19 January 2016 — Tuesday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
[NOTE: I forgot that Monday was Martin Luther King Day in the U.S. However, I’m posting an abbreviated column today, as I have a decent number of stories that I’ve been collecting over the weekend—and I don’t want to end up dumping them all into Wednesday’s column. By Wednesday, there will be too many to read—and a lot of them will be another day older. – Ed]
The gold price rose about four dollars or so by 1 p.m. Hong Kong time on their Monday afternoon. But an hour later, the price was back to about unchanged—and gold chopped sideways for the remainder of the day. The Globex trading system closed at 5:00 p.m. GMT.
Gold finished the abbreviated Monday session up 30 whole cents at $1,089.10 spot. Net volume, such was it was, checked in at just over 36,500 contracts.
The silver price chopped around a dime either side of unchanged all day on Monday—and its rather feeble attempt to rally to the $14 spot mark got carefully turned aside. But with volumes this light, that was an easy task for any not-for-profit seller with an agenda.
Silver finished the Monday trading session at $13.94 spot, up the magnificent sum of 3 cent the ounce. Net volume was a hair over 10,500 contracts.
Platinum spent most of yesterday trading lower—and it finished the shortened Monday session at $818 spot, down an even 10 bucks from Friday’s close.
Palladium traded mostly lower as well, but starting around 1 p.m. Zurich time it rallied out of negative territory. However, it got stopped dead in its tracks at the $494 level. It closed at $493 spot, up one whole dollar.
The dollar index closed late on Friday afternoon in New York at 98.95—and then got sold down about 15 basis points or so in the first few hours of trading when it opened at noon EST on Sunday. Then it rallied to its 99.20 higher shortly after 3 p.m. Hong Kong time on their Monday afternoon. It sold off a bit from there, before chopping sideways in a very tight range for the rest of the London trading session. The index closed at 99.10—up 15 basis points from Friday’s close. Here’s the 3-day U.S. dollar chart so you can see Sunday’s ‘action’ as well.
With New York shut tight yesterday, there are no reports from the CME Group, the U.S. Mint, or any of the ETFs.
About thirty minutes before I filed today’s column, I got this cut-and-paste table of numbers from Nick Laird—and he says that it shows that 1,294 tonnes of gold were imported into China during the 2014 calendar year—and that their total demand for that year was 2,106 tonnes. I’m sure that Koos Jansen will have something to say about this today sometime—and whatever it is, I’ll be posting it in tomorrow’s column.
I have a very decent number of stories today, as it was rather a wild weekend from a news standpoint—and that certainly spilled into Monday as well. Quite of few of them fall into the must read category. Most of the stories are ones I found over at Zero Hedge. But the final edit is yours.
CRITICAL READS
Exclusive: Dallas Fed Quietly Suspends Energy Mark-to-Market on Default Contagion Fears
Moments ago we got confirmation from a second source who reports that according to an energy analyst who had recently met Houston funds to give his 1H16e update, one of his clients indicated that his firm was invited to a lunch attended by the Dallas Fed, which had previously instructed lenders to open up their entire loan books for Fed oversight; the Fed was shocked by with it had found in the non-public facing records. The lunch was also confirmed by employees at a reputable Swiss investment bank operating in Houston.
This is what took place: the Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down. Furthermore, as we reported earlier this week, the Fed indicated “under the table” that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches.
In other words, the Fed has advised banks to cover up major energy-related losses.
Why the reason for such unprecedented measures by the Dallas Fed? Our source notes that having run the numbers, it looks like at least 18% of some banks commercial loan book are impaired, and that’s based on just applying the 3Q marks for public debt to their syndicate sums.
In other words, the ridiculously low increase in loss provisions by the likes of Wells and JPM suggest two things: i) the real losses are vastly higher, and ii) it is the Fed’s involvement that is pressuring banks to not disclose the true state of their energy “books.”
This very interesting and absolute must read Zero Hedge piece appeared on their website at 11:42 a.m. EST on Sunday morning—and I thank Roy Stephens for sending it.
Fed Scrambles as Oil ETN Premium Soars to New Highs
Over the weekend, Zero Hedge reported exclusively how the Dallas Fed is pulling strings behind the scenes to conceal the fallout from the oil market crash. By suspending mark-to-market on energy loans and distorting the accounting, they are postponing the inevitable as long as possible. The current situation is eerily reminiscent to the heyday of the mortgage market in 2007, when mortgage defaults started to pick up, and yet the credit default swaps that tracked them continued to decline, bringing losses to those brave enough to trade against the crowd.
Amidst the market chaos on Friday, a trader brought something strange to my attention. He asked me exactly what the hell was going on with this ETN [Exchange-traded note – Ed] he was watching. I took a closer look and was baffled. It took me awhile to put the pieces together. Then when I saw the story about mark-to-market being suspended, it all made sense.
