The “Miracle” Of China’s PMI Resurrection In 1 Uncomfortable Chart

All around Asia, PMIs are tumbling… except for China's government-sponsored Manufacturing PMI. This week saw Aussie Services PMI (linked significantly to China) tumbled to 2014 lows, Japan's PMI drop, and China's own Services PMI disappoint and fade to 2-month lows. So where is all this exuberance coming from in China's manufacturing industry (despite a 8-month in a row drop in employment)? We don't know; but the fact that China coal prices just hit a record low hardly supports the smog-choking industry of China being at 7-month highsHard data vs soft surveys? You decide.

One of these things is not like the other…


Domestic coal prices fell to another record low following recent price cuts by major coal producers. The Bohai-rim Steam-Coal Price Index, a benchmark used by the coal industry, fell 1.7% on-week, to CNY519 per ton on Tuesday, its lowest level since the index series started in 2010.


Major coal producers, including Shenhua and China Coal, slashed prices over the weekend with the price cuts coming earlier than market expectations, which are expected to boost domestic coal market share and hurt China's coal imports. (China Securities Journal)

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Of course, not every manufacuring plant needs coal and there are other factors of supply and demand involved but it seems odd that the previously strong correlation between the two would collapse as the Chinese 'need' to show a better economy to hide the reality of collapsing real estate markets, a faltering shadow banking system, and lost trust in lending.

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We leave it to BofA to destroy another hope-strewn mth with some facts…

Destroying the 'myth' of the exuberant PMI data…

Via BofAML,

While a bit more than half of the recent data have been weaker than expected, the manufacturing and nonmanufacturing purchasing manager’s indexes have been very strong, jumping 4.8 and 5.8 points, respectively, since June. By some accounts, these data are better indicators than the hard numbers that come out of the government. After all, they are released very early, they are raw unfiltered data (other than seasonal adjustment), they are never revised and they are simple to interpret. We disagree. In our view, they are useful as a rough and ready early read on the economy. However, once the corresponding official data are released, we put very little weight on these surveys.

It is important to understand how crude these surveys are. Each month, a few hundred purchasing managers are asked if a variety of activity variables are up, down, or the same relative to the prior month. Their responses are then converted into diffusion indexes: the sum of the number managers reporting activity is “increasing” and half of those reporting “the same.” Note that there is some guesswork involved: the survey is taken before the month is over and some of the questions cover areas of the firm that are difficult for a purchasing manager to get a timely read on. For example, a purchasing manager may not have a very precise idea of what is happening to hiring in a large, diverse firm. Moreover, since they don’t gather specific numbers for each series, they may have to make a rough guess, particularly if the trend is slightly up or down.

Fans of the two indexes point out that they are relatively stable, easy to interpret and never revised. However, in our view, the simplicity of the data is a drawback, not an advantage. It means no attempt is made to correct misreporting or to include late respondents. Moreover, the sample they use is not representative of the overall economy. They represent a broad cross-section of industries, but they oversample big firms and they make no attempt to adjust for the birth and death of firms. The US is a dynamic economy and these surveys will miss these compositional shifts. Indeed, a lot of the revisions to official data come from attempts to fix all these problems rather than ignore them.

A comparison with payroll employment underscores these drawbacks. The preliminary payroll report is based on data from 145,000 establishments with 557,000 individual worksites. Thus if the BLS wanted to, it could turn its raw data into simple up or down answers and then create hundreds of diffusion indexes just like the employment component of the ISM index. However, that would mean throwing out information on both the size of employment changes at each company and turning a big sample into a bunch of tiny samples.

One way to show the information advantage of the employment report is to show how it correlates with manufacturing output. Using data from 1990 to present, the employment component of the manufacturing ISM index has a correlation of 0.39 with monthly industrial production growth. How does the official data compare? First, using the Labor Department’s own diffusion index—based on 84 industries—the correlation improves to 0.46. Second, using the actual job growth data, the correlation improves to 0.60. And, finally, if we also take into account the length of the work week, the correlation for aggregate hours worked and industrial production is 0.69. Clearly, more information is better.


How do we interpret the latest ISM numbers? Table 2 above shows the results when we regress GDP growth on its own lags and then add the composite ISM. The results underscore the difficulty in forecasting GDP. Using the average ISMs for July and August, the model with just GDP lags predicts growth of 2% in 3Q, while the model with the ISM points to 4.0%. However, the error band for these forecasts is very high – the “standard error” for the first model is 2.4pp and the second model 2.1pp. In other words, using a two standard error confidence band, we can be “95% confident” that growth is somewhere between zero and 8%. On the other hand, it is encouraging that the ISM is statistically significant.

