Not even this morning’s mandatory European open ramp has been able to push US equity futures higher, and as a result moments ago the E-mini hit session lows on rising concerns about Brexit as talks drag on in Brussles, but mostly as a result of overnight confusion about China’s loan explosion and whether the PBOC has lost control over its manic-lending banks.

The biggest news overnight, in addition to the endless Brexit negotiations, was a report that the PBOC will hike RRR-rates on some banks, a move that may contain credit growth after advances by smaller lenders jumped in January. It also suggests that any incremental easing in China may be off the table for some time.

As a reminder, following January’s CNY3.42 trillion surge in Total Social Financing, one estimate showed that February is already run-rating at roughly the same number, suggesting a total credit injection in the first two months of roughly $1 trillion. It is this surge that has apparently spooked the PBOC. 

As a result, the central bank said in a Friday statement that some banks no longer meet criteria for preferential reserve requirement ratios and will have those levels increased. Prior to the announcement, Bloomberg News reported that some lenders will face a higher ratio as officials seek to limit the risks associated with last month’s jump in credit. The PBOC said its action wasn’t driven by the speed of lending.

What was truly bizzare is that between the first Bloomberg report and the subsequent PBOC announcement, PBOC governor Zhou Xiaochuan said during a forum in Beijing that he “didn’t hear about” raising reserve-ratio rate for some banks, China Business News reported, opening up questions about just what is going on with monetary policy in China and who is making the decisions.

As a result of this PBOC confusion, US equity futures’ attempt to stage an overnight breakout failed, and the E-mini was trading down 9 points sessions lows at 1906 moments ago, while stocks in Europe and Asia trimmed weekly gains as oil fell for the first time in three days, denting optimism that this year’s rout in commodities was easing: as of this moment the European Stoxx 600 was down precisely 1.1%, while Spain’s IBEX was down 2%.

As Bloomberg adds, a global equities gauge fell for the first time in six days, bringing to an end a rally fueled by the first signs that producers may consider steps to rein in a record crude glut. Friday’s drop in energy prices dragged the Bloomberg Commodity Index lower even as industrial metals rose. Britain’s pound declined as David Cameron negotiated with European Union leaders over the U.K.’s membership of the bloc, while German bonds rose. The yen strengthened against all of its 31 major peers, with the biggest gains coming versus Asian counterparts.

“It’s a bumpy stabilization on oil, currency, spreads and equities,” said Didier Duret, who oversees about $219 billion as chief investment officer of ABN Amro Bank NV’s wealth-management unit. “The tail of energy has moved the psychology of the market.”

* * *

Looking at regional markets, we start in Asia, where stocks declined following from the negative lead from Wall St where stocks snapped a 3-day gain as oil weakness dampened sentiment. This saw the energy sector underperform across the region with the ASX 200 (-0.79%) further pressured by poor results from Santos. Nikkei 225 (-1.42%) is the laggard amid JPY strength, while the Shanghai Comp (-0.1%) saw indecisive trade as participants, however fell late in Asian trade amid source reports that the PBoC is said to have increased RRR for banks that bolstered lending too fast following the record lending data in China. 10yr JGBs tracked the gains seen in UST’s as the risk off sentiment globally spurred demand for safe-haven assets.

As noted above, the PBoC stated it has reviewed banks regarding RRR cuts, with some banks not meeting standards on targeted RRR cuts and as a result cannot enjoy the preferential RRR ratios beginning Feb 25th. This comes after PBoC’s Governor Zhou denied knowledge of source reports that the central bank have increased RRR for banks that bolstered lending too fast.

Asian stocks fall with the Kospi outperforming and the Nikkei 225 underperforming; The Nikkei 225 -1.4%, Hang Seng -0.4%, Kospi +0.4%, Shanghai Composite -0.1%, ASX -0.8%, Sensex +0%; 2 out of 10 sectors rise with utilities and health care outperforming and energy and consumer discretionary underperforming.

