Wednesday, December 30, 2015

Financial Armageddon Approaches: U.S. Banks Have 247 Trillion Dollars Of Exposure To Derivatives

"Did you know that there are 5 “too big to fail” banks in the United States that eachhave exposure to derivatives contracts that is in excess of 30 trillion dollars?  Overall, the biggest U.S. banks collectively have more than 247 trillion dollarsof exposure to derivatives contracts.  That is an amount of money that is more than 13 times the size of the U.S. national debt, and it is a ticking time bomb that could set off financial Armageddon at any moment.  Globally, the notional value of all outstanding derivatives contracts is a staggering 552.9 trillion dollars according to the Bank for International Settlements.  The bankers assure us that these financial instruments are far less risky than they sound, and that they have spread the risk around enough so that there is no way they could bring the entire system down.  But that is the thing about risk – you can try to spread it around as many ways as you can, but you can never eliminate it.  And when this derivatives bubble finally implodes, there won’t be enough money on the entire planet to fix it.
A lot of readers may be tempted to quit reading right now, because “derivatives” is a term that sounds quite complicated.  And yes, the details of these arrangements can be immensely complicated, but the concept is quite simple.  Here is a good definition of “derivatives” that comes from Investopedia
A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets includestocksbondscommoditiescurrenciesinterest ratesand market indexes.
I like to refer to the derivatives marketplace as a form of “legalized gambling”.  Those that are engaged in derivatives trading are simply betting that something either will or will not happen in the future.  Derivatives played a critical role in the financial crisis of 2008, and I am fully convinced that they will take on a starring role in this new financial crisis.
And I am certainly not the only one that is concerned about the potentially destructive nature of these financial instruments.  In a letter that he once wrote to shareholders of Berkshire Hathaway, Warren Buffett referred to derivatives as “financial weapons of mass destruction”…
The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.


IMF Chief Pours Cold Water On Optimistic Yellen, Says Growth "Will Be Disappointing"

"Over the past six or so months, the OECD, the WTO, and the ADB have all come out with rather grim assessments of global growth and trade. 
Back in September for instance, the WTO warned that the rate of growth in global trade is set to trail the expansion of the worldwide economy for the third year running. As WSJ noted at the time,“before the recent slump, the last time trade growth underperformed the rate of an economic expansion was 1985.”
“We have seen this burst of globalization, and now we’re at a point of consolidation, maybe retrenchment,” WTO chief economist Robert Koopman said. “It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”


Puerto Rico To Default On Some Bonds January 1 - Live Feed

"Puerto Rico governor Alejandro Garcia Padilla is set to address the island's debt problem at a press conference on Wednesday.
Nearly $1 billion comes due on Friday, some $330 million of which is GO debt. Because a full payment is next to impossible, Padilla must decide who gets paid and who doesn't..."


The Dire 2016 Predictions Of One Of The Top Economists In The World

"Michael Pento’s 2016 Predictions
The S&P 500 falls more than 20% as it finally succumbs to the incipient global recession.
Janet Yellen states in the 1st half of 2016 that the Fed will not be willing to increase the Fed Funds Rate any further and subsequently hints at another round of QE before the end of 2016.
As a consequence of this tacit admission of failure by the Fed to save the economy from the Great Recession, the US Dollar crashes below 90 on the DXY.
Gold and the miners will be the major winners next year as they will be the primary beneficiary of a global slowdown, continued low nominal interest rates, negative real interest rates and a watershed turn in the value of the USD as the yellow metal surges to $1,250. The second place winner will be shorting high-yield debt (which is currently a profitable trade for PPS clients) and buying put options on high-flying NASDAQ momentum stocks that are trading at monstrous PE ratios and whose prices will collapse because of a deceleration in the US economy.
The Ten-year Note yield will fall below 2% by June on pervading recession concerns.
Finally, after the dust settles from this anticipated huge selloff, there will be a tremendous opportunity from owning high-divided paying foreign stocks, which have already been mercilessly beaten down during the commodity bear market debacle of the last few years.
Why will 2016 be different from 2015: Simply because the Fed has finally started to raise interest rates and will continue to slowly do so until the US economic recession fully manifests. Whether or not Ms. Yellen has finished rate hikes or if the Fed can get in one or two more before the bottom falls out is largely irrelevant. The fact remains that Q4 GDP growth is barely above 1%, according to the Atlanta Fed GDP model. Any additional rate hikes will only expedite the inevitable slowdown as the global recession has already hit US shores. The catalyst for this imminent recession is that asset prices and debt levels have increased to a level that can no longer be supported by incomes and economic growth.
I cannot stress how important the watershed change in US monetary policy will be for markets in early 2016. The major markets (meaning currencies, bonds and equities) have been anticipating a graceful exit from QE and the trillions of dollars’ worth of deficit spending that have been deployed since 2011. In other words, the entire world of capital markets have been banking on the success of central banks. In the vanguard of this belief has been the universal carry trade of going long the dollar and equities, while shorting precious metals..."

