25 June 2016 — Saturday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
After getting sold down a few bucks at the open of trading at 6:00 p.m. EDT on Thursday evening, the gold price began to rally quietly. The 10 dollar price spike around 9 a.m. HKT was negated within an hour, but after that, there was no stopping it until the powers-that-be stepped in just before noon HKT on their Friday morning as the price touched $1,360 the ounce. By shortly after 9 a.m. BST in London, they had the gold price down to $1,310 — and its two tiny rallies after that got sold down, with the latter sell-off ending at, or just after, the London p.m. gold fix — and back at the $1,310 spot mark. The gold price traded between $1,310 and $1,320 spot for the remainder of the New York session.
The low and high ticks are certainly worth looking up this time, as the CME Group recorded them as $1,252.80 and $1,362.60 spot, which was an intraday move of 110 dollars.
Gold finished the Friday session in New York at $1,315.60 spot, up $59.30 on the day, but well off its high tick. Gross volume was a number I’d never dreamed that I’d see, checking in at 581,602 contracts. Once roll-overs and spread trades were netted out, it was still a gargantuan 475,000 contracts.
And here’s the 5-minute gold tick chart courtesy of Brad Robertson — and it certainly doesn’t need much embellishment from me. Volume was moderate to heavy starting around 19:00 Denver time Thursday evening on the chart below — and remained that way until around 11:45 a.m. MDT yesterday morning, which was about fifteen minutes after the COMEX close in New York. And even after that, the ‘background’ trading volume was only light relative to the volume that had preceded it.
The vertical gray line is midnight in New York, noon the following day in Hong Kong—and don’t forget to add two hours for EDT. The ‘click to enlarge‘ is a must here.
The chart for silver on Thursday evening in New York was identical to the gold chart, but JPMorgan et al took back about 50 cents of the vertical price spike within thirty minutes of the high tick. From there it was sold down a bit more, with the ‘low’ coming at 2 p.m. HKT. The silver price began to crawl higher from that point, making it back to almost the $18 spot mark before being capped. It traded sideways for a while then, like gold, it was sold off into the London p.m. gold fix — and didn’t do much after that.
The low and high tick in silver were reported as $17.105 and $18.37 in the July contract, which was an intraday move of around $1.26.
Silver was closed in New York on Friday at $17.72 spot, up 48 cents on the day. Gross silver volume was a gigantic 112,279 contracts, but once the roll-overs from July were subtracted out, the volume fell down to just over 52,000 contracts, which was pretty heavy.
Platinum’s rally met the same fate. The rally made it to $1,000 spot — and ‘da boyz’ had the price back within 7 bucks of its Thursday close within an hour of the high tick being placed. From there it chopped sideways until about 1:30 p.m. Zurich time, but you can tell by the saw-tooth price pattern during that time period, that it wanted to rally, but wasn’t allowed to. Anyway, once that sideways chop was over with, the price began to rally anew until it made it back above $990 spot. But the HFT boyz and their algos showed up — and that was that. Platinum finished the day at $984 spot, up 19 bucks from Thursday’s close.
Palladium didn’t stand a chance. It’s such a tiny and thinly-traded market, that it doesn’t take much to move it around — and ‘da boyz’ did precisely that, with most of it being in the downward direction. At the low tick, palladium was down 24 bucks, but rallied and finished down ‘only’ 16 dollars, closing at $548 spot.
The dollar index closed late on Thursday afternoon in New York at 93.09 — and moments after trading began at 6:00 p.m. EDT last night, it was up at least 50 basis points — and from there the dollar index chart was the spitin’ image of the gold and silver charts. At its high tick it was up about 4.2 percent at around the 96.75 mark, but by 9:30 a.m. in London, it was back to around 95. By 12:30 p.m. BST it was back to around 96. By the 1:30 p.m. EDT COMEX close it was back to 95 — and from there it rallied before getting sold off a hair in the final thirty minutes of trading. The dollar index finished the Friday session in New York at 95.41 — up 232 basis points from its Thursday close. Wow!
Here’s the 3-day dollar index chart so you can put all of the Friday price move, plus the previous two days to give the move some context. It’s hard to believe, but in the last hour of trading on Thursday afternoon, those ‘gentle hands’ had to save the dollar index from crashing below the 93.00 level on two different occasions.
And here’s the 6-month U.S. dollar chart — and it’s a sight to behold.
And, just for fun, here’s the BKX — the KBW Bank Index. It was down 7.30 percent yesterday. Deutsche Bank was down 17.5 percent, Credit Suisse was down 16.1 percent — and UBS was down 13.4 percent. JPM was down 6.95%.
The gold stocks gapped up about 9 percent at the open, but by around 11:20 a.m. EDT had given back about 4 percentage points of those gains. From that low they rallied quietly until 2 p.m. before sliding a bit into the close. The gold shares closed up 5.96 percent.
