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The End Of Fiat In One Chart

The End Of Fiat In One Chart

For the first time in 21 years, Germany has openly bought gold into its reserve holdings.

Source: Bloomberg

German reserves climbed to 108.34m oz in September from 108.25m a month earlier.

Source: Bloomberg

With ECB mutiny and Deutsche Bank’s rapid demise, fears are rising of a looming financial crisis, and with that, Germany has shown a renewed interest in gold.

As a reminder, September’s outright purchase of the precious metal comes after Germany’s central bank, the Bundesbank, repatriated 583 tonnes, or $31 billion worth, of gold in 2017, years ahead of schedule.

Which came after Germany’s stunning announcement in January 2013 that the Bundesbank would repatriate 674 tons of gold from the NY Fed and the French Central Bank (which was initially abandoned in 2014).

Of course, while Germany is now the latest to turn to gold as a safe haven store of value in its reserves, it is not the first as the de-dollarization shift has been accelerating in recent months

Source: Bloomberg

Germany’s shift comes after China’s acceleration in gold-buying as Peter Schiff recently noted this a “global gold rush on the part of central banks” in preparation for a dollar crash.

“The days that the dollar is a reserve currency are numbered and the smart central banks are trying to buy as much gold as they can before the number is up,” Schiff said. 

Remember, nothing lasts forever

And now that the always conservative Germans are back in the market buying gold, one wonders if the end of fiat is drawing closer.

Half The World’s Banks Won’t Survive The Next Crisis, McKinsey Finds

Half The World’s Banks Won’t Survive The Next Crisis, McKinsey Finds 

More than half of the world’s banks are at risk of collapse in the next global downturn if they don’t start preparing for late-cycle shocks, McKinsey & Company warned in its latest global banking outlook. 

The consultancy firm warned on Monday, in a 55-page report titled The last pit stop? Time for bold late-cycle moves, that 35% of banks globally are “subscale” and will have to merge or sell to larger firms if they want to survive the next crisis. 

“A decade on from the global financial crisis, signs that the banking industry has entered the late phase of the economic cycle are clear: growth in volumes and top-line revenues is slowing, with loan growth of just 4% in 2018—the lowest in the past five years and a good 150 basis points (bps) below nominal GDP growth. Yield curves are also flattening. And, although valuations fluctuate, investor confidence in banks is weakening once again,” McKinsey said. 

Kausik Rajgopal, a senior partner at McKinsey, told Bloomberg that “we believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape,” adding that, “in the late cycle, nobody can afford to rest on their laurels.”

The report warned that 60% of global banks are experiencing “returns below the cost of equity.” And even warned that when the next recession strikes, “negative interest rates could wreak further havoc.” 

McKinsey said fin-tech startups are rapidly evolving the industry, and legacy banks risk “becoming footnotes to history” if they don’t immediately invest in technology. For instance, the report said, Amazon and Ping An are two technology firms that are quickly acquiring market share from the traditional banking sector. 

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

Dollar Liquidity Turmoil Returns With First Oversubscribed Term Repo In A Month, $99.9 Billion Liquidity Injection

Dollar Liquidity Turmoil Returns With First Oversubscribed Term Repo In A Month, $99.9 Billion Liquidity Injection

This was not supposed to happen.

After the Fed rolled out the big artillery in response to the sharp, sudden mid-September funding squeeze (which we now know had virtually nothing to do with last month’s tax payments or other one-time events such as the Treasury’s cash rebuild), including the return of both overnight and term repo operations, and culminated with the Fed’s relaunching of QE which would be used to permanently increase the balance sheet with $60BN in T-Bills every month in order to replenish reserves (because we live in a bizarro world where $1.4 trillion in bank cash is not enough for the smooth functioning of bank plumbing), moments ago we got the latest indication that the dollar funding shortage is again getting worse – despite the market having priced in the Fed’s rollout of the “kitchen sink” to ease funding conditions – when the Fed announced that it had its first oversubscribed Term Repo operation since the funding crisis erupted in September.

Specifically, while the Fed’s 2-week term repo operation was capped at $35 billion as has been the case for the past week, dealers submitted $52.2BN worth of securities ($39.9BN in TSYs, $12.3BN in MBS)…

… making today’s term operation 1.5x oversubscribed, which was the first overallotted operation since the second term repo at the start of the funding crisis on Sept 26.