European markets have seen somewhat of a Friday lull so far, with newsflow particularly light and much of the price action relatively range bound. Price action has been somewhat guided by WTI and Brent futures, which both saw a bid in early European trade to retrace some of the losses in the wake of yesterday’s DoE inventories. As such WTI Apr’16 futures rose to test USD 33.00/bbl but failed to make a firm break and as such have come off their best levels in recent trade.

The Stoxx Europe 600 Index slid 0.5 percent at 11:14 a.m. London time, after rising as much as 0.3 percent. While the equity benchmark was set for a 4.7 percent gain this week, it’s still down more than 10 percent this year amid concerns ranging from global growth and the deepening oil slump, to the creditworthiness of lenders and dissipating faith in central-bank support.

Bunds have also been relatively range bound today, trading modestly higher after closing the opening gap shortly after the Eurex open, with little price action seen in the periphery. Additionally, analysts at Mizuho note that increase in average duration of EGB indexes this month-end will be a large 0.13yrs, which should be supportive for cash bonds. They also state that Austria, Italy and France will be the main beneficiaries from extension flows

“We remain reasonably confident that Europe can avoid a major macro slowdown, but current market pricing suggests otherwise.”, UBS says in note. “The markets seem to have taken a more negative view than we have on the severity of problems in the financial sector and their likely fallout on the European credit channel. The markets also seem to suspect that the ECB is running out of options to lift the economy.”

In commodities, West Texas Intermediate crude slipped 1.8 percent to $30.21 a barrel after rising the past two days on statements by the Saudis, Russians and Iranians. Brent fell 1.8 percent to $33.67.

U.S. crude stockpiles rose by 2.15 million barrels to 504.1 million last week, according to the Energy Information Administration. That’s the highest level in EIA data going back to 1930. In another sign of the glut, supplies at Cushing, Oklahoma, the biggest U.S. oil-storage hub, rose to a record 64.7 million barrels. The site, which is the delivery point for WTI, has a working capacity of 73 million, according to the EIA.

Gold lost 0.6 percent to $1,223.93 an ounce after posting a two-day, 2.5 percent jump. Copper rose 0.3 percent to $4,589 a metric ton while zinc, aluminum, tin and lead all gained more than 1 percent. Zinc is poised for its first five-week run of gains since last May and nickel is set for its biggest weekly increase since May 2014.

In FX, all the action has been in GBP this morning, with the UK retail sales numbers adding event risk to the overhang of the EU summit this morning. Early reports of selling vs the SEK fed through Cable, knocking the latter spot rate from 1.4335-40 levels down to just below 1.4300. Strong buying resumed ahead of the consumer numbers, but despite a strong read, the lack of upside progress saw the intra market turn tail to send Cable back to new lows on the day. Elsewhere, CAD and the rest of the Oil related currencies remain on the back foot, though Oil prices are relatively stable, albeit at lower levels. Euro bourses and S&P futures pretty flat on the day, helping to support USD/JPY off the earlier lows, but the heavy tone is clear to see. AUD on the back foot also, though finding some support below .7100.

The key event in the US January will be January’s CPI print where current expectations are for a -0.1% mom headline and +0.2% mom core readings which would take the YoY rates to +1.3% (up-six tenths from December) and +2.1% (unchanged versus December) respectively. In terms of Fedspeak we are due to hear from Mester at 1.30pm GMT on her economic outlook. EU leaders are also set to conclude their summit in Brussels (with Brexit discussions high on the agenda) while the ECB’s Constancio is due to speak this afternoon.

