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Submitted by Koos Jansen via BullionStar.com,

While India’s gross gold bullion import in 2015 reached the third highest amount ever at 947 tonnes and gross silver bullion import reached the highest amount ever at 8,504 tonnes, the Indian government is perpetually trying to obstruct the populace from protecting their wealth.

Last week I was going through gold and silver trade data released by the Indian Directorate General of Commercial Intelligence and Statistics (DGCIS) and observed strong import of precious metals in 2015. At the same time I was reading the documents, news came out that stated the Indian government was to implement extra rules to hinder its people from buying gold. In my view, the situation in India is another perfect example of a government’s nonsensical fight against the economic tide. Central banks do it all time don’t they?

In an ongoing failure to understand what capitalism is about, the Indian government continues to “disagree” with its citizenry where savings should be placed. Whenever the Indian people increase gold purchases to secure their financial wellbeing, the government is keen to find new tactics to suppress this free market expression. The government aims the country’s wealth to be where it suits them – in the fiat currency they issue and control, but the populace believes fiat currency is inherently vulnerable and chooses physical gold for its long-term wealth preservation. It seems the more the Indian rulers resist private gold demand, the stronger the forces they’re fighting become. As we’ll see below, most undertakings by the government to keep its people from buying gold have been in vain.

First, let’s have a look at an overview of all the measures undertaken in the past years. At the end of the post I will present the details of the latest gold and silver import data (India mostly relies on import for its precious metals hunger).

When the price of gold made its famous nosedive in April 2013 Indian physical gold demand skyrocketed off the charts; in May 2013 India imported 165 tonnes of gold, the highest monthly tonnage ever. In reaction, the government decided in June 2013 to raise the import duty on gold from 4 % to 8 % and in August 2013 from 8 % to 10 %. In addition, in July 2013 the “80/20 rule” was implemented, forcing traders to export 20 % of all imported gold. The import duty on silver was raised to 10 % as well, although silver was not subjected to the 80/20 rule. The result was that by September 2013 India’s gold import through official channels had fallen to a mere 16 tonnes, but smuggling in gold had exploded. Gold trade was diverted to the black market with all due consequences – thriving criminality threatens social and economic stability – and India’s established gold industry organizations fiercely objected the government’s policy. Another consequence was that silver import has seen spectacular increases ever since (see further below).

Although heavily restricted, Indian gold import through official channels bounced of the lows in mid 2014. Eventually, the 80/20 rule was withdrawn in November 2014 while the Indian government was preparing a new trick: the gold monetization scheme, which was to “to mobilize the gold held by households and institutions in the country” and ”be able to reduce reliance on import of gold over time to meet domestic demand”. In my words, the scheme was intended to oversubscribe the people’s gold by exciting them to deposit their metal at commercial banks. The catch is that the gold depositor is technically lending his gold to the bank, whereby he risks losing his metal if the counterparty goes belly up – although these risks were not disclosed in the brochure. Ironically, the essence why people buy gold in the first place is protect their wealth, not to take risks (ie by lending). Not surprisingly, the gold monetization scheme has failed miserably.1– bear in mind, there is an estimated 20,000 tonnes of physical gold owned by the Indian private sector. It does not look like the gold monetization scheme will ever succeed in India.

Data from the World Gold Council shows Indian consumer gold demand accounted for 848.9 tonnes in 2015. Reasons enough for the Indian rulers to continue their hopeless quest to limit demand. In January 2016 the government introduced a rule that forces jewelry buyers to show a Permanent Account Number (PAN), which the vast majority of rural customers do not have, for any purchase above Rs 200,000. And it proposed the re-imposition of a 1 % excise duty. Remarkably, the excise duty was first introduced in 2012 but rolled back the same year as jewelers went on strike. This time around jewelers are seeking the same relief. Since 2 March they’re on strike indefinitely (speculating; the excise duty will not succeed).