Paul Craig Roberts – This Now Threatens To Destroy Our Civilization

"...As we enter into 2016, Western civilization, the product of thousands of years of striving, hangs in the balance. Degeneracy is everywhere before our eyes. As the West sinks into tyranny, will Western peoples defend their liberty and their souls, or will they sink into the tyranny, which again has raised its ugly and all devouring head?"


Sunday, December 27, 2015

Shanghai Gold Withdrawals Top 2500 Tonnes For This Year

"With 57.75 tonnes withdrawn in the latest week, the number of tonnes of gold bullion withdrawn from the Shanghai Gold Exchange stands at 2,503 tonnes for the year to date.

This is the most gold ever withdrawn from this or from any exchange in a single year that I can find in the post-WW II era.

And this record breaking phenomenon is for the most part being ignored.  It seems in retrospect almost unprecedented, and is particularly odd given the relative  'drying up' of deliveries of physical gold in NY and the shrinking of the 'free gold float' inventories in London.  

Lessons From The Late '20s - Why Bubbles Abound

"Excerpted from Doug Noland's Credit Bubble Bulletin,
They finally did it – 25 bps, for the first rate increase since 2004. Surely it’s the most dovish Fed “tightening” ever. Indeed, it was really no tightening at all. One has to go all the way back to 1994 for the last time the Federal Reserve commenced a true tightening cycle. That episode proved so destabilizing that the Federal Reserve assured the markets that they’d learned their lesson. And this (dovish and market-pandering) mindset was fundamental to the little baby step rate increases that ensured no tightening of financial conditions throughout the historic 2002-2007 mortgage finance Bubble inflation.
This week’s policy move will be debated for years to come. Lost in the debate is how the Fed (along with global central bankers) found itself stuck at zero for seven years (with a $4.5 TN balance sheet) and then saw it necessary to move to raise rates in the most gingerly, market-pleasing approach imaginable.
Traditionally, tightening cycles are necessary to counter mounting excess, including ill-advised lending, speculating and investing. Rate increases back in 1994 exposed what had been a dangerous expansion in speculative leveraging, derivatives and market-based Credit (at home and abroad). With the “bond” market in disarray and Mexico at the precipice, the Greenspan Fed turned its attention to bolstering the markets and non-bank Credit more generally.
Market-based Credit is unstable. This remains the fundamental issue – the harsh reality – that no one dares confront..."

Washington's "Empire Of Chaos" & The Cold War 2.0 'New Normal'

"Authored by Pepe Escobar, Op-Ed via,
In his seminal 'Fall of Rome: And the End of Civilization,' Bryan Ward-Perkins writes, "Romans before the fall were as certain as we are today that their world would continue forever... They were wrong. We would be wise not to repeat their complacency.”
The Empire of Chaos, today, is not about complacency. It’s about hubris – and fear. Ever since the start of the Cold War the crucial question has been who would control the great trading networks of Eurasia - or the “heartland”, according to Sir Halford John Mackinder (1861–1947), the father of geopolitics.
We could say that for the Empire of Chaos, the game really started with the CIA-backed coup in Iran in 1953, when the US finally encountered, face to face, that famed Eurasia crisscrossed for centuries by the Silk Road(s), and set out to conquer them all.
Only six decades later, it’s clear there won’t be an American Silk Road in the 21st century, but rather, just like its ancient predecessor, a Chinese one. Beijing’s push for what it calls “One Belt, One Road” is inbuilt in the 21st century conflict between the declining empire and Eurasia integration. Key subplots include perennial NATO expansion and the empire’s obsession in creating a war zone out of the South China Sea.
As the Beijing-Moscow strategic partnership analyses it, the oligarchic elites who really run the Empire of Chaos are bent on the encirclement of Eurasia – considering they may be largely excluded from an integration process based on trade, commerce and advanced communication links..."