Needless to say, if the funding shortage was getting better, this operation would not be oversubscribed. The only possible explanation, is someone really needed to lock in cash for Halloween (the maturity of the op is on Nov 5) which is when a “No Deal” Brexit may go live, and as a result one or more banks are bracing for the worst.

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

Are The Rating Agencies Complicit In Another Massive Scandal: A WSJ Investigation Leads To Shocking Questions

Are The Rating Agencies Complicit In Another Massive Scandal: A WSJ Investigation Leads To Shocking Questions

Over the past two years, a key event many bears have cited as a potential catalyst for the next market crash, is the systematic downgrade of billions of lowest-rated investment grade bonds to junk as a result of debt leverage creeping ever high, coupled with the inevitable slowdown of the economy, which would lead to an avalanche of “fallen angels” – newly downgraded junk bonds which institutional managers have to sell as a result of limitations on their mandate, in the process sending prices across the corporate sector sharply lower.

As we discussed in July, the scope of this potential problem is massive, with the the lowest-rated, BBB sector now nearly 60% of all investment grade bonds, and more than double the size of the entire junk bond market in the US, and 3.4x bigger than the European junk bond universe.

Yet after waiting patiently for years for the inevitable downgrade avalanche which would unleash a zombie army of fallen angels and potentially spark the next crash, with the occasional exception of a few notable downgrades such as PG&E and Ford, this wholesale event has failed to materialize so far, something which the bulls have frequently paraded as an indication that the economy is far stronger than the bears suggest.

But is it? And instead of the economy being stronger, are we just reliving the past where rating agencies pretended everything was ok until the very end, only to admit they were wrong all along, and then slash their rating retrospectively, too late however as the next financial crisis is already raging.

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

Not Transitory – Fed Liquidity Handout Surges To Near $90 Billion

Not Transitory – Fed Liquidity Handout Surges To Near $90 Billion

So much for the ‘transitory’ liquidity shortage arguments put forth by commission-takers and asset-gatherers, The NYFed accepted $87.7 billion (in o/n and term) repo today – the highest level yet.

The Fed accepted $20.1 billion in 14-day term repo…

And $67.7 billion in overnight repo…

The biggest overnight repo (liquidity bailout) since September.

Having stabilized in the $30-40 billion range, liquidity needs have surged once again as it seems the big banks just cannot wait for The Fed’s NotQE in November.

“This Did Not Go Well” – PG&E’s Rolling Blackout Sparked Chaos In Bay Area

“This Did Not Go Well” – PG&E’s Rolling Blackout Sparked Chaos In Bay Area

Pacific Gas and Electric’s (PG&E) historic blackout plunging hundreds of thousands of customers into darkness last week was a massive communication breakdown that sparked criticism over the two-day blackout that was designed to avoid wildfires, reported The New York Times.

PG&E officials said over the weekend that most of the power had been restored to everyone except for 2,500 customers across several Bay Area counties and promised to fix communication channels with customers.

“We’ll get better in the next month and better in the next year,” PG&E CEO Bill Johnson said Saturday.

“Communication to customers, coordination with state agencies, website availability, call center staff, that’s where you will see short-term improvements.”

Last Wednesday, PG&E triggered rolling blackouts for nearly 735,000 homes and or businesses in the San Francisco Bay Area amid the threat of strong winds and dry conditions that would’ve damaged transmission wires and sparked dangerous wildfires, similar to what was seen last year. Most of the residents were restored by Friday afternoon, but 99.5% of its customers saw full power by Saturday. 

PG&E Blackouts Spread Across Northern California

The shutdown caused widespread confusion about the planned power outage, and according to some experts, billions of dollars in economic losses were sustained by local businesses during the two-day blackout.

PG&E’s website and communication network that relayed essential data about the blackouts crashed, leaving many without details about what was happening. 

“There were definitely missteps,” said Elizaveta Malashenko, a spokesperson for the state Public Utilities Commission who was in the PG&E control center. “It’s pretty much safe in saying, this did not go well.”

