The War On Paper Currency Officially Begins: ECB Ends Production Of EU500 Bill

Following the denial in February that this action is in any way about reducing cash, The ECB has made its decision on the EUR500 Bill:

  • *ECB ENDS PRODUCTION AND ISSUANCE OF €500 BANKNOTE
  • *ECB SAYS ISSUANCE OF EU500 NOTE TO STOP AROUND THE END OF 2018
  • *ECB SAYS OTHER EURO BANKNOTES WILL STAY IN PLACE
  • *ECB: EU500 CAN BE EXCHANGED AT CEN BANKS FOR UNLIMITED TIME

And just like that the second highest denominated European bank note in circulation (after the CHF1000 Bill) is dead…

And so now, everyone rushes into the CHF 1000 note.

 

So what, big deal, eliminate it. The people will still have 5, 10, 20, 50, 100 and 200 euro bills right.

As we wrote previously, the answer is not that simple at all. Recall that the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising as shown in this BofA chart:

 

Furthermore, as a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.

 

This is what we said in February:

 
 

In other words, if overnight the €307 billion worth of €500 bills were eliminated, the notional value of the entire amount of European physical currency in circulation would decline by 30% to €700 billion!

 

And there you have it: while it may not be banning all European cash outright, we are confident the ECB would be delighted if one third of it was to start, while pretending to be fighting financial crime, terrorism, corruption and drug dealers. 

 

Of course, what Europe would be truly doing is setting the scene for ever more aggressive NIRP, and by removing the highest denomination bank notes, it would make evading negative that much more difficult and costly (albeit would certainly favor gold).

That's not all: as Bank of America pointed out, abolishing the €500 note may even end up even weakening the European currency:

 
 

we would expect that abolishing a note that represents almost 30% of the total Euros in circulation would be negative for the currency, keeping everything else constant. The share of the €500 note in the total value of Euros in circulation has been falling since 2009 and this has coincided with a weakening Euro in real effective terms. This is not evidence of causality, but we should not ignore it.

 

If we are right, the Euro will weaken, primarily against the USD and the CHF. The USD is the most liquid currency and we would expect it to capture a large share of the drop in the demand for the Euro as a store of value. However, the CHF could also benefit, having the largest note denomination in G10 economies. Indeed, the CHF1000 note is already very popular, representing more than 60% of the CHF  notes in circulation, unless the SNB follows the example of the ECB and also abolishes the CHF1000 note.

BofA is right, unless of course, in this global race to the bottom where every central bank tit has other central bank tats as a direct response, first the SNB "scraps" the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard "scholar" and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would "deter tax evasion, financial crime, terrorism and corruption."

 

Go ahead and cut, then: after all who really needs the Benjamins, right? Well, here's the thing:

Chart of value of currency in circulation, excluding denominations larger than the $100 note. Details are in the Data table above.

As the Treasury chart above shows, $100 bills account for for $1.08 trillion of the $1.38 trillion total in circulation. So should the Fed react to the ECB's "scrapping" of the €500 bill, which accounts for 30% of the value of currency in circulation, then the Fed would respond in kind, by eliminating 78% of all paper currency in circulation by value.

Not a bad way to launch a global ban on paper currency ahead of a global NIRP regime, and all, of course, in the name of fighting "tax evasion, financial crime, terrorism and corruption."

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China Unleashes SPR (Strategic Porcine Reserve) As Pork Price Surge Threatens Social Unrest

As we detailed recently, in addition to its sub-prime debt crisis, China is dealing with an issue that is just as troubling, if not more so: Porkflation. Due to a drop in global production of pig meat, pork prices in China have been skyrocketing at both the wholesale and retail levels.

Retail prices

And wholesale prices

As we also noted previously, Pork's role in CPI is also being felt (factors heavily into the CPI basket), as China's broad-based CPI is creeping up.

 

Porkflation is a very delicate, and very concerning issue for China. The massive amounts of layoffs that China has experienced as a result of a slowing economy has already lead to some social unrest, and pork prices exploding higher for those unemployed will only add fuel to that simmering fire. Social unrest is something that we've been discussing for quite some time as a critical risk factor in China, something that the mainstream media continues to overlook (primer here). As a reminder, the number of strikes that China has experienced has significantly grown over the years, and a growing social unrest is something that the government does not want to deal with, especially as the economy implodes and needs to be the focus for now.