Sunday, December 20, 2015

This Is What A Financial Crisis Looks Like

"Just within the past few days, three major high yield funds have completely imploded, and panic is spreading rapidly on Wall Street.  Funds run by Third Avenue Management and Stone Lion Capital Partners have suspended payments to investors, and a fund run by Lucidus Capital Partners has liquidated its entire portfolio.  We are witnessing a race for the exits unlike anything that we have seen since the great financial crash of 2008, and many of those that choose to hesitate are going to end up getting totally wiped out.  In case you are wondering, this is what a financial crisis looks like.  In 2008, other global stock markets started to tumble, then junk bonds began to crash, and finally U.S. stocks followed.  The exact same pattern is playing out again, and the carnage that we have seen so far is just the tip of the iceberg.
Since the end of 2009, a high yield bond ETF that I watch very closely known as JNK has been trading in a range between 36 and 42.  I have been waiting all this time for it to dip below 35, because I knew that would be a sign that the next major financial crisis was imminent.
In September, it closed as low as 35.33 at one point, but that was not the signal that I was looking for.  Finally, early last week JNK broke below 35 for the very first time since the last financial crisis, and since then it has just kept on falling.  As I write this, JNK has plummeted all the way to 33.42, and Bloomberg is reportingthat many bond managers “are predicting more carnage for high-yield investors”…"

Shanghai Gold Exchange On the Way to Record Withdrawals of Gold Bullion

"Shanghai Gold Exchange withdrawals for the week were about 46 tonnes.

That is about 1,478,516 troy ounces.

Year to date withdrawals are about 2,451 tonnes, compared to 2,074 in 2013 which was the previous high for withdrawals.

Koos Jansen, The Chinese Gold Market Essentials

Gold bullion is moving from West to East, in increasing amounts. 

At these price levels this is not sustainable.
"Gresham's law is an economic principle that states that when an official market or cartel overvalues one type of money or asset and undervalues another with respect to its fair market value and risks, the undervalued money or asset will leave the country as best it can, or will disappear from circulation into hoards, while the overvalued money or assets will flood into circulation."


User login Username: * Password: * Create new account Request new password Log in Zero Hedge Reads Acting Man Alt-Market Bearish News Benzinga Boom Bust Blog Capitalist Exploits China Financial Markets Chris Martenson's Blog Contrary Investor Credit Writedowns Daneric's Elliott Waves DealBook Demonocracy Dr. Housing Bubble ETF Daily News ETF Digest First Rebuttal ForexLive Gains Pains & Capital Global Economic Analysis Hedge Accordingly Implode-Explode Investing Contrarian Jesse's Cafe Americain Liberty Blitzkrieg Market Folly Market Montage Max Keiser Minyanville Mises Institute Naked Capitalism Of Two Minds Oil Price Peter Schiff Rebooting Capitalism Shanky's Tech Blog Slope of Hope SmartKnowledgeU Blog StealthFlation Stratfor TF Metals Report The Burning Platform The Daily Crux The Economic Populist The Hammerstone Group The Market Ticker The Trader The Vineyard Of The Saker Themis Trading Value Walk Variant Perception View From The Bridge Wolf Street Home Matt King:"The Risk Is That Central Banks Created A Monster That Drives The Economy On The Way Down"

