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Has China Finally Lifted its Thumb off of Gold?

Has China Finally Lifted its Thumb off of Gold?

There’s a lot of talk about the Yuan price of gold falling out of a price suppression channel.  Both Zerohedge and Nomura have weighed in on this.

The Yuan price of gold surged overnight to above CNY 8500 per ounce which is a major breakdown  But it’s also indicative of something that has long been suspected during this gold bear market.

China doesn’t want the price of gold to rise.  Those accumulating gold — China and Russia — have zero incentive to accumulate at higher prices.   And the gold chart of the last three years bears out that they have had to come in at higher prices on pullbacks because market bottoms keep coming in higher and higher.

The 2015 low was around $1050.  2016 at $1146.  2017 the low after a pullback in July couldn’t breach $1208 during a strong post-U.S. election rally.  This year the price was briefly pushed below $1200 in the longest downtrend of the seven year bear market but has since popped back over $1230 with its sights now set on  $1250.

China may have no choice here but to let the price of gold rise.  Because conditions in other markets are changing rapidly.  So, ultimately, what China wants really may not matter anymore.

Remember, the eurodollar markets broke in late May this year as Jeffrey Snider at Alhambra Partners reminds us daily.

The PBoC cut the reserve ratio again recently to free up liquidity in Chinese banks but it doesn’t seem to have stemmed the tide.  And that’s why it has continually loosened the Yuan fix rate, now approaching 7 vs. the U.S. dollar.

Offshore dollar markets are the pool of real savings in the global economy and it determines where we are headed.  And the offshore dollar hoarders are pulling out of China… and Europe… and Japan…. and South America.

…click on the above link to read the rest of the article…

Spanish Yields Blow Out Amid Italy Contagion As Italian Banks Scramble For Dollar Funding

Contagion from the recent surge in Italian yields has spread, and is hitting Spanish 10Y yields which over the past 3 days have blown out from 1.65% to as high as 1.82% this morning, before paring some of the move, printing at 1.77% last which is still the highest level since October 2017.

There are also Spain-specific news that have pushed yields wider, to wit yesterday’s ruling by the nation’s Supreme Court they must pay a one-time tax of about 1% on mortgage loans that traditionally was passed to their clients. The report sent Spanish banks tumbling as much as 6.3% at Banco de Sabadell while banking giant BBVA dropped 1.8%, thanks to its larger international business that cushions the impact of the ruling.

The Supreme Court revised an earlier ruling, deciding now that the levy on documenting mortgage loans must be paid by the lenders, and since mortgages are one of the biggest businesses for domestic banks, analysts have been grappling with how big the hit to income would be. As Bloomberg notes, the sentence is one of a string from Spanish and European Union courts in recent years in favor of home buyers and at the expense of banks.

“The decision implies a severe setback for the Spanish financial system and joy for every mortgage-payer, who might get back a significant amount” of money, said Fernando Encinar, head of research at property website Idealista. In the short term, banks will likely raise their mortgage arrangement fees to compensate for their new cost, he said.

The levy is applied to the mortgage guarantee – the loan amount plus possible foreclosure costs – and could be roughly 1,500 euros ($1,728) on a 180,000-euro loan in Madrid, according to Angel Mejias, an attorney at M de Santiago Abogados in the capital.

…click on the above link to read the rest of the article…

Russia And China Prepare To Ditch Dollar In Bilateral Trade

In a time when many nations have gone public with their intention to ditch the dollar in part or in whole, in bilateral trade with non-US counterparts, either to prevent the US from having “veto power” of commerce courtesy of SWIFT or simply in response to Trump’s “America First” doctrine, attention has long focused on Russia and China – the two natural adversaries to the US – to see if and when they would accelerate plans for de-dollarization.

To be sure, the two nations wouldn’t be the first to reduce their reliance on the dollar, as we have discussed in recent months:

However, when it comes to symbolism and optics, no other pair of nations would have as much an impact in dumping the dollar as (quasi) superpowers China and Russia. Which is why we found it a material development when Russia’s Ministry of Economic Development said on Thursday that Moscow and Beijing are working on an inter-governmental agreement to expand the use of the ruble and yuan in mutual trade settlements.