This must read story, along with a must see chart, put in an appearance on the dark-bid.com Internet site on Sunday afternoon sometime—and it’s the second contribution of the day from Roy Stephens.
U.S. Bank Counterparty Risk Soars After Energy Mark-to-Market Debacle
A few dots are starting to be connected now that we have exposed the debacle of The Fed’s decision to allow banks to mark-to-unicorn their energy loans. “Something” was wrong in recent weeks as the TED-Spread surged (implying rising counterparty uncertainty among banks) and then the last week – since The Fed’s alleged meeting with banks – has seen financial credit and stocks crash.
Coincidence? We don’t think so. In the week since The Fed gave the nod to banks to hide losses on energy loans, credit risk has spiked and stocks tumbled…
It is clear banks are hedging against each others systemic risk.
Simply put, it’s 2008 all-over-again as “when in doubt, sell ’em all” is back for the U.S. financial system. When you know/question one bank (or some banks) is not transparent in their loan losses (and implicitly their capital ratios) then contagion (and collateral chains) tells any good fiduciary to sell them all – and the banks themselves will enable a vicious circle as they hedge.
This short Zero Hedge piece appeared on their website at 2:21 p.m. on Sunday afternoon EST—and the charts are certainly worth a look.
Wells Fargo’s Problem Emerges: $17 Billion In Junk Energy Exposure
But the “downside risk” punchline was the following exchange with Mike Mayo:
Q – Mike L. Mayo: What percent of the $17 billion is not investment grade?
A – John R. Shrewsberry: I would say most of it. Most of it.
Q – Mike L. Mayo: So most of the $17 billion is non-investment grade.
A – John R. Shrewsberry: Correct.
To summarize: $17 billion in oil and energy exposure, which has a modest $1.2 billion, or 7%, loss reserve assigned to it (the highest on the street mind you), and which is made up “mostly” of junk bonds.
Why could that be concerning? Well, one reason is that junk yields just surpassed the all time highs set just after the Lehman bankruptcy. In retrospect we can see why the Dallas Fed told banks to stop marking assets to market.
Another amazing Zero Hedge piece. This one appeared on their Internet site at 6:37 p.m. on Sunday evening EST—and like all the others that preceded this one—and the ZH stories that follow, they’re all must reads.
Wells Fargo is Bad, But Citi is Worse
Earlier we reported that Wells Fargo may have an energy problem because as CFO John Shrewsbury revealed, of the $17 billion in energy exposure, “most of it” was junk rated.
But, while one can speculate what the terminal cumulative losses, cumulative defaults and loss severities on this loan book will be, at least Wells was honest enough to reveal its energy-related loan loss estimate: it was $1.2 billion, or 7% of total – as Mike Mayo pointed out, one of the highest on the street. Whether it is high, or low, is anyone’s guess, but at least Wells disclosed it.
Citi did not.
Yes, the bank did disclose its holdings to the oil and gas sector at $21 billion funded and $58 billion which included unfunded (watch that unfunded exposure collapsing and shrinking the available pool of shale company liquidity in the coming weeks), and it did announce that it “built roughly $300 million of energy-related loan loss reserves this quarter”, but paradoxically one thing it did not disclose was its total reserves to energy.
Note the following perplexing exchange between analyst Mike Mayo and Citi CFO John Gerspach…
If you wonder how bad it may really get…think subprime for all the banks in all the oil-producing nations of the world. See ‘The Big Short‘ for details—and it’s in theatres now! This Zero Hedge piece was posted on their website at 7:28 p.m. on Sunday evening EST—and it’s a must read as well.
Foreign Central Banks Furiously Dump U.S. Treasuries: Record $47 Billion Sold in First Two Weeks of 2016
It’s not just stocks have a terrible start to the year, in fact the worst start in history: so is the amount of US Treasuries held in custody at the Fed, a direct proxy for the holdings of foreign central banks, reserve managers and sovereign wealth funds who park owned TSYs at the NY Fed for convenience.
According to the latest Fed data, after a drop of $12 billion in the first week of the year, another $34.5 billion in Treasuries held in custody was sold in the week ended January 13, bringing the total to just $2.962 trillion, below the previous recent low recorded in early November, and at levels not seen since April 2015.
One trader who has put all this together, and has linked it to the abnormal moves in the Treasury swap market is Ice Farm Capital’s Michael Green. As he puts it, “those who chose to seek protection in rates are only experiencing middling success due to the continued inversion of swap spreads which have traded to record highs.”