"While most sellside "research" has traditionally been complete garbage, either meant to boost soft dollar revenues and build client goodwill by giving one-on-one "expert network" meetings with management, or a macro echo chamber of equity strategists all of whom are terrified to stray from the penguin, or is it lemming, flock (its only utility is to give insight into whatever the prevailing groupthink consensus is, allowing an easy opportunity to fade it) and desperate to be as optimistic as possible (there is little upside on Wall Street to be a pessimist or a realist) there are the occasional voices of profoundly insightful, "variant perception" views from within the big banks, almost exclusively from the credit, and rarely if ever equity, division. Names such as BofA's Michael Hartnett, DB's Jim Reid and Dominic Konstam, and of course, Citigroup's Matt King.
What makes these analysts unique is that they tell the truth as they see it, unpleasant as it may be (some reading between the lines may be required) even if it means breaching protocol and launching internal scandals over "client communication objectives." Two weeks ago, Dominic Konstam predicted, accurately, that the Fed's rate hike will be tantamount to policy error (as we showed by the market's response on Thursday and Friday). Then, taking it a step further, last Thursday we showed Hartnett's presentation how the Fed's rate hike has unleashed the next bear market.
Now, it's Matt King's turn, to explain wny the "risk is that central banks have now created a monster such that markets drive the economy, if not on the way up, then certainly on the way down."

Ominous Warning Exposing What Is About To Accelerate The Invisible Collapse

"With the Dow falling over 250 points and crude oil continuing to struggle, today two of the greats in the business sent King World News powerful pieces exposing what is about to accelerate the invisible collapse.
First, a powerful warning from Art Cashin and friends – Unintended Consequences? – My old friend, Ron Insana, voiced some concerns about the potential for surprise in some of the mechanics that accompanied “liftoff”. Here’s some of what he wrote in a piece at
First, not mentioned in the statement is the fact that, in addition to raising its target for the federal-funds rate, the central bank is raising the discount rate a quarter point to 1 percent. That is to be expected. However, the Fed is also raising the rate it pays
member banks to hold required reserves at the Fed, doubling that payment
to a half-point. This gives banks a much bigger incentive to earn a
half-point on their cash, risk free! 
That is a major disincentive for banks to make further loans. And it comes at a time when the velocity of money, or the speed with which the
money supply turns over, is close to zero..."

Andrew Maguire – Absolutely Stunning Developments In The Gold Market And At The LBMA

"Today whistleblower and London metals trader Andrew Maguire spoke with King World News about some absolutely stunning developments in the gold market and at the LBMA.
Andrew Maguire:  “Eric, now that we have the well-anticipated Fed rate hike out of the way I wanted once more to focus upon the unprecedented, game-changing liquidity drain out of London into Asia. This is evidenced by the increasingly illiquid LBMA fixes. I don’t see this discussed anywhere else and given the pace of this liquidity drain, this will become the catalyst for the inevitable forced cash reset in the highly leveraged unallocated London gold markets…"

Sunday, December 13, 2015

Marc Faber: I cannot imagine that this will end well


How to Uncover Hidden Economic Weakness!

"Having just written How to Uncover the Hidden Consumer Strength!, I think it's only fair to see if there is a way to uncover hidden weakness.

Business inventories provide a method. The consensus estimate for month-over-month changes in inventories was +0.1% but the actual change was 0.0%. 

To see if we can spot the weakness, let's once again start with analysis from a Bloomberg Econoday report, this time on inventories. 
 Businesses appear to be putting the brakes on inventories which however are still rising a bit relative to sales. Business inventories were unchanged in October with September revised down 2 tenths to plus 0.3 percent in readings that will pull down the GDP outlook slightly. Sales came in unchanged which is just enough to drive up the stock-to-sales ratio to 1.38 from 1.37. This time last year, this reading was at 1.31.

All three components show only the most minimal change in inventories, up 0.1 percent for retailers and down 0.1 percent for both manufacturers and for wholesalers. And sales tell the story, unchanged in October for both retailers and wholesalers and down 5 tenths for manufacturers.

The lack of punch in the economy, the result of weak foreign demand, continues to put upward pressure on inventories. But businesses are successfully keeping their stocks as low as possible, thereby limiting future corrections in production and employment..."


Austria Proudly Shows Off The 15 Tons Of Gold It Repatriated From London

"On May 28, the Austrian Central Bank surprised the world when it announced that it too would follow in the footsteps of Germany and the Netherlands, and repatriate half of its sovereign physical gold, currently held almost entirely at the Bank of England, to Austria while transferring a modest portion in Switzerland by the year 2020.
Back then, the central bank headed by Ewald Nowotny said it took the decision after recommendations made by the Austrian Court of Audit in February, which warned of a "heightened concentration risk" linked to storing the majority of its reserves in Britain. At the time, the bank had argued the policy was warranted because London was a major international centre for the gold trade."
This was the official statement the Austrian National Bank (OeNB) released in May:
In May 2015, the gold reserves held by the OeNB amounted to 280 tons, having remained unchanged since 2007. Austria’s gold reserves are fully owned by the OeNB, which maintains and manages them with utmost care. In line with the OeNB’s current gold storage policy, 17 % of its gold holdings are at present kept in Austria, 80 % in the United Kingdom and 3 % in Switzerland.