The silver equities gapped up a bit over 5 percent at the open, but gave back about half those gains within ten minutes. They also rallied until 2 p.m. before sliding a hair into the close. Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed up 3.85 percent.
The rallies in the precious metals equities on Friday may have been considered rather anemic by some, but considering the fact that the general equity markets got smoked yesterday, combined with the fact that both metals were closed well off their highs, I’m happy with the gains we got. There are lots more gains where those came from.
Here are Nick’s three charts that show the weekly, monthly and year-to-date changes in both price and percentage terms for all four precious metals, plus the HUI and the ISSI/Silver 7 Index, as of the close of trading yesterday. The gains in the precious metal equities, especially the silver equities, are more than impressive. The gains by the junior silver producers have been spectacular so far this year. The ‘click to enlarge‘ feature helps just a bit.
The CME Daily Delivery Report showed that 41 gold and 31 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday. In gold, the only short issuer worthy of the name was International F.C. Stone with 40 contracts from its client account. Scotiabank picked up 19 contracts — and JPMorgan took 11 for its own account, plus 3 for clients. And Merrill Lynch stopped 8 contracts for its client account. In silver, F.C. Stone issued 30 of those contracts — and Scotiabank stopped 31. The link to yesterday’s Issuers and Stoppers Report is here.
The CME Preliminary Report for the Friday trading session showed that gold open interest in June actually rose 129 contracts, leaving 420 still left for delivery before the COMEX close next Thursday. Since Thursday’s Daily Delivery Report showed that only 24 gold contracts were posted for delivery on Monday, that means that 24+129=153 gold contacts were added to the June delivery month yesterday. One wonders who the short/issuers and long/stoppers were on that amount? Silver o.i. in June dropped by 62 contracts, leaving 32 still open. Thursday’s Daily Delivery Report showed that 93 silver contracts were posted for delivery on Monday, so 93-62=31 contract holders in the June delivery month were let off the hook by the short/issuers.
And not to be overlooked is the July delivery month in gold. The above Preliminary Report indicated that July open interest rose by 356 contracts — and that brings July o.i. in gold up to 5,392 contracts.
There was another deposit in GLD yesterday — and it was a big one, as 592,042 troy ounces were added by one or more authorized participants. And as of 7:45 p.m. EDT yesterday evening, there were no reported changes in SLV.
Ted said that there was monstrous volume in GLD yesterday — and big volume in SLV as well — so there will be more big deposits of physical gold into GLD next week. It remains to be seen if any silver gets deposited in SLV, because as I mentioned in yesterday’s column, since Friday, June 17 — there has been 10.55 million troy ounces of silver withdrawn from SLV.
Without doubt, Ted will have much more to say about ‘all of the above’ in his weekly review this afternoon.
There was a sales report from the U.S. Mint yesterday. They sold 4,500 troy ounces of gold eagles — 500 one-ounce 24K gold buffaloes, plus another 60,000 silver eagles.
Month-to-date the U.S. Mint has sold 59,000 troy ounces of gold eagles — 12,000 one-ounce 24K gold buffaloes — but only 1,899,500 silver eagles. Gold coins sales from the mint this month are still pretty solid, but JPMorgan has definitely left the building as far as silver eagles are concerned.
There was very decent activity in gold over at the COMEX-approved depositories on Thursday. There was 52,435 troy ounces reported received — and 48,407 troy ounces shipped out. The link to that activity is here.
It was another big day in silver, as 1,716,424 troy ounces were received, of which 515,510 troy ounces ended up in JPMorgan’s vault. The remainder was split up more or less equally between CNT and Canada’s Scotiabank. The link to that action is here.
There was activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday, as 1,534 kilobars were received — and 239 were shipped out. Except for 25 kilobars deposited at Loomis International, all of the other in/out activity was at Brink’s, Inc. as per usual. The link to all that activity, in troy ounces, is here.
Not surprisingly, the Commitment of Traders Report for positions held at the close of COMEX trading on Tuesday showed the expected deterioration in the Commercial net short positions in both gold and silver. The commercial net short position in gold is now at another new record high — and the Commercial net short position in silver is just below its previous high.
Ted Butler said the deterioration in silver was more than he expected, but since I hadn’t formed an opinion on what the changes might be, what I saw wasn’t a surprise.
But what we both agreed on was the fact that after the price action during the Friday trading session on Planet Earth, this COT data, in almost every respect, is ‘yesterday’s news’. But I’ll go through the motions…
In silver, the commercial net short position increased by 8,192 contracts, or 41.0 million troy ounces of paper silver. They did this by selling 930 long contracts, plus they added 7,262 contracts to their already grotesque short position. The sum of those two numbers is the weekly change. The commercial net short position in silver now stands at 450 million troy ounces, which is around 195 days of world silver production.