Now this has been repeatedly noted in the press as irrational – why would U.S. government bonds be trading at a risk premium to swap spreads which carry bank counterparty risk? I would suggest there is one very simple reason: “swap spreads appear to be blowing out because foreign holders of treasuries, namely China, are selling them at a record pace to defend their currencies. Currency levels are under attack in China, Saudi Arabia and now Hong Kong. The specter of 1997-1998 is again haunting the markets.”
Wow! How long can this go on??? Something has to give at some point—and I have the feeling that if one goes, they all go. This is another Zero Hedge article, this one was posted on their Internet site at 6:58 p.m. EST on Sunday evening—and it’s worth reading as well—and the charts are certainly worth a look. I thank Richard Saler for sending it our way.
The Fed Responds to Zero Hedge: Here Are Some Follow-Up Questions
Over the weekend, we gave the Dallas Fed a chance to respond to a Zero Hedge story corroborated by at least two independent sources, in which we reported that Federal Reserve members had met with bank lenders with distressed loan exposure to the US oil and gas sector and, after parsing through the complete bank books, had advised banks to i) not urge creditor counterparties into default, ii) urge asset sales instead, and iii) ultimately suspend mark to market in various instances.
Moments ago the Dallas Fed, whose president since September 2015 is Robert Steven Kaplan, a former Goldman Sachs career banker who after 22 years at the bank rose to the rank of vice chairman of its investment bank group – an odd background for a regional Fed president – took the time away from its holiday schedule to respond to Zero Hedge.
This is what it said. “@DallasFed: No truth to this @zerohedge story. The Dallas Fed does not issue such guidance to banks. https://twitter.com/zerohedge/status/688441021986959361 … 10:107 a.m. – 18 January 2016″
We thank the Dallas Fed for their prompt attention to this important matter. After all, as one of our sources commented, “If revolvers are not being marked anymore, then it’s basically early days of subprime when MBS payback schedules started to fall behind.” Surely there is nothing that can grab the public’s attention more than a rerun of the mortgage crisis, especially if confirmed by the highest institution.
As such we understand the Dallas Fed’s desire to avoid a public reaction and preserve semantic neutrality by refuting “such guidance.”
That said, we fully stand by our story, and now that we have engaged the Dallas Fed we would like to ask several very important follow up questions, to probe deeper into a matter that is of significant public interest as well as to clear up any potential confusion as to just what “guidance” the Fed is referring to.
I went to see ‘The Big Short‘ last night—and it was awesome! Brilliant screenplay, very well cast—and wonderful acting all around. You owe it to YOU to see it!!! As you can tell, this unfolding energy fiasco is heading down the same MBS/ABS/CDO road too. This story is a must read as well—and I found it on the Zero Hedge website yesterday afternoon.
JPMorgan: Without More Softness in the Loonie, the Next Domino in Canada’s Oil Patch Could Fall Soon
The beaten-down Canadian dollar has to fall even further to support real economic activity, according to JPMorgan, putting pressure on the Bank of Canada to cut its policy rate on Wednesday.
The collapse in oil prices has dealt a serious blow to Canada’s aggregate national wealth via a corresponding decline in the exchange rate. On a more micro level, the revenue generated per barrel of oil sold has obviously come down considerably for companies, but real activity remains solid. “We’ll make it up in volume!” has been the order of the day among oil sands producers, and inasmuch as there has been acute pain, it’s been borne by the oilfield services space.
For a look at how activity in the oil patch has been holding up, consider this: through October, non-conventional oil extraction industry output was up 1.6 percent year-over-year, while support activities for mining and oil and gas extraction have plunged nearly 47 percent.
Canadian oil producers sell a product whose price is denominated in U.S. dollars, yet the majority of their costs (which have come under the knife considerably) are in local currency terms. On Monday morning, the front month futures contract for Western Canadian Select, a heavier blend of crude, traded at around $14.50 per barrel (U.S.). Thanks to the massive decline in the Canadian dollar, however, heavy oil producers would receive over $21 (Canadian) per barrel. That’s how the exchange rate is acting to cushion the blow for these firms, and is thus helping to sustain output and employment.
This Bloomberg article appeared on their Internet site at 11:04 a.m. Denver time on Monday morning—and I thank reader U.D. for passing it around yesterday.
French president declares economic emergency, vows to redefine country’s business model
French President Francois Hollande pledged Monday to redefine France’s business model and declared what he called “a state of economic and social emergency,” unveiling a $2.2 billion plan to revive hiring and catch up with a fast-moving world economy.
The measures he proposed, however, are relatively modest, and he said they would not “put into question” the 35-hour workweek. With his country under a state of emergency since extremist attacks in November, Hollande did not seek to assume any new emergency powers over the economy.