Recently, the Governing Board of the OeNB adopted the 2020 gold storage policy following a regular in-house gold strategy and storage policy review, while also considering the recommendations made by the Austrian Court of Audit. The cornerstones of this policy are as follows:
  • By the year 2020, 50% of Austria’s gold reserves are to be held in Austria (OeNB and Münze Österreich AG), 30% in London and 20% in Switzerland.
  • Starting from mid-2015, the new storage policy will be gradually implemented in keeping with security and logistical requirements.
  • A comprehensive review and, if need be, adaptation of the storage policy is scheduled for 2019.
  • The OeNB will regularly report on the progress in its upcoming annual reports.
What the central bank did not say, is that by repatriating its gold from the UK, it was implicitly confirming that trust is now very publicly fraying at the highest levels of the international monetary system, with first Germany, then the Netherlands, then Austria, and most recently China, all demonstrating they are moving and/or building up their domestic gold reserves, and withdrawing their gold held at either the NY Fed or the Bank of England, something hardly surprising for those who have read our article explaining What Happens When You Hand Over Your Gold To The Bank Of England For "Safekeeping".
Which is also why yesterday, with great fanfare, Austria proudly announced to the world that it has moved 15 tonnes of gold from London of its gold reserves as part of its aforementioned repatriation plan.
"By the end of November, the Austrian National Bank brought 15 tonnes of its gold back into its own vaults," the OeNB said in a statement. A spokesman for the central bank said it had begun repatriating the gold from London in October..."


The American Dream "Exposed" In 22 Depressing Datapoints

"...Sadly, when we send these politicians to Washington D.C. they just continue on with business as usual. No matter who resides in the White House and no matter who controls Congress, the game remains the same and the middle class just continues to suffer. The following are 22 cold, hard pieces of evidence that show that the middle class in America is dying…
#1 This week we learned that for the first time ever recorded, middle class Americans make up a minority of the population. But back in 1971, 61 percent of all Americans lived in middle class households.
#2 According to the Pew Research Center, the median income of middle class households declined by 4 percent from 2000 to 2014.
#3 The Pew Research Center has also found that median wealth for middle class households dropped by an astounding 28 percentbetween 2001 and 2013.
#4 In 1970, the middle class took home approximately 62 percentof all income. Today, that number has plummeted to just 43 percent.
#5 There are still 900,000 fewer middle class jobs in America than there were when the last recession began, but our population has gotten significantly larger since that time.
#6 According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.
#7 For the poorest 20 percent of all Americans, median household wealth declined from negative 905 dollars in 2000 to negative 6,029 dollars in 2011.
#8 A recent nationwide survey discovered that 48 percent of all U.S. adults under the age of 30 believe that “the American Dream is dead”.
#9 At this point, the U.S. only ranks 19th in the world when it comes to median wealth per adult.
#10 Traditionally, entrepreneurship has been one of the engines that has fueled the growth of the middle class in the United States, but today the level of entrepreneurship in this country is sitting at an all-time low..."


Stocks More Overvalued Now Than 2000 and 2007 No Matter How You Look at Things

"Overvalued No Matter How You Look

Currently, stocks are extremely overvalued by multiple methods.
  1. The first way is by looking at Cyclically Adjusted P/E Ratios commonly known as CAPE, Shiller P/E, or P/E 10 ratio.
  2. The second is by looking at median P/E and P/S (Price to Sales) measures

We will look at both, but here's a description of CAPE.

CAPE is a valuation measure applied to stock market indexes. It's defined as price divided by the average of ten years of earnings (Moving average), adjusted for inflation. The essential idea is earnings are mean-reverting making forward looking earnings frequently too optimistic, and current PEs too high following steep corrections. 

CAPE is not without its detractors and debates have raged over its usefulness recently, just as they do at every major market peak when investors find all sorts of silly reasons to presume "It's different this time". 