It was “all for one, and one for all” with the Big 8 and small commercial traders during the reporting week. Ted said that the Big 4 increased their short positions by another 2,700 contracts, the ‘5 through 8’ largest commercial traders added about 300 contracts to their short positions — and the small commercial traders, Ted Butler’s raptors, sold around 5,200 long contracts. Ted pegs JPMorgan’s short position at around 24,000 contracts, up a couple of thousand from last week.
Under the hood in the Disaggregated COT Report, it was all the Managed Money traders on the other side of the Commercial net short position, plus more. They increased their long position by 10,589 contracts, plus they covered 3,570 short contracts, for a one week swing of 14,159 contracts, which was far beyond the 8,192 contract change in the Commercial net short position. The traders in the ‘Nonreportable’/small trader and ‘Other Reportables’ categories went in the other direction, as they decreased their long positions and added to their short positions.
Here’s the 3-year COT chart for silver courtesy of Nick Laird — and as you can see, this week’s report brings us back within a whisker of the old record high. Of course it’s in new record territory after Friday’s price action — and not by a small amount either. Click to enlarge.
In gold, the Commercial net short position increased by 14,060 contracts, or 1.41 million troy ounces. The Commercial net short position is at a new record — 31.21 million troy ounces. They did this by purchasing 6,501 long contracts, plus adding 20,561 contracts to their short position. The difference between these two numbers is the weekly change.
Ted said the Big 4 traders added around 5,600 contracts to their short positions — plus Ted’s raptors, the small commercial traders other than the Big 8, added about 10,500 contracts to their short position. The ‘5 through 8’ large traders went in the other direction, as they decreased their net short position by around 2,000 contracts during the reporting week.
Under the hood in the Disaggregated COT Report, it was [like in silver] all a Managed Money show once again, plus more. Not only did they purchase 17,436 long contracts, they also covered 3,732 short contracts, for a weekly change/increase of 21,168 contracts on the long side. The ‘Nonreportable’/small traders added about 1,200 long contracts net as well. But it was the ‘Other Reportable’s that went the other way, just like they did in silver, as they went net shorter to the tune of 8,300 contracts.
Here’s the 3-year chart COT chart in gold — and as you can tell, the Commercial net short position [blue bars] are at a new record high. Of course, the situation is materially worse after yesterday’s price action. Click to enlarge.
Just how bad the deterioration was in the Commercial net short positions in both gold and silver yesterday is impossible to tell. With the huge volume associated with yesterday’s price spikes and subsequent engineered price declines, it’s anyone’s guess. Just looking at the volume in Friday’s Preliminary Report, which Ted Butler says is a dangerous thing to do — and past experience has proven him correct — gold open interest increased yesterday by an eye-watering 59,379 contracts. The final number will be published by the CME Group on Monday morning — and that may hint at how ugly next week’s report will be. In silver, the preliminary change in open interest yesterday was actually down 636 contracts, which is a big surprise. Ted may comment on the meaning of all this this later today.
Of course there are still two more trading days before the cut-off at the close of COMEX trading next Tuesday — and who knows what the powers-that-be are plotting over the weekend.
Here’s a chart that an interested reader made up a few weeks back. It’s updated with yesterday’s COT data — and after adding Friday’s dismal numbers we’re light years away from a bullish reading from a COT point of view—and much worse still considering yesterday’s activity. As you can see in gold, the Commercial net short position is at a new record high for a second week in a row — and in silver, it’s only 1,796 contracts off its record high. All things being equal — and provided ‘da boyz’ don’t pound the crap out of prices between now and the cut-off on Tuesday afternoon, there will be record highs in gold for three weeks in a row.
Here’s Nick Laird’s “Days to Cover” chart updated with yesterday’s COT data for positions held at the close of COMEX trading on Tuesday. It shows the days of world production that it would take to cover the short positions of the Big 4 and Big 8 traders in each physically traded commodity on the COMEX. Click to enlarge.
As I say in every Saturday column—the short positions of the Big 4 and 8 traders in silver continues to redefine the meaning of the words ‘obscene’ and ‘grotesque.’ For the current reporting week, the Big 4 are short 155 days [more than 5 months] of world silver production—and the ‘5 through 8’ traders are short an additional 71 days of world silver production—for a total of 226 days, which is 7.5 months of world silver production, or 520 million troy ounces of paper silver held short by the Big 8.
And it should be pointed out here that in the COT Report above, the Commercial net short position in silver is 450 million troy ounces. So the Big 8 hold a short position larger than the net position—and by a monstrous amount—70 million troy ounces!!! That’s how grotesque, twisted, obscene—and dangerous—this COT situation in silver has become—and gold’s not far behind, as is platinum.