To recapitulate:

the US data mills churn out a lot of surveys. Since the last FOMC meeting, there have been four new ISM readings and a bunch of regional releases. A popular view is that these surveys are better than hard data. In our view, however, these data get way too much air time. They give a timely, rough read on the economy, but should get little weight once hard data are released.

via Zero Hedge Tyler Durden

When the Defaults Come, So Will the Wealth Grab


The biggest problem with the epic Central Bank rig of the last five years is that propping up a bankrupt financial system by printing money only works for so long.


The reason for this is that no one, whether it be a country, company, or person, can defy mathematics.


A loan can be extended, it can be restructured, or it can be finagled in countless financial ways. But at the end of the day, if your creditors lost faith in your ability to repay it… it’s GAME OVER.


History has shown many times that countries try to inflate their debts away until the inevitable restructuring occurs. As Argentina is now showing us, when the “D” word becomes palpable, markets move quickly.


Anyone who is truly concerned about their wealth in the coming years needs to assess what has happened in Europe: higher taxes on top earnings and bail-ins (meaning your bank deposits are raided to fund bank bailouts).


Indeed, the IMF recently proposed a “global wealth tax” to “restore debt suatainability.”


Here’s the critical quote:


Recurrent taxes on net wealth (assets less liabilities) have been declining in Europe over the last 15 years (repealers include Austria, Denmark, Finland, Germany, the Netherlands, and Sweden). But this may be changing: Iceland and Spain reintroduced the tax during the crisis, and it is now actively discussed elsewhere. (There has been interest, too, in the possibility of a one-off wealth tax to restore debt sustainability, taken up in Box 6.)


The revenue potential is subject to considerable uncertainty (related, for instance, to the valuation of real estate) but is in principle sizable. Based on Luxembourg Wealth Study data, a 1 percent tax on the net wealth of the top 10 percent of households could, in principle, raise about 1 percent of GDP per year…




The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”—a one-off tax on private wealth—as an exceptional measure to restore debt sustainability.1 The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair)




Anyone who has assets worth over $200,000 should note that the Governments of the world WILL be coming for your money to prop up the insolvent banks. And they’re going to be taking MORE instead of less.


Indeed, in the case of Cyprus, the proposed wealth tax of 7% of all deposits over €100,000 quickly rose to an incredible 47%!  Those individuals whose deposits were seized received equity in the banks themselves.


This scheme has been used in Spain multiple times… though the press has yet to note that when the banks FAIL, that equity is worth ZERO.


Cyprus has since released some of these funds though they are subject to capital controls (READ: YOU CANNOT GET YOUR MONEY OUT OF THE COUNTRY).




1)   Cyprus staged a bail-in, froze accounts, and took 47% of wealth over the first €100,000.

2)   EU Finance ministers announced this policy will be a “template” for bailouts going forward.

3)   The IMF hints that a global wealth tax might be a good thing.


Connect the dots…


This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at


This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.


Best Regards


Phoenix Capital Research




via Zero Hedge Phoenix Capital Research

The Yellen “Resilience” Doctrine Is Dangerous Keynesian Blather

Submitted by David Stockman of Contra Corner blog,

Just when you thought that nothing could be worse than bubble blindness of Greenspan and Bernanke – along comes the Yellen doctrine of “resilience”. Its dangerous Keynesian blather, and far worse than Greenspan’s feigned agnosticism which held that the Fed does not have the capacity to recognize financial bubbles in the making and should therefore mop them up after they burst. The Maestro never did say exactly what caused the massive and destructive dot-com and housing bubbles which occurred on his watch – except that Chinese factory girls stacked 12-to-a-dorm-room apparently saved way too much RMB.

By contrast, Yellen’s primitive Keynesian mind knows exactly what causes financial bubbles. She has now militantly asserted that bubbles are entirely an irrational impulse in the private market and that the price of money and debt has absolutely nothing to do with financial stability.  That’s right, if the Fed could find a way to peg the money market rate at negative 10% to further its self-defined dual mandate of just enough inflation and always more jobs – even then any speculative excesses would presumably be attributable to still another outbreak of the market’s alleged propensity for error, irrationality and greed.

Let’s see. If the central bank arranged to cause carry-traders to get paid 8% to borrow short-term money (i.e. on a negative 10% deposit rate) in order to fund the carry on junk bonds, Turkish construction loans and the Russell 2000, do ya think they might get a tad rambunctious? For crying out loud, when it comes to speculation, leverage, maturity transformation and re-hypothecation of financial assets the money market interest rates is “not nothing” as Yellen contends. Its everything!

