iftttwall

On Tuesday, multiple media outlets jumped at the opportunity to report that China has built radar facilities at Cuarteron Reef, Beijing’s southern-most South Pacific sandcastle.

“New radar facilities being developed in the Spratlys, on the other hand, could significantly change the operational landscape,”  Gregory Poling of CSIS’s Asia Maritime Transparency Initiative said, explaining why the radar installations are actually a bigger deal than the deployment of HQ-9 surface-to-air missiles on Woody Island.

Here’s a bit more from Poling:

Construction of facilities at Cuarteron seems nearly complete and the artificial island now covers about 52 acres (211,500 square meters). Two probable radar towers have been built on the northern portion of the feature, and a number of 65-foot (20-meter) poles have been erected across a large section of the southern portion. These poles appear to be a high-frequency radar installation, as was first speculated on The Diplomat, which would significantly bolster China’s ability to monitor surface and air traffic across the southern portion of the South China Sea. In addition to these radar facilities, China has constructed a buried bunker and lighthouse on the northern portion of the feature, a number of buildings and a helipad in its center, communications equipment to the south, and a quay with a loading crane on the western end of the outpost.

 

Poling goes on to say that Beijing has likely also put radar installations on other islands in the Spratlys, but that, as it turns out, isn’t the big story.

Just moments ago, GOP mouthpiece Fox News said China has now deployed fighter jets to Woody Island, where imagery from ImageSat International (ISI) showed two batteries of eight surface-to-air missile launchers in place earlier this month. 

“Chinese Shenyang J-11s (“Flanker”) and  Xian JH-7s (“Flounder”) have been seen by U.S. intelligence on Woody Island in the past few days, the same island where Fox News reported exclusively last week that China had sent two batteries of HQ-9 surface-to-air missiles while President Obama was hosting 10 Southeast Asian leaders in Palm Springs,” Fox reports, gleefully. “The dramatic escalation cames minutes before Secretary of State John Kerry was to host his Chinese counterpart, Foreign Minister Wang Yi, at the State Department.”

“There is no difference between China’s deployment of necessary national defense facilities on its own territory and the defense installation by the U.S. in Hawaii,” Foreign Ministry spokeswoman Hua Chunying said Monday, in an effort to play down the buildup on Woody.

China raised eyebrows earlier this year when Beijing landed civilian aircraft on a 10,000 foot airstrip constructed atop Fiery Cross Reef.

We’d love to be a fly on the wall for Kerry’s imminent meeting with Wang, who we’re sure will tell America’s top diplomat what he told the Western media last week: Don’t mind the missiles and the warplanes, focus on the lighthouses.

*  *  *

For those who missed it, here are the images from Woody which depict the SAM deployment:

via Zero Hedge http://ift.tt/1UlkaRG Tyler Durden

Last year, Kyle Bass – and a few other enterprising members of the 2 and 20 crowd – had an idea.

Changes in patent laws implemented in 2012 allow individuals to challenge patents for the bargain price of just $23,000. Apparently, the thinking was that there were too many patents being awarded and making the challenge process easier would go some ways toward ameliorating the “problem.” As we put it last March: “That makes sense. When too many people are inventing things, one way to stop such nonsense is to make suing inventors cost far less than it used to.”

Not surprisingly, the new process is used far more frequently than the old way of going about things which required the party contesting the patent to file a civil suit.

Now clearly, $23,000 is not a lot of money for a hedge fund with substantial AUM which means managers could theoretically challenge as many patents as they wanted to without incurring material costs. A simple strategy was born: challenge a drug company’s patent and then short the equity which would invariably tank if said patent is invalidated.

That sounds shady but the likes of Bass claim the patents drive drug costs higher and keep them there. “The political debate has moved on to drug pricing,” he says, “but the key enabler of drug companies’ ability to raise prices ad infinitum is the fact that the US government grants a monopoly, and that monopoly is maintained by the US patent office.”