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

“It’s Not A Game When It’s Real-Life” – China’s Social Credit System

“It’s Not A Game When It’s Real-Life” – China’s Social Credit System

In an attempt to imbue trust, China has announced a plan to implement a national ranking system for its citizens and companies. Currently in pilot mode, the new system will be rolled out in 2020, and go through numerous iterations before becoming official.

While the system may be a useful tool for China to manage its growing 1.4 billion population, Visual Capitalist’s Katie Jones notes that it has triggered global concerns around the ethics of big data, and whether the system is a breach of fundamental human rights.

Today’s infographic looks at how China’s proposed social credit system could work, and what the implications might be.

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

Historic Typhoon Devastates Japan; Millions Told To Evacuate Amid Flooding, Widespread Outages

Historic Typhoon Devastates Japan; Millions Told To Evacuate Amid Flooding, Widespread Outages

The largest typhoon in recorded history of Japan’s Shizuoka Prefecture caused widespread flooding, power outages and destruction on Saturday, as local authorities warned over 7 million people to evacuate, according to Bloomberg (with other sources quoting figures ranging from 1-4 million). 

Damaged houses in Ichihara, Chiba, on Oct. 12. Source: Jiji Press/AFP via Getty Images

Typhoon Hagibis makes landfall on Japan’s Izu Peninsula with heavy downpours and winds, leaving one person dead and 50 others injured http://xhne.ws/FHjB7 

View image on Twitter
View image on Twitter
View image on Twitter
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The sky turned brilliant purple right before Hagibis hit.

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

Japan Braces For Typhoon Hagibis Could Be Strongest In Decades 

A powerful typhoon is headed for Japan this weekend, threatening to cripple Tokyo with the most torrential rains and winds in nearly six decades, reported Reuters.

In a statement Friday morning, meteorologist and owner of Empire Weather, Ed Vallee, said Typhoon Hagibis is expected to hit the Tokai/Kanto region on late Saturday. The likely Category 3 typhoon could then “grind” its way northward through the Tohoku region by late weekend. 

“Hagabis is a strong typhoon in the west Pacific, making its way closer to mainland Japan. As of 3 PM Friday, Tokyo time, Hagabis was located due south of Japan. This system will continue to approach through Friday night, Tokyo time, with increasing rain and wind.

Only 4 storms have come within 100 miles of Tokyo as a Category 3 typhoon or higher. At this time, Hagabis will be weakening, and it may be weaker than this strength. Regardless, typhoon conditions are possible Saturday local time as this system passes. This will disrupt air travel, with all Nippon Airways flights expecting to be canceled. Railway systems will also likely be impacted, along with the Rugby World Cup, which has already been canceled. Damage to buildings and power outages are also expected. This storm will move away from the region to end the weekend,” the statement said.

Vallee also noted that the storm could be the strongest typhoon to hit Tokyo since the late 1950s. 

He said rainfall and winds in the capital could damage critical infrastructure and cause life-threatening situations for its residents on Saturday. 

The Japanese government said shopping districts, factories, and public transportation in the Greater Tokyo Area are being shut down in preparation for the storm.

Prime Minister Shinzo Abe said a disaster management meeting would be held on late Friday. 

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

“Not A QE” Begins: Fed Start Buying $60BN In Bills Per Month Starting Next Week

“Not A QE” Begins: Fed Start Buying $60BN In Bills Per Month Starting Next Week

Just one day after we laid out what Goldman’s revised forecast for the Fed’s “NOT A QE” will look like, which for those who missed it predicted that the Fed would announce “monthly purchases of about $60BN for four months, split across Treasury bills and short maturity coupon Treasuries, in order to replenish the roughly $200bn reserve shortfall and support the pace of growth in non-reserve liabilities”, the Fed has done just that and moments ago – well ahead of consensus expectations which saw the Fed making this announcement some time in November – the US central bank announced it would start purchasing $60BN in Bills per month starting October 15. This will be in addition to rolling over “all principal payments from the Federal Reserve’s holdings of Treasury securities and the continued reinvestment all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month.”

In short, the proposed schedule is virtually identical to the one Goldman “proposed” yesterday, one which sees the Fed purchase a grand total of $100BN or so in TSYs the near term, and one which is meant to “engineer a one-off level shift of roughly $200bn over the course of four months.