For the first time in my memory, the four precious metals inhabit the last four consecutive positions on this chart, as cocoa has now been relegated to the #5 spot in this week’s COT Report. But still towering high above everything is silver—and except for the odd week here and there, it’s been like that for more than 20 years.
And as an aside, the two largest silver shorts on Planet Earth—JPMorgan and Canada’s Scotiabank—are short about 111 days of world silver production between the two of them—and that 111 days represents around 72 percent [almost three quarters] of the length of the red bar in silver in the above chart. The other two traders in the Big 4 category are short, on average, about 22 days of world silver production apiece.
Despite the increase in JPMorgan’s short position to 24,000 contracts in this week’s report, I’d still bet serious money that Canada’s Scotiabank is the King Silver Short by a good bit.
The Big 8 traders in gold are short 48.5 percent of the entire COMEX futures market in gold, plus they were short 46.5 percent of the entire COMEX futures market in silver—and these positions are held against thousands of other traders in the COMEX futures market in these two precious metals. Ted pointed out that if you subtracted out the market-neutral spread trades in both these precious metals, the Big 8 are actually short more than 50 percent of the total open interest in both markets.
Of course the Brexit vote dominated world news yesterday — and my in-box was full of them. I’ve had to narrow it down quite a bit, as it would be overload if I posted them all. Besides which, this is a long-term story — and much will be written about it in the days and weeks ahead.
CRITICAL READS
Bravo Brexit! — David Stockman
At long last the tyranny of the global financial elite has been slammed good and hard. You can count on them to attempt another central bank based shock and awe campaign to halt and reverse the current sell-off, but it won’t be credible, sustainable or maybe even possible.
The central banks and their compatriots at the EU, IMF, White House/Treasury, OECD, G-7 and the rest of the Bubble Finance apparatus have well and truly over-played their hand. They have created a tissue of financial lies; an affront to the very laws of markets, sound money and capitalist prosperity.
So there will be payback, claw-back and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see.
On the immediate matter of Brexit, the British people have rejected the arrogant rule of the E.U. superstate and the tyranny of its unelected courts, commissions and bureaucratic overlords.
As Donald Trump was quick to point out, they have taken back their country. He urges that Americans do the same, and he might just persuade them.
The above five paragraphs encapsulates my thoughts on the British vote yesterday…a rejection of tyranny by the financial global elite and their syncopates. Stockman nails it. This short, but right-on-the-money commentary was posted on his Internet site yesterday — and it’s an absolute must read. I thank Richard Saler for today’s first story. Another link to this absolute must read is here.
Marc Faber on Brexit: It sends a clear message
When asked why the markets and polls got it so wrong, Marc Faber, editor of the Gloom, Boom & Doom Report, told CNBC, “They were conducted or paid by the elite.”
Faber agreed with presumptive Republican presidential nominee Donald Trump that a Brexit is a benefit to his campaign. He said the U.S. could also see a revolt against the political establishment with the election of Trump to the presidency, “It is already well underway. Brexit is a huge boon for Trump and a wake-up call to Hillary that ordinary people are sick and tired of being lied to and cheated by the crony capitalistic system.”
He told CNBC the Brexit is the best thing that could have happened, “It sends a clear message to a sick political elite and useless Brussels bureaucracy, which can’t retard economic growth enough with complex laws and endless regulatory hurdles that the working people have had enough.”
Faber stressed Britain leaving the E.U. would not be disastrous, saying that if Switzerland can operate in a “single” market and outside of the E.U. so can Britain. “Brexit is a victory of ordinary people, common sense and people who are prepared to take responsibility for the sake of freedom against a political and financial elite that only cares if stocks go up or down and does not care about the interests of the average British citizen.” Said Faber, “We can only hope that more countries will opt out of the failed EU monster. I see only a good contagion.”
This commentary by Marc showed up on the CNBC website early yesterday afternoon EDT — and I found it on Doug Noland’s website just before midnight Denver time. It’s certainly worth reading, as he echoes David Stockman almost word for word. Another link to his comments is here.
Alan Greenspan says Brexit is the “tip of the iceberg” for Europe
The global economy is suffering from even bigger woes than the decision by U.K. voters to leave the European Union, Former Federal Reserve Chairman Alan Greenspan said Friday.
”This is just the tip of the iceberg,” Greenspan said in an interview on CNBC. “The global economy is in real serious trouble.”
The rejection of British voters of the status quo in Europe was fueled by a “massive slowing” in the growth rate of real incomes that is widespread across Europe, Greenspan said. This, he said, is creating serious political problems that are not easy to resolve.
“The euro-area…is failing,” Greenspan said.
This story appeared on the marketwatch.com Internet site at 12:04 p.m. EDT on Friday — and it’s the second offering in a row from Richard Saler. Another link to this article is here.
