plans for surprise nuclear attack on Russia—and this time on China as well. These plans are known and have destroyed the trust among nuclear powers, leading to an even more dangerous situation than existed during Cold War I.
The American people are not politically competent, and they are easily brainwashed by Washington’s propaganda. It has only taken two years for Washington’s demonization of Russia to convince hapless Americans that Russia is the Number One Threat to the United States. This unbelievable hogwash is constantly broadcast by the presstitute media and is now believed by a majority of the American Sheeple.
Armageddon will be the consequence.
The story linked in the first paragraph falls into the absolute must read category as well—and I thank Roy Stephens for sending this to me on Wednesday—and for obvious reasons had to wait for today’s missive.
Saudi Arabia’s CDS spikes as market frets currency float
Yesterday saw Kazakhstan become the latest victim. A country with oil reserves nearly as large as the U.S., it was forced to de-peg its currency against the U.S. dollar. Its currency instantly fell 23%. Spending off easy petrodollars over the years, major oil exporters have been forced to make their currencies more competitive as oil prices halved over the past year. While Kazakh equities rallied, its 5-year sovereign CDS spread widened 5% yesterday, according to Markit’s CDS pricing.
Attention has now turned to another big oil exporter with a fixed currency in the region; Saudi Arabia. Low oil prices have already forced it to delve into the debt capital markets to stabilise its finances, and Kazakhstan’s currency move has sparked frenzy as investors believe Saudi Arabia may follow suit. Its 5-yr CDS spread has widened 50bps to 115bps over the past week. Credit risk in the region is on the up.
This short news item is worth a quick look. It appeared on the markit.com Internet site yesterday sometime—and I thank Richard Saler for finding it for us. His comment on this story was “Is a sharp currency devaluation imminent?” I don’t know for sure, dear reader, but all bets are off on everything going forward.
Africa’s ‘Little Rome’, the Eritrean city frozen in time by war and secrecy
Sitting on the edge of a roundabout in Asmara, the capital city of Eritrea and the centre of Italy’s former African empire, the Fiat Tagliero service station is a glorious sight: art deco lettering spells out its name in both Italian and Amharic in a font worthy of a Fellini film poster, while two 30-metre concrete wings soar across the former garage forecourt below, mimicking an aeroplane.
The building’s wings are full of the bold attitude of a bygone era in Eritrean history. Built in 1938 by Italian architect Giuseppe Pettazzi, it was the year Europe teetered on the brink of world war, and in Italy, prime minister Benito Mussolini and his Fascist party were no longer just flirting with their imperial ambitions to conquer as much of Africa as possible.
Mussolini had inherited the Italian colony of Eritrea from the European “scramble for Africa” that began in the 1890s. In 1936 King Victor Emmanuel III of Italy crowned himself the Emperor of Ethiopia, a title never recognised by the international community, and from a settlement on the Eritrean Red Sea coastline, the Italians spread their colonial campaign across the Horn of Africa.
For Mussolini, Asmara was the nexus in his new Roman Empire – and the administrative centre of his Africa Orientale Italiana. He called the city “La Piccola Roma” – Africa’s little Rome.
This fascinating photo essay put in an appearance on theguardian.com Internet site on Tuesday—and is another offering that had to wait for my Saturday column. It’s also another offering from Patricia Caulfield, for which I thank her.
Chinese Transport Industry Poses Growing Threat to Germany
Exactly how strong is China’s economy? Will the country remain the “workbench of the world,” dependent on ideas and orders from the West? Or will it manage to complete the jump to an innovative economy, one that can compete in high-tech fields? And will this make the country, which is mainly a buyer of high-quality German products at this point, a threat to German industry?
China’s ambitions as an industrialized nation are especially apparent in the three major areas of the transportation sector: the automobile, railroad and aviation industries. This is where it becomes evident how Beijing’s planners are proceeding, what they have so far achieved and what setbacks they have already endured.
All three industries are currently at a turning point. The Chinese auto market, a guarantee of growth and profit for 35 years, is in crisis. Growth rates are noticeably declining for the first time, both those of domestic automakers and of some of their international partners and competitors. The Volkswagen Group, which generates almost two-thirds of its profits in China, reported a 4-percent decline in sales in the first half of 2015. And as a result of two devaluations of the Chinese currency, the yuan, the prospects for German carmakers have been further dampened in their most lucrative market.
In contrast, the Chinese railroad industry is fast becoming a world leader. Chinese railroad companies are receiving more orders than ever before. The country’s rail, locomotive and rolling stock manufacturers are not just selling their products in China and in the developing countries of Asia and Africa, but are beginning to receive orders from the United States and Europe. German national railroad Deutsche Bahn will open a purchasing office in China this fall, which is alarming news for its main supplier, Siemens.