“The document is currently being prepared, the process is not easy,” said Deputy Minister of Russia’s Economic Development Sergey Gorkov, as quoted by TASS. “Russia and China have had some experience of using national currencies in bilateral trade.”

…click on the above link to read the rest of the article…

Leon Cooperman: “The Whole Structure Of The Market Is Broken”

In a wide-ranging interview on CNBC, Leon Cooperman, chairman and CEO of Omega Advisors, explained that he doe snot see the market as ‘cheap’ or ‘expensive’ currently but warns that traditional value-manager-driven strategies face difficulties because ” all these quantitative trading systems are destroying the structure of the market…particularly that group that buy strength and sells weakness.”

Cooperman goes on to reflect on last week’s mini-crash as being overdone, because “credit was relatively flat” but warns that “It’s crazy…selling begets selling because of these quantitative trading systems,” adding that he thinks “all this fixation and fear about interest rates is misplaced.”

However, he does warn that “the strongest economy in 50 years” could be a problem as “it forces the hand of The Fed.”

Full Transcript

Who knows. I mean basically I think that the whole structure of the market is broken. You know when I came into the let’s put it this way. Whatever success I’ve achieved I think I’ve achieved it because I’ve been very lucky. I have a common sense basically. And I have a strong work ethic. And this whole thing now with all these quantitative trading systems are destroying the structure of the marketyou know particularly that group that buy strength and sells weakness.

So, everyone I know that’s accumulated wealth, whether it’s Warren Buffett, Ken Langone, Mario Gabelli – all friends of mine – I think they made their fortunes that by buying weakness and selling strength. What’s happening now [with the algos] is they’re trend followers and they really are exaggerating the trends up and down. The condition is that normally call for a significant market decline are just simply not present.

…click on the above link to read the rest of the article…

Chinese Verbal Intervention In The Market Fails As Stock Rout Accelerates

This morning, when we reported that the latest flood of margin calls, resulting from $600 billion in shares pledged as collateral for loans and representing a whopping 11% of China’s market cap, sent the Shanghai Composite tumbling 3% to the lowest level since November 2014, we noted that local government efforts to shore up confidence in smaller companies had, quite obviously, failed to boost sentiment… or stem the selling.

So, as many expected, just before Beijing announced the latest batch of stagflationary economic data including retail sales, industrial production and fixed asset investment, of which the most important was Q3 GDP which printed at 6.5%, the lowest level since Q1 2009, and missing consensus expectations even as inflation has continued to creep higher…

… the central bank delivered another round of massive verbal intervention, telling investors stocks are undervalued, the economy is sound, the central bank will use prudent, neutral monetary policy and keep reasonable, stable liquidity. Additionally, according to a Q&A statement with Governor Yi Gang posted on the PBOC website:

  • the PBOC will use monetary policy tools including MLF lending to support banks’ credit expansion
  • the PBOC to push forward bond financing by private cos.
  • the PBOC says recent stock market turmoil was caused by investors’ sentiment
  • the PBOC is studying measures to ease cos.’s financing difficulties
  • the PBOC to push forward bond financing by non-state firms; calls for private equity funds to support cos. with financing difficulties

In other words, the central bank’s “got this.”

And just to make sure the “all clear” message is heard loud and clear, also this morning the China Securities Regulatory Commission (CSRC) encouraged various funds backed by local government to help ease pressure on listed companies from share-pledge risks…

…click on the above link to read the rest of the article…

Dollar Libor Jumps To Fresh 10 Year High, Adding To Funding Headwinds

It may be the bete noir of the credit market, but despite the gradual phase out of the infamous manipulated benchmark, Libor remains the reference rate for trillions in floating rate debt instruments, and in a further indication that monetary conditions are tightening aggressively and that funding headwinds are rising, overnight 3M USD Libor rose by 1.94bps to 2.4690% – the biggest one day jump since the end of May – and the highest USD Libor level since 2008.