But wait there’s more, because just as today’s surprising spike in repo use suggested, mere “NOT A QE” may not cut it, and just in case, in order to provide an “ample supply of reserves”, the Fed will continue with $75BN in overnight repos and $35 billion in term repos twice per week, “at least through January of next year.”

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

California Hit By Dual Shock: LA Gas Prices Spike Above $5 As Residents Learn Solar Panels Don’t Work In Blackouts

California Hit By Dual Shock: LA Gas Prices Spike Above $5 As Residents Learn Solar Panels Don’t Work In Blackouts

Millions of Californians may have just suffered an unprecedented, induced blackout by the state’s largest (and bankrupt) utility, PG&E, just so it isn’t blamed for starting even more fires causing it to go even more bankrupt… but at least the price of gas is soaring.

According to Fox5NY, citing figures from AAA and the Oil Price Information Service, the average price of a gallon of regular gasoline in Los Angeles County was $4.25 on Wednesday, 4.5 cents higher than one week ago, 57.6 cents more than one month ago and 37.1 cents greater than one year ago. It has also risen 86.4 cents since the start of the year. What is more troubling is that as California gas prices reached the highest level in the state since 2015, some Los Angeles area gas stations are charging more than $5 a gallon.

The gas price spike started last month after Saudi Arabia oil production facilities were attacked, and accelerated after three Los Angeles-area refineries slowed or halted production due to maintenance issues and no imported gasoline was available to make up for the shortfall, according to Jeffrey Spring, the Automobile Club of Southern California’s corporate communications manager.


Only in California…

View image on Twitter

The shortage was made worse after local refineries cut back production of summer-blend gasoline in anticipation of switching to selling the winter blend beginning Nov. 1.

But wait, there’s more: America’s most “environmentally conscious” state got a harsh lesson in electrical engineering when many of the tens of thousands of people hit by this week’s blackout learned the hard way that solar installations don’t keep the lights on during a power outage.

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

After Unveiling ‘NotQE’, Fed Eases Liquidity Rules For Foreign Banks (Rescues Deutsche)

After Unveiling ‘NotQE’, Fed Eases Liquidity Rules For Foreign Banks (Rescues Deutsche)

Having cracked down on Deutsche Bank in the past, The Fed appears to be playing good-regulator/bad-regulator as The FT reports thatDeutsche is expected to benefit most from an imminent change in The Fed’s liquidity rules.

Specifically, US banking regulators have dropped an idea to subject local branches of foreign banks to tough new liquidity rules(forcing US branches of foreign banks to hold a minimum level of liquid assets to protect them from a cash crunch).

As The FT further details, people familiar with his thinking say Randal Quarles, the vice-chair for banking supervision at the Fed, accepts the banks’ argument that any liquidity rules on bank branches should only be imposed in conjunction with foreign regulators.

“Without some international agreement, we could have the situation where each country is trying to grab whatever isn’t nailed down if there is another scare.”

And Deutsche Bank benefits most (or rescued from major liquidity needs) since it has by far the largest assets in US branches…

Why would The Fed do this?

Simple, it cannot afford another Lehman-like move (or even the fear of one)…

Source: Bloomberg

Iranian Oil Tanker Struck By 2 Missiles Near Saudi Port

Iranian Oil Tanker Struck By 2 Missiles Near Saudi Port 

Many questions remained unanswered early Friday after an attack on an Iranian oil tanker in the Red Sea sent oil prices higher, in the latest attack on energy-industry infrastructure in an increasingly volatile part of the world. According to the New York Times, a fire erupted on an Iranian oil tanker about 60 miles from the Port of Jeddah on Friday after the tanker’s two major tanks were struck by missiles, causing an oil spill.

No crew members were hurt and the ship is reportedly in stable condition, according to Iranian state news media. The National Iranian Oil Company, which owns the tanker, said the ship was struck at 5 am local time and 5:20 am local time. Iranian officials said Friday that the incident was “an act of terrorism”, but they insisted that the ship had suffered minimal damage and that only a small amount of oil had spilled into the ocean. The Iranians also denied that the ship had caught fire, despite photos purportedly depicting the blaze.