In an annual speech to business leaders, Hollande laid out plans for training half a million jobless workers, greater use of apprenticeships, and aid for companies that hire young workers.
Hollande’s Socialist government has struggled to boost long-stagnant French growth or reduce chronic unemployment, which has been around 10 percent for years. His chances of winning a potential second term may hinge on whether jobs pick up before next year’s presidential vote.
This news item, filed from Paris, put in an appearance on the chicagotribune.com Internet site at 7:37 a.m. CST [Central Standard Time] on Monday morning—and this story is courtesy of Scott Linn.
Italian Banks Collapse, Short Sales Banned as Loan Loss Fears Mount
Italian bank stocks are crashing (with BMPS down 40% year-to-date) as Reuters reports that investors are growing increasingly nervous about how the sector will cope with lower interest rates and a €200 billion ($218 billion) pile of loans that are unlikely to be repaid. The broad banking sector is down 4% with stocks suspended, and in light of this bloodbath, Italian regulators have decided in their wisdom, to ban short-selling of some bank stocks (which has driven hedgers into the CDS market, spking BMPS credit risk).
Italy’s banking index was down over 4 percent with shares in several lenders, including the country’s biggest retail bank Intesa Sanpaolo and the third biggest lender Banca Monte dei Paschi di Siena, suspended from trading after heavy losses.
And so hedgers have shifted to other markets – spiking default risk across the entire group, soaring back towards pre-“whatever it takes” levels.
Get back to work Mr. Draghi.
This is another 2- chart Zero Hedge article that’s worth reading. It was posted on their website at 12:40 p.m. EST on Monday afternoon.
“Countdown to the End”: E.U. Officials Say Europe is “Going Down the Drain”
Back in September, when Berlin and Brussels were busy devising a quota plan to settle the millions of Mid-East asylum seekers flooding into the country, Slovakia said that if Germany called for financial penalties against countries unwilling to accommodate their “share” of migrants, it would be “the end of the E.U.”
That might have seemed hyperbolic at the time, but since then, the situation has spiraled out of control. Border fences have been erected, refugee camps are overflowing, and anti-migrant sentiment is running high after a series of reported sexual assaults on New Year’s Eve sparked a bloc-wide scandal.
In a testament to just how tense things have become, Austria suspended Schengen on Saturday as new rules came into effect for those seeking to traverse the country on the way north. “Anyone who arrives at our border is subject to control,” Chancellor Werner Faymann said. “If the E.U. does not manage to secure the external borders, Schengen as a whole is put into question… Then each country must control its national borders,” he added, before warning that if the E.U. could not better control its external borders “the whole E.U. [will be] in question.”
Indeed, the idea that the worsening migrant crisis could well bring an end to the E.U. has made its way out of Eurosceptic circles and into discussions between the bloc’s top diplomats and officials.
This commentary was posted on the Zero Hedge website at 5:30 p.m. on Monday afternoon EST.
The “Putin is Isolated” Meme Officially Dies as Japan Calls For Closer Ties With Russia
Part and parcel of Washington’s P.R. and foreign policy strategy over the last three or so years has been to perpetuate the idea that Vladimir Putin is “isolated” on the world stage. This, along with subtle reminders in the media and on the silver screen that America needs to preserve a healthy bit of Russophobia if it is to be safe, has worked domestically, but not internationally.
Russia has strengthened ties with China, kicked off the BRICs bank, cemented an alliance with Iran (another “isolated” state), and worked to de-dollarize everything from oil markets to cross-border financial transactions.
Moscow’s dramatic entry into the Syrian conflict and Russia’s common sense approach to ending the years-long affair has resonated with the likes of France and everyone else who understands that the way to fight terror is to kill the terrorists, not arm them.
Indeed, The Kremlin’s successful attempt to wake the world up to the fact that Washington and its regional allies are actually exacerbating the war in Syria by arming rebel groups with questionable motives has gone a long way towards forcing the international community to rethink who the “good” superpower really is.
Now, in what may be the best evidence yet that the “Putin is isolated” meme is officially dead, none other than U.S. ally Japan is ready to “bring Putin in from the cold.”
It’s about time. Maybe Europe can meekly follow, since they’re too afraid to stand up to Washington on their own. But now that Japan has taken the plunge, they should be able to do the same. This very interesting Zero Hedge piece put in an appearance on their Internet site at 6:30 p.m. yesterday evening—and it’s another article I found on their website yesterday afternoon.
Iran Complies With Nuclear Deal; Sanctions Are Lifted
The United States and European nations lifted oil and financial sanctions on Iran on Saturday and released roughly $100 billion of its assets after international inspectors concluded that the country had followed through on promises to dismantle large sections of its nuclear program.