Stocks More Overvalued Now Than Ever

I will post a CAPE chart in a bit, but for now let's take a look at another PE measure I first saw described today.

The idea is from Ned Davis, but written up by Mark Hulbert in Opinion: Stocks are more overvalued now than at 2000 and 2007 peaks
 Median NYSE Stock’s Current P/E and P/S Ratios Sparks Concern 


The stock market currently is even more overvalued than it was at the bull market peaks of both March 2000 and October 2007 — according to not just one, but two, valuation measures.

That at least is the message of an analysis released earlier this week by Ned Davis Research, the quantitative research firm. What caught my eye in the firm’s analysis was that, unlike virtually all others that conclude that stocks are overvalued, this one was not based on the so-called Shiller P/E — the cyclically-adjusted P/E ratio championed by Nobel laureate Robert Shiller of Yale University.

That’s noteworthy, since there would be nothing new in reporting that Shiller’s P/E shows stocks to be overvalued. That ratio has been giving this same message for several years now, and skeptics have found many ways of wriggling out from underneath its bearish implications.

But Ned Davis’s latest report focuses on something different: the median stock’s price/earnings and price/sales ratios. The median stock, of course, is the one for which exactly half have higher ratios and half have lower. By focusing on the median, Davis’s findings are immune from the charge that they are being skewed by outliers — such as the terrible earnings among energy companies.

The chart at the top of this column summarizes what Davis found. Currently, according to his firm’s research, the median NYSE-listed stock has a price/earnings ratio of 25.6, when calculated based on trailing 12-month earnings. At the bull market peak in October 2007, for example, the comparable ratio was below 20; at the top of the Internet bubble in March 2000, it was even lower.

In fact, according to Davis, the price/earnings ratio currently for the median NYSE stock is the highest it’s ever been since his data series began in 1980 — except for the bear-market lows of October 2002 and March 2009, when earnings were depressed by recessions.

A similar story is told by the price/sales ratio. The median S&P 500 SPX stock currently has a ratio of 2.16, according to Davis, versus 1.9 in October 2007 and even lower in March 2000. The median stocks’ price/sales ratio has never been higher than it’s been this year.
Stocks Incredibly Expensive

To me this is a nice confirmation of what I already know: that stocks are incredibly expensive. Renown investor Jeremy Grantham at GMO feels the same way..." 


2016 Will Be A Disaster

"2016 Will Be A Disaster
Eric King:  “Bill, I’ve been wondering when the Fed is going to hit the wall.  Obviously they had some tricks up their sleeves and they have done some things that nobody anticipated.  Are they getting close to hitting the wall or can they keep stringing this along?”
Bill Fleckenstein:  “Eric, we don’t know.  And the reason we don’t know is because the amount of reckless monetization — we’ve never seen anything like this.  So we have no (historical) data points.  How long can it last?  Well, it feels like we are so close.  I continue to think that at any moment in time we could have a big wipeout in the market — a big dislocation…"

Gerald Celente – There Is A New Danger Facing Humanity And It’s Terrifying, Plus The Top 10 Trends For 2016!

"Today the top trends forecaster in the world warned King World News that there is a new danger facing humanity and it’s terrifying.  Celente also discusses the top 10 trends for 2016!
Eric King:  “Gerald, we are going to talk about your top trends for 2016 — things such as Self Sustainability, Boomers Hit 70, Golden Opportunities, and much more, but let’s start with Breeding Robots.”
Gerald Celente:  “Yes.  We’ve gone from a point when industrialization began and took people out of their homes and put them in a centralized workplace.  And now we are looking at robotization.  People won’t be working in the factories as they used to.  We are going to see a major shift…"

The End Of The Bubble Finance Era

"Submitted by David Stockman via The Daily Reckoning blog,
We are nearing a crucial inflection point in the worldwide bubble finance cycle that has been underway for more than two decades.To wit, the world’s central banks have finally run out of dry powder. They will be unable to stop the credit implosion which must inexorably follow the false boom.
We will get to the Fed’s upcoming once in a lifetime shift to raising rates below, but first it is crucial to sketch the global macroeconomic context.
In a word, we are now entering an epic deflation. Its leading edge is manifested in the renewed carnage in the commodity pits.
This week the Bloomberg commodity index, which encompasses everything from crude oil to soybeans, copper, nickel, cotton and livestock, plunged below 80 for the first time since 1999. It is now down nearly 70% from its all-time high on the eve of the financial crisis, and 55% from its 2011 recovery high..."