E.U. faces Brexit ‘contagion’ as populist parties across Europe call for referendums
Populist and Eurosceptic parties across Europe moved to capitalise on the U.K.’s decision to vote for Brexit by congratulating Britain on its vote for “freedom” and calling for referendums on E.U. membership to be held in their own countries.
“Victoire de la liberte!” – “Victory for Liberty!” declared Marine Le Pen, the leader of France’s far-right National Front party as she welcomed the news from across the Channel, putting a Union flag on her Twitter account in a statement of French fraternity for English euroscepticism.
Ms Le Pen, who is expected to reach at least the second round run-off for France’s presidential election next year, then called for “the same referendum in France and other E.U. countries” in a rallying cry to her own nationalist political base.
Her call for a referendum was echoed by the leaders of similar populist parties in Holland, Denmark, Sweden and Italy as the news of the British decision reverberated around the chancelleries and political salons of Europe.
This worthwhile news item put in an appearance on the telegraph.co.uk Internet site at 12:22 p.m. BST on their Friday afternoon, which was 7:22 a.m. in Washington — EDT plus 5 hours. I thank Roy Stephens for sending it our way — and another link to it is here.
The great European revolt is only just getting started
What a political education that turned out to be. The leadership of every major party will now have to re-connect with the reality of public opinion overnight. So furious, and so confident in their own self-belief did the voters prove to be that no amount of bullying, or threats or moral blackmail would sway them. In fact, it was almost certainly the threats and the coercion that sealed their determination to resist.
How many of the party leaders will survive this humiliation? David Cameron might seem to be in the most obviously invidious position. How can he now lead the negotiated exit which he so passionately argued against? Only by throwing George Osborne – who committed the most egregious offence with his threatened Punishment Budget – under the bus and offering major posts to Boris and Michael Gove.
He might conceivably get away with making Osborne Foreign Secretary and replacing him with Gove as Chancellor. But it will be hard for him to present himself as a credible national leader after this repudiation of his judgement.
The most immediate danger though must be to Jeremy Corbyn. The Parliamentary Labour Party will blame him for failing to back the party’s official position with any convincing force, and the Left-wing activists will be appalled at his lack of connection with the grassroots.
But the most startling revelation of the night was the national character. I have said it before about my adopted country but I must say it again: the British are the sanest, bravest people in the world. I am stunned with admiration.
This commentary by British columnist Janet Daley was obviously written and posted on The Telegraph‘s website before British Prime Minister David Cameron announced his resignation. But that fact takes nothing away from this wonderful article that appeared on their Internet site at 7:04 a.m. BST on their Friday morning, which was 2:04 a.m. EDT. It arrived in my in-box about twenty minutes after I’d filed Friday’s column. It’s worth reading — and another link to it is here.
Nigel Farage has earned his place in history as the man who led Britain out of the E.U.
Britain has voted to leave the European Union. It’s the biggest political upheaval in modern British history and it wouldn’t have happened without Nigel Farage.
For years, the Establishment mocked and ignored the Ukip leader, but he is the man who put Britain’s withdrawal from the E.U. on the agenda. His party, once dismissed by Michael Howard as a collection of “cranks and political gadflies“, forced the Prime Minister to call the referendum.
And when the referendum came, David Cameron told us we had a choice between his Britain and Nigel Farage’s. Britain chose Mr Farage’s vision.
The result has ensured David Cameron will go down in the history books as the Prime Minister who failed to take voters with him on the future of their country, with over 17.4 million people rejecting him by choosing Leave. He was once feted for winning last year’s general election, but that victory – with 11.3 million voting for him – has been dwarfed by this defeat.
By contrast, Nigel Farage will be remembered as the man the British people chose to follow. His entire political career has led up to what he calls “our independence day“.
This is another very worthwhile commentary. This one also appeared on The Telegraph‘s website at 8:11 a.m. BST yesterday morning, which was 3:11 a.m. in New York. It’s another item that Roy Stephens sent our way in the wee hours of yesterday morning…and another link to it is here.
The consequences of leaving the party — Alasdair Macleod
It is a signal failure of government policy. Above all, it is a failure that undermines the state’s control over ordinary people. Time will tell whether it is just a temporary setback for the world’s economic planners, or the removal of a keystone supporting the whole structure of modern statism.
There are, therefore, two aspects of this development that must be considered, domestic UK politics and the international economic and political consequences.
There can be little doubt that David Cameron and George Osborne the Chancellor are now only caretakers, with the duty of managing a planned withdrawal from Europe until their replacement as executive politicians. The withdrawal will be a lengthy process, which over the next two years at least, will lead to the final, official separation. It is possible there will be attempts by the European elite in Frankfurt and Paris, to come up with proposals to keep Britain in the EU club and to force a second referendum. Any such attempt will fail, because it cannot even be entertained by a caretaker Prime Minister.
