Month: November 2014

It never fails: any time there is a dump in precious metals through their paper representation (GLD, SLV, or futures) typically as a hedge to a rally in the dollar (because last week Japan materially increasing its fiat monetary base was also somehow negative for gold and silver) or to meet margin demands from cross-asset liquidation, demand for physical PMs soars confirming yet again that any connection between paper prices and physical demand no longer exists.

Whether it is China buying every ounce of gold it can find (whether to facilitate Commodity Funding Deals or to meet pure consumer or central bank demand), or US consumer rushing into retail outlets, the surge in physical metal buying is there like clockwork. Such as US Mint silver orders. As reported on Friday, sales of American Eagle silver coins by the U.S. Mint jumped 40 percent in October to the highest in 21 months, defying a slump in New York futures to the lowest in more than four years.

 

Sales surged to 5.79 million ounces, the most since January 2013, the month that set an all-time high at 7.5 million, Bloomberg reports. “Today, sales jumped 33 percent in one of the busiest times this year”, Tom Jurkowsky, a spokesman at the Washington-based mint, said in an interview. Last month’s total was 4.14 million.

“We saw demand surge over the past two days,” Michael Kramer, the president of New York-based MTB Inc., a dealer authorized to purchase coins directly from the mint, said in a telephone interview. “Business was almost triple than what it has been over the past few months.”

Logically, as a result of the surge in physical demand, silver futures for December delivery dropped 1.9 percent to close at $16.106 an ounce on the Comex in New York. Earlier, the price touched $15.635, the lowest for a most-active contract since Feb. 25, 2010.

Because when it comes to precious metals, thanks to the BIS and the central banks, Paper beats Rock every time.

The flipside, of course, is that continued selling of paper metals provides buyers of physical metals with ever lower entry prices, even if, or rather especially if it means, that quite soon, if not already, most gold miners will be selling gold below production cost as we showed back in 2013.

Needless to say, it would be quite fitting of the New Normal for gold (and silver) miners to suffer a cascade of bankruptcies, ultimately leading to zero physical extraction of precious metals even as the relentess naked shorting of gold and silver paper pushes the price of the metail to triple digits, or lower.

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

There are three elements to the investment climate:  The divergence between the US on one hand and Europe and Japan on the other, the drop in many commodity prices, including oil, and the slowing of the Chinese economy.  

 

Last week, the divergence was driven home by policy makers.  The contrast could not be starker. The FOMC ended QE, and seemingly began prepare investors for a rate hike next year, and the Bank of Japan, surprise of extending its asset purchases from JPY60-70 trillion a year to JPY80 trillion.  

 

The euro fell to new cyclical lows not only as a result of the yen’s pull, but also from the general pessimism of the outlook for the region.  The ECB is still thinking on too small of a scale to be truly persuasive, and Germany is as determined as ever not to have its pocket picked.  Indeed, domestic political concerns, particularly electoral gains of the AfD, may limit Merkel and Schaeuble’s already restrained desire to compromise.   Moreover, the Greek government needs to cobble together a super-majority to pick a new president.  Failure to do so would force a snap election, and polls show the anti-EU Syriza party running ahead.  

 

There is little on the near-term event horizon that will significantly change the investment climate.   There is some talk that the  ECB could follow the BOJ and spring a surprise on investors. We suspect not.  However, Draghi will likely confirm that there are other assets, such as corporate bonds, and the ECB could purchase if needed.  Draghi argues that the impact of the ECB’s unorthodox monetary policy is constrained by the lack of sufficient structural reforms on the government level.  

 

With the FOMC statement acknowledging the improvement in the labor market, they may have stolen much of the thunder from this week’s jobs data.   Weekly jobless claims are making new lows.  In the first nine months of the year, the US economy grew a net 2.5 mln jobs.  Job growth has been remarkably steady.  The 3-month average is 224k, while the 24-month average is 229k.  