Friday, December 11, 2015

CHINA: SGE Gold withdrawals head for huge new record year

"Although Shanghai Gold Exchange weekly withdrawal figures seem to have fallen back a little from their heady July/August/September heights, when at times over 70 tonnes of physical gold were taken out of the Exchange’s vaults in a single week, this year’s total is still heading for a huge new record high.  Total withdrawals so far this year to the end of last week (Dec 4th - the SGE reports withdrawals a week in arrears) have amounted to just under 2,405 tonnes after a figure of 42.6 tonnes in the latest reported week.  The record full year withdrawals figure was back in 2013 when 2,181 tonnes were withdrawn – a figure which was already surpassed several weeks ago and with virtually four weeks of withdrawals still to come this year the full year total looks to be heading for the high 2,500s – perhaps 400 tonnes more than in the previous record year.  For reference the full year SGE withdrawals figure for last year was 2,102 tonnes.
SGE withdrawal figures do remain running well in excess of known Chinese gold imports plus domestic production so far this year (See: 2016 a crunch year for physical gold supply).  The linked article suggests total supply of only around 2,100 tonnes for the full year (which includes a perhaps conservative estimate of around 200 tonnes from scrap sources).  However China is extremely reticent about reporting all its import and gold supply figures, so it is conceivable the actual figure could well be higher still perhaps bringing it closer to the SGE withdrawals metric.  But be that as it may, and given the huge discrepancy between the SGE figures and those for Chinese domestic gold consumption from the major analytical consultancies, if one just looks at comparative SGE figures they have to provide a great guide to the trend in Chinese domestic gold flows and these gold flows have thus been trending sharply higher this year.  With the Chinese economy continuing to grow, even though at a much slower pace, it would not be unreasonable to assume Chinese gold demand will continue to grow alongside the nation’s GDP.  It will thus be interesting to see what next year brings..."


Guess What Happened The Last Time Junk Bonds Started Crashing Like This? Hint: Think 2008

"The extreme carnage that we are witnessing in the junk bond market right now is one of the clearest signals yet that a major U.S. stock market crash is imminent.  For those that are not familiar with “junk bonds”, please don’t get put off by the name.  They aren’t really “junk”.  They simply have a higher risk and thus a higher return than other bonds of the same type.  And yesterday, I explained why I watch them so closely.  If stocks are going to crash, you would expect to see a junk bond crash first.  This happened in 2008, and it is happening again right now.  On Monday, a high yield bond ETF known as JNK crashed through the psychologically important 35.00 barrier for the very first time since the last financial crisis.  On Tuesday, high yield bonds had their worst day in three months, and JNK plummeted all the way down to 34.44.  When I saw this I was absolutely stunned.  This is precisely the kind of junk bond crash that I have been anticipating that we would soon witness..."


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"If we really are plunging into a deflationary global financial crisis, we would expect to see commodity prices crash hard.  That happened just before the great stock market crash of 2008, and that is precisely what is happening once again right now.  On Thursday, the Bloomberg Commodity Index closed at 79.1544.  The last time that it closed this low was 16 years ago.  Not even during the worst moments of the last recession did it ever get so low.  Overall, the Bloomberg Commodity Index is down more than 28 percent over the past 12 months, and it has plummeted by more than half since mid-2011.  As a result of this stunning commodity collapse, extremely large mining companies such as Anglo American are imploding, giant commodity trading firms such as Glencore and Trafigura are in full-blown crisis mode, and huge portions of the global financial system are in danger of utterly collapsing.
In recent days, I have been trying to stress that many of the exact same patterns that we witnessed just prior to the great stock market crash of 2008 are happening once again.  This includes the staggering crash of commodity prices that we are currently witnessing, and even CNN acknowledges that there are parallels to what we experienced seven years ago…
The last time raw materials like copper and oil were this cheap, an economic depression loomed just around the corner.
It’s no secret that commodities in general have had a horrendous 2015. A nasty combination of overflowing supply and soft demand has wreaked havoc on the industry.
But prices for everything from crude oil to industrial metals like aluminum, steel, copper, platinum, and palladium have collapsed even further in recent days.
As I mentioned above, this crash in prices is hitting mining companies really hard.  Just this week, the fifth largest mining company in the entire world announced a massive restructuring and will be laying off tens of thousands of workers…"

American Exceptionalism: Endless War, Parasitic Financialisation, Wage Stagnation, and Oligarchy

"There will be the usual movement to 'blame the victims' in this, the 'gullible' American people who do not wish to face the facts.  This is how it always goes, and it works because it is easy to despise the other guy, or just hate 'the other.'