The moves came at the end of a day of high drama that played out in a diplomatic dance across Europe and the Middle East, just hours after Tehran and Washington swapped long-held prisoners.
Five Americans, including a Washington Post reporter, Jason Rezaian, were released by Iran hours before the nuclear accord was implemented. The detention of one of the released Americans, Matthew Trevithick, who had been engaged in language studies in Tehran when he was arrested, according to his family, had never been publicly announced.
Early on Sunday, a senior United States official said, “Our detained U.S. citizens have been released and that those who wished to depart Iran have left.” The Washington Post also released a statement confirming that Mr. Rezaian and his wife, Yeganeh Salehi, had left Iran.
This New York Times story, filed from Vienna, was posted on their Internet site on Saturday sometime—and I thank Patricia Caulfield for sharing it with us. It’s old news, but the last three paragraphs above are an excellent intro into the Justin Raimondo story below.
Caught With Our Pants Down in the Gulf: Justin Raimondo
Your bulls-hit-ometer should be making an awful racket in response to the shifting explanations given for the twenty-four-hour Iranian hostage scare involving two U.S. Navy boats intercepted in the Gulf.
First they told us “at least one of the boats” had experienced a “mechanical failure.” Then they said the boats had run out of fuel, although it wasn’t clear if they meant both boats. Then they said “there was no mechanical problem.” Then they claimed that the two crews had somehow not communicated with the military command, although “they could not explain how the military had lost contact with not one but both of the boats.” As the New York Times reported:
“Even as Mr. Kerry was describing the release on Wednesday morning, American military officials were offering new explanations about how the two 49-foot patrol boats, formally called riverine command boats, had ended up in Iranian territorial waters while cruising from Kuwait to Bahrain.”
And they still haven’t explained it – or any of the other distinctly odd circumstances surrounding this incident.
Lots of questions with no good answers. This commentary by Justin appeared on the anti-war.com Internet site last Friday—and certainly falls into the must read category, even if you’re not a serious student of the New Great Game.
Iran versus U.S. — Iran Wins
Confirmation that international sanctions on Iran have at last been lifted is unequivocally a victory for Iran—and they were sanctions that should never have been imposed in the first place.
As I said in April last year in an article I wrote for Sputnik, the evidence suggests Iran did indeed once have a nuclear weapons programme. But that programme was not, however, intended as a threat to the U.S. or Israel or – needless to say – the E.U.
The Iranian leadership is fully aware that a nuclear weapons programme targeting those countries is far more likely to provoke an attack on Iran than to deter one, and that Iran might not survive such an attack.
Rather Iran’s nuclear programme was intended to deter a nuclear attack from Iran’s main regional rival – Saddam Hussein’s Iraq – which is known to have had a nuclear weapons programme in the decade preceding the 1991 Gulf War.
This longish Russia Insider commentary by Alexander Mercouris was picked up by thesaker.is Internet site yesterday—and is another one of those commentaries that is definitely worth reading, even if you’re not a serious student of the New Great Game. I thank Larry Galearis for finding it for us.
The 21st Century: An Era of Fraud — Paul Craig Roberts
In the last years of the 20th century fraud entered U.S. foreign policy in a new way. On false pretenses Washington dismantled Yugoslavia and Serbia in order to advance an undeclared agenda.
In the 21st century this fraud multiplied many times. Afghanistan, Iraq, Somalia, and Libya were destroyed, and Iran and Syria would also have been destroyed if the President of Russia had not prevented it. Washington is also behind the current destruction of Yemen, and Washington has enabled and financed the Israeli destruction of Palestine. Additionally, Washington operated militarily within Pakistan without declaring war, murdering many women, children, and village elders under the guise of “combating terrorism.” Washington’s war crimes rival those of any country in history.
Russia and China now have a strategic alliance that is too strong for Washington. Russia and China will prevent Washington from further encroachments on their security and national interests. Those countries important to Russia and China will be protected by the alliance. As the world wakes up and sees the evil that the West represents, more counries will seek the protection of Russia and China.
This absolute must read commentary was posted on the sputniknews.com Internet site at 12:41 p.m. Moscow time on their Monday afternoon, which was 4:41 a.m. in Washington—EST plus 8 hours. I thank U.K. reader Tariq Khan for finding it for us.
Stop China’s Market Manipulations: Scott Kennedy
The other day while I was crossing the street in Beijing, a car almost flattened me. Both the driver and I were outraged at the other’s ineptitude. In China, if you want to avoid being hit, you keep your head down and avoid eye contact with the oncoming driver, since looking at him would signal that you saw the car and know you should let it pass. In the United States, the opposite rule applies: Making eye contact confirms that the driver has seen you and should yield to the vulnerable pedestrian.