This long, but very interesting essay/news item was posted on the German website spiegel.de on Thursday afternoon CET—and was another one of these items that for length and/or content reasons, had to wait for my Saturday missive. Since it was first posted on their website, it’s had a headline change. It now reads a softer-sounding “Ready for Take-Off: China Steers Course Between Prestige and Profit“. I thank Roy Stephens for sending it along.
China’s land reclamation in South China Sea grows: Pentagon report
China has reclaimed more land in the disputed Spratly Islands of the South China Sea than previously known, according to a new Pentagon report, and a senior U.S. defense official said it was unclear whether Beijing had stopped island-building in the region.
“China has said that it … has stopped reclamation. … It’s not clear to us that they’ve stopped,” Assistant Defense Secretary David Shear told a Pentagon briefing on Friday as the department released a report on its Asia-Pacific Maritime Security Strategy.
Shear said ongoing Chinese activity may simply be “finishing up” what Beijing started rather than adding more territory, but “we are watching it carefully” for signs of further construction or militarization.
The report said Beijing was in the process of completing a runway on one of its seven man-made outposts. Once the airstrip on Fiery Cross Reef is operational, China could potentially use it as an alternative runway for carrier-based planes, allowing the Chinese military to conduct “sustained operations” with aircraft carriers in the area, the report said.
This Reuters story, filed from Washington early yesterday evening EDT, seems to leave out the part about how many military bases that the U.S. has world-wide. The pot calling the kettle black, methinks. My thanks go out to Patricia Caulfield for sending us this article.
Global stocks in ‘panic mode’ as Chinese factory slump drags on markets
The FTSE 100 has hit its lowest level this year after further signs of a weakening Chinese economy spooked global investors.
Britain’s leading share index had fallen 1.5% to 6,272 by Friday afternoon, with Wall Street opening lower as the Dow Jones industrial average fell 123.13 points, or 0.72%, to 16,867.56.
The drops on both sides of the Atlantic mirrored stock markets across Asia-Pacific markets early on Friday after they went into “panic mode” when further signs of a weakening Chinese economy compounded overnight losses on Wall Street and European bourses.
China’s factory sector shrank at its fastest pace in more than six years in August as domestic and export demand dwindled, a private survey showed, adding to worries that the world’s second-largest economy may be slowing sharply and sending financial markets into a tailspin.
This commentary appeared on The Guardian‘s website at 3:21 p.m. BST on their Friday afternoon, which was 10:21 a.m. in New York—EDT plus 5 hours. It’s another contribution from Patricia Caulfield.
Short seller Chanos on China: ‘It’s worse than you think’
This 2:49 minute video clip, along with some sort of transcript, was posted on the CNBC website at 10:15 a.m. Denver time yesterday morning—and it’s the second offering of the day from Richard Saler.
Record capital flight from China as industrial slump drags on
Capital outflows from China have surged to $190bn over the last seven weeks, forcing the authorities to intervene on an unprecedented scale to defend the Chinese currency.
The exodus of funds is draining liquidity from interbank markets and has pushed up overnight Shibor rates by 30 basis points in the last ten trading days, a sign of market stress.
Yang Zhao from Nomura said $90bn left the country in July. The pace has accelerated since the central bank (PBOC) shocked the markets by ditching its currency peg to the US dollar.
Capital flight for the first three weeks of August is already close to $100bn, despite draconian use of anti-terrorism and money-laundering laws to curb illicit flows.
This commentary by Ambrose Evans-Pritchard was posted on the telegraph.co.uk Internet site at 8:00 p.m. BST on their Friday evening, which was 3:00 p.m. in New York—EDT plus 5 hours. It’s another offering from Patricia Caulfield. It’s certainly worth reading.
The Great China Ponzi—-An Economic and Financial Train Wreck Which Will Rattle the World
There is an economic and financial trainwreck rumbling through the world economy. Namely, the Great China Ponzi. In all of economic history there has never been anything like it. It is only a matter of time before it ends in a spectacular collapse, leaving the global financial bubble of the last two decades in shambles.
But here’s the Wall Street meme that is stupendously wrong and that engenders blind complacency with respect to the impending upheaval. To wit, the same folks who brought you the myth of the BRICs miracle would now have you believe that China is undergoing a difficult but doable transition—from an economy driven by booming exports and monumental fixed asset investment to one based on steady as she goes US-style consumption and services.