That’s the heart of the matter and why Keynesian central banking is the most destructive and dangerous doctrine ever invented. In effect, it mandates central bankers to seize control of the single most important price in all of capitalism–the price of “carry” or gambling stakes in the financial markets – and then asserts that this drastic pre-emption will have no impact on the behavior of speculators, traders and investors.

That predicate is so perverse that it puts one in mind of the boy who killed his parents and then threw himself on the mercy of the courts on the grounds that he was an orphan! Keynesian central bankers like Yellen are doing exactly the same thing. Pegging the money market rate at zero for seven years amounts to killing all of the financial market’s inherent stability mechanisms.

That is to say, carry trades are made essentially risk free because the money market rate is officially pegged at zero. Moreover, the Fed has further promised to be utterly transparent in notifying gamblers as to when the spread between their funding cost and their asset yield will change, and with ample advance notice.

Furthermore, the downside risk on the asset side of the trade is also substantially removed. Owing to the long-standing Greenspan/Bernanke/Yellen “put” the cost of “protection” against sharp declines in the broad market (such as the S&P 500 index) has become dirt cheap. In effect, the Fed is massively subsidizing the cost of put options that allow speculators to insulate their risk asset positions.

Accordingly, momentum deals and carry trades are far more profitable than they would be on an honest free market because in the latter case market-priced insurance premiums would eat up far more of the winnings. Needless to say, out-sized and artificial profitability attracts massive excess capital and resources into the hedge fund and trading desk gambling arenas—–the very motor forces of financial instability.

Likewise, an essential ingredient of honest two-way financial markets is speculation from the short-side. Self-evidently, ZIRP, bond market repression and the Fed’s stock market put have driven the short interest out of the casino entirely. So now we have one-way markets that are inherently prone to powerful speculative excess.

Worse still, as one-way markets gain steam they are self-evidently prone to pro-cyclical acceleration and mania buying of anything going up solely on the grounds that rising prices beget even higher prices. Clearly that is what is happening in the C-suites today where companies are consuming all of their earnings in share repurchases in order to goose their share prices by attracting even more momentum chasers into their stock.

In this context of pro-cyclical acceleration of the bubble,  “price discovery” is lost entirely, fundamentals become irrelevant and the market becomes a pure gambling arena.  What all of this adds up to, of course, is massive, intensifying and dangerous financial instability.

At the end of the day, blaming the private market for financial instability is the most perverse form of statist lie that is imaginable. According to Yellen, the financial system should be made more “resilient” through strengthened “macro-prudential” policies. That’s Washington pettifoggery for more intrusive, extensive and arbitrary regulation of the financial markets.

But here’s the thing. When you sponsor a casino you should not be shocked to find that gambling is happening inside. And it is utterly naïve to assume that you can hire enough police to monitor, comprehend and regulate the amount of risk-taking that goes on among the gamblers.

Yellen has hinted, for instance, that the LBO market is getting frothy, and regulators are now proposing to limit leveraged loans to 6X EBITDA. Good luck with that! By the time regulators figure out all the “adjustments” to GAAP EBITDA, the next round of bankruptcies will already be underway.

So the clear and present danger is this: We now have two decades of financial instability and three bubble cycles that prove Keynesian central banking is the culprit.  Accordingly, the way to make financial markets more “resilient” is to eliminate the central bank’s price pegging and propping policies which fuel serial bubbles and the economy impairing boom and bust cycles which go with them.

A place to start would be to repeal Humphrey-Hawkins, abolish the FOMC and let the money market rate be set by the supply of savings and the demand for funding. Once today’s Fed enabled gamblers had been laid low and purged from the system, the financial markets would take care of their own “resilience”.

via Zero Hedge Tyler Durden

Someone Forget To Tell The VIX-Slamming Machines That The Market Is Shut

As American investors sit back in their chairs, watching parades, sipping Budweiser elegantly, and generally having a good day off… there are some ‘people’ that are working hard to ensure the status quo is sustained. In order to maintain the illusion of exuberance and lack of concern, we are used to the ubiquitous melt-up in stocks late on a Friday afternoon (always driven by an ‘odd’ collapse in VIX). Of course, no human would be silly enough to do that on a day when European stocks tumbled on banking contagion concerns and the fact that stock markets around the world are now totally closed… so –  we ask in all incredulity – WTF is going with VIX futures


The July VIX Futures – which do not mature for another 10 days – have collapsed…


And it’s not some fat finger thin volume trade – it is massive algorithmic idiocy…