 

 

As such, Beijing has announced that it will release 3.05m kilograms of frozen pork reserve into the capital's market between May 5 and July 4, in an attempt to lower prices.

The impact on prices may be short lived however, as China may not have the sows to be able to continue the subsidy.

China's total sow stock has fallen…

Evan as pork imports have climbed to record levels, going back to 2008.

With that said, one can understand why China won't be implementing a broad based economic stimulus any time soon that would push inflation even higher (RRR cuts or QE). Instead, in an effort to not completely push the citizenry into panic mode, injecting credit piecemeal into the economy will be the path forward – for now.

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Over Half of Americans Now Believe the Voting System Is Rigged

Submitted by AnonHQ via TheAntiMedia.org,

This American primary season has been unlike any other election in recent memory, if not United States history. Between the Donald Trump phenomenon, Sanders supporters claiming voter fraud after what seems like every single state election and candidates in rivaling parties both publicly stating that the system is rigged, one thing is clear, there is something very strange happening.

We all understand that on some level, of course the system is rigged to a degree. I mean we have all known that Hillary Clinton was going to be ‘the next President’ for over six years now. It is no surprise she is running for election in 2016, we have known this all along. This is the illusion of having a choice in American politics. The reality is that you are presented with a choice to make, the illusion though, is that your choices are narrowed down by a rigged system.

People forget that in 2012 Donald Trump was in the mix to become the next President, however he was told he could not participate in the Republican debates. The same exact thing happened to Rand Paul this year. He did not want to stop campaigning for President, the GOP literally told him they would no longer allow him on the debate stage. Like it or not, on some level the entire system is rigged to a degree and apparently the majority of American citizens now agree. According a new study conducted by Reuters News, “more than half of American voters believe the U.S. system is rigged.

The study was conducted via an online poll between the dates of April 21 – 26 and consisted of approximately 2,215 people – 1,582 of which were Americans. According to the results, when presented with the question “Agree or disagree: The current system of presidential primaries and caucuses are ‘rigged’ against some candidates?” 47.5% of people agreed. 23.6% disagreed with the statement and 28.9% were undecided or did not have an opinion for or against. Overall 51% of perspective American voters in the upcoming election believe that the system as a whole is rigged in general.

The study also went on to reveal that 71% or respondents said they would favor a direct vote for individual candidates on a single day rather than the current prolonged state delegate based system we see today. People point to the fact that when the primary season first began the Republicans had a field of 17 candidates. Today we are still in the process, some states haven’t even had a vote and yet the field of candidates available to vote for has shrunk down 3 – hardly fair or equal for every state.

Further numbers reveal that 27% of respondents admit that they have no idea how the political process actually works, something we refer to as low-information voters. Another 44% of voters have no idea what delegates actually are or why they are involved in the voting process at all.

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Kasich Out: Trump Challenger To Make 5PM Statement In Ohio After Cancelling Press Conference

It appears that less than one day after Ted Cruz announced he is quitting the race, the last hurdle to Donald Trump becoming the official GOP candidate instead of just the “presumptive” one, is about to fall: according to CNN’s Phil Mattingly the republican challenger has just cancelled a press conference in Virginia and will make a statement in Ohio this afternoon at 5pm. We assume it is to announce he too is withdrawing from the race.

More from The Hill which effectively confirms the speculation that Kasich is finally out.

Republican presidential hopeful John Kasich canceled a planned Wednesday morning news conference outside Washington D.C., and now plans to address the media in Ohio later Wednesday afternoon.

 

A campaign aide told a group of reporters awaiting the Ohio governor in Dulles, Va., that he will will instead make “an announcement” at 5 p.m.

 

The cancelation stokes speculation that Kasich will drop out of the race, the morning after Ted Cruz withdrew his presidential bid.

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“Extremely Dangerous” IED Found Under Bridge In Texas

In recent weeks ISIS has been become far more brazen in its threats against US targets, and just last week released out a “hit list” which allegedly had the personal details of 3,600 New Yorkers whom it “wanted dead.” And while it is unknown if there is a terrorist link, the threat may have hit closer to home for residents in Rosebud, Texas when the McLennan County Sheriff’s office and a bomb squad used a water cannon to breach a suspicious device found under a bridge Tuesday night.