Bulletin Headline Summary from RanSquawk and Bloomberg

• European stocks trade broadly in negative territory in what has been somewhat of a quiet end to the week.
• UK retail sales beat expectations across the board, however downward revisions sees GBP pressured, while participants keep a close eye on the EU summit for any developments regarding Brexit talks.
• Looking ahead, highlights include US CPI, ECB’s Draghi (Soft Dove) and Fed’s Mester (Voter, Soft Hawk)
• Treasury yields mostly steady overnight as global equity markets and oil lower; CPI and average weekly earnings reports to be released at 8:30am ET.
• Central banks embrace negative rates that economists scorn as just 27% of respondents in a Bloomberg survey say negative rates will help the BOJ boost feeble inflation and only 42% say the policy is succeeding in the euro area
• U.K. retail sales surged the most in more than two years in January, boosted by demand for clothing and computers. The 2.3% jump in the volume of sales was almost three times the pace of growth forecast by economists in a Bloomberg survey
• David Cameron pleaded for a deal on the U.K.’s EU membership that he can sell to British voters. The prime minister ran into resistance from eastern European states over demands for more welfare curbs on non-British citizens
• Wall Street’s biggest banks boosted their Treasury holdings to the highest level in more than two years, and one of them says that’s a warning sign for the market
• China’s central bank said some banks will be forced to lock away more reserves, a move that may contain credit growth after advances by smaller lenders jumped in January
• Milan prosecutors are probing whether Credit Suisse engaged in money laundering and evaded taxes when it sold billions of euros of insurance policies that clients from Italy used to shield funds from tax authorities
• In a secret meeting convened by the White House around Thanksgiving, senior national security officials ordered agencies across the U.S. government to gain access to the most heavily protected user data on the most secure consumer devices, including Apple’s iPhone
• $8.1b IG corporates priced yesterday (YTD volume $221.45b) and $1b HY priced yesterday (YTD volume $11.125b)
  Sovereign 10Y bond yields mostly lower led except Greece (+11bp); European, Asian markets mostly lower; U.S. equity- index futures mixed. Crude oil and gold drop, copper higher

US Event Calendar

• 8:30am: CPI m/m, Jan., est. -0.1% (prior -0.1%)
  • CPI Ex Food and Energy m/m, Jan., est. 0.2% (prior 0.1%, revised 0.2%)
  • CPI y/y, Jan., est. 1.3% (prior 0.7%)
  • CPI Ex Food and Energy y/y, Jan., est. 2.1% (prior 2.1%)
  • CPI Index NSA, Jan., est. 236.606 (prior 236.525)
  • CPI Core Index SA, Jan., est. 244.808 (prior 244.446, revised 244.516)
  • Real Avg Weekly Earnings y/y, Jan. (prior 1.6%, revised 1.7%)
• 8:30am: Fed’s Mester speaks in Sarasota, Fla.

DB’s Jim Reid concludes thes overnight wrap

With newsflow taking a bit of a breather, there hasn’t been a lot to drive markets over the last 24 hours or so. US equity markets in particular saw the strong 3-day rally come to a bit of a stuttering and unspectacular end yesterday. Some bleak Wal-Mart numbers certainly weighed on the retail sector, while the latest swing in the daily oil rollercoaster moved from hope around the Iran and Saudi Arabia/Russia production meetings back to the reality of the current fundamental picture following the latest set of bearish US crude inventory numbers. WTI was up as high as $32/bbl prior to the data and the highest in 9 days, before paring the bulk of the day’s gains to close at $30.77/bbl after data showed that crude stockpiles extended an 86-year high in the US. The S&P 500 eventually closed -0.47% while in Europe we saw the Stoxx 600 (+0.04%) finish pretty much unchanged having got off to a reasonable start prior to that oil data. Peripherals (IBEX -0.83%, FTSE MIB -1.53%) were notable under-performers though.

Away from this, various US economic surprise indicators improved again yesterday with both initial jobless claims (262k vs. 275k expected) and the Philly Fed manufacturing index (-2.8 vs. -3.0 expected) ahead of expectations. The improvement in the four-week moving average for claims to 273k (from 281k) in the NFP survey week was seen as particularly positive although the details in the breakdown of the Philly Fed data was less so. Prices paid (-2.2 vs. -1.1 previously), new orders (-5.3 vs. -1.4), inventories (-17.1 vs. -15.7) and number of employees (-5.0 vs. -1.9) in particular increase the risk that the next manufacturing ISM survey remains in contractionary territory when we receive the latest data in a couple of weeks.