While some attribute the recent move higher in Libor to recent hawkish rhetoric from Powell, with the latest move following the Fed’s minutes, today’s move has also pushed the dollar FRA/OIS spread wider by 3bps to 33.5bp level, highest since July, a hint that a fresh dollar shortage may be in the offing.

As Bloomberg’s Sunil Keser notes, while compared to the Libor-OIS blowout observed in Q1, the recent move looks tame, it serves to underscore how sharp the dollar repatriation was in the first few months of 2018. Meanwhile, “the widening since mid-September is enough on its own to warrant flagging, given the outright level of the current Libor fixing.”

As to whether it can go further depends on where the Fed judges the neutral rate to be, and how far above it they are willing to go.

The creeping rise in the cost of debt for corporations and ordinary consumers, most broadly manifested by Libor, was recently flagged by Guggenheim as one of the key risks for the credit market, noting that for the broader leveraged credit market the cost of debt troughed at 5.3% in 2015 and was recently 5.6%, prompting a warning that “this trend is somewhat overlooked by investors who focus on narrowing spreads over Treasurys or LIbor, historically low portfolio yields and exception earnings growth.”

…click on the above link to read the rest of the article…

911 was a bank heist

Food for thought.  9/11 was a bank heist.

As we explain in Splitting Pennies and Splitting Bits – the world is not as it seems.

If we can source this untold story even from the JYT then you know it must be real: 

A team of 30 firefighters and police officers are helping to move the metals, a task that can be measured practically down to the flake but that has been rounded off at 379,036 ounces of gold and 29,942,619 ounces of silver.  As layers of debris are peeled away, recovery workers are opening gangways to intact portions of a 16-acre basement that was largely unseen but was a place of spectacular scope in its own right. Just the basement area of the World Trade Center enclosed twice as much space as the entire Empire State Building.  Nearly a quarter of a mile below the spectacular vistas from the towers was their upside-down attic dropping 70 feet below the ground, a strange world with enough room for fortunes in gold and silver, for Godiva chocolates, assault weapons, old furniture, bricks of cocaine, phony taxicabs and Central Intelligence Agency files. With so many people still lost, the owners of this stuff have maintained a discreet silence during the recovery operations. But that doesn’t mean they’re not interested.

So let’s repeat this.  Cocaine, guns, gold, silver, and secret CIA files – all stored underground in the WTC complex and all went missing?  How convenient!

You can’t make this stuff up folks.  Growing up in the 90’s you can’t miss Hollywood films like Die Hard with a Vengeance.  But who would have even suggested, that only 6 years later, an eerily similar plot would unfold in Lower Manhattan, shaping the world forever?

…click on the above link to read the rest of the article…

Here’s Why the Market Must Continue to Rip Higher — Everything Depends On It

Rarely discussed, corporate and government pensions, are barreling towards disaster. For some reason, there is an assumption that what ails the government, with their $20 trillion in debt, isn’t something that ordinary folk need to worry about. After all, times are good and corporate stock prices are near record highs, people are working, and even wages have been increasing.

But beneath the shiny veneer is a sickness that is festering, a red nightmare of underfunded pensions, both on a government and corporate level. They menace over markets like an explicit threat, a promise of crisis that is both maturing and spoiling with equal violence.

Former Dow component, and once upon a time great American company, has an underfunded pension of $31 billion and a business that is in the midst of restructuring. The stock has been cut in half over the past year.

But at a time when General Electric Co. is facing what amounts to an existential crisis, a $31 billion deficit in its pension plan may complicate any turnaround that involves a breakup of the 126-year-old icon of American capitalism. Divvying up the obligations won’t be easy.