Let’s head over to the most recent (final) trade data released by India’s customs department, the DGCIS. India’s gross gold bullion import in December 2015 was robust at 111 tonnes, up 9 % from November and up 218 % from December 2014. Total gross gold import for India in 2015 came in at 947 tonnes, up 22 % from 2014, the third highest amount ever.

India gross exported 11 tonnes of gold bullion in December 2015, down 22 % from November and up 35 % from December 2014. Gross gold export for the year 2015 aggregated to 150 tonnes, the highest ever, up 136 % compared to 2014. Gold bullion export might be elevated due to India’s increased refining capacity.

Net gold bullion import in December 2015 came in at 100 tonnes. Total net gold import for 2015 accounted for 797 tonnes, up 11 % year on year.

India’s gross silver bullion import was very strong in December 2015 at 1,042 tonnes, up 71 % from November and up 198 % from December 2014. Total gross silver import in 2015 accounted for a staggering 8,504 tonnes (!), up 20 % from 2014.

As, silver bullion export from India is neglectable, net import in December 2015 accounted for 1,041 tonnes and total net import for 2015 came in at 8,494 tonnes. The latter being 31 % of world silver mining output!

From looking at official precious metals import and demand numbers we can wonder if the many restrictions from the Indian government have accomplished anything to their likes. One thing is for sure; the Indian people did not substantially bought less gold – and did buy substantially more silver.

Instead of hopelessly resisting and intervening in the Indian economy, the government could also choose to allow free market forces and/or even support the people’s love for gold to bolster India’s gold industry for it to become a global powerhouse. Wouldn’t that be much more effective?

Kindly note, the cross-border trade tonnages for this post, calculated by myself and Nick Laird from Sharelynx.com, are based on the Rupee values disclosed by the DGCIS and the monthly average metal prices. The gold and silver bullion import and export figures mentioned in this post exclude smuggling and cross-border trade in precious metals jewelry.

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Last week, we learned that vehicle leasing as a percentage of monthly light-vehicle sales hit a record in February at 32.3%.

In other words, a third of the over 1 million cars and light trucks “sold” during the month were leases, according to J.D. Power.

This is indicative of what is now a long-term trend. Have a look at the following chart from WSJ, which shows that since 2009, the share of monthly auto leases as a percentage of vehicle sales well more than tripled:

Of course the thing about leased vehicles is that they come back, and as WSJ wrote last week, “about 3.1 million vehicles will return to dealer lots off leases this year, up 20% from 2015 [and] the number will climb to 3.6 million in 2017 and 4 million in 2018.”

So what does that mean for dealers? Deflation. 

And what does that mean for the automakers? Hefty losses.

Nothing about this is hard to understand. You get a supply glut causing pricing assumptions for your existing inventory to prove wildly optimistic and you end up with giant writedowns.

This has happened before. “The auto industry expanded the use of leasing in the mid-1990s, helping to fuel retail sales of new vehicles,” WSJ recounts. “Eventually, a glut of off-lease cars sent resale values down and auto lenders who had bet residuals would remain high ended up racking up billions of dollars in losses, having to sell the cars for much less than they anticipated.”

Right. Nothing difficult to grasp about that. But the especially silly thing about the dynamic with auto leases is that it was the dealers and the automaker-affiliated financing companies that made the leases in the first place. In other words, it’s not like this was some supply shock that couldn’t have been forecast ahead of time. In fact, they knew exactly when the off-lease deluge would start, so it’s not entirely clear why they would have set optimistic residual assumptions.

Anyway, the cracks are already starting to show.

The Manheim Used Vehicle Value Index posted its largest Y/Y decline in over two years last month, falling -1.4% and -1.5% M/M. We’re now 3.5% below the peak. 

“All else equal, it puts pressure on lease residuals – though we note most fincos had assumed declining used vehicle prices in their lease writing,” Goldman said, earlier today. “Second, while improving inventory acquisition cost for the dealers, it may put downward pressure on the value of existing dealer inventories, which can be negative for used margins.”