Something similar is occurring now between China and global financial markets. Billions in renminbi and dollars could be lost while trying to untangle the lines of communication.
Chinese bureaucrats believe that they have the right to intervene in their country’s economy whenever they want, not only to promote certain industries but also to prevent sudden downturns and reduce volatility. Officials believe that they don’t have to defend or explain their decisions in real time to market participants. In fact, being opaque preserves their discretion to make changes on the fly.
This approach goes against the operating principles of global financial markets: clarity and timely transparency. Intervention should be the exception, not the norm.
Well, dear reader, one doesn’t know whether to cry, or puke. This op-ed piece is the most in-your-face example of the ‘pot calling the kettle black’ that I can ever remember seeing. But since The New York Times is a bought and paid for member of the U.S. establishment whore press, one can expect to find such articles from time to time. It’s the second contribution of the day from Patricia Caulfield.
China’s Top Stock Regulator Gives Up on “Immature” Market, Hands in Resignation
Going into the new year, China had tried everything to stop the bleeding up to and including arresting those suspected of contributing to the sell-off even when the actions of the accused were perfectly legal. In a kind of Hail Mary maneuver, CSRC chief Xiao Gang dreamed up a circuit breaker which went into effect on January 4. The mechanism halted trading on the SHCOMP and the Shenzhen for the remainder of the trading day in the event the CSI300 fell 7%.
Put simply: the effort was a miserable failure. Apparently, it didn’t occur to anyone in Beijing that by halting trading for the entire day, the selling pressure would only build and spillover into the next session, creating an endless string of limit down halts as investors panic sell at the open. The circuit breaker was abandoned after just three days.
The fiasco was humiliating for CSRC chief Xiao Gang who on Saturday said elevated volatility in China is the result of an “immature market, inexperienced investors, an imperfect trading system and inappropriate supervision mechanisms.” Now, apparently at a loss for how to right the ship, Xiao is ready to throw in the towel. “Xiao Gang, the embattled head of China’s securities regulator, has offered to resign,” Reuters reported on Monday, citing unnamed sources close to the Party.
This Zero Hedge article was posted on their website at 2:00 p.m. on Monday afternoon EST.
Glencore’s “Investment Grade” Bonds Just Took Out September Crash Lows: Downgrade to Junk Imminent
In early 2014, when not a cloud was visible on the Commodity/Copper/China sky, we predicted that the best way to trade the upcoming Commodity/Copper/China Collapse is by going long Glencore CDS, the equivalent of shorting Glencore bonds (and implicitly stock).
Back then the CDS was at 170 basis points.
Less than two years later, going long Glencore CDS may have been the best risk/return commodity trade in the world, as over the weekend GLEN CDS blew out to new post-crisis highs of 1,128 bps, nearly 7 times wider than the 170bps from March 2014, but more troubling is that Glencore’s 2021 bonds just hit a 5 year low, taking out the September crash levels, and trading at about 64 cents on the dollar. These are currently rated “investment grade” by the less than credible rating agencies.
However, following the recent junking of Noble Group which has sent its stock price to 12 year lows and which hints that a bankruptcy is now virtually inevitable, we expect Glencore to be junked any day now, with the ensuing cascade of margin and collateral calls testing just how “systematically unimportant” the world’s largest commodity traders really are, because remember: the world’s favorite finance “expert” for Wall Street hire, Craig Pirrong, recently concluded that “Commodity trading firms are not a source of systemic risk.”
We’ll find out soon enough.
Another Credit Default Swap moment brought to you via “The Big Short“—which is still playing in a theatre near you. This is yet another article from the Zero Hedge website. This one appeared there at 10:36 a.m. EST on Monday morning. It’s certainly worth reading. Brad Robertson was the first through the door with this piece yesterday.
What Crisis Is The Gold/Oil Ratio Predicting This Time?
The number of barrels of oil that a single ounce of gold can buy has never, ever been higher.
For the last 30 years, when the ratio of gold-to-oil spikes, something systemically serious occurs globally (as opposed to the usual bulls hit “this is transitory” statements).
So what happens next?
This tiny 1-chart Zero Hedge article is worth a quick look—and it put in an appearance on their Internet site at 10:30 a.m. EST on Monday morning.
Gold miners say output has peaked as losses reshape the industry
Gold output has peaked in this commodities cycle, according to mining industry leaders and analysts who say few big projects will reach the point of production amid falling prices.
The lack of new assets and declining output at existing mines is expected to curb gold supply, a glimmer of hope for surviving producers of the precious metal in an industry coming to terms with a rush of investment when prices were far higher.
Kelvin Dushnisky, president of Barrick Gold, the world’s largest gold miner by annual output, said: “Falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.”