After all, GE owes benefits to at least 619,000 people. And retirees aren’t the only ones at risk. Ideally, breaking up a conglomerate as sprawling as GE would unlock value for shareholders, who have seen their stock fall 40 percent since the CEO took the reins from Jeffrey Immelt in August. Stronger divisions wouldn’t be dragged down by weaker ones, and each business would stand on its own financially.

Here’s a nice genteel list of the top corporate pension deficits in America. The municipal deficit is far more insidious, $6 trillion in the hole.

…click on the above link to read the rest of the article…

China Crashes As Flood Of Margin Calls Sparks “Liquidity Crisis”, Panic Selling

The Treasury’s latest semiannual FX report may have spared China the designation of currency manipulator (for now… in a new twist, there was a section dedicated exclusively to China in the Executive Summary, a clear signal from the Treasury that China is the disproportionate focus of the report stating that ‘it is is clear that China is not resisting depreciation through intervention as it had in the recent past’), but the market was not as forgiving.

In the latest shock to Chinese confidence and stability, overnight Chinese shares extended the world’s worst slump as the yuan touched its weakest level in almost two years, testing the government’s ability to maintain market stability and calm as risks continued to mount for Asia’s largest economy.

Two days after we reported that concerns about pledged shares, in which major investors put up stock as collateral for personal loans – a disastrous practice when stock prices are dropping, emerged as a key pressure point for China’s market, overnight Bloomberg reported that “rising fears of widespread margin calls fueled a 3 percent tumble in the Shanghai Composite Index, which sank to a nearly four-year low as more than 13 stocks fell for each that rose.”

The concentrated selloff, sent the Shanghai Composite down 2.9%, closing at session lows of 2,486, the lowest level since November 2014, as China’s plunge-protecting “National Team” was nowhere to be seen.

Chinese stocks have dropped 30% below their January highs, as the spread between China’s market and the rest of the world grows alarmingly wide.

Meanwhile, local government efforts to shore up confidence in smaller companies failed to boost sentiment, while the yuan tumbled to 6.94, just shy of its one and a half year low of 6.9587 touched in August, after the U.S. Treasury Department stopped short of declaring China a currency manipulator, a move that some interpreted as giving Beijing breathing room to allow a weaker exchange rate.

…click on the above link to read the rest of the article…

More Italians Move Savings To Switzerland As Fears Of Banking “Doom Loop” Intensify

With the euro weakening against the Swiss franc (recently trading at session lows of 1.14) and Italian stocks and bonds tumbling once again on reports that the European Commission is planning to reject the Italian draft budget plan submitted earlier this week – a repudiation of Italy’s populist leaders that was widely anticipated – the Telegraph’s Ambrose Evans-Pritchard offered a glimpse into how middle-class Italians are reacting to the deteriorating relationship between Italy and the EU, and its attendant impact on the country’s banks and capital markets. In a trend that’s eerily reminiscent of the banking run that precipitated the near-collapse of the Greek banking system (most recently in 2015), Italians are scrambling to convert their euros into Swiss francs and stash them across the country’s northern border with Switzerland.

Swiss

Right now, the movement has mostly been limited to the wealthy. “The big players” have already gotten out…

The Swiss group Albacore Wealth Management told Italy’s Il Sole had received a wave of inquiries from Italians with €5m to €10m in liquid capital. The super-rich are already a step ahead. “The big fish have been organizing the expatriation of their wealth for some time,” it said.

…and those with between 200,000 euros and 300,000 euros in assets are moving more quickly, inspired by memories of desperate Greeks struggling with capital controls that restricted ATM withdrawals.

“There is fear creeping in,” said Massimo Gionso, head of family wealth managers CFO Sim in Milan.

“People are concerned that if we get into the same situation as Greece, they might find the banks are closed and they can take out only €50 a day from cash machines. They don’t want to risk it,” he told the Daily Telegraph.

…click on the above link to read the rest of the article…

Scientists Warn World Facing Major Famine, Could “Lead To Severe Shocks To Global Food System”

Researchers from Washington State University have published a new report of the Great Drought, the most destructive known drought of the past 800 years – and how it sparked the Global Famine that claimed the lives of 50 million people. The scientists warn that the Earth’s current warming climate could spark a similar drought, but even worse.