 

The outcome of the US mid-term elections is unlikely to be a mover of markets. The Republicans are favored to extend their majority in the House of Representatives and take a razor-slim lead in the Senate. It will though provide a sense of who the key players will be in next year’s fiscal drama in which the debt ceiling and sequester issues return.  Two other controversial acts come up for renewal next year:  the Export-Import Bank and the Highway Trust Fund, which funds the construction of an important part of the US infrastructure.  

 

While the ECB and the Reserve Bank of Australia meet next week, neither is expected to do anything, and last week’s moves by the Bank of Japan may overshadow modest tweaks in the official language.   It terms of its asset purchases; the ECB has chosen a course that puts it in action immediately, but slowly.  With some economic data stabilizing, and the launch of the ABS purchase program in November, there is not immediate need to unveil new initiatives.  

 

The Reserve Bank of Australia is also under no compulsion to adjust monetary policy.  It has been saying that monetary policy was on hold for an “extended period” for some time, it is vulnerable to being tweaked.   The RBA would prefer if the policy was eased through a depreciating currency. The Australian dollar is the only major currency that appreciated against the US dollar in the month of October.  Between the statement following the RBA meeting and the Monetary Policy Statement proper at the end of the week, a call for a weaker currency should be anticipated.  

 

The Bank of England meets.  It is widely anticipated to stand pat, and if so, it will not issue a statement.  The combination of an economy losing some earlier momentum (which should be confirmed in this week’s PMIs), easing inflation and negative real wage growth has seen the market push out rate hike expectations.  

 

Japan delivered not one but two shocks at the end of last week:  The BOJ’s moved to expand its asset purchase program and a dramatic shift in the government’s largest pension fund (GPIF, AUM ~JPY127 trillion or ~$1.14 trillion) allocation was announced Although officials have tried playing down the interconnection, but they need to be understood together.  

 

The increase of BOJ JGB purchases (~JPY30 trillion a year) largely, but not completely, offsets the amount of bonds GPIF is expected to sell as part of the more aggressive shift in its portfolio than expected.    Moreover,  other pension funds are likely to duplicate the GPIF strategy.   Already, before the doubling of GIPF’s allocation to domestic equities was officially announced, Japanese trust banks, operating on behalf of pensions, aggressively stepped up their purchases of Japanese shares.  Reports indicate that after buying JPY79 bln of Japanese equities in September, the trust banks bought JPY543 bln in the first three weeks of October.  

 

The BOJ itself tripled the amount of equities it will buy to JPY3 trillion.  It will focus on the JPX-Nikkei 400, which includes companies that embrace Abenomics and the return on equity.  In addition to this ETF, the BOJ will increase its REITs purchases too. 

 

Perhaps more controversial, and also an unspoken driver of the yen’s near free-fall before the weekend, was GPIF’s decision to double its allocation of international equities (from 12% to 25%).   It also will increase the share going into international bonds (from 11% to 15%).   This amounts to something on the magnitude of $152 bln purchases of foreign  stocks and bonds.   

 

The extent to which the QE created funds leak out of Japan can be debated.  The diversification of its portfolio will require GIPF to sell yen and buy foreign currencies is unambiguous.  More than two-thirds of the MSCI World Index is accounted for by three countries, the US, the UK and France.  Whatever benchmark GPIF will use, it is unlikely to be significantly different than the MSCI benchmark which covers about 85% of the free-float adjusted market capitalization of 23 developed countries.

 

Some journalists, like Ambrose Evans-Pritchard of the UK’s Telegraph and Michael Casey of the Wall Street Journal, have already claimed this to be a shot in the currency wars.   Casey focuses exclusively on the BOJ activity and does not even mention GPIF.  Evans-Pritchard spends most of his time talking about the bearish yen implications of the increased BOJ purchases, and mentions GPIF only at the very end of the his essay, and even then to dismiss it as “a clever way for Japan to intervene in the currency markets to hold down the yen.”  