David Cameron’s days as Prime Minister are numbered and he now has no real authority. The Conservatives will have to elect a new leader, and the bookies’ favourite is almost certain to be Boris Johnson. He is likely to be elected by the Conservative Party by the end of this year.
Britain’s future will therefore be subject to the policies of a Boris-led government, which it has to be admitted, will have obtained power basically through the failure of the Remain camp to come up with a convincing argument. It was arguably Remain that lost, and not Leave that won.
This thoughtful and reasoned commentary by Alasdair put in an appearance on the goldmoney.com Internet site very early on Friday morning BST before Cameron resigned, but it’s still worth reading. I found it embedded in a GATA release — and another link to it is here.
The sky has not fallen after Brexit but we face years of hard labour — Ambrose Evans-Pritchard
It is time for Project Grit. We warned over the final weeks of the campaign that a vote to leave the E.U. would be traumatic, and that is what the country now faces as markets shudder and Westminster is thrown into turmoil.
The stunning upset last night marks a point of rupture for the post-war European order. It will be a Herculean task to extract Britain from the EU after 43 years enmeshed in a far-reaching legal and constitutional structure. Scotland and Northern Ireland will now be ejected from the E.U. against their will, a ghastly state of affairs that could all too easily lead to the internal fragmentation of the Kingdom unless handled with extreme care.
The rating agencies are already pricing in a different British destiny. Standard & Poor’s declared that Brexit “spells the end” of the UK’s AAA status. The only question is whether the downgrade is one notch or two, and that hangs on Holyrood. Moody’s has cocked the trigger too.
Just how traumatic Brexit will be depends on whether Parliament can rise to the challenge and fashion a credible trade policy – so far glaringly absent – to safeguard access to European markets and ensure the viability of the City, and it depends exactly how Brussels, Berlin, Paris, Rome, Madrid, and Warsaw react once the dust settles. Both sides are handling nitroglycerin.
This commentary by AE-P showed up on the telegraph.co.uk Internet site at 6:14 p.m. BST on their Friday evening, which was 1:14 p.m. EDT. It’s worth reading — and I thank reader U.D. for passing it around yesterday. Another link to this article is here.
Europe Is Dead: Long Live Europe?
Three weeks prior to the big bang, Michael Gove was standing on a rooftop terrace in London’s East End talking about how much he likes Europe. German music, Italian food, French joie de vivre — oh how much he loves this wonderful continent. Gove is secretary of state for justice in the cabinet of Prime Minister David Cameron and a leader of the Brexit campaign. He said: “I got married in France and my in-laws live in Italy. Last year, we went to Bayreuth on vacation. Beautiful.” He just couldn’t stop gushing.
There is, though, one thing that he doesn’t like about Europe — the damned E.U. Gove describes the E.U. as a “job-destroying, misery-inducing, unemployment-creating tragedy.” He’s been fighting for Britain to leave the E.U. for years and is convinced he’s right. He is an ideologue. His strategic skill is one big reason why the anti-E.U. camp attracted more and more people in the weeks leading up to the vote.
In a room next door, Brexit activists are waiting with signs and “Vote Leave” T-shirts. It is Gove’s job to motivate them for the campaign’s final stretch. He straightens his tie and says that, at the Bayreuth Festival, he spent a week sitting on a wooden bench listening to Wagner’s operas. It was complete dedication, he says, offering it as yet more proof of his love for the continent — and then an advisor tells him it is time to take the stage.
Gove and his followers were ecstatic on Friday morning. They had achieved their goal. According to the final results, 52 percent of the British voted in favor of leaving the E.U. It is an eventuality that many in Europe didn’t initially take seriously. Soon, however, they began to fear it and ultimately, they could do nothing to prevent it.
This long 3-page commentary by the staff reporters over at the German website spiegel.de appeared on their Internet site at 8:51 p.m. Europe time on their Friday evening — and I thank Roy Stephens for sharing it with us. Another link to this long article is here.
Credit markets in free-fall after shock Brexit result
Investors dump risk after U.K. vote’s 52%-48% in favour of leaving the E.U.
A shock result in yesterday’s U.K. referendum has seen wild reaction in the credit market following Thursday’s unexpected win for the “leave” camp. The market had clung to the hope that “stay” would prevail and today’s wild swings in the pound and U.K. equities indicate both the unexpected nature and the level of uncertainty.
The heightened level of volatility saw investors clamber to safe haven assets, with 10-yr U.K. gilt yields falling to 1.02%, a new record low according to Markit’s bond pricing service.
This only tells half the story however, as the U.K.’s credit risk surged the most on record this morning according to Markit’s CDS pricing service. U.K. 5-yr sovereign CDS spreads widened to 56bps on an intraday basis, up from 33bps last night.