There may well be some bumps and grinds along the way, we are cautioned, such as the recent stock market and currency turmoil. But do not be troubled—–the great locomotive of the world economy will come out the other side better and stronger. That’s because the wise, pragmatic and powerful leaders and economic managers who deftly guide China’s version of capitalism have the capacity to make it all happen. No they don’t!
China is not a clone-in-the-making of America’s $18 trillion consume till you drop economy—-even if that model were stable and sustainable, which it is not. China is actually sui generis—–a historical freak accident that has no destination other than a crash landing.
Here’s your weekly fill of David Stockman. This long essay appeared on his website last Sunday, but it’s still applicable now, if not more so. I found it in yesterday’s edition of the King Report.
Doug Noland: It’s Always Worse Than You Think
I really fear for the unwind of the “global government finance Bubble” – the grand finale of a multi-decade period of serial Bubbles. It’s history’s first systemic global Bubble, encompassing the world’s Credit systems, securities markets and monetary systems more generally. Excesses have engulfed the heart of “money” and Credit throughout both the “developing” and “developed” world. Central banks (of all stripes) have printed Trillions of “money” and Trillions more have been created in the process of leveraging securities and assets. This type of monetary inflation invariably incentivizes destabilizing speculation, fraud, malfeasance and wealth redistribution. It’s fomented a geopolitical tinderbox.
I allow my mind to imagine the type and poor quality of assets on (bloated) Chinese, Brazilian, Russian, Asian and EM bank balance sheets – yet it’s surely a lot worse. I ponder how desperate governments will use their state directed lenders to stimulate and obfuscate – and then I contemplate the scope of future government bailouts. On a global basis, I believe there is today more speculative leverage in global currencies and securities markets than ever – and I fear my bearish imagination might only scratch the surface. There have been too many years of financial manipulation, innovation, experimentation and exploitation – on an unprecedented globalized scale.
To be sure, the past three years of global do “whatever it takes” central banking exacerbated “Terminal Phase” excess virtually everywhere. Central bank mores, practices and principles – tested and trusted over generations – were handily discarded in favor of New Age experimental monetary inflation. Speculative markets reveled accordingly.
Excesses throughout China, global equities, European bonds, U.S. equities, corporate Credit and M&A turned conspicuous. What’s not clear is the amount of global “carry trade” leverage; the types of derivatives-related leverage and associated fragilities; and the scope of excesses throughout global Credit and market “insurance.” There is anecdotal evidence of historic movements of “hot money” throughout global markets. What are the latent risks associated with self-reinforcing selling pressure – from trend-following “hot money,” from the unwind of derivatives leverage, and from “dynamic trading” hedging strategies? Is there a global “portfolio insurance” problem where selling begets more demand for “insurance”/hedging and additional selling – across multi-asset classes, regions and global markets. No one has a grasp of potential ramifications.
Wow! The quote by Louis XV, the King of France way back when, comes to mind at this juncture—“après moi le déluge!” Doug’s weekly Credit Bubble Bulletin is always a must read for me—and I’ll get around to reading it in full later today after I get out of bed.
North Korea goes on war footing against South Korea as deadline looms
North Korea put its troops on a war footing on Friday as South Korea rejected an ultimatum to stop propaganda broadcasts or face military action, prompting China to voice concern and urge both sides to step back after an exchange of artillery fire.
North Korea’s Foreign Ministry said the country’s military and the public stood ready to safeguard its regime even if it meant fighting an all-out war, and rejected the idea of restraint in an apparent rebuff to China’s call.
North Korea’s official media said its military was not bluffing, and the deputy North Korean ambassador to the United Nations, An Myong Hun, reiterated Pyongyang’s threat of “strong military counter-action” if the South Korean broadcasts did not stop.
An also told reporters North Korea had asked the 15-member United Nations Security Council to hold an urgent meeting on the situation.
This Reuters news item, filed from Seoul, appeared on their Internet site at 5:51 p.m. EDT on Friday afternoon—and it’s the final offering of the day from Patricia Caulfield—and I thank her on your behalf.
Sprott Money News Interviews Eric Sprott
Listen to Eric Sprott share his thoughts on the current economic weakness in China, global currency devaluations and it’s effects on world markets—and gold ending the week on a positive note.
This 6:10 minute audio interview, with host Geoff Rutherford, was posted on the sprottmoney.com Internet site yesterday evening.
The Best Possible News For Gold: Gartman is Finally a Seller
The best possible news for gold longs has finally arrived, courtesy of the man with the golden market-timing, no pun intended, newsletter:
SPOT GOLD: Runnin “Smack” Into Long Term Resistance: We turned supportive of gold several weeks ago rather publically, but now gold in U.S. dollar terms is running into what we fear shall be formidable resistance…with the margin clerks around the world looking to sell gold to raise liquidity as stocks come under very real pressure.