 

Why hasn’t the world responded to the more than 30% depreciation of the yen under Abenomics?  Casey warns us it is just a matter of time, but offers no explanation for why, as he recognizes, that “the biggest players in the global monetary system have mostly resisted direct tit-for-tat responses to Japan’s yen-weakening moves over the past two years.”  Evans-Pritchard suggests that the  QQE was launched when the yen was terribly over-valued, but this time it is not.

 

Casey and Evans-Pritchard are well versed in economic theory.  A weaker currency is supposed to boost exports, and squeeze Japan’s competitors.  In practice, the situation is considerably more complex.  Japanese companies do not appear to be using the weaker yen to gain market share as economic theory would suggest. Indeed, Casey’s colleague at the Wall Street Journal, Takashi Nakamichi noted at the end of July, “[Japan’s] export volumes have hardly budged. Many manufacturers opted to keep their export prices little changed to enjoy inflated foreign earnings”. 

 

In September, the most recent data available, China’s exports were up over 15% on a year-over-year basis.  Despite the pressure on the yen-yuan rate that Evans-Pritchard notes, it is hard to make a case that the weakening yen has sapped Chinese exports.   Both Casey and Evans-Pritchard cite South Korea as another victim of Japan’s attempt to drive the yen lower.  South Korean exports were up nearly 7% in the year through September over the comparable period in 2013.       Moreover, we note that in both of this year’s US Treasury reports on foreign exchange and the international economy, South Korea was cited for not permitting more currency adjustment.  The OECD measures of purchasing power parity have the won some 25%.

 

In market lore, Japanese postal savings, like Kampo, was thought to time its purchases and sale of foreign currencies to assist MOF objectives. The long-discussed changes to the allocation of the government’s largest pension fund cannot be regarded as intervention, regardless of appearances.  Motivations matter.  The movement of assets out of low-yielding Japanese fixed income market is aimed at enhancing returns and addressing the looming pension challenge in the aging Japanese society.   Similarly, if Calpers, (California Public Employees Retirement System) changes its allocation to boost holdings foreign assets, it too is not intervention. 

 

That neither the expansion of QQE nor the diversification of Japanese pension money reaches the threshold of currency manipulation does not mean that Japan’s strategy will not face objections.   This more aggressive monetary policy stance, and augmented by the diversification of Japanese savings seems to be instead of the kind of structural reforms that will boost Japan’s growth potential.   The first arrow of Abenomics, fiscal stimulus, was blunted by the sales tax increase.  The third arrow of Abenomics, structural reforms, have largely disappointed local and international investors. 

 

Japanese policy makers have resorted to the easy course, relying ever more on the second arrow.  The BOJ’s new measures mean that it will be expanding its balance sheet about 1.4% of GDP a month.  This is around three times Fed’s QE pace.   And even with this, the BOJ cut its forecast for inflation  in FY15 to 1.7% from 1.9% and left its forecast for growth unchanged at 1.5%.  The world needs a stronger Japan, and it is not clear that Japan has found that path yet. 

 

via Zero Hedge http://ift.tt/1t1TX90 Marc To Market

“It’s never gonna get any better, be happy with what you got… because the ‘owners’ of this country don’t want that. The ‘real’ owners of America – the big wealthy business interests that control things and make all the important decisions – got you by the balls… What they don’t want is a population of well-educated people capable of critical thinking.”

 

Three minutes of uncomfortable truth…

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

Submitted by Pater Tenebrarum via Acting-Man blog,

The BoJ Goes Even Crazier

It has been clear for a while now that the lunatics are running the asylum in Japan, so perhaps one shouldn’t be too surprised by what happened overnight. Bloomberg informs us that “Kuroda Jolts Markets With Assault on Deflation Mindset”.

The policy hasn’t worked so far, in fact, it demonstrably hasn’t worked in Japan in a quarter of a century. Therefore, according to the Keynesian mindset, we need more of it. Mr. Kuroda therefore delivered a surprise spiking of the punchbowl that immediately impoverished Japan’s consumers further by causing a sharp decline in the yen:

“Today’s decision to expand Japan’s monetary stimulus may be regarded as shock treatment in the central bank’s effort to affect confidence levels. Bank of Japan Governor Haruhiko Kuroda’s remedy to reflate the world’s third-largest economy through influencing expectations saw the yen sliding and stocks climbing.