A long-running biotech rally driven in part by M&A tied to specialty drug companies drove valuations into the stratosphere at one point, making short bets all that much more attractive.

Well as it turns out, all of this was easier said than done because as FT reports, “Bass has returned most of the $700m he raised last year for a high-profile campaign against pharmaceuticals companies and their drug patents.”

“More than half of Hayman’s challenges have been thrown out even before getting a hearing at the US Patent and Trademark Office,” The Times continues. Most of the important challenges “were rejected at the door,” RBC’s Michael Yee says, adding that the ones that were accepted “didn’t matter.”

So just as Martin Shkreli can no longer go massively long insolvent biotechs and inflate the value of his holdings by driving up the price of a drug and subsequently pulling the borrow, it looks like Bass’s plan to go massively short and then pull the patent rub from beneath companies’ feet isn’t going to work anymore either. 

Of course Bass can’t exactly abandon the strategy now, lest everyone would see the move as proof that his plan had nothing to do with lowering drug prices and everything to do with his short positions. 

“We are not stopping,” he says, noting that he still has “all the capital he needs to pursue everuthing to its logical conclusion at the patent office.”

When it comes to “logical conclusions,” he probably should have known last year that the government wasn’t likely to let him make a killing by filing $23,000 patent challenges one at a time. 

That’s ok. If his China thesis is even half right he’ll make enough money for a dozen lifetimes. 

Ironically, the following headline came across the wires this afternoon: “Bass Wins Right to Challenge Pozen Drug on Vimovo Arthritis Drug.”

via Zero Hedge http://ift.tt/1QwNGhr Tyler Durden

Bill Gates is supporting backdoor FBI access to iPhones.

Is anyone surprised?

Microsoft programmers have allowed NSA backdoors in all Windows software since 1999 or before.

And while Microsoft sometimes pretends that it's fighting for privacy, it has long been a direct partner of the NSA, helping government at every opportunity.

via Zero Hedge http://ift.tt/1p22PS8 George Washington

Two weeks ago, shortly before noting that Venezuela’s CDS is now at the same level where Greece was 3 months before its default, we wrote that as a result of a recently implemented gold swap with Deutsche Bank, Venezuela was preparing to liquidate its remaining gold holdings (ostensibly temporarily, if only on paper) in order to pay down its upcoming debt maturities.

As it turns out Venezuela has already started moving much of its gold reserve to Europe where it will be located closer to swap-provider and ultimate custodian, and liquidator, Deutsche Bank, by way of Switzerland. According to BullionStar, Switzerland has imported a net of 35.8 tonnes of gold from Venezuela in January 2016.

And so, the gold which deceased Venezuela leade Hugo Chavez so painstakingly tried to collect from Europe, is just a few short years later, about to make its way back to where it came from.

More from BullionStar’s Koos Jansen

Venezuela Exported 36t Of Its Official Gold Reserves To Switzerland In January

This unusual high tonnage must be gold from the central bank of Venezuela – Banco Central de Venezuela (BCV) – that has been swapping metal with banks or simply sold it in the open market. Remarkably, after Venezuela repatriated 160 tonnes in official gold reserves from 25 November 2011 until 30 January 2012, it started to slowly export this gold to the world’s largest gold trading and refining hub, Switzerland, in 2015. How much unencumbered official gold reserves Venezuela has left is unknown.

Venezuela’s economy is in dire straits. Adding to failing economic policy by the government the country gets nearly all of its export revenue from oil, of which the price has declined roughly 70 % since 2014. Venezuela’s foreign exchange reserves are dwindling fast, from $24.2 billion dollars in February 2015 to $14.8 billion dollars in November 2015, while Inflation is said to be triple-digit and Credit Default Swap (CDS) data shows that traders see a 78 % chance on default, according Reuters. In an effort to avoid catastrophes the BCV has a very strong motive to employ its official gold reserves.