Oh, and just in case you were scared to keep shorting oil…
CRUDE OIL PRICES ARE LOWER BUT WE ARE CHANGING OUR VIEW ON PRICES for having been overtly and rather relentlessly…and very publicly…bearish, we are this morning turning bullish of crude oil and we are turning so because the term structure shifts mandate that we do so.
We do not make this statement lightly for this is a material shift in our view of the energy market… a very material shift.
This short Zero Hedge piece appeared on their Internet site at 9:32 a.m. EDT yesterday morning—and I thank reader M.A. for bringing it to our attention.
Wealth Insurance: The Case For Owning Gold — an interview with John Hathaway
Gold is a unique asset: monetary but lacking counterparty risk, with its liquidity much more easily available than that in other high-value physical assets.
John Hathaway, an elder statesman in the metals investment field, thinks that exposure to gold should be a part of everyone’s portfolio, not because he predicts a coming monetary apocalypse, but for far more present reasons.
In this interview, he explains his short- and long-term outlooks as well as the structural forces arguing for gold ownership.
This 5-page interview with John is somewhere to be found on the tocqueville.com Internet site, but I couldn’t find it anywhere. But Nick Laird sent me this link to the pdf file last night—and here it is, posted in the clear. I haven’t had time to read it yet, but will over the weekend, so I’m not in a position to pass judgement on it, so you’re on your own with this one.
Ted Butler: Turning $1 Billion into $5 Billion
Today, I will attempt to make the case for how one might go about turning one billion dollars into five billion dollars by buying silver. At first, some of my specific points might seem to be at odds with my long held argument that fully paid for positions in the actual metal at current price levels are as close to a sure thing as it gets in the investment world. But it is still my conviction that owning unencumbered and unleveraged metal is the best way to go; what’s different about this article is that it is directed to any entity that can plunk down a cool billion dollars or more in buying silver.
My basic case is straightforward – the price of silver is likely to climb by (at least) five times over the reasonable investment future (3 to 5 years or less), just as it did in 1980 and into early 2011. Actually, on those two prior occasions, silver rose by more than ten times from the price lows of 3 to 5 years before those price peaks. There are more reasons why silver should rise more in price than it had in past price runs, but in the interest of brevity, I will deal only with the special circumstances confronting a billion dollar investor.
The percentage of people or financial entities in the world that could afford to buy a billion dollars’ worth of anything in one shot is admittedly very small; but with more than seven billion people in the world that small percentage still translates into many of thousands of potential buyers. And if you include the number of those entities which could borrow the money necessary to buy a billion dollars’ worth of silver (or anything), the number becomes simply staggering. I mention this first to establish that buying a billion dollars’ worth of silver is far from impossible in terms of the number of entities potentially capable of doing so.
This commentary appeared as part of Ted’s mid-week review on Wednesday—and was posted in the clear over at the silverseek.com Internet site at 9:50 a.m. Denver time on Friday morning. It’s definitely worth reading.
The PHOTOS and the FUNNIES
Here are the last three jackrabbit [actually a member of the hare family] photos that I kept. All were taken within five minutes of each other right at the end of the photo shoot last Sunday. The first one is a well-cropped ‘head and shoulders’ shot from a somewhat different perspective. The second shows the white tail—and it’s hard to believe that by November, this fellow will [except for the black tips of his ears] be as white as his tail is now. The third photo is a head-on shot, similar to one that I posted in Thursday’s column. He doesn’t look quite a cute from this perspective. You can use the ‘click to enlarge’ photo to bring all three photos up to full-screen size.
THE WRAP
“When unlimited and unrestricted by individual rights, a government is man’s deadliest enemy.” — Ayn Rand
Today’s pop ‘blast from the past’ comes from the 1963 James Bond flick titled “From Russia, With Love“. Matt Munro, “The Man With The Golden Voice” does the honours—and it’s a classic. The link is here.
Today’s classical ‘blast from the past’ is one that reader Sheldon Stone sent my way last Sunday. It’s the fourth movement of Nikolai Rimsky-Korsakov’s “Capriccio espagnol” orchestral suite which he composed in 1887. I’ve heard this piece many times live, and on CD—and know it well, but I’ve never seen the piece played as an accompaniment to a choreographed dance in front of a live audience. Well, here it is, castanets and all! It’s fantastic—and the link is here, but put it on all full screen first. It runs for only 4:50 minutes.
The price action on Friday was pretty much as I feared it might turn out—and was what I mentioned in the closing comments in The Wrap in Friday’s column. The last thing that