 

Kuroda led a divided board in Tokyo in a surprise decision to expand unprecedented monetary stimulus. Bank officials hadn’t provided any hints in recent weeks that additional easing was on the cards to help reach the BOJ’s inflation goal. Kuroda, 70, repeatedly indicated confidence this month that Japan was on a path to reaching his 2 percent target in the coming fiscal year. Just three of 32 economists surveyed by Bloomberg News predicted extra easing.

 

“We have to admit that this is sort of a second shock — after we had the first shock in April last year,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo, referring to the first round of stimulus rolled out by Kuroda in 2013. Kanno, who used to work at the BOJ, said “this is very effective,” especially because it comes the same day as the government pension fund said it will buy more of the nation’s stocks.

(emphasis added)

So why is there allegedly a “need to combat the deflation mindset”? Below is a chart of the recent increases in Japan’s CPI.

In actual practice, it matters little how they have come about – the fact that CPI was inter alia boosted by a hike in consumption taxes does not alter the fact that every consumer in Japan is now getting fewer goods and services for his income and savings than before. No consumer is going to a shop and saying to himself “the fact that things are now vastly more expensive than before somehow shows we are still in deflation, because it has happened for transitory reasons”. All he knows is that he is getting less for his hard-earned money. Mr. Kuroda is evidently not moved by such considerations.

 

Japan’s CPI is recently growing at a 3.2% annual rate. Obviously, this means one must “combat the deflation mindset” – click to enlarge.

 

 

Bloomberg’s article continues along precisely these lines:

“A decline in demand following April’s sales-tax increase and the tumble in oil prices are putting downward pressure on prices in Japan. Today’s decision came hours after a government report showed that core inflation eased to the slowest pace in six months in September.

 

The 3 percent gain in core consumer prices — the BOJ’s main gauge — was just 1 percent with the effects of April’s sales-levy hike stripped out.

 

The BOJ today reduced its estimate for the core consumer price index, which excludes fresh food and increases to sales tax, to 1.7 percent for the fiscal year through March 2016, from 1.9 percent previously. The bank kept its forecast at 2.1 percent for the following year.

 

The central bank won’t hesitate to act again if needed, Kuroda said, pointing out there’s still room for additional measures. The BOJ acted as skeptical views mount over the effect of quantitative easing, according to Citigroup Inc. economists Kiichi Murashima and Naoki Iizuka. “If the impact of today’s action on the economy and prices proves limited, the impact on financial markets may also prove short-lived,” they wrote in an e-mailed note.

The above is a corollary to the recently heavily propagated idea that falling oil prices are somehow “bad” for oil consuming countries because they might lead to lower prices! You can read this nonsense in every statist rag, from the Financial Times to the Economist. If this doesn’t prove how utterly absurd the basis of today’s central bank policies is, nothing ever will. These people have taken complete leave of what was left of their senses.

Although it shouldn’t be necessary to say this, here is a reminder: rising stock prices are not “proof” that things are fine. If that were the yardstick by which to measure the “success” of central bank money printing, the best performing economies in the world would be those of Venezuela, Argentina and Iran.

 

BoJ credit, as represented by the asset side of its balance sheet. Still not enough! – click to enlarge.

 

Kuroda’s Policy Will End in A Catastrophe

In order to explain why the pursuit of Kuroda’s policy is edging ever closer to a catastrophic outcome, we have to delve a bit into the details of Japan’s monetary data. In spite of the BoJ’s “QE” reaching record highs, it mainly creates bank reserves and furthers carry trades. The economy sees no private credit growth so far.

Commercial banks in Japan continue to shrink the stock of fiduciary media – this is to say, they are reducing outstanding credit, which makes more and more unbacked deposit money disappear. Hence, Japan’s money supply growth has recently decline to a mere 4.3% year-on-year, as the rate of contraction in outstanding fiduciary media (i.e., uncovered money substitutes) has accelerated to 9.4 annualized in spite of the BoJ’s pumping.