Fears of contagion leading to further future fractures in the E.U. meant credit risk rose in a number of European sovereigns. France saw its 5-yr CDS spread widen 49%. Peripheral Europe, Italy and Spain seeing their 5-yr CDS spread widen 24% and 25%, respectively, overnight. Levels are at their widest since the European sovereign debt crisis in 2011.
This 3-chart story appeared on the markit.com Internet site yesterday sometime — and it’s worth skimming. I thank Richard Saler for his third and final offering in today’s column. Another link to this news item is here.
Doug Noland: Majority Mad as Hell
Brexit comes at a terrible time for European banks and Europe’s securities markets more generally. To be sure, Friday trading put an exclamation mark on what was already bear market trading action. European bank stocks were down 14.5% Friday, increasing y-t-d losses to a nauseating 29%. U.K. banks were under intense selling pressure. Royal Bank of Scotland sank 27% in Friday’s chaotic session, while Barclays and Lloyds fell 20% and 23%. Elsewhere, Credit Suisse sank 16% during the session, with Deutsche Bank down 17% (down 35% y-t-d). Friday trading also saw Banco Santander fall 20%.
U.K. stocks opened Friday down about 8% but closed the session with losses of 3.2%. Spanish stocks sank 12.4% in wild trading, increasing y-t-d losses to 18.4%. Stocks in France sank 8.0%, pushing 2016 losses to 11.4%. Friday trading saw equities sink 5.7% in the Netherlands, 6.4% in Belgium%, 7.0% in Portugal, 13.4% in Greece and 7.0% in Austria.
Recalling the tumultuous 2011/12 period, Italy is again becoming a market concern. Ominously, Italian bank stocks sank 22.1% Friday, a crash that pushed 2016 declines to 52%. Friday trading saw the Italian stock market (MIB) sink 14.5%, increasing y-t-d declines to 34%. And with Italian 10-year bond yields up seven bps to a four-month high 1.62%, the spread to bund yields surged 14 bps this week to a two-year high 167 bps.
Currency markets badly dislocated. And discontinuous markets are a major problem for those dynamically hedging derivative exposures as well as players that are leveraged. The pound’s abrupt fall was understandable considering the amount of hedging going into the referendum. But in the yen’s discontinuity I discern important confirmation of the thesis that there remains enormous amounts of leverage in short yen “carry trades” (short/borrow in yen to finance trades in higher-yielding currencies).
The impairment of the leveraged speculating community remains an important facet of the bursting Bubble thesis. There are surely casualties from Thursday night and Friday’s trading fiasco. And as hedge fund losses mount, the potential for major redemptions appears increasingly likely. We should expect de-risking/de-leveraging to intensify. And while central banks will continue to abundantly supply a liquidity backstop, I don’t believe such measures at this point will tame problematic volatility. Market correlations have run amuck.
This must read Credit Bubble Bulletin from Doug appeared on his Internet site just after midnight Denver time — and another link to his commentary is here.
Suwalki Gap to Syrian Skies in the New Cold War: John Batchelor Interview Stephen F. Cohen
I had not intended to write a podcast discussion this week, but quite frankly events have taken such a serious turn that I feel I must. Last week I hinted that the trigger theatre for war with Russia may be shifting away from NATO in Europe because of Brexit, and accompanying growing public animosity towards NATO there. This has taken the form of the recent “Dissenters’ Letter” (51 signatories from Obama’s own State Department) to Obama that urges Washington to initiate a bombing campaign in Syria to remove Assad. That this would surely result in direct military opposition by Russia and the major escalation to a WW3 scenario is a major discussion point in this week’s broadcast. This also implies that whoever was responsible for this so-called dissident effort assumes there will be an EU at the conclusion to this confrontation and that the world will not have a problem with ISIS in control of Syria – assuming there IS a Syria after this confrontation – indicates to me that there is a huge effort from powerful entities in the US for support of a war with Russia. It also horribly reveals how low the basic wisdom of the American political establishment elites, the very diplomatic experts, have fallen that the repercussions of war with Russia can be so little appreciated by so many, and it leaves one with a nauseous feeling of inevitability and fear for our future. This attack of Syria, if it happened, would be completely illegal, of course, but these fools support this bellicose effort nevertheless. The U.N. is dismissed; the empire does what it likes. Cohen goes on to conclude (finally) that the greatest existential threat to the globe (and by inference, the United States) is Washington itself.
But will Obama bend to the pressure and attack Syria? And why is the removal of Assad such a goal for Washington? This is THE glaring question in my opinion. Usually if the stated goal is of less importance than the means to get there, then there is the historical pattern for these events.