US Treasury yields marched lower across the curve although the moves were essentially tracking the fall in oil from mid-afternoon. The benchmark 10y finished 8bps lower at 1.740% and is back to more or less where it closed last week. Credit markets reflected the lack of direction with indices in the US finishing flat, while weakness in European financials (iTraxx Senior +4bps, Sub +6bps) drove Main and Crossover 2bps and 4bps wider. Reassuring however was another strong day of primary across the pond with over $8bn of deals said to have priced. This shows that there is still demand for the asset class in spite of everything thrown at it of late. Elsewhere Anglo American, which has been in the news a fair bit this week, came out with a bond buyback announcement which helped sentiment for the asset class.

Refreshing our screens this morning, it’s looking like a bit of a mixed ending to the week for markets in Asia. After a strong week, bourses in Japan are ending on a down note with the Nikkei and Topix -1.43% and -1.47% respectively. The ASX (-0.79%) is also lower however there’s a modest gain for the Kospi (+0.31%) while bourses in China are flat. Oil markets are down around half a percent while credit indices are generally a tad wider. As we go to print Bloomberg headlines are suggesting that the PBoC is to raise the required reserve ratio for some banks having determined that some had increased lending too quickly with regional banks said to be targeted. One to keep an eye on as more details emerge.

In terms of the rest of the economic data yesterday, in the US the Conference Board’s leading index revealed an as expected -0.2% mom decline last month to mark the second consecutive negative monthly reading. Prior to this in France we saw no change to the final January CPI print of -1.0% mom with the YoY staying unchanged at a lowly +0.2%. Yesterday’s ECB minutes didn’t offer a whole lot new with the text revealing that the governing council was unanimous that policy ‘needed to be reviewed and possibly reconsidered’ at the March meeting, although there were some hints from certain policymakers that it would be ‘preferable to act pre-emptively’ rather than ‘wait after risks had fully materialized’.

Over at the Fed the latest set of comments came from San Francisco Fed President Williams who stuck to his view that ‘a gradual pace of policy normalization as being the best course’. Williams said that the US economy ‘still needs a gentle shove’ from monetary policy headwinds but that the economy is ‘all in all, looking pretty good’. On the popular topic of negative rates, Williams said that the chances of the Fed cutting rates below zero were ‘very remote’.

Before we look at today’s calendar, the OECD became the latest agency to cut global growth forecasts yesterday. The think-tank now see’s the world economy growing by 3% this year which is three-tenths lower than its previous forecast three months ago and the same pace as 2015. That included a five-tenths downgrade to its US forecast to 2% this year while China is expected to grow 6.5%. The biggest revision was reserved for Brazil however, who the agency expects to contract 4% this year, a downward revision of 2.8 percentage points.

Looking at today’s calendar, this morning in Europe the early data is out of Germany where we’ll see the January PPI numbers. That’s closely followed by UK retail sales covering the month of January where expectations are for a relatively robust +0.7% mom print excluding fuel. UK public sector net borrowing data is also expected. In the US this afternoon much of the focus will be on the January CPI print where current expectations are for a -0.1% mom headline and +0.2% mom core readings which would take the YoY rates to +1.3% (up-six tenths from December) and +2.1% (unchanged versus December) respectively. In terms of Fedspeak we are due to hear from Mester at 1.30pm GMT on her economic outlook. EU leaders are also set to conclude their summit in Brussels (with Brexit discussions high on the agenda) while the ECB’s Constancio is due to speak this afternoon.

via Zero Hedge http://ift.tt/1Kun5FM Tyler Durden

Below is the latest KBRA comment on the travails affecting the largest global banks. Global capital levels are at the highest levels ever, but investor confidence in the big banks is at an all time low. Over a century ago, J.P. Morgan told a congressional hearing that commercial credit is not based upon money or property, but character. You could substitute the word confidence for character in the exchange between Morgan and Samuel Untermyer.

The economists who dominate the global regulatory community say that higher capital will prevent future crises, but this is a fallacy.  The 2008 crisis was caused by a liquidity run, not a lack of capital.  The liquidity run occurred as a result of securities fraud. Banks typically fail long before they actually consume capital.  Failure is usually a function of reduced liquidity and/or operational risks.  But in a market where fraud is tolerated or even encouraged, no amount of capital will suffice to maintain investor confidence. The full note with charts is available on the KBRA web site. — Chris  

What’s Ailing the Largest Global Banks?