The reason is a technical one: contrary to the Fed, the BoJ buys most of the securities it acquires in terms of its “QE” operations directly from banks – this creates new bank reserves at the BoJ, but no new deposit money. By contrast, the Fed buys only from primary dealers, which are legally non-banks (even though most of them belong to banks). This creates both bank reserves and deposit money concurrently. The BoJ’s actions can only directly inflate the money supply to the extent it buys securities from non-banks, e.g. when it buys stocks in REITs to prop up the Nikkei.

Below is a chart showing the annual growth rate of Japan’s narrow money supply M1, which is essentially equivalent to money TMS (it comprises demand deposits and currency).

 

Japan’s 12-month money supply growth has declined to 4.3%, in spite of the BoJ’s pumping  – click to enlarge.

 

In short, the effectiveness of the BoJ’s pumping depends on the extent to which commercial banks are prepared to employ additional bank reserves to pyramid new credit atop them and thereby create additional fiduciary media. Japan’s banks are doing the exact opposite, mainly because there simply isn’t sufficient demand for credit. Why would anyone borrow more money, given Japan’s demographic situation?

However, one result of this is that an ever larger portion of Japan’s money supply actually consists of covered money substitutes – deposit money that is “backed” by standard money. Covered money substitutes have grown by more than 77% over the past year.

Bank reserves can be transformed into currency when customers withdraw cash from their deposits, hence to the extent that deposit money is “backed” by bank reserves, it ceases to be a form of circulation credit. The narrow money supply in total now amounts to roughly 595 trillion yen; of this, roughly 139 trillion yen consist covered money substitutes and 83.4 trillion yen consist of currency (outstanding banknotes in circulation). Thus the stock of fiduciary media has shrunk to 372.6 trillion yen.

 

Japan: currency plus demand deposits = M1 = true money supply – click to enlarge.

 

And yet, in spite of Japan’s money supply growing much slower than money supply in both the US and the euro area, the yen continues to implode:

 

The yen’s plunge is accelerating   – click to enlarge.

 

The yen’s ongoing collapse suggests that Kuroda will eventually get his inflation wish, as import prices continue to rise. In fact, Japan recently regularly reports trade deficits, which is inter alia a result of the plunge in the yen’s external value. Currently, this is offset to some extent by the decline in commodity prices, but given that commodities are by now extremely cheap relative to financial assets such as stocks and bonds, it becomes ever more likely that this offset will eventually reverse.

 

An era of trade deficits has begun in Japan, concurrently with the decline in the yen   – click to enlarge.

 

The question is though, why is the yen falling so much if Japan’s money supply isn’t expanding at a very strong rate? We believe the answer to this question is to be found in the following statistics:

 

Gross government debt to GDP – Japan is the undisputed public debt king of the developed world – click to enlarge.

 

It is well known that Japan has a very high public-debt-to GDP ratio. Even with the recent economic upswing, its budget deficit for the current year is projected to clock in at more than 7% of GDP – the latest in a string of huge annual deficits. What is less well known is the ratio of public debt to tax revenues, which is actually the more relevant datum:

 

Government debt relative to tax revenues   – click to enlarge.

 

We conclude from this that the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means.

In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”.

On the surface, this monetarist wizardry suggests that one can indeed “get something for nothing” – but that just isn’t true. Deep down, market participants know that it isn’t true – so even though they are celebrating the promise of more liquidity by sending Japanese stocks soaring, they are also creating a fault line – and that fault line is the external value of the yen.

Among the industrialized welfare states, Japan is the one that is closest to government bankruptcy. Even with interest rates at record lows, the proportion of debt growth that is caused by mounting debt servicing costs alone has begun to rise in recent years due to the sheer size of the public debt outstanding. In other words, the government is by now in a so-called “debt trap”.