The 35.8 tonnes of gold in question that arrived in Switzerland in January 2016 must be sourced from the vaults of BCV in Caracas, because Venezuela has no significant gold mine output, according to the US Geological Survey its annual production stands at approximately 12 tonnes, and its citizenry is unable to sell such tonnages. If we look at historic cross-border trade we find that gold export from Venezuela to Switzerland commenced in 2012 with 4 tonnes, followed by 10 tonnes in 2013, 12 tonnes in 2014 and 24 tonnes in 2015. It’s possible the shipments in 2012, 2013 and 2014 were largely sourced from Venezuela’s mine output, but it’s impossible the shipments in 2015 and 2016 were not sourced from the BCV.

From the data provided by Switzerland’s customs department we can estimate the purity of the gold traded by using the average monthly gold price and subsequently compare the weight to the value disclosed in the reports. In the chart below we can see that until May 2013 the gold Venezuela was exporting to Switzerland was roughly 80 % pure, this could have been for example doré bars from mines or coin bars from the BCV, while starting from December 2013 the shipments were roughly 99.5 % pure, suggesting the gold came predominantly from BCV in London Good Delivery bars or US Assay office bars.

Chart 1. Non-monetary gold import Switzerland from Venezuela, the purities are estimates.

 

* * *

Reuters wrote Venezuela’s gold involved in swaps does not enter the
market. I beg to differ. Normally, in a swap the gold is sold spot from
the client to the dealer in exchange for dollars, while both parties
agree to reverse the purchase at a future date at a fixed price. If the
gold is physically moved during the swap depends on several factors.
Because Venezuela had repatriated 160 tonnes of gold in 2011/2012 this
metal left the London Bullion Market Association’s chain of integrity. Hence, Gutierrez
stated no bank is going to take gold collateral that’s held in Caracas.
When BCV’s 50 tonnes stored in London were already on swap with
Citibank, it was forced to bring gold to the bullion banks when it
needed additional dollars. The gold moving to Switzerland is an example.

It’s not possible to trace exactly how much gold BCV has exported for
swap deals, or potentially sales, through foreign trade statistics.
Official gold reserves are monetary gold, which is exempt from being disclosed in foreign trade statistics (click this
link for a detailed analysis on how monetary and non-monetary gold
transfers are recorded in foreign trade statistics and in balance of
payments around the world). Whenever BCV chooses to ship any of its gold
abroad, for swaps or sales, there are two options with respect to
foreign trade statistics, (i) the monetary gold is exported abroad, or
(ii) the monetary gold is demonetized in Venezuela and exported abroad.
Only in the latter option the gold would show up in foreign trade
statistics, as such data solely records movements in non-monetary gold.
For all clarity, gold can leave the London Bullion Market Association’s
chain of integrity although still being monetary gold, these are
separated classifications.

From all sources and evidence presented above actually I think both
options are explored. We can clearly see demonetized gold going to
Switzerland, but there are also hints monetary gold is exported
abroad. Foreign trade statistics by the UK, Switzerland and Hong Kong –
the major gold trading hubs – have not shown any gold import from
Venezuela reflecting BCV’s declining reserves in March and April 2015 or
export in July 2015, meaning Venezuela had probably exported metal invisibly
as monetary gold. Needless to say, if BCV would sell any of its gold
reserves directly to a fellow central bank, for example the People’s
Bank Of China, the related shipments would never show up in foreign
trade statistics.

From all information at my disposal I cannot conclude how much gold
BCV has on swap or unencumbered in the vaults in Caracas. Surely,
Venezuela its official gold reserves are not as much as the World Gold
Council portraits. According to the Council BCV still holds 361 as of Q4
2015, though the balance sheet at the BCV website
from November 2015 states “Oro monetario 69,147,656,000”, which is
worth $11 billion US dollars at an official exchange rate of 0.16, and
roughly 296 tonnes of gold at a nine months rolling average
gold price of $1,152.68 an ounce (which is how BCV gold is valued,
pointed out by Manly). The 296 tonnes will not be fully unencumbered as
bullion banks offer swaps while the gold remains on the client’s balance
sheets (/double counting).