Kroll Bond Rating Agency

February 12, 2016

The sharp downward move in global equity market valuations that began in January 2016 has taken its toll on a number of industry sectors and in particular on global financials. While the S&P 500 is down about 10% since the start of the year, the market capitalizations of some of the largest universal banks are down by more than a third, placing some names near all-time low equity market valuation levels not seen since 2009. Credit spreads for these institutions have widened to below investment grade levels.

KBRA notes that the deterioration in large bank valuations actually began last summer, when market fears about the continued risk of global debt deflation and flagging growth in China began to undermine investor confidence. KBRA believes that from a credit perspective, large banks are financially sound and are unlikely to see any volatility in credit ratings in the near term. However, substantial movements in equity valuations and credit spreads suggest that some large financial institutions may be facing reduced liquidity and market access.

While KBRA believes that large universal banks are financially sound, falling equity market valuations are significant and reflect increased investor concern over credit more generally, as illustrated by the expansion of credit spreads. Whereas the difference between high-yield and investment grade debt was less than 200 basis points (bp) in mid-2014, today that relationship is over 450bp.  

The chart at right shows the Bank of America Merrill Lynch US High Yield Master II Option-Adjusted Spread since 2011.

As a result of wider spreads, new issuance activity in the high-yield sector has largely ground to a halt, depriving many sub-investment-grade credits of access to the capital markets. As credit spreads widen, the cost of credit intermediation also rises, reducing the ability of the global economy to generate growth and jobs. Increased spreads also are a function of investors’ uncertainty regarding the disclosure of future risks by both banks and corporates with credit exposure to these areas. Finally, changes in spreads are also due to changes in monetary policy since last year.   

KBRA believes that there are several factors driving increased investor concerns regarding large globally active financial institutions:

• Direct Exposures: First and foremost, investors are concerned about the direct exposures held by banks in the energy and commodities sectors, both in terms of extensions of credit and other types of risk exposures such as credit default swaps. While some banks have dramatically reduced their energy exposure, others may still cause more concerns. The tendency of lenders to forebear with respect to energy-related exposures causes investors to discount bank disclosure when it comes to future risks.

• Indirect Exposures: Second, the potential for future loss due to the indirect impact of lower energy prices on other obligors is another area of concern for investors. The impact of lower energy and commodity prices on sovereign credits such as China, Australia and Saudi Arabia, to name just a few, are weighing on global markets and, indirectly, on financials. The economic impact of lower energy prices on markets such as Texas is wide reaching and will take months or even years to fully manifest in terms of credit experience. For example, oil’s current price range at or below $30 a barrel, is about one third of the level needed to balance government budgets among the Middle East and North Africa (MENA) oil exporters.

• Disclosure Quality: Finally and as a general matter, investors remain skittish about the quality of risk disclosure by both sovereign and private obligors. Revelations about the actual level of growth in China, for example, have badly shaken investor confidence, leading to sharply higher levels of volatility in many markets. In terms of global banks, investors remain skeptical that large financial institutions are fully disclosing all of the relevant risks on and off balance sheet. This skepticism is a legacy of the 2008 financial crisis. Despite the myriad of new laws and regulations, and the fact that banks have become more transparent, global banks have yet to fully restore their credibility with global investors and the public.      

With total returns for high-yield debt in 2015 in negative territory, Barclays Bank is forecasting a 5–5.5% default rate for below investment grade debt in 2016. The bank provides a range of just 4.4% if oil prices rise to $60 per barrel or more, and to 6.4% if oil sinks below $40 per barrel. While KBRA notes that the default rate experience for energy credits held in bank portfolios is likely to be far less, investors remain concerned about how continued low energy prices will impact particular institutions. 