Someone tell the machines to take the day off

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via Zero Hedge Tyler Durden

By “Punishing” France, The US Just Accelerated The Demise Of The Dollar

Not even we anticipated this particular “unintended consequence” as a result of the US multi-billion dollar fine on BNP (which France took very much to heart). Moments ago, in a lengthy interview given to French magazine Investir, none other than the governor of the French National Bank Christian Noyer and member of the ECB’s governing board, said this stunner at the very end, via Bloomberg:


Here is the full google translated segment:

Q. Doesn’t the role of the dollar as an international currency create systemic risk?


Noyer: Beyond [the BNP] case, increased legal risks from the application of U.S. rules to all dollar transactions around the world will encourage a diversification from the dollar. BNP Paribas was the occasion for many observers to remember that there has been a number of sanctions and that there would certainly be others in the future. A movement to diversify the currencies used in international trade is inevitable. Trade between Europe and China does not need to use the dollar and may be read and fully paid in euros or renminbi. Walking towards a multipolar world is the natural monetary policy, since there are several major economic and monetary powerful ensembles. China has decided to develop the renminbi as a settlement currency. The Bank of France was behind the popular ECB-PBOC swap and we have just concluded a memorandum on the creation of a system of offshore renminbi clearing in Paris. We have very strong cooperation with the PBOC in this field. But these changes take time. We must not forget that it took decades after the United States became the world’s largest economy for the dollar to replace the British pound as the first international currency. But the phenomenon of U.S. rules expanding to all USD-denominated transactions around the world can have an accelerating effect.

In other words, the head of the French central bank, and ECB member, Christian Noyer, just issued a direct threat to the world’s reserve currency (for now), the US Dollar.

Putting this whole episode in context: in an attempt to punish France for proceeding with the delivery of the Mistral amphibious warship to Russia, the US “punishes” BNP with a failed attempt at blackmail (recall that as Putin revealed, the BNP penalty was a used as a carrot to disincenticize France from concluding the Mistral transaction: had Hollande scrapped the deal, BNP would likely be slammed with a far lower fine, if any). Said blackmail attempt backfires horribly when as a result, the head of the French central bank makes it clear that not only is the US Dollar’s reserve currency status not sacrosanct, but “the world” will now actively seek to avoid USD-transactions in order to escape the tentacle of global “pax Americana.”

And, the biggest irony of all is that in “punishing” France for dealing with Russia, that core country of the Eurasian alliance of Russia and China, the US merely accelerated the gravitation of France (and all of Europe) precisely toward Eurasia, toward a multi-polar (sorry fanatic believers in a one world SDR-based currency) and away from the greenback.

Or shown visually (as we have ever since 20120).

Meanwhile, somewhere Putin is still laughing.

via Zero Hedge Tyler Durden

Happy Birthday America

It’s different this time…



Source: Cagle

Some thoughts (submitted by Chris Moorman),

“Keep, ancient lands, your storied pomp!” cries she
With silent lips. “Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!”


-The New Colossus by Emma Lazarus

Happy Birthday America!
238 years old. Quite a respectable age.
You’ve managed to stay upright and breathing through a Civil War which nearly ripped you in half. 
You fought on behalf of liberty in two World Wars which enveloped you from across the globe, and even in victory, you magnanimously invited the vanquished back into the global community with open arms.
You’ve welcomed, albeit occasionally with gritted teeth, the “huddled masses” and “wretched refuse” of immigrants unwanted in their native lands and assimilated them into a society which has grown to be the richest the world has ever seen.
You’ve dealt with modernization, urbanization and the mass media.
You faced down the threat of nuclear annihilation and the dehumanizing spectre of Communism largely with soft power instead of the destruction that total war brings.
For the better part of two and a half centuries, you’ve held true to those most sacrosanct of ideals espoused by your Founding Fathers, those mostly enlightened men, “who brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal” and in doing so have been a source of hope for freedom loving people everywhere.
This isn’t to say that you’ve been blameless. No institution, no matter how grand its codified ideals (I’m looking at you Catholicism) can stay blameless forever. The stain of slavery, the dehumanization of those we found on this continent prior to European discovery, and the wars of choice fought over the past 60 years have fallen short of your commitment to those high minded ideals in favor of “realpolitik.”
I should quit saying “you.” This isn’t a professional sports team I’ll never play for, this is America. This is the living breathing organism which has from my first breath, blessed me with freedom, safety and mobility to be whomever I choose to be.
I cannot pick those attributes of America with which I agree a la carte, leaving the less desirable remainders for others to choke down. I cannot look at my neighbor and say, “Oh no, this is YOUR President. I didn’t vote for him.”
Men and women who came before me gave their blood, sweat, tears and lives to vouchsafe my ability to make this MY America, one where each voice, no matter its wealth, social status, or color of skin has an equal part to play in maintaining the greatest engine of human freedom and prosperity that the world has ever seen.
Yet spending another 4th of July abroad, I find myself tired.