Most people are busy and working hard to make ends meet. They obtain their view of things from 'the news media' for the most part.

When was the last time you heard any rational discussion or even saw any of these charts below in a newspaper or on television news program?  They seem almost too hard to believe.

The American people are being fed a steady stream of lies and half-truths from a captive media, and for the most part the privileged achievers keep silent to protect their own interests, to 'go along to get along.'  They rationalize this by burying themselves in the details of their own professions.

If you hide the facts from people, and lie to them constantly to promote the interests of the powerful oligarchs and the moneyed interests, how can you blame the people for falling for the lies? Where is the truth to be heard?

Even now, if one puts up data such as this, the resulting prescriptions for change are all too often just pre-programmed slogans fed to the public on an almost daily basis by talk radio and the 'fair and balanced' mouthpieces for big money corporatism.

Have we ever seen a more ridiculous presidential election than this one?  The Republican candidates are for the most part stooges for big money and special interests, demagogues, legacy pledges, and jokes, and the Democratic frontrunner is a recycled Wall Street party boss who has become a multi-millionaire from the payments received for showing up at parties hosted by Big Finance's moneyed interests..."


The Least Surprising Stat Of The Week: Corporate Insiders Are Dumping Their Stock

"Here’s one for the “actions speak louder than words” file:

Massive insider selling spurs stock market concerns

(CNBC) – Corporate insiders have been selling their shares at near-record levels, and according to some, this could be a sign for outside investors to start selling as well.
Investment research firm TrimTabs reported on Wednesday that insider selling reached $7.6 billion for the month of November, the fourth-highest monthly level on record. For some this may be an alarming indicator, as corporate insiders tend to have more knowledge than public shareholders on the inner workings of the company, and what may drive stock prices up or down.
“Historically when insiders are selling heavily it’s not the greatest sign,” TrimTabs’ chief executive, David Santschi, told CNBC in a phone interview Wednesday. “I’m surprised given the valuations in the market that they’re not selling more than they are.”


Which "Junk" Fund Liquidates Next? After Third Avenue, Here Are The Unusual Suspects

"The shocking fate of Third Avenue's junk bond fund, which as we reported yesterday, announced it would gate investors and proceed to liquidate over the next several months as it sought to unwind its illiquid positions at a leisurely pace "without resorting to sales at prices that would unfairly disadvantage the remaining shareholders" is made just modestly less shocking when one considers that the $789 million fund (down from $2.4 billion earlier this year) was the worst performing YTD fund tracked by Morningstar, tumbling 27% YTD, but only after placing in the top 1%-percentile in 2013.
It is made less shocking when one considers that the fund, or rather its holdings, may have been the target of coordinated selling by other hedge funds who had smelled blood in the water, and decided to short all of Third Avenue's top holdings, holdings which were particularly illiquid and thus any attempts to sell in size would very likely be met by either gaping bid/ask spreads or, more likely, a bidless market.
This is the essence of the WSJ article which explains that "part of the reason the Third Avenue fund ran into deep problems, traders said, is because it purchased investments that have become much harder to trade and have been steadily losing value as investors fled energy and other kinds of riskier debt in recent months. That squeezed the fund as redemption requests rose sharply this year."
Among the Focused Credit Fund’s largest holdings is a bond from media company iHeartCommunications Inc., formerly known as Clear Channel Communications Inc., according to Morningstar data. The bond traded recently at about 30 cents on the dollar, after trading at 80 cents at the start of the year, according to MarketAxess Holdings Inc.

In recent days, it has been harder to find traders willing to buy debt the fund holds, including energy company Magnum Hunter Resources Corp. and troubled Spanish gambling company Codere SA, traders said..."