Well yes, declining used vehicle prices “may” be a “negative for used margins” – in fact that’s almost a tautology. 

And of course falling used car prices means pressure on new car prices as well, which would be a shock considering 

Obviously, the scariest part about all of the above is that consumers still have the pedal to the metal (pun fully intended) when it comes to leases, which means there’s no end in sight to the off-leases and thus no way to determine, at this juncture, how big the residual writedown wave and deflationary auto industry calamity will ultimately end up being.

So, you know… “buckle up.”

*  *  *

Bonus chart: largest used car price decline for any February since 2008

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Via ConvergEx's Nicholas Colas,

While the world’s central banks struggle with deflation, millennials (those born between 1980 – 2000) are busy creating a world where persistently lower prices will be an economic cornerstone.  “A feature, not a bug,” as they say in the tech world.

 

The immediate reason for that is simple: our cohort got stuck with educational hyperinflation, something economists miss when they look at the headline numbers. Education is only 6% of the CPI basket. For millennials, that number can easily exceed 20% because of student loans. We are therefore turning to a new tech-enabled service economy to help us make ends meet, and the majority of these new services are profoundly “Disruptive” to old business models.

 

“Disruption” is often code for “deflation”, since more taxis (Uber), hotel rooms (Airbnb), food delivery (too many examples to mention) means more price competition. And when the next wave of disruption comes along to put the current crop of “Disruptors” out of business, we’ll switch to them.  Deflation will be permanent, and we’re OK with that.  And when my cohort runs the Fed, or the ECB, or the BoJ, we will be unlikely to care if prices decline. We may even consider it the sign of a successful economy that serves its citizens well.

Note from Nick: Baby boomers know a lot about inflation.  We came of age in the 1970s, when food and gas prices rose so quickly that it was easy to come up short on cash at the checkout line. I still keep an extra $20 tucked away in my wallet because of those experiences. Jessica’s generation saw none of this, with the notable exception of educational cost inflation. Today she describes just how differently her demographic group thinks about price levels. And it is VERY different from the Boomers…

It’s no secret we millennials are pro multi-taskers when it comes to technology, and we’re often on our mobile phones and laptops while watching TV all at the same time. There is one device, however, of the three that is far harder for us to give up. No prizes for guessing which one:

• A recent Harris Poll of 2,193 U.S. adults surveyed in January shows that 61% of millennials name mobile phones as the most difficult device to unplug from, compared to television (21%) and computer/laptop (22%).
• That contrasts our parents’ generation – the baby boomers – with mobile phones nearing the bottom of the list (28%) and the top two spots going to computer/laptop (37%) and television (44%).

Dig deeper into the survey and the reasoning becomes clear, as the utility of mobile phones has increased dramatically during our lifetimes. For example, the survey notes that unplugging to the broader population means avoiding: social media (71%), the Internet (64%), email (58%), text messages (55%), mobile or tablet apps (55%), video games on consoles or handheld game devices (51%), computer games (50%), phone calls (48%), television (45%), eBooks (30%), and audio books (21%). People can participate in nearly all of these activities on mobile phones, and we’ve grown up with this benefit. So of course we’d opt for our cell phone over a TV or laptop – we can use it for all three functions.

The dominance of mobile phones and technology in our lives not only impact how we use our time, but how we spend our money. The Federal Reserve has based its inflation expectations on a relatively static basket of goods for decades, but millennials’ experience with inflation differs from our parents. Services replace physical goods, for example, while convenience gets baked into costs. Here are four variables that shape our inflation expectations:

#1 – Technology (Deflationary): When I go to the mall with friends, I rarely buy anything. Why? Because I know I can find whatever I like cheaper online. Merchants used to earn a premium for holding products customers couldn’t find elsewhere locally. Technology and the internet erase this premium and put downward pressure on the price of goods because they provide access to products all over the world, increasing competition and acting as an arbitrage.