It has only been able to avoid more grave repercussions so far because Japan has run a current account surplus for a long time, and and only very few foreign investors therefore own JGBs. Japan’s own state-owned financial institutions such as the Post Bank and the state-owned pension fund have invested a large part of the population’s savings predominantly in JGBs.

And yet, the seeming calm rests on what appears to be increasingly misplaced confidence. All that is needed to blow the entire scheme to smithereens is an event that leads to a cracking of this confidence. Once a critical mass of economic actors becomes convinced that the plan is indeed to “make the public debt disappear” by monetization, and given what markets have done so far, it seems increasingly likely that it is the yen that will crack first. However, the sign that the ship is actually capsizing will be when JGB values begin to plummet in spite of the BoJ’s buying of government debt.

The growing amount of bank reserves piling up as a corollary to the BoJ’s exploding holdings of JGBs are like tinder waiting for a spark to set it off. Since Japan’s financial institutions hold large amounts of JGBs as ‘risk free’ assets augmenting their capital, their solvency will come into doubt should JGBs begin to decline in value. This is likely to happen should the fall in the yen’s external value get out of control. In that event, large portion of the covered money substitutes sitting in accounts may actually be converted into currency by panicked depositors. Then Mr. Kuroda will be reminded of the old saying “be careful what you wish for”.

 

Conclusion:

Japan’s aging population needs rising prices like a hole in the head. The more “successful” Mr. Kuroda becomes in forcing prices up, the less money people will have to spend and invest. The economy will weaken, not strengthen, as a result. The advantages the export sector currently enjoys are paid for by the entire rest of the economy. moreover, even this advantage is fleeting. It only exists as long as domestic prices have not yet fully adjusted to the fall in the currency’s value.

If one could indeed debase oneself to prosperity, it would long ago have been demonstrated by someone. While money supply growth in Japan has remained tame so far, the “something for nothing” trick implied by the BoJ’s massive debt monetization scheme is destined to end in a catastrophe unless it is stopped in time. Once confidence actually falters, it will be too late.

 

Haruhiko Kuroda believes the economy is a machine, and he just needs to pull, the right levers.

via Zero Hedge http://ift.tt/1o59TM7 Tyler Durden

The excesses of 1980s New York investment banking as captured best (and with just a dose of hyperbole) by Bret Easton Ellis’s American Psycho may be long gone in the US, but they certainly are alive and well in other banking meccas, such as the one place where every financier wants to work these days (thanks to the Chinese government making it rain credit): Hong Kong. It is here that yesterday a 29-year-old British banker, Rurik Jutting, a Cambridge University grad and current Bank of America Merrill Lynch, former Barclays employee, was arrested in connection with the grisly murder of two prostitutes. One of the two victims had been hidden in a suitcase on a balcony, while the other, a foreign woman of between 25 and 30, was found lying inside the apartment with wounds to her neck and buttocks, the police said in a statement.

As Reuters reports, the Hong Kong police said that a 29-year-old foreign man had been detained earlier that day after two women were found dead in an expensive apartment in Wan Chai, a central city district known for its night life.

A spokesman for Bank of America Merrill Lynch told Reuters on Sunday that the U.S. bank had, until recently, an employee bearing the same name as a man Hong Kong media have described as the chief suspect in the double murder case. Bank of America Merrill Lynch would not give more details nor clarify when the person had left the bank.

 

Britain’s Foreign Office in London said on Saturday a British national had been arrested in Hong Kong, without specifying the nature of any suspected crime.

The details of the crime are straight out of American Psycho 2: the Hong Kong Sequel. One of the murdered women was aged between 25 and 30 and had cut wounds to her neck and buttock, according to a police statement. The second woman’s body, also with neck injuries, was discovered in a suitcase on the apartment’s balcony, the police said. A knife was seized at the scene.

According to the WSJ, the arrested suspect, who called police to the apartment in the early hours of Nov. 1, was until recently a Hong Kong-based employee of Bank of America Merrill Lynch.