According to KCEN TV, the Bureau of Alcohol, Tobacco, Firearms and Explosives blasted water on the container found just outside Rosebud off Farm to Market Road 1963. Rosebud, about 40 miles southeast of Waco, is home to about 1,400 people.

Flammable liquid and shotgun shells were found inside the container, according to Sheriff Parnell McNamara. He said the IED was designed to blow shrapnel and would have been “extremely dangerous” had it gone off.

“Someone had made this to create lots of damage and harm,” McNamara said.

There were no injuries. The liquid was being sent to a lab for analysis.

No motive or suspects were named as the investigation continued early Wednesday. If this was indeed the work of some local terrorist organization, we are confident it will promptly take credit for the attempted bomb. 

kcentv.com – KCEN HD – Waco, Temple, and Killeen

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“Pakistan Is At Best A Frenemy” – Washington Pulls The Plug On Subsidizing F-16s For India’s Neighbor

In an extremely rare occurrence, the U.S. government will not try to squander every single nickel given to it by its taxpayers. As Sputnik News reports, Washington has pulled the funding on a deal that (through the foreign military financing fund) would subsidize roughly $429 million of a $699 million deal to send up to eight F-16s to Pakistan.

Congress, in what appears to be the first time it has ever critically analyzed subsidies,  has concerns that Pakistan is going to take the F-16s and not do much in return for footing the majority of the bill (i.e. fighting terrorism).

“They take our money, take our arms and laugh in our face. Pakistan is at best a frenemy, part friend and a lot enemy.” Senator Bob Corker (R-TN) was quoted as saying.

In addition to the skepticism about how much Pakistan would do to help fight the “war on terror”, congress also kept in mind Washington’s relationship with India. Given the fact that a deal was just finalized in which India would help the U.S. patrol the Indian Ocean for Chinese submarines, congress didn’t want to immediately subsidize F-16s for Pakistan that could potentially be used against India.

“Given congressional objections, we have told the Pakistanis that they should put forward national funds for that purpose.” State Department spokesman John Kirby told reporters.

Pakistan’s response was predictable in that it said other sources of financing would be sought, and if unable to find any funds, it would just look to buy the planes elsewhere.

Pakistani Prime Minister has this to say about having the funding rug pulled out from underneath the deal: “[There is a] lack of sufficient appreciation for Pakistan’s whole-hearted efforts it was undertaking jointly with the U.S. administration, in countering the threat posed by terrorism.”

While we’re skeptical that this deal won’t be put back on the table before the ink is even dry on this article, we are glad to see that for now, further cuts won’t need to be made to social security benefits in order to fund military subsidies.

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Stand Aside JP Morgan, A New Player In The Silver Market Has Arrived

Via SRSroccoReport.com,

The days of JP Morgan controlling the silver market may be numbered as a new player in the silver market has arrived.  For the past several years, JP Morgan held the most silver on a public exchange in the world.  While the LBMA may hold (or did hold) more silver, their stockpiles are not made public.

Regardless, JP Morgan held the most silver at nearly 74 million oz (Moz) in its warehouse, up until recently.  Over the past two months, JP Morgan’s silver inventories have fallen nearly 7 Moz to 67.1 Moz today:

JP-Morgan-Silver-Stocks-050316

As I mentioned in my previous article, Why Are The Chinese Stockpiling Silver? Big Move Coming?, JP Morgan increased their silver inventories from 4 Moz in April 2011 to 69.4 Moz April 19, 2016.  However, the Shanghai Futures Exchange silver inventories surged from 7.5 Moz in August 2015 to 54.7 Moz on April 19, 2016:

JP-Morgan-vs-SHFE-Silver-Inventories-NEw

Basically, JP Morgan added an average 16.3 Moz of silver each year for the past years, whereas the Shanghai Futures Exchange added nearly 7 Moz per month.  Furthermore, the majority of gains came since the beginning of 2016.  Again, here is my previous Shanghai Futures Exchange silver stock chart from the article linked above:

Shanghai-Futures-Exchange-Silver-Stocks-2015-2016-NEW

As we can see from this chart dated April 19th, the Shanghai Futures Exchange more than tripled their silver inventories since November 2015.  What is even more interesting is the continued buildup over the past two weeks.  Here is an updated chart based on data for May 3rd:

 

Shanghai-Futures-Exchange-Silver-Stocks-050316.NEW

Over the past two weeks, the Shanghai Futures Exchange added another 179 metric tons (mt) or 5.8 Moz.  Now, if we update the JP Morgan and Shanghai Futures Exchange silver stock chart (from above) we have the following:

JP-Morgan-vs-SHFE-Silver-Inventories-050316

Here we can see that JP Morgan’s total silver inventories have declined from 69.4 Moz to 67.2 Moz, while the Shanghai Futures Exchange silver stocks have increased from 54.7 Moz to 60.6 Moz.  If the Shanghai Futures Exchange continues to add silver at this rate, it will surpass JP Morgan in a two to three weeks.

Comex Registered Silver Inventories Drop Nearly 4 Million Ounces Yesterday

When the CME Group published the recent silver inventory change on the Comex yesterday, nearly 4 Moz were transferred from the Registered to Eligible Category.  The majority of the transfer came from the CNT Depository at nearly 3.5 Moz with 485,325 oz from HSBC:

Comex-Silver-Inventories-050316

Some analysts say these transfers really don’t mean much if the overall inventories stay the same.  That may be true, but there was some reason the CNT Depository transferred 3.5 Moz of silver from their Registered Inventories to the Eligible.

That being said, the Chinese are adding a lot of silver to their Shanghai Futures Exchange warehouses.  The build from 7.5 Moz in August 2015 to over 60 Moz of silver in the beginning of May puts JP Morgan’s four-year inventory growth to shame.

For whatever reason, silver inventories at the Shanghai Futures Exchange warehouses are increasing at a rapid pace while the Comex silver stocks continue to decline.  Comex silver inventories were over 180 Moz in July 2015 and are now only 151 Moz.  This is quite interesting as the Shanghai Futures Exchange inventories started to build from 7.5 Moz in August 2015 to the 60.6 Moz today.

It will be interesting to see how the exchange inventories and price action of silver play out over the next several months.

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Crude Slumps On Big Inventory Build Despite Biggest Production Plunge In 10 Months

Overnight exuberance sparked by lower than expected Cushing build reported by API is fading on the heels of June OPEC headlines of no production limits (and rising Saudi production) heading into DOE inventory data. Crude inventories printed a significantly higher than expected 2.78mm build but Cushing saw a smaller than expected build of 243k. Gaosline surprised with a 536k build (API 1.17m draw) and Distillates saw a smaller than API build of 1.26m barrels.

The biggest news was the biggest plunge in US production since July 2015, and yet inventories still rose suggesting that fundamentally this is and has been as much a demand story as one of supply (even as OPEC countries are happy to offset declining US output).

 

API:

  • Crude +1.265m (+750k exp)
  • Cushing +382k (+1.3m exp.. Genscape +821k)
  • Gasoline -1.17m
  • Distillates -2.6m

DOE:

  • Crude +2.78m (+750k exp)
  • Cushing +243k (+1.3m exp.. Genscape +821k)
  • Gasoline +536k
  • Distillates -1.26m

Overall inventory levels continue to rise…

 

Production plunged by the most sicne July 2015 (driven by a 16.2% collapse in Alaska production – Lower 48 fell 0.4% Wow)

 

On the all important topic of gasoline, which has been a key bullish driver in recent months, gasoline stocks rose 0.5MM to 241.8MM…

 

… even as consumption is moving briskly higher, and is now above the 10 year maximum for this time of the year.

 

However, whatever it is that the algos were looking at, the reaction in crude was quick:

 

Crude prices are slipping (focused on the outsize inventory build) since the plunge in production is driven more by Alaska (down 16.2% Wow) as opposed to Lower 48 (down 0.4% WoW)…

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Here Comes The Turkish Flood: EU Commission Backs Visa-Free Travel For 80 Million Turks

Earlier this week we observed that in what may be Europe’s latest mistake, the European Union is about to grant visa-gree travel to 80 million Turks: a key concession that Erdogan obtained as a result of the ongoing negotiations over Europe’s refugee crisis which has pushed Turkey into the key player spotlight. And then, overnight, the European Commission officially granted its support to a visa-free travel deal with Turkey after Ankara threatened to back out of a landmark migration deal. It proposed to lift visa requirements by the end of June.