#BREAKING: There is No longer fire & oil leakage in #Iran‘s oil tanker #SABITI. Images taken an hour ago show the oiler in #RedSea after changing its course. There are two possibilities behind the two explosions in the ship: 1-#SaudiArabia‘s attack 2-#Israel Navy attack.

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View image on Twitter
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Iranian media said “technical experts” are still investigating the cause of the explosion, though Iranian state media initially blamed Saudi Arabia. The Kingdom, meanwhile, denied any responsibility for the attack. However, according to conflicting reports, the National Iranian Oil Company denied that Saudi Arabia, Iran’s archrival in the region, was behind the attack, and instead pointed the finger toward Israel.

Another inconsistency emerged when Iran said a tanker known as the Sabiti had been hit. But the ship-tracking website Marine Traffic shows the vessel hasn’t transmitted any location data since mid-August.

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

Chinese Army Ready To Step In Against Rioters – HK’s Carrie Lam Warns For First Time

Chinese Army Ready To Step In Against Rioters – HK’s Carrie Lam Warns For First Time

Following a renewed surge in protest unrest and violence in the wake of the controversial mask ban which went into effect on Saturday, Hong Kong leader Carrie Lam has for the first time issued public warning that the Chinese military could step insaying this drastic step would only happen if it “becomes so bad”.

Expressing hope it won’t come to that, and that the situation will resolve itself under local authorities, she noted that the four month-long raging protests were no longer “a peaceful movement for democracy” and urged outside critics to understand this. 

Demonstrators in Hong Kong, via Axios/Getty Image

“I still strongly feel that we should find the solutions ourselves. That is also the position of the central government, that Hong Kong should tackle the problem on her own, but if the situation becomes so bad, then no options could be ruled out if we want Hong Kong to at least have another chance,” Lam said at a news conference on Tuesday.

Over the past month especially, demonstrations have increasingly involved a smaller but more hardline crowd of mostly face-masked youth relying on extreme tactics such as hurling molotov cocktails at police, and setting stores and infrastructure on fire, along with increased vandalism.

The anti-Beijingers have attempted to bring the city to a complete halt, using various tactics such as erecting barriers on busy roadways, occupying the international airport, and vandalizing train stations including attempting to disable trains. The protests seem to have entered a new, more dangerous phase, which further suggests the Chinese military could be inching closer to direct intervention

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

China De-Dollarization Pushes Into Hyperdrive, Adds 100 Tons Of Gold Amid Trade War Chaos

China De-Dollarization Pushes Into Hyperdrive, Adds 100 Tons Of Gold Amid Trade War Chaos

As the trade war continues to escalate, China’s rapid move towards de-dollarization continues. China added more than 100 tons of gold to its reserves since December 2018 and has also been divesting US Treasuries. 

Bloomberg reported the People’s Bank of China acquired 188,800 ounces, or about 5.9 tons of gold in Sept., raising total holdings to 62.64 million ounces in September from 62.45 million in August. Over the last nine months, China added a whopping 100 tons of gold to its reserves as a hedge to a deepening trade war. 

Gold jumped to a six-year high in September as economic turmoil across the world is pointing to a global trade recession in 2020. Central banks have been leading buyers of the precious metal, especially ones based in emerging markets. Gold purchases by China and central banks will continue through 2020, Bloomberg notes, as protectionist policies spurred by the Trump administration have blown up global supply chains and will continue to produce volatility in global equity markets for the foreseeable future. 

“Given strained relations with the US, China needs a hedge against its large holdings of the dollar, and gold serves that function,” said Howie Lee, an economist at Singapore-based Oversea-Chinese Banking Corp. 

“As China becomes a superpower in its own right, I expect more gold-buying.”

Last month’s purchases boosted the People’s Bank of China’s gold reserves to 62.64 million ounces. As shown below, Comex Gold futures tend to rise when China is adding. 

The Chinese continue to add gold to their reserves to reduce their exposure to the dollar. As one analyst told Bloomberg in August, “It is important for the country to diversify away from the US dollar. Over the long run, even relatively small-scale gold purchases add up and help to meet this objective.”

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

Olduvai IV: Courage
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Olduvai II: Exodus
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