“It is fruitless to try to predict demand dynamics for gold. I always put my faith in a recovery driven by reduction in supply and I believe we will see the first signs of impending recovery in the second half of this year,” said Vitaly Nesis, chief executive of Polymetal, a U.K.-listed gold miner.
It’s amazing the complete incompetence, ignorance and stupidity of the precious metal mining executives, but there it is for all to see. Both John Embry and John Hathaway are absolutely correct in their assessment of the lot of them. This gold-related news item showed up on the Financial Times of London website on Sunday—and it’s posted in the clear on the gata.org Internet site.
Indian gold demand rises sharply as price falls
India’s gold import in December 2015 is estimated to have crossed 100 tonnes following sharp increase in demand for gold during the first and last weeks of the month, when prices fell sharply both in domestic and international markets. With 105 tonnes of estimated imports in December, India’s total gross import in 2015 has crossed 900 tonnes, a jump of 25 percent over 2014.
In value terms, it is nearly 12 percent higher at $34.980 billion, as December’s import bill is estimated around $3.7 billion. India imported $31.17 billion worth gold in 2014.
Sudheesh Nambiath, lead analyst with GFMS Thomson Reuters, said, “Gold demand increased in December when prices were at the lowest level this year, and as retailers increased their inventory to optimum levels, our estimate for December import is 107 tonnes.”
This news item, filed from Mumbai, was posted on the business-standard.com Internet site at 23:27 IST on their Saturday evening—and it’s the second story in a row that I found in a GATA release. It’s actual headline reads “Gold import bill up 12%, reaches $35 billion in 2015“.
India offers gold bonds at discount in hope of boosting sales
The second tranche of India’s sovereign gold bonds, whose sale began today, is likely to draw good response from investors, as they are priced below market rates for the metal and sharemarket turmoil spurs investors to diversify holdings.
India plans to sell 150 billion rupees ($2.22 billion) in gold bonds in the fiscal year ending March 31 as it seeks to wean investors off physical gold and contain the outflow of foreign exchange spent on imports.
The price of gold has risen 4 percent so far in 2016, while India’s benchmark has fallen nearly 7 percent.
“Given that currently risk appetite is weak and bank interest rates are also falling, demand for gold bonds in the second tranche might be better,” said Siddhartha Sanyal, an India economist at Barclays.
Well, dear reader, we’ll see about that. I’ll stick my neck out at this point and say that the second tranche won’t do a whole lot better than the first one. This Reuters article, filed from Mumbai as well, showed up on their Internet site at 5:05 a.m. EST on Monday morning—and it’s another gold-related news item I found on the gata.org Internet site.
Battered gold miners mount charm offensive to sell executive pay
Gold mining companies are running a charm offensive with their biggest shareholders on the thorny issue of executive pay, keen to hold onto investors angry about ongoing generous compensation after four years of dire stock returns.
Stung by a reprimand from disgruntled shareholders in proxy votes last year, some miners are meeting investors earlier than ever to win support for compensation plans months ahead of spring “say-on-pay” votes.
Mining executives are generally well paid, but the gold industry “is in its own class,” said Steve Chan, a principal at executive compensation consultant Hugessen Consulting.
Gold executive pay surged alongside company profits as bullion prices rose nearly five-fold between 2005 and 2011, Chan said. But compensation did not typically follow profits lower as bullion declined.
Too bad the guillotine has gone out of style, because the ballot box ain’t working anymore. This rather brief Reuters article, co-filed from Toronto and Vancouver, appeared on their website at 3:05 p.m. EST on Monday afternoon—and it’s another story I found in a GATA release.
Koos Jansen: Has Shanghai Gold Exchange stopped reporting withdrawal data?
Maybe it’s just a one-week anomaly, but gold researcher and GATA consultant Koos Jansen reports that the Shanghai Gold Exchange seems to have stopped publishing gold off-take totals.
I posted Nick Laird’s comments about the SGE numbers in my Saturday commentary and, like Nick, I’m taking a ‘wait and see’ attitude about this until this Friday’s report comes out—if there is one. It would be irresponsible of me to speculate until we have some hard information. I’ll leave the speculation to others.
Jansen’s commentary is headlined “Are SGE Withdrawals Gone?” and it was posted on the bullionstar.com Internet site sometime on their Sunday. This is another story that I found on the gata.org Internet site.
The PHOTOS and the FUNNIES
The WRAP
The turnover or physical movement of metal brought into or taken out from the COMEX silver warehouses literally exploded [last] week, as 9.9 million ounces were moved and total inventories fell 2.3 million oz, to 159.1 million oz. I can recall only a few weeks over the past five years where more silver was physically moved than this week. I would also point out that this week’s COMEX silver movement, when annualized, comes to more than 500 million oz or 60% of total annual world mine production.