As we have noted in previous comments, the divergence between the monetary policy of the U.S. and that of other nations is a significant source of market volatility. KBRA believes that policy makers need to focus on actions and policies that will calm global financial markets and help to reduce credit spreads. So far the actions taken by global central banks seem to be moving in the opposite direction. For example, the belated actions by the Federal Open Market Committee to raise interest rates are coming at precisely the wrong moment, when market concerns regarding credit quality are rising and most monetary authorities are easing policy.  

The chart below shows the relative levels of government, investment grade and high-yield debt from 2009 through the start of February 2016. While the spike in credit spreads is far smaller than that experienced during 2008, the increase in spreads is sufficient to stifle for the ability of below investment grade credits to raise capital, to slow economic growth, and to contribute to higher levels of credit losses by banks.

So far, policy makers have responded to the decline in oil prices by embracing zero-interest rate policies, but this response may be making matters worse. KBRA believes that the leaders of the major industrial nations need to accept that the downward move in energy and commodity prices will result in sharply increased credit costs in 2016 and beyond. Keeping interest rates low or even negative will not likely be a sufficient response to the surge in defaults that KBRA expects to unfold in 2016. KBRA also believes that policy makers should be prepared to directly address default events in the energy sector. Where necessary, regulators should be prepared to facilitate restructuring efforts so that isolated credit events by relatively small obligors do not result in systemic risk events.

http://ift.tt/1owQcOS

via Zero Hedge http://ift.tt/1oOW9GE rcwhalen

 

 

 

Hold your real assets outside of the banking system in a private international facility  –>  http://ift.tt/1M1FiG5 

 

The Illegitimacy of Comex Pricing

Posted with permission and written by Craig Hemke, TF Metals Report & Sprott Money correspondent

 

 

We’ve known for years that the Comex derivative pricing scheme was a fraud, where market-making Bullion Banks create unlimited amounts of paper gold in order to soak up speculator demand. Then these same banks shuffle warrants and warehouse receipts back and forth to create the illusion of physical delivery. But now, even the price “discovered” electronically on this exchange has become completely useless.

Look, I recognize that we’ve plowed this ground so many times already that you probably think that we’ve run out of things to write about. Let me assure you that that’s not the case and that there is a serious purpose behind this post. First, though, please be sure to review some of the work we’ve done in the past on the subject of Comex illegitimacy. First, here’s an article on the inherent unfairness of the ability of The Banks to simply create new derivative contracts from thin air whenever speculator demand for paper gold increases:

• http://ift.tt/1LyP6GT

And we’ve recently spent considerable time documenting the fraud of Comex “delivery”. Here are two links that summarize and detail the problem:

• http://ift.tt/1L7xwsw
• http://ift.tt/1QdpkcR

This circular charade of delivery continues in February. Recall that back in December, the proprietary (House) account of JP Morgan stopped or took delivery of 2,021 of the total 2,073 gold contracts that were allegedly settled. The primary issuers of this gold were the House Account of HSBC at 818 contracts and the House Account of Scotia at 699.

And what has taken place so far in February? The House Account of HSBC has stopped or taken delivery of 1,181 contracts while the House Account of JPM has issued 651 back out? Do you see how this works?

So, we’ve established that:

1. The Comex, by design, is inherently unfair as the market-making Bullion Banks have the unfettered ability to issue as many paper derivative contracts as “the market” desires whenever there is speculator demand.
2. The Comex can only claim legitimacy in discovering price if there is actual physical delivery made at said “discovered” price. However, there is no physical delivery at Comex. Instead, it’s just a bi-monthly circle jerk where Banks make and take delivery on a rotating basis. Therefore, the only price discovered is the price of a Comex contract, NOT the price of gold.

The object of this post is to draw your attention to the third spoke of Comex illegitimacy…the price itself.

Much has been written over the past three weeks about the “renewed bull market in gold”. Price began the year at $1061 per ounce and it reached an intraday high of $1263 last Thursday. That’s a 19% move in six weeks and certainly something that all of us in the gold community should be excited about. However, since this price has been found in large part through trading on the Comex and other electronic exchanges, is this really the price of gold?