I am tired of trying to explaining away the past 14 years of leadership so comically unenlightened that our political system has devolved into a shouting match incapable of legislating.


I’m tired of trying to explain to the Europeans and the Vietnamese and everyone else who doesn’t share my passport cover that the policies of my government do not reflect Americans as individuals.


I’m tired of seeing my government encroaching further and further into the lives of its citizenry, of spying on even our allies, and systematically limiting the rights of the individual.


I’m tired of being called a “brainwashed moron” because I believe in the fundamental American right to bear arms, even in the face of yet another mass shooting.


I’m tired of seeing my fellow Americans try to pass themselves off as Canadians to attempt to shirk a history that while imperfect, is still as proud or prouder than any nation the world has ever seen.

For all the chest beating talk of “American Exceptionalism” I hear at home, I am tired of being in a room of foreigners and seen as the idiot because I am not “properly embarrassed” of my country.
I am an American, and God help me if even for a fleeting moment that I deny that enviable truth.
I stand here today embracing the fact that the problems of the nation which has given me so much are inseparable from my own.
I look to the members of the so called “Greatest Generation,” who sacrificed lives by the millions against a tyrannical force as twisted and corrupt as any seen in the course of human history, for guidance. 
They fought with a single mind against an enemy armed with weapons engineered to make the slaughter of innocents magnitudes more efficient than ever before. They had the same right to vote that I did. They did not shirk from their duty, or try to hide behind their broken political system. They stood and took the mantle of liberty upon their own shoulders and said, “Liberty will prevail, and America will make sure of it.”
What happened to that America? Are we going through some sort of national midlife crisis?
Why is my generation different from that of my grandparents? Has our democratic right to vote been taken away? Has our voice been silenced by statute or dictat? Do we find men with guns at our doors waiting to silence opposition?
No. The answer is much more humiliating.
We’ve merely disengaged. We’ve taken the spoils that our forebears won for us and squandered our inheritance on iPhones and TVs. On houses that would’ve made even the richest in generations past blush with the embarrassment.
We’ve taken “conspicuous consumption,” once a behavior to be avoided at all costs, and made it into a virtue.
We tear apart our politicians at the slightest misspoken word, while giving our hours and eyeballs to such enlightened television as “Teen Mom,” “Honey Boo-Boo,” and the countless shows devoted to the Kardashians, a family known only for the limited virtue of their fame seeking promiscuity.
We’ve taken capitalism, an engine of growth predicated on rewarding the hardest working and most creative among us, and corrupted it into a rigged game of three card monte through cronyism and financialization.
Americans have inherited a system which requires constant maintenance, and we’ve let it go on autopilot for nearly an entire generation. The results have been as bad as history would have predicted.
Our education system, once envied as the best in the world, now languishes along side such countries as Lithuania and the Slovak Republic, and behind those once “vanquished” foes, the Russians.
Our middle class has been systematically gutted, our rural communities left to wither on the vine both economically and socially, and our political class has partitioned themselves away from the people whom they are elected to represent, happy to bicker from their DC perches rather than associate with the lower classes in anything more meaningful than a photo-op.
The America that we live in and the freedoms we enjoy are not ours by divine right. It is, and will continue to be an ever evolving experiment, the results of which are determined daily by the diligent effort of those citizens who continue to maintain it through their individual efforts.
Our efforts determine the America that my children and yours will inherit.
It is the sacred duty of each of us to ensure that that inheritance is worth receiving.
America I haven’t given up on you. Far from it, my travels have merely galvanized my belief in that responsibility George Washington entrusted to Americans 227 years ago.
Let us raise a standard to which the wise and honest can repair
Generations of great men and women have both raised and maintained that standard, handing it to their sons and daughters in turn. It is the hallowed responsibility of mine to repair it to its former glory, not let it fall to a state beyond repair.
Happy Birthday America.
Enjoy it.
We’ve got work to do tomorrow.

via Zero Hedge Tyler Durden

The Complete Annotation Of SocGen’s Latest Hit Piece On Gold

Gold has held firmly above $1300 for over two weeks, confounding those who said it would never see that key level again, but as the constantly-bearish SocGen explains in this ‘astounding’ report, gold’s downturn is set to return… except their reasoning has a fatal flaw – it’s entirely factually incorrect.