I continue to be flabbergasted that the COMEX silver warehouse movement is completely overlooked in the analytical community despite this movement being so unprecedented and persistent and easy to verify. I’ve given up expecting an alternative explanation to my physical tightness premise and have also given up on expecting any mention of this stunning phenomenon.
Even more perplexing is that I know that the daily COMEX inventory data is closely followed by many. I just read a report commenting on the COMEX adding two new silver warehouses (bringing the total to eight), even though one of the warehouses held no silver (yet) and the other held 275,000 oz or less than 0.2% of the 159 million oz held in total. Perhaps in time the two new COMEX silver warehouses will prove to be newsworthy; but what about the 10 million oz physically moved this week? How can the unprecedented physical movement continue to be overlooked? I don’t want to beat this to death, but isn’t the point of analysis to consider the most relevant facts? — Silver analyst Ted Butler: 16 January 2016
With the markets closed in New York Monday, there’s certainly nothing to talk about when it comes to yesterday’s precious metal price action.
It goes to show, as Ted Butler has been hammering away about for fifteen years, the only trading that matters is what comes from the New York based traders, which are mostly the bullion banks, the hedge funds—and their HFT buddies, plus the Managed Money traders.
And as is always the case, it’s the Commercial traders—the Big 8 plus a lot of the smaller Commercial traders [Ted’s raptors]—running the Managed Money traders through the moving averages for fun, profit and price management purposes. And as I said on Saturday—and umpteen other times—until JPMorgan is ready, or told to stand aside, nothing will be allowed to happen from a price perspective in any of the four precious metals.
A lot of the world’s currencies are on pretty thin ice right now—and at the moment I’d guess that the Saudi Arabian riyal would be at the top of the list, followed by the Hong Kong dollar. There was story about that very thing in a Zero Hedge article in the Critical Read section headlined “Foreign Central Banks Furiously Dump U.S. Treasuries“.
Including that one, I’ve had several stories about these two currencies over the last week or so—and when these pegs are finally abandoned, it will be interesting to see if the dollar price of the precious metals is ‘managed’ just like it was moments before the Swiss abandoned the peg on their currency last year.
So we wait.
I mentioned the movie ‘The Big Short‘ on several occasions in the Critical Reads section—and I wasn’t kidding. I saw it on Sunday night—and if you haven’t seen it, you owe it to YOU to do so—as what’s unfolding in the distressed/junk bond market in oil patch loans is a mirror image of what happened in the sub-prime mortgage market back in 2007/08. The comparisons will make your skin crawl. So hop in the car and just do it. You won’t be sorry, as it’s wonderfully cast—and the acting is superb. Nothing second rate about this flick, as it has been nominated for 5 Academy Awards including best picture—and best director. And long before you get to the end, you’ll understand why. I’m not a movie goer at all—and at my age, it takes a lot to impress me. This movie did, in spades. The review at the rottentomatoes.com Internet site is linked here.
And as I type this paragraph, the London open is less than ten minutes away—and I see that the gold price is chopping around unchanged from yesterday’s close. But silver, platinum and palladium are rallying a bit, with silver back above the $14 the ounce spot price, at least for the moment.
Net HFT gold volume right now is around 18,000 contracts—and that’s also net of Monday’s skinny volume—and in silver the net HFT volume is around 3,800 contract—and that’s net of yesterday’s volume as well. Not much to see here.
The dollar index has been working its way quietly higher—and is up 11 basis points as London opens.
Today, at the close of COMEX trading, is the cut-off for this Friday’s Commitment of Traders Report—and I’ll be more than interested in how the precious metals are allowed to perform today—because as far as I’m concerned, the safety catch is now off the world’s economic, financial and monetary system—and it’s only a matter of if, not when, the implosion occurs.
The powers-that-be world-wide will certainly pull out all the stops to prevent it, but it’s now beyond them.
And as I post today’s column on the website at 4:05 a.m. EST, I see that the not-for-profit sellers appeared in all four precious metals during the first hour of London/Zurich trading—and are all off their earlier highs. It’s hard to say whether or not we’ve seen the highs of the day or not, but it’s obvious that ‘da boyz’ are lurking about.
Net HFT gold volume has jumped up to 25,300 contracts—and that’s net of Monday’s volume—and in silver, that number is now up to just about 7,500 contracts. I’m not happy to see the volumes blow out like this, but it should come as no surprise, as JPMorgan et al are providing whatever liquidity is necessary to cap prices—and then sell them off.
The dollar index isn’t doing much—and is currently up 7 basis points.
That’s all I have for today—and I’ll see you here tomorrow.
Ed
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