 

For example, I’ll browse bookstores, but when a book peaks my interest, I’ll only take note of the title. Same goes for technology gadgets or devices. I know I can buy them from Amazon, for example, for a lower price, either from the site or another merchant the site hosts. I don’t even need to pay for shipping since I have a prime account, and receive my purchase in just two days. Like many other sites, Amazon’s business model hinges on maintaining competitive prices and making the consumer experience more convenient. In short, the internet offers ample price comparisons and serves as an effective platform to highlight promotional sales. Paying full price at the mall is rare except for last minute needs.

 

#2 – Sharing Economy (Deflationary): During my adolescence, I’d dedicate one category on my Christmas list to CDs. That was until iTunes came along and I could more affordably purchase single songs I particularly enjoyed. Now, music streaming services have totally changed the game. On Spotify, for example, I can make customized song lists and listen to them for a month, all for the price of less than a CD. A premium subscription to Spotify costs $10 per month versus buying a CD at Target for upwards of $15. You can even listen to music streaming services for free, if you’re willing to listen to ads and in shuffle play mode.

 

Here are some other similar examples. I don’t pay for cable because I can stream numerous shows and movies for only $8.99 a month on Netflix (in this case I don’t even need a TV since I can watch on my laptop or cell phone). I’m also able to travel a little more due to services like Airbnb, as I can find an inexpensive, comfortable place to stay. Lastly, many of my friends who live in the city don’t have a car because they can take an Uber if necessary. It’s like having a personal driver that picks them up where and at what time they want to get them to their intended destination. Bottom line: these examples show services substituting physical goods, enabling the sharing economy to act as a deflationary force in millennials’ lives.

 

#3 – Social Media (Weirdly Inflationary): I’ll be the first to admit, I often covet a friend’s new handbag or latest trip when I see pictures on Instagram. Has this inspired a few purchases or vacations on my behalf? I think you know the answer. Social media, in this sense, has created what you’ve probably heard of as “lifestyle inflation”.

 

“Keeping up with the Joneses” is nothing new, but platforms like Facebook have taken it to a new level. Everyone you know or connect with on social media can view your life more intimately than ever before, even if they live halfway around the world. A Facebook or Instagram account, for example, gives people the opportunity to portray a glamorized life. This creates competition, and may spur more expensive purchases than some individuals would have otherwise pursued. This includes everything from clothes to experiences in order to show off on the web. We also value peer reviews on products and restaurants, and will heed these opinions to attain a better quality product or service. All in all, social media is inflationary as millennials try to match or outdo each other’s lifestyle, and is a seamless advertising medium.

 

# 4 – Convenience (Inflationary, but by choice): I don’t know about you, but I dread going to the supermarket. Having to navigate through crowds and carve a chunk of time out of my busy schedule is less than ideal. That’s why I will gladly pay a grocery store delivery service to do it for me. I know I’m not alone on this front in light of the plethora of startups launching delivery services related to everything from groceries (Instacart)  and laundry (Cleanly) to alcohol (Saucey) and takeout (GrubHub). Some apps only serve certain cities, but larger companies are working to fill the void elsewhere. Amazon, for example, shows this in its effort to deliver by drone or its own trucks. They are also working on making delivery times faster with Prime Now, a same-day delivery app. Bottom line here: we’ll pay extra for convenience (inflationary), but expect this premium to abate overtime as we transition to a more on demand economy.

In sum, millennials’ inflationary basket isn’t as simple as weighting goods within large standard components like food, housing, transportation, and entertainment. Student loans, obviously not directly in the Consumer Price Index, account for one of our largest monthly payments. We therefore can’t afford a house, and a lot of us live with our parents as rental costs continue to climb. Many also can’t afford a car, in which Uber proves especially helpful. That’s why we depend on services that provide access to goods without requiring ownership. This keeps expenses low and convenience high. We care about what our friends think and have serious FOMO (fear of missing out), so we’re less reluctant to save and more inclined to travel or buy new clothes when we can. Fortunately, however, technology and startups continue to bring costs down as we benefit from each other’s contributions online and in the sharing economy. In this sense, we are more privy to the deflationary impact of technology and services, in contrast to our parents’ experience with inflation of physical goods, such as food and gasoline.