As SocGen writes…

Gold holds firmly above $1,300/oz
After showing a lack of price direction in the first two months of this quarter, gold entered a new uptrend in June, gaining 6% in the first three weeks and hitting a two-month high of $1,322/oz (on an intra-day basis) on the 19. A much firmer tone in gold was supported by the June CFTC data, which showed a steady increase in the long-side speculative position, to reach its highest level since May 2013 in the last week of the month. It touched a high of just over $1,332/oz earlier this week but slipped thereafter, but continued to hold firmly above the $1,300/oz level.

[ZH – a big surprise to many that Gold was the best-performing asset in Q1]

Economic worries prompt safe-haven buying
Demand for safe-haven gold was sparked by fresh concerns about global economic recovery after the World Bank slashed its global growth forecast for this year, blaming severe weather conditions in the United States, financial market turmoil and the crisis in Ukraine. Similarly, the OECD cut its forecasts for global growth this year and next, citing slowing economic activity in emerging countries and concerns about the US Federal Reserve’s tapering. The escalation of violence in Iraq was among other factors supporting gold prices.

[ZH – yes]

But Gold’s downtrend to resume on improving US economy…
Looking ahead, we believe that gold’s current shine is unlikely to last and the downtrend, which started in 2013, is likely to resume as we move into the second half of the year. First, US economic data indicates that economic activity has picked up in recent months, pointing to stronger growth in the second quarter. This has been supported by further improvement in labour market conditions and upbeat manufacturing data. We are therefore likely to see continued tapering of the Fed’s asset purchase programme, and, later on, a gradual normalisation of the policy, weighing on gold’s safe haven appeal.

[ZH – improving US economy? Q1 GDP was worst in 5 years, Q2 GDP estimates are tumbling, and 2014 GDP expectations are now the lowest since forecasts began]

…Weak physical markets…
Second, support from the physical market remains weak, as there has been a lack of investment demand from key Asian markets. Gold’s recent rally, in addition to sustained yuan weakness, weighed on gold demand in China, which last year overtook India to become the world’s largest gold consumer. Gold imports from Hong Kong, the main channel for gold into the country, fell in May to the lowest level since January 2013, although some of this decline can be explained by increased volumes going through Shanghai. In addition, increased concerns about the use of gold to back loans, after Chinese authorities reportedly discovered billions of dollars of illegal gold financing transactions, have weighed on gold prices.

[ZH – actually the Chinese commodtity-financing-deals implies gold strength as forward/future hedges are unwound driving prices up and wagging the spot market’s tail higher]

Gold demand in India, the second largest consumer of the yellow metal, has been restrained by the government’s stringent measures introduced last year and aimed at reducing the country’s massive current account deficit by imposing restrictions on gold imports. While it is widely expected that the new government will cut the duty on gold imports at its upcoming annual budget in July, this is unlikely to drive imports significantly higher as the 80:20 rule is expected to remain in place for some time. In the meantime, while the gold industry is waiting for a possible easing of restrictions, demand for gold remains subdued.

[ZH – India just announced it would reduce tariffs and ‘swap’ its gold with the Bank of England – expectations that reduced tariffs would not bring back demand for India gold are baseless and the swap itself will be swallowed by a market desperate to transfer paper to physical. On a side note Gold ETF physical holdings are rising once again]

* …And easing geopolitical tensions
Third, geopolitical tensions have been providing a strong boost for gold prices so far this year. Gold’s safe haven appeal has been driven, among other factors, by continued violence in Iraq and the tense situation in Ukraine. However, once geopolitical tensions start easing, gold is likely to come under pressure.

[ZH – Easing geopolitical tensions?!!! Like Ukraine’s cessation of the cease-fire, like Kuwait’s burning, like Iraq’s turmoil?]

In the near term, it is possible to see gold prices edging even higher, as it will continue to benefit from geopolitical risks. The recent news that Singapore is planning to launch the first exchange-traded physically-backed gold kilobar contract in September has also provided additional boost to gold sentiment. However, without firm support from the physical market and in light of additional signs of economic recovery in the US, we are likely to see gold’s current rally falter sooner than later.

[ZH – so, in summary, SocGen thinks the trends that are supporting gold strength are all false or ending and, no matter what, their prediction of lower gold prices must hold – or else the entire dream of the return of the status quo is over]

*  *  *

Perhaps we should forward this report to SocGen’s Robin Bhar

In Gold We Trust Report 2014

via Zero Hedge Tyler Durden

The Great Rotation Is Over

We’re going to need another meme… the great pretense of the great rotation as ‘investors’ dump bonds and buy stocks with both hands and feet as they realize growth has reached escape velocity and its time to BTFATH… has failed. As the following chart from JPMorgan shows, the brief period of net flows to stocks over bonds has ended. If a rally like this can’t get the animal spirits flowing in anyone but the C-Suite of your local share-buyback-ing corporation, when will it?