Obviously Venezuela is in a tight spot. The country is trying
desperately to survive on its last reserves and the bullion banks seem
to offer shark deals. How long this can go on is anyone’s guess.

via Zero Hedge http://ift.tt/1ozPkby Tyler Durden

Do not show this chart to Melinda Zabritski:

For those unfamiliar, Melinda is Experian’s senior director of automotive finance and she’s never, ever worried. Or at least not that she lets on.

“We’re not seeing anything that would be a red flag,” she said earlier this month in response to data that showed the percentage of auto loans made to buyers with the poorest credit ratings is growing faster than the rest of the auto finance market. As a reminder, here’s the chart that shows the trend:

What the first chart shown above (from Wells Fargo) shows is that delinquencies on the subprime car loans that have found their way into the $125 billion annual market for auto loan-backed ABS have risen to their highest level since 2010. 

As we’ve gone out of our way to document, underwriting standards for car loans are getting looser as lenders scramble to feed Wall Street’s securitization machine and keep America’s auto sales “miracle” alive. Of course the pool of creditworthy borrowers is finite and so it must be continually expanded by lending to those whose FICO scores and income might not otherwise warrant the extension of a loan. 

Indeed Experian itself will tell you that the market is getting more extended all the time, with average payments rising right alongside loan terms. Some of the loans now being pooled, chopped, packaged and sold to investors were made to borrowers with no credit score at all (thank you Skopos Financial). 

And while Citi isn’t ready to ring the alarm bells just yet (see here), Wells Fargo apparently is.

“Rising delinquencies are a warning sign that more loans may end up in default down the road,” Bloomberg reports, citing Wells analyst John McElravey. “What may be most troubling, however, is that the default rate is already climbing, up to 12.3 percent in January from 11.3 the month prior. That is also the highest since 2010, the data show.”

McElravey goes on to suggest that because delinquencies seem to be rising in areas that are hard hit by the slump in crude, we could be on the precipice of a rather precipitous increase in defaults. After all, the consequences for Main Street of the prolonged downturn in crude and other commodities are just beginning to show (see here). As are the effects of the slowdown in global growth and trade (see the recent layoffs at Daimler in North Carolina). As McElravey puts it, “the data on subprime auto is worth watching closely, especially against the backdrop of subpar economic growth.”

But before you go thinking you’re Michael Burry and suprime auto is your overheated 2007 housing market, remember, Citi’s Mary Kane says you shouldn’t watch too many movies:  “It seems like too many people have seen the movie ‘The Big Short’ and are starting to think the movie heroes’ short strategy would translate to the ABS market. By the way, the ABS conference did NOT take place at Caesar’s Palace that year as per the film, it was at The Venetian. So, it’s not wise to believe everything you see in a movie and hit films are not the best source for trade ideas,” she wrote late last month. 

Who you gonna believe, Mary and Melinda or your lyin’ ..er.. Wells?

via Zero Hedge http://ift.tt/1TxCCGc Tyler Durden

After last week's roller-coaster ride (API "draw" vs DOE "build"), tonight's API data (following Al-Naimi's reality check this morning) was much heralded. After DOE reported builds across the entire complex last week, and expectations of a 3mm barrel build, API reported a massive 7.1mm build and a bigger than expected 307k build at Cushing.

• Crude +7.1mm (3mm exp)
• Cushing +307k (300k exp)
• Gasoline +569k (-1mm exp)
• Distillates -267k (-700k exp)

While this may have been catch up from last week's data, this is still a major build from API…

 

WTI plunged at the NYMEX close and was limping lower into the API print and then collapsed at the massive build hit…

 

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1UlaaYU Tyler Durden