Filings with Hong Kong’s securities regulator show that the suspect was an employee with the bank as recently as Oct. 31.The man had called police in the early hours of Saturday and asked them to investigate the case, police said.

 

Hong Kong’s Apple Daily newspaper said the suspect had taken about 2,000 photographs and some video footage of the victims after the killings including close-ups of their wounds. Local media said the two women were prostitutes.

 

The apartment where the bodies were found is on the 31st floor in a building popular with financial professionals, where average rents are about HK$30,000 (nearly $4,000) a month.

According to the Telegraph the suspect, who had previously worked at Barclays from 2008 until 2010 before moving to BofA, and specifically its Hong Kong office in July last year, had apparently vanished from his workplace a week ago. It has also been reported that he resigned from his post days before news of the murders emerged.

And as usual in situations like these, the UK’s Daily Mail has the granular details. It reports that the British banker arrested on suspicion of a double murder in Hong Kong has been identified as 29-year-old Rurik Jutting. 

Mr Jutting, who attended Cambridge University, is being held by police after the bodies of two prostitutes were discovered in his up-market apartment in the early hours of yesterday morning.

 

Officers found the women, thought to be a 25-year-old from Indonesia and a 30-year-old from the Philippines, after Mr Jutting allegedly called police to the address, which is located near the city’s red light district. The naked body of the Filipina victim, who had suffered a series of knife wounds, was found inside the 31st-floor apartment in J Residence – a development of exclusive properties in the city’s Wan Chai district that are popular with young expatriate executives.

 

The second woman was reportedly discovered naked and partially decapitated in a suitcase on the balcony of the apartment. She is believed to have been tied up and to have been left there for around a week. 

 

Sex toys and cocaine were also reportedly found, along with a knife which was seized by officers.

 

Mr Jutting’s phone is today being examined by police in a bid to identify possible further victims, according to the South China Morning Post. 

 

It is understood that photos of the woman who was found in the suitcase, apparently taken after she died, were among roughly 2,000 that officers found on the device.

 

Mr Jutting attended Winchester College, an independent boys school in Hampshire, before continuing his studies in history and law at Pembroke College, Cambridge, where he became secretary of the history society.  

 

He appears to have worked at Barclays in London between 2008 and 2010, when he took a job with Bank of America Merrill Lynch. He was moved to the bank’s Hong Kong office in July last year. 

 

A spokesman for Bank of America Merrill Lynch confirmed that it had previously employed a man by the same name but would not give more details nor clarify when the person had left the bank.

 

CCTV footage from the apartment block, located near Hong Kong’s red light district, showed the banker and the Filipina woman returning to the 31st floor shortly after midnight local time yesterday.

 

He allegedly called police to his home at 3.42am, shortly after the woman he was seen with is believed to have been killed.

 

She was found with two wounds to her neck and her throat had been slashed. She was pronounced dead at the scene.

 

The body on the balcony, wrapped in a carpet and inside a black suitcase, which measured about three feet by 18 inches, was not found by police until eight hours later. 

 

A police source quoted by the South China Morning Post said: ‘She was nearly decapitated and her hands and legs were bound with ropes. ‘She was naked and wrapped in a towel before being stuffed into the suitcase. Her passport was found at the scene.’

 

Wan Chai, the district where the apartment is located, is known for its bustling nightclub scene of ‘girly bars,’ popular with expatriate men and staffed by sex workers from South East Asia.  Police have today been contacting nearby bars in an attempt to find out more about the background of the two murdered women.  

 

One resident in the 40-storey block, where most of the residents are expatriates, said he had noticed an unusual smell in recent days. He told the South China Morning Post that there had been ‘a stink in the building like a dead animal’.

And just like that, the worst excesses of the “peak banking” days from 1980, when sadly scense like these were a frequent occurence, are back.

Rurick Jutting, a Cambridge University graduate, has been named as the suspect of the double murder

Government workers remove the body of a woman who was found dead at a flat in Hong Kong’s Wan chai district in the early hours of this morning. A British man was been arrested in connection with the murders.