Source: JPMorgan

via Zero Hedge Tyler Durden

The US Bank That Made BNP’s Epic Money-Laundering Possible Is…

Today’s undisputed winner of the prestigous award for best use of the word “unwittingly” in the headline of an article about money-laundering goes to Bloomberg, for their brilliant


Because when you help a foreign bank violate U.S. sanctions as French bank BNP did when it hid billions of dollars in transactions involving Sudan and Cuba and yet you somehow completely slip through the fingers of the US Department of Justice (sic), it can only be “unwittingly.”

Recall that “BNP Paribas, France’s largest bank, agreed June 30 to plead guilty to processing almost $9 billion in banned transactions involving Sudan, Iran and Cuba from 2004 to 2012. The company, which will pay a record $8.97 billion in penalties, will also be temporarily barred from handling some U.S. dollar transactions.” But certainly not all.

But how did JPM end up in the, yes yes unwitting, position of helping the biggest money laundering operation since HSBC decided to fund terrorist organizations around the world?

BNP Paribas turned to JPMorgan on the basis of legal advice from Cleary Gottlieb Steen & Hamilton LLP, said two people who asked not be named because the identities of the bank and the law firm haven’t been disclosed. The Paris-based lender relied on a legal memo that suggested using a U.S. bank might protect it from sanctions penalties, according to the statement of facts filed by prosecutors in New York.

Wait, so the name of JPM in the complaint hasn’t been revealed. Supposedly this is because of JPM’s “unwitting” innocence, as it would be uncouth to soil JPM’s fair name by appearing in a lawsuit whose main role is to punish France for opposing the US and delivering an amphibious assault ship to Russia.

JPMorgan is referred to as “U.S. Bank 1” while Cleary Gottlieb is identified as “U.S. Law Firm 1” in the court filings, the people said. Cleary Gottlieb later said such transactions may be illegal. Neither JPMorgan nor Cleary Gottlieb are accused of wrongdoing.

But wait, what if one actually, gasp, connects the dots as Bloomberg appears to have done:

In 2011, JPMorgan paid $88.3 million to settle an unrelated civil probe into transactions involving Cuba, Iran and Sudan. Investigators at the Treasury Department cited incidents in which JPMorgan managers and supervisors “recklessly failed to exercise a minimal degree of caution or care” in their sanctions obligations. The bank said at the time that none of the alleged violations was intentional.

In other words, the bank wired money to Cuba, Iran and Sudan accidentally. But… it doesn’t read so accidental to us:

BNP Paribas used a network of non-U.S. banks, including at least nine Arab banks, to disguise U.S. dollar transactions, according to court papers. “To the U.S. bank, it appeared that the transaction was coming from the satellite bank rather than a Sudanese bank,” according to the statement of facts filed in court, which BNP Paribas admitted to as part of its settlement.


BNP Paribas would transfer funds from a Sudanese bank to an account maintained by one of the satellite banks, according to the filing. The satellite bank would then transfer the money to the beneficiary by submitting the funds through JPMorgan without any mention of Sudan, according to the statement of facts, which identified the bank only as “U.S. Bank 1.”

But… that doesn’t sound unwitting to us. Not unwitting at all. Actually, it gets even worse:

The plan to use JPMorgan was put together by BNP Paribas executives in Paris and Geneva in the fall of 2004 after transactions involving overseas clients caught the attention of U.S. and state regulators, according to the statement of facts. BNP Paribas signed documents with the regulators in September of that year promising to improve its compliance systems.


Shortly thereafter, senior BNP Paribas executives met in Geneva to discuss how “embargoes against sensitive countries,” specifically Sudan, Libya and Syria, would affect the bank’s business, according to the statement of facts. They discussed using an unaffiliated U.S. bank to process payments involving countries subject to U.S. sanctions, the document states. Until then such transactions were being handled by BNP Paribas’s New York branch.


Following that meeting, BNP Paribas employees in Geneva were instructed to have U.S. dollar payments involving sanctioned entities cleared through “U.S. Bank 1” instead of BNP Paribas’s New York unit. “From 2004 through 2007, the vast majority of BNPP Geneva’s transactions involving Sudanese Sanctioned Entities were cleared through U.S. Bank 1 using a payment method that concealed from U.S. Bank 1 the involvement of Sanctioned Entities in the transactions,” according to the document.