One of the lead researchers, Deepti Singh, a professor in WSU’s School of the Environment, used rainfall records and climate reconstruction models to characterize the environmental conditions leading up to the Great Drought, a period in the mid-1870s known for widespread crop failures across Asia, Brazil, and Africa. The drought was connected to the most extreme manifestation of the El Nino supercycle ever recorded.

“Climate conditions that caused the Great Drought and Global Famine arose from natural variability. And their recurrence — with hydrological impacts intensified by global warming — could again potentially undermine global food safety,” lead author Singh and her colleagues wrote in the Journal of Climate, published online Oct. 04.

The release of the study came days before the UN Intergovernmental Panel on Climate Change (IPCC) warned that global warming could cause intense droughts, floods, extreme heat and poverty for hundreds of millions of people.

WSU says Global Famine was among the worst humanitarian disasters in modern time, comparable to the influenza epidemic of 1918-1919, World War I and World War II. As an environmental disaster, it was the worst.

“In a very real sense, the El Nino and climate events of 1876-78 helped create the global inequalities that would later be characterized as ‘first’ and ‘third worlds’,” writes Singh, who was influenced by “Late Victorian Holocausts: El Nino Famines and the Making of the Third World,” which detailed the social impact of the Great Drought and additional droughts in 1896-1897 and 1899-1902.

…click on the above link to read the rest of the article…

China Changes Definition Of Aggregate Financing To Disguise Sharp Credit Slowdown

With investor attention increasingly focused on China’s credit pipeline to see if the recent crackdown on shadow lending has unlocked other sources of debt in a country where growth is always and only a credit phenomenon, and where both the housing and auto sectors are suddenly reeling, overnight’s latest credit data from the PBOC was closely scrutinized… and left China watchers with a very bitter taste.

What it showed was that traditional new RMB loans rose to RMB1,380bn in September, largely as expected (exp RMB1,360bn) from RMB1,280bn in August, with growth of outstanding loans unchanged at 13.2% Y/Y and up from 12.7% a year ago. New loans to the corporate sector rose to RMB677bn from RMB613bn in August, in which medium- to long-term loans rose to RMB380bn from RMB343bn in August. New loans to the household sector rose slightly to RMB754bn in September from RMB701bn in August, and the long-term loan component (mostly mortgage loans) remained largely flat at RMB431bn (August: RMB442bn). New loans to non-bank financial institutions were -RMB60bn in September versus -RMB44bn in August (average September level: RMB13bn). Also of note, M2 growth rose by 0.1% to 8.3% Y/Y in September, in line with market expectations, however as Nomura writes in a note this morning, monetary aggregate growth is no longer as important to the central bank’s policy making as it once was, and Beijing is focusing more on interbank liquidity conditions, aggregate financing and investment.

Where the data was especially interesting, however, was in the broader Total Social Financing category, which on the surface came in well stronger than expected printing at RMB2,205bn in September from RMB1,929bn in August, above the $1,550bn estimate, and the strongest month since January.

…click on the above link to read the rest of the article…

Italian Bonds Slide After Official Warns Credit Rating Downgrade Possible

After starting off strong, Italian 10Y Yields have leaked wider all morning after a senior government official said on Wednesday that Italy’s 2019 budget may be rejected by the European Commission and a credit rating downgrade is also possible.

“Let’s say that the premise is there” for the commission to start an infraction process over the budget, Stefano Buffagni, cabinet undersecretary for regional affairs, said in an interview with Radio Capital cited by Reuters.

“Premier (Giuseppe) Conte is going to the EU to explain the motivations” behind the budget, he added.

With Moody’s and Standard & Poor’s due to review Italy’s credit rating this month, Buffagni said a downgrade “can’t be excluded and we must be ready” in case it happens. He added, however, that he did not think a downgrade would be justified because “Italy has very solid economic fundamentals”.