Cohen goes on to add that as it turns out the State Department letter surprised Putin as well as his own Foreign Minister, Lavrov. And he questioned Lavrov in public about this as a set back in efforts for a cease fire in the Syrian War. But the behaviors of people like Victoria Nuland, also in the State Department, show a history of active opposition factions within Washington. Putin jokingly asked Lavrov in public about “the Letter”. But for both Lavrov and Kerry, it is an embarrassment, and Cohen recognizes this public display by Putin questioning Lavrov as a consequence of public pressure to be more forceful against the West. Unfortunately all the situation needs to make things worse is a receptive pro war president. In my humble opinion, shared by Cohen, the State Department “Dissident Letter” is dual purpose; regardless of how inappropriate this behavior is for bureaucrat/diplomats it is inside support for Hilary Clinton and support for war with Russia. There were other complications also coming out of Syria this week as Russian planes finally bombed “American supported resistance fighters”; American inactivity in separating its fighters from ISIS finally saw Russia lose patience.
But rebellion within government ranks is not limited to Washington. The German Foreign Minister, Frank-Walter Steinmeier came out publicly stating that NATO was “warmongering” with its recent “Anakonda” exercises. Cohen also mentions Israeli support for Russia in its war with ISIS. (And one wonders where the Israeli lobby is in influencing Washington foreign policy.) He goes on to list failing support for sanctions against Russia by the major EU countries. All seems to be failing and yet Cohen is confused as to why the sanctions are extended again. At home in the US Cohen discusses how the war talk is affecting the presidential campaign, and notes that increasingly Trump’s views are being excluded in the media. Sides have been chosen, and to the disgrace of the Fourth Estate, is favouring Clinton, and yet Cohen maintains a hope that Americans will be sensible and avoid war. I wonder in turn whether the American citizen has now been excluded from participation entirely and rendered irrelevant. This is an amazing pod cast this week and there is much more to hear than has been discussed.
This 40-minute interview put in an appearance on the audioboom.com Internet site on Tuesday — and I thank Larry Galearis for sending it along, plus the usual big Thank You for writing the above executive summary. Another link to this interview is here.
Led Zeppelin did not plagiarise ‘Stairway To Heaven‘, jury rules
Led Zeppelin’s definitive song, Stairway To Heaven, was the band’s own work and not stolen from another composition, a jury ruled on Thursday.
The verdict, from an eight-member jury at Los Angeles district court, came at the finale of an eight-day trial in which Jimmy Page, Zeppelin’s guitarist, Robert Plant, the band’s singer, and John Paul Jones, the bass player, vigorously denied plagiarising the song from an instrumental track recorded by an American group, Spirit.
The jury’s verdict – following hours of evidence at which Led Zeppelin and Spirit members testified and both songs were played – was welcomed by Page and Plant, and by the Warner Music Group, which distributes the band’s albums.
“We are grateful for the jury’s conscientious service and pleased that it has ruled in our favour, putting to rest questions about the origins of ‘Stairway to Heaven’ and confirming what we have known for 45 years,” the two musicians said in a joint statement. “We appreciate our fans’ support, and look forward to putting this legal matter behind us.”
This very interesting article was posted on The Telegraph‘s website on Thursday evening BST — and for obvious reasons had to wait for my Saturday column. Another link to this story is here — and it’s worth reading if you have the interest. I found this story when I was looking for something else on their website.
Britain, Brexit, Bullion and the Pound — Lawrie Williams
Against most predictions, Britons voted to leave the European Union in yesterdays’ referendum. Pollsters, and even the bookmakers, had obviously failed to account for the huge underlying anti-EU sentiment across the country. In regional terms only Scotland, Northern Ireland , and perhaps most importantly London and the odd pocket in the richer south-east of the country, voted to remain in the Union. This will undoubtedly build-up problems ahead, particularly should Scotland, as its leadership has threatened, push for a new referendum with the intention of gaining independence and rejoining the EU on its own. In Northern Ireland the prospect of having to re-implement border controls with the Republic, which is in the EU, could reignite sectarian differences. Should Scotland secede and join the EU, the imposition of border controls with England, which would presumably become necessary, and free movement of people between the two countries, would be another extremely touchy subject!
Ross Norman, CEO of U.K. bullion dealers Sharps Pixley, noted in an early comment this morning: “Gold rocketed this morning as the shock U.K. referendum result saw carnage in financial markets, prompting a rush to safe haven assets like gold. With sterling falling to its lowest in 30 years, the biggest gains were seen in gold for U.K. investors which rose 20 pct in just a few minutes before settling this morning at gbp 960, a gain of 12 pct on the day so far. “
This commentary by Lawrie showed up on his own website yesterday — and I thank Patricia Caulfield for pointing out. Another link to this article is here.
London gold dealers report surge in coin, bar demand on Brexit vote
Gold dealers in London reported surging demand for coins and bars on Friday, with some saying stocks were tight, after a shock vote for Britain to leave the European Union sent financial markets into meltdown and drove the pound lower.
Gold delivered double-digit percentage gains in sterling terms on Friday, topping 1,000 pounds an ounce for the first time in over three years