Oh yes, because JPM did 3 years worth of billion dollar transactions without having a clue who was on the other end.  Well, the did one time:

In February 2006, JPMorgan rejected a transaction submitted on behalf of a Cuban credit facility after “back office employees had inadvertently made reference to Cuban entities,” the document states. Two other payments were also blocked by BNP Paribas’s New York branch. BNP Paribas resubmitted all three transactions after eliminating the references to the Cuban entity, according to the document.

And after any reference to Cuba was quietly stripped, all continued as per normal, with JPM wittingly not asking a single question where all this money is coming from, and certainly where it is going.

So in conclusion, it was “BNPP’s handling of these blocked payments was indicative of the bank’s cavalier — and criminal — approach to compliance with U.S. sanctions laws and regulations,” according to the statement of facts.

It definitely was not JPM’s “cavalier – and criminal – approach” for being the bank that enabled BNP’s money laundering in the US in the first place, something which resulted in a whopping $88.3 million fee charged to Jamie Dimon’s Congressional lobbying account. That was clearly unintentional. Because when transacting billions from two offshore accounts and never even pretending to care where the money comes from and goes to, as the US implies by not charging JPM as well, it can only be “unwitting.”

End result, for the same violation:

  • JPM paid a settlement of $88.3 million and neither admitted nor denied anything
  • BNP has so far paid a penalty of $8.97 billion and numerous people have lost their jobs (even if again nobody is going to prison, as they may sing and who knows which president, premier, congressman, minister, managing director or central banker will be named…)

Thus, new normal justice (sic).

via Zero Hedge Tyler Durden

Ron Paul: Celebrate Independence Day By Opposing Government Tyranny

Submitted by Ron Paul via The Ron Paul Institute,

This week Americans will enjoy Independence Day with family cookouts and fireworks. Flags will be displayed in abundance. Sadly, however, what should be a celebration of the courage of those who risked so much to oppose tyranny will instead be turned into a celebration of government, not liberty. The mainstream media and opportunistic politicians have turned Independence Day into the opposite of what was intended.
The idea of opposing — by force if necessary — a tyrannical government has been turned into a celebration of tyrannical government itself!

The evidence is all around us.
How would the signers of the Declaration of Independence have viewed, for example, the Obama Administration’s “drone memo,” finally released last week, which claims to justify the president’s killing American citizens without charge, judge, jury, or oversight? Is this not a tyranny similar to that which our Founders opposed? And was such power concentrated in one branch of government not what inspired the rebellion against the English king in the first place?
The “drone memo,” released after an ACLU freedom of information request, purports to establish the president alone as the arbiter of who is or is not a terrorist subject to execution by the US government. There is no due process involved, just the determination of the president. Thus far the only American citizens killed by the president are Anwar al-Awlaki and his teenaged son, but the precedent has been established, according to the memo, that the president has the authority to kill Americans he believes are terrorists.
Even the New York Times, which generally backs whatever US administration is in power, is troubled by the White House’s legal justification to claim the authority to kill Americans. A Times editorial last week concluded that:

the memo turns out to be a slapdash pastiche of legal theories — some based on obscure interpretations of British and Israeli law — that was clearly tailored to the desired result.

I agree with the New York Times’ conclusion that, “[t]his memo should never have taken so long to be released, and more documents must be made public. The public is still in the dark on too many vital questions.”
Coincidentally, in addition to the “drone memo” released last week, a broader study of the US use of drones was also released by the Stimson Center. The study, co-chaired by Gen. John Abizaid, former U.S. Central Command (CENTCOM) commander, concluded that contrary to claims that drones help prevent wider conflicts by targeting specific individuals, the use of drones “may create a slippery slope leading to continual or wider wars.”
In fact, the study concluded, the use of drones overseas is likely counterproductive. “Civilian casualties, even if relatively few, can anger whole communities, increase anti-US sentiment and become a potent recruiting tool for terrorist organizations,” the study found.
Seven years ago I wrote in an Independence Day column:

Only the safe-guards and limitations that are enshrined in a constitutionally-limited republic can prohibit a nation from lurching toward empire…I hope every person who reads or hears this will take the time to go back and read the Declaration of Independence. Only by recapturing the spirit of independence can we ensure our government never resembles the one from which the American States declared their separation.

On Independence Day we should remember the spirit of rebellion against tyranny that inspired our Founding Fathers to set out our experiment in liberty. We should ourselves celebrate and continue that struggle if we are to keep our republic.

via Zero Hedge Tyler Durden