Now, I realize economists wouldn’t consider the four themes I outlined as actual inflation or deflation. They simply show how my cohort experiences price pressures that inform our thinking on the topic. This is important, however, for policy going forward as it could alter the Fed’s dual mandate on the inflation side. The expectation of deflation is already incorporated in millennial psyche, so it doesn’t necessarily delay spending as seen in Japan. We adopt technologies that force deflation. Therefore, in our world, deflation is the mark of a healthy economy. 

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So Un-Presidential…

 

 

Source: Townhall.com

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Following Genscape's projection that Cushing inventories rose less than expected, various sources on Twitter report that API sees a 4mm build (in line with expectations of a 3.9mm build) after EIA's massive build of over 10.3mm barrels last week. Cushing saw a 692k build – the 6th week in a row but gasoliine and distilklates saw a draw. Crude sold off all day as the short-covering squeeze ended but as the data hit, WTI dipped, ripped, and dipped again… only to rally once more…

 

API

• Crude +4mm
• Cushing
• Gasoline
• Distillates

Sixth weekly rise in Cuhsing Inventories…

 

And the reaction in crude…

 

Charts: Bloomberg

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Submitted by Simon Black via SovereignMan.com,

Over 4,000 years ago during Sargon the Great’s reign of the Akkadian Empire, it took 8 units of silver to buy one unit of gold.

This was a time long before coins. It would be thousands of years before the Lydians in modern day Turkey would invent gold coins as a form of money.

Back in the Akkadian Empire, gold and silver were still used as a medium of exchange.

But the prices of goods and services were based on the weight of metal, and typically denominated in a unit called a ‘shekel’, about 8.33 grams.

For example, you could have bought 100 quarts of grain in ancient Mesopotamia for about 2 shekels of silver, a weight close to half an ounce in our modern units.

Both gold and silver were used in trade. And at the time the ‘exchange rate’ between the two metals was fixed at 8:1.

Throughout ancient times, the gold/silver ratio kept pretty close to that figure.

During the time of Hamurabbi in ancient Babylon, the ratio was roughly 6:1.

In ancient Egypt, it varied wildly, from 13:1 all the way to 2:1.

In Rome, around 12:1 (though Roman emperors routinely manipulated the ratio to suit their needs).

In the United States, the ratio between silver and gold was fixed at 15:1 in 1792. And throughout the 20th century it averaged about 50:1.

But given that gold is still traditionally seen as a safe haven, the ratio tends to rise dramatically in times of crisis, panic, and economic slowdown.

Just prior to World War II as Hitler rolled into Poland, the gold/silver ratio hit 98:1.

In January 1991 as the first Gulf War kicked off, the ratio once again reached 100:1, twice its normal level.

In nearly every single major recession and panic of the last century, there was a sharp rise in the gold/silver ratio.

The crash of 1987. The Dot-Com bust in the late 1990s. The 2008 financial crisis.

These panics invariably led to a gold/silver ratio in the 70s or higher.

In 2008, in fact, the gold/silver ratio surged from below 50 to a high of roughly 84 in just two months.

We’re seeing another major increase once again. Right now as I write this, the gold/silver ratio is 81.7, nearly as high as the peak of the 2008 financial crisis.

This isn’t normal.

In modern history, the gold/silver ratio has only been this high three other times, all periods of extreme turmoil—the 2008 crisis, Gulf War, and World War II.

This suggests that something is seriously wrong. Or at least that people perceive something is seriously wrong.

There are so many macroeconomic and financial indicators suggesting that a recession is looming, if not an all-out crisis.

In the US, manufacturing data show that the country is already in recession (more on this soon).

Default rates are rising; corporate defaults in the US are actually higher now than when Lehman Brothers went bankrupt back in 2008.