The decision was confirmed by European Commissioner for Competition Margrethe Vestager on Twitter.

“The European Commission is today proposing to… lift the visa requirements for the citizens of Turkey,” Vestager tweeted.

The deal is not yet done: EU governments and the European Parliament still have to approve visa-free travel for Turkey, however this looks larely like a formality. As we explained before Turkey holds all the chips and if this key condition is not approved, Turkey will merely start releasing the millions of pent up refugees behind its borders.

As a reminder, in April, Turkey threatened to back out of the migration agreement with the EU, unless travel rules were eased for Turkish citizens when entering the EU. The deal went into effect on March 21. The agreement stated that Ankara promised to accept repatriated refugees from Greece with no EU entry permits, in exchange for sending the same number of vetted Syrian refugees. In return, Turkey would be given up to €6 billion in European funding over the next five years.

“Turkey has made impressive progress, particularly in recent weeks, on meeting the benchmarks of its visa liberalization roadmap. There is still work to be done as a matter of urgency, but if Turkey sustains the progress made, they can meet the remaining benchmarks,” EC Vice President Frans Timmermans said

That’s why the European Commission is “putting a proposal on the table which opens the way for the European Parliament and the member states to decide to lift visa requirements, once the benchmarks have been met,” he added.

As RT reported, according to the adopted document, visa-free travel will apply to all EU member states except for Ireland and the UK, who have their own visa requirements, and to the four Schengen-associated countries (Iceland, Liechtenstein, Norway and Switzerland).

The exemption concerns only short stays of up to 90 days (in any 180-day period) for business, tourist or family purposes, among others. The visa exemption does not provide for the right to work in the EU,” the document said. Good luck, however, trying to track down those millions who are about to enter Europe and work, well, illegally.

The EC also proposed to strengthen a “suspension mechanism” to make it easier for EU member states “to notify circumstances leading to a possible suspension and enabling the Commission to trigger the mechanism on its own initiative.”

Among entry conditions for accessing the Schengen area for Turkish citizens will be “the need to be able to prove their purpose of travel and sufficient subsidence means,” the paper added.

Meanwhile, earlier on Wednesday Turkish Foreign Minister Mevlut Cavusoglu said Ankara is about to complete the work on visa-free travel to the EU for its citizens, the country’s NTV channel reported.

The news about possible visa-free travel between Turkey and EU made headlines on Monday. An EU official told Reuters that Turkey has fulfilled 65 requirements, which means the number of conditions satisfied doubled in less than two weeks. As of the end of April, Turkey had reportedly met less than half of the conditions required.

Amusingly, also on Monday the Turkish cabinet adopted a bill allowing visa-free travel for all EU citizens, including Greek Cypriots. Though visa requirement will be lifted for all Greeks in Cyprus, a Turkish official stressed to Reuters that Ankara doesn’t recognize Cyprus. “This doesn’t mean the recognition of Cyprus. If the EU abolishes visas for Turkish citizens, then we will also abolish visas for the remaining EU countries,” the official said on condition of anonymity. “Right now, Greek Cypriots can already travel to Turkey, but we are issuing their visa on a separate paper. With this new arrangement they won’t need a visa.”

In summary: Europe made a deal with the proverbial devil in the face of Erdogan. And now it must live with the consequences.

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Core Durable Goods Orders Tumble For 14th Month To Lowest Since 2013

As the avalanche of data comes to an end for today, following factory orders, durable goods final data for March paints an ugly picture of the US manufacturing economy. Not only did Core Durable Goods Orders drop 1.4% YoY – the most since Dec 2015 – but the overall level fell to its lowest since Dec 2013.

 

The 14th straight month of YoY declines has not occurred absent an overall US economic recession, and this is the first 27-month decline since Lehman…

 

Charts: Bloomberg

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