Meanwhile, Deutsche Bank economists said they think that Italy is squarely on a collision course with the European Commission, whose President Juncker said yesterday that there would be a “violent reaction” from other euro area countries if the Italian budget were to be approved.

The Commission has two weeks to decide on whether to ask for budget revisions. Nevertheless, Italian assets gained yesterday in the first trading session since the government finalized the budget plan amid the broad market euphoria. The FTSE-MIB gained +2.23%, pacing gains in Europe, and 10- year BTPs rallied -9.3bps, however much of this move is being reversed on Wednesday. Partially this reflected the broader risk-on sentiment yesterday, but it may also have been a reaction to a new poll showing Five Star + Northern League support at 58.6%, still a majority but at its lowest level in over six weeks.

Forced Buy-Ins Spark “Liquidity Crisis” In China’s ‘Nasdaq’

Marking the worst year since 2008, China’s tech-heavy (Nasdaq-equivalent) Shenzhen Composite index is down a shocking 35% year-to-date, and it’s starting to become a self-feeding vicious circle…

As Bloomberg reports, the most recent slump in the teach-heavy index comes despite regulators’ efforts to rein in risks of share-backed loans following reports over the weekend that insurers are being ‘encouraged’ to invest in listed companies to reduce liquidity risks connected to such loans.

Share pledges, where company founders and other major investors put up stock as collateral, have emerged as a pressure point in China’s debt-laden economy, especially as the stock market tumbles.

There’s a liquidity crisis in the stock market, and pledged shares are again starting to sound the alarm,” said Yang Hai, analyst at Kaiyuan Securities Co.

“Stocks in Shenzhen typically bear the brunt of loss of confidence in the stock market because of their higher valuations.”

Bloomberg additionally notes that this attempt to slow the impact of this crisis has been ongoing all summer…

China in June told brokerages to seek approval before selling large chunks of stock that have been pledged as collateral for loans, according to people familiar with the matter…

while the top financial regulator in August warned the industry that it’s closely watching corporate stock pledges.

And quite clearly, has failed… with two-thirds of Shenzhen Composite stocks now at 52-week lows or worse…

And it appears investors are screaming for The National Team to step in and rescue them (just like in the housing market)…

“If there are no real policies to cure the array of problems and ailments in our market, no one will be willing to take the risk,” said Hai.

“Authorities keep saying that there is room for more polices, but where are they?

Shock, horror! What are we to do in a ‘free-market’?

Venezuela Ditches US Dollar, Will Use Euros For International Trade

Venezuela has just taken the next step in its quest to “free” itself from the tyranny of US dollar hegemony. One year after the country said it would stop accepting US dollars as payment for its (ever shrinking) oil exports (saying the country’s state-run oil company would accept payment in yuan instead), Venezuelan Vice President for Economy Tareck El Aissami said Tuesday that Venezuela will officially purge the dollar from its exchange market in favor of euros.

Maduro

While we’re sure that Venezuelan President Nicolas Maduro would love to frame this as his latest gesture of defiance against tyrannical imperialist overreach by Washington, which he has blamed for aggravating the country’s humanitarian crisis by waging an “economic war” against the oil-rich nation, remember that the US effectively blocked the Venezuelan government from transacting in dollars last year when it imposed restrictive sanctions on the Maduro regime and the country’s state-run oil company, PDVSA. Maduro started the process of moving the country’s DICOM system of official tiered exchange rates in September 2017 when he declared that Venezuela would use a “new system of international payments.”

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in an hours-long address to a new legislative superbody, without providing details of the new mechanism.

“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro declared.

The sanctions have largely excluded Venezuela from international capital markets and the US dollar-based financial system, forcing Maduro’s regime to rely on money-for-oil loans extended by China. 

Maduro and many senior members of his government have been personally singled out for sanctions by the Treasury Department, a punishment that Maduro has called “an honor.”

…click on the above link to read the rest of the article…

 

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