These defaults have put a ton of pressure on banks, whose stock prices are tanking worldwide as they scramble to reinforce their balance sheets against losses.

I just had a meeting with a commercial banker here in Sydney who told me that Australian regulators are forcing the bank to increase its already plentiful capital reserves by over 40% within the next several months.

This is an astonishing (and almost impossible) order.

The regulators wouldn’t be doing that if they weren’t getting ready for a major storm. So even the financial establishment is planning for the worst.

Good times never last forever, especially with governments and central banks engineering artificial prosperity by going into debt and printing money.

These tactics destroy a financial system. And the cracks are visibly expanding.

So while the gold/silver ratio isn’t any kind of smoking gun, it is an obvious symptom alongside many, many others.

Now, the ratio may certainly go even higher in the event of a major banking or financial crisis. We may see it touch 100 again.

But it is reasonable to expect that someday the gold/silver ratio will eventually fall to more ‘normal’ levels.

In other words, today you can trade 1 ounce of gold for 80 ounces of silver.

But perhaps, say, over the next two years the gold/silver ratio returns to a more historic norm of 55. (Remember, it was as low as 30 in 2011)

This means that in the future you’ll be able to trade the 80 ounces of silver you acquired today for 1.45 ounces of gold.

The final result is that, in gold terms, you earn a 45% “profit”. Essentially you end up with 45% more gold than you started with today.

So bottom line, if you’re a speculator in precious metals, now may be a good time to consider trading in some gold for silver.

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At 4:15pm ET, DoubleLine’s Jeff Gundlach who continues to do no wrong in the market (even if it means buying stocks at his most doom and gloomish ahead of a record short squeeze), will hold his latest webcast titled “Connect the Dots” and in which he will explain why, as he told Reuters moments ago, “the rally in risk assets is nearing the end”, which in turn explains why when the short covering frenzy had gripped the market last week, Gundlach was cashing out.

To register for the webcast, click on the image below.

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We suspect the following will be heard a little more this week than last…

 

The squeeze is over… for now thanks To Fed's Fischer…After 10 straight days without dropping, "Most Shorted" tumbled the most in 2 months…

 

And crude oil ETF short-squeeze is over – Oil ETF long/short is back to recent norms…

 

And the major indices were extremely overbought… Trannies are as overbought as they were at the peak in Nov 2014 (after Bullard's QE4 bounce)…

 

And Small Caps are as overbought as they were at their peak in June 2015.

 

Which left stocks sliding after dismal China trade data and Goldman pouring cold water on the crude ramp…

 

Futures show the reactions as Japanese GDP stayed in recession, China Trade Data disappointed, Germany beat… and reality struck in the crude complex…

 

Leaving S&P Futures right at the crucial trendline…

 

As VIX was dumped in the last minute to ensure 1980 was held…

 

VIX surged near 19 again…

 

Energy & Financials went from winners to biggest losers very quick… This was energy sector's 2nd biggest daily drop since August Black Monday

 

We're gonna need another Mclendon death…

 

And Tilson's short LL again..

 

Oil decoupled from stocks…but stocks caught down in the end amid Crude's drop in 2 weeks

 

Bonds decoupled from stocks… but they recoupled into the close…

 

And after this yuuge rally aimed at supporting energy stocks to get secondaries (and banks to unload), credit risk on the junkiest junk has not improved at all…widest since 2009

 

And with everyone chasing HYG (not realizing this is a placeholder for fund manager cash as the primary market is dead for now – but due to pick up), we thought the following chart might help with some rationality…

 

And noting that HYG has stalled at its 100DMA…

 

Treasury yiuelds plunged on the day as repomarkets imploded…(and JGB yields collapsed)…

 

The USD Index rose very modestly on the day as commodity currencies (CAD, AUD) tumbled and JPY strengthened (as carry was unwound en masse)

 

Commodities were all weak, led by crude and copper on the day…

 

Copper's worst day in 2 months…

 

Charts: Bloomberg

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