A second victim was found stuffed inside a suitcase on the balcony of the residential flat in Hong Kong

The 40-storey J Residence is reportedly a high-end development favoured by junior expatriate bankers

via Zero Hedge http://ift.tt/10eqcuM Tyler Durden

What has been expected for quite a while has now officially happened. The Federal Reserve stated that it would stop intervening on the market where it has been buying treasury bonds and mortgage-backed securities like there was no tomorrow anymore. The program started at a rate of $45B per month but was upscaled rather fast to $85B per month before being gradually scaled back since the beginning of this year. The Fed’s balance sheet has expanded considerably as you can see on the next chart.

Whereas the total balance sheet of the Fed was less than 1 trillion Dollars by the end of 2008, this has been increasing exponentially and in just the last 24 months the assets on the Fed’s balance sheet increased by 60% to 4.5 trillion dollars. Yellen has kept her promise as she said she’d scale the open-market purchases back if the economy would strengthen sooner than anticipated.

Even though Quantitative Easing has now officially been stopped, the reaction in the gold price was actually quite muted. Gold bears have been predicting a crash of the gold price as soon as the money-printing stage would be reduced or stopped, but they have been proven wrong as the gold price dropped less than 2.5% on the news and subsequently lost another 3%.

This means that gold is much more resilient than originally thought and that the gold price is NOT purely depending on the effects of a Quantitative Easing program, as so many people want to make you believe.

But wait, let’s not get carried away by the so-called ‘End of Quantitative Easing’ and have a closer look at this MBS purchase program. The Fed’s announcement to stop purchasing additional Mortgage-Backed Securities was just talking about NEW investments paid for by freshly printed money. It is the central bank’s intention to continue to reinvest the returns on its $1.7 trillion dollar Mortgage-Backed Securities portfolio back in the market in the foreseeable future.

If we’d estimate the return on investment on these MBS’es to be 2.75% (which is roughly the return in the PIMCO MBS Fund where the average maturity of the MBS portfolio is less than 4 years), an additional $47B (on TOP of the maturing principal amounts) per year which would flow into the Fed’s treasury will very likely immediately be reinvested. That would mean that on average $4B per month in interest payments would continued to be invested in MBS, and this is just a 20% decrease versus the official $5B per month number. So even though the Federal Reserve pretends it will no longer spend $5B per month on mortgage-backed security purchases, it isn’t actually stopping the MBS purchases as these will continue at at least $4B per month. This number will very likely be even higher, as it is also the Federal Reserve’s intent to reinvest the principal amounts as well.

So in the MBS market, the Federal Reserve is saying one thing but is actually doing the complete opposite.

The only difference is that these aren’t called ‘MBS purchases’ but ‘reinvestments’. Whatever they want to call it, the Federal Reserve will still pump in excess of $45B per year in the MBS market so the life support will still be switched on in the foreseeable future. And the Federal Reserve has no official mandate to take the money back out of the market when the MBS mature. Theoretically, the central bank would be allowed to reinvest the principal amounts as well as the interest payments on these amounts in infinity. Even though market analysts at for instance Deutsche Bank expect the Fed to phase these investments out by 2017, the central bank is under no real obligation to do so.

The next chart shows you that the Federal Reserve has been doing this for a while. At the previous meeting of the FOMC, the Federal Reserve announced it would scale back the purchase of Mortgage-Backed Securities to just $5B per month. One would then expect the total amount of MBS on the Fed’s balance sheet to increase by roughly $5B. Caught in the act, the official numbers show you that in just one month the total amount of MBS increased by not less than $16B.

The real ‘credibility test’ for the Federal Reserve will no longer be in the official Quantitative Easing numbers but in the size of the balance sheet. We dare to bet the balance sheet of the Federal Reserve won’t shrink at all in the near future, and we expect the total balance sheet to remain at extremely elevated levels for the foreseeable future.

The official Quantitative Easing has ended, but the Federal Reserve isn’t stopping its interventions as the MBS purchases will continue at the same pace. It only wants you to believe it did.

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