Yes, there are physical exchanges of metal that have been made all over the planet based upon this Comex price. Right now, you can visit any of our site’s sponsors, affiliates and advertisers and they’ll gladly sell you an ounce of gold at the current Comex price plus a small premium. But, again, is the price discovered on Comex really a price of gold, itself? The point of this post is to contend that it’s not.

Here’s just a sample of a few headlines this morning. Gold has fallen back to near $1200 and, as you can see, there’s much hand-wringing regarding what may happen next:

• http://ift.tt/1SE2iC9
• http://ift.tt/1mC9Uqz
• http://ift.tt/1SE2j8Y
• http://ift.tt/1SE2iCa,200-as-safe-haven-buying-dries-up-384825

The financial media, financial analysts and brokers will all tell you that the Comex derivative price of goldreally is a proxy for actual, physical gold. The news articles all reference this price and contend, to varying degrees, that this price is influenced by:

• “Investors” seeking the safe haven of gold
• Traders sensing the growing momentum of the trade
• Hedge funds buying or selling based upon technical factors

Media, analysts and brokers all watch the “price” rise and fall and reach conclusions regarding the overall market and where it’s seemingly headed. “Is this a bull market or a bull trap?”, for example.

But what if I could show you that the price discovered on the Comex and other derivative exchanges isn’t influenced by “investors” at all? What if, instead, this “price” was simply determined by the whims of the HFT computers…machines that take their trading cues from signals completely unrelated to the fundamentals of gold, itself? And what is the single most important trading cue for the HFT algos? Changes to the relationship between the U.S. dollar and the Japanese yen, commonly referred to as the trading pair USDJPY.

Well, we’ve written about this before, too. We first noticed this phenomenon back in September of 2014. Here’s just one example of what we wrote back then: http://ift.tt/1EFeYwL

ZeroHedge soon picked up on this, too, and they wrote about it in November of 2014:http://ift.tt/1BcFvFg

Our friend, Paul Mylchreest, noticed the same correlations and he added this terrific piece in December of 2014: http://ift.tt/1SE2iCc

And it is this correlation that has driven the “price” of gold higher in 2016, nothing else. Oh sure, it’s nice to hear anecdotal stories about increased physical demand and “lines around the block”, but those fundamental factors have had little to no effect on “price”. Instead, it’s all about the rapidly increasing value of the yen or, expressed inversely, the rapidly declining value of the USDJPY.

Below is a chart of the past two months of trading action. In candles, you see the value of the yen versus the dollar. In bars, you have the “price of gold”:

But let’s zero in a little bit and look even closer…

Last Thursday, gold shot higher by over 5% in a move that left many analysts claiming that “the paper markets were breaking” and that “a new paradigm for gold was beginning”. But was this the case or was the “price of gold” simply reacting to an historic, 10% move in the USDJPY that culminated with an early Thursday plunge all the way to 111, down from 121 just two weeks ago? Below is a chart of the five days Tuesday the 9th through yesterday, Tuesday the 16th. Again, the yen is in candles and gold is in bars:

So, did the “price of gold” move based upon fundamentals, physical demand and the emergence of a new bull market?

OR

Did the “price of gold” simply adjust based upon the whims of High Frequency Trading computers, which “saw” the rapid rise in the relative value of the yen and bought “gold” according to their pre-programmed algorithms?

Obviously, the answer is the latter and it is extremely important that you understand this significance of this. Why? Because the dollar-based “price of gold” has been largely determined by this sole factor for nearly 3.5 years now. See the next chart, again with yen in candles and gold in bars:

The chart above explains the charts below. Why has gold moved counter-intuitively since the onset of QE3 in October of 2012? How was the long-standing relationship between US debt, the Fed balance sheet and the price of gold severed? The answer lies in the total market domination of High Frequency Trading as well as the willing participation of The Bullion Banks to cap all rallies in order to maintain downward momentum.

In the end, what does all this mean? Simply put, the “price” discovered via electronic trading on the Comex and the Globex is NOT a reflection of the price of gold at all. Instead, it’s primarily just a reaction of HFT computers to changes in the USDJPY. There’s no new “bull market” based upon “investors seeking the safety and certainty of physical gold”. Instead, any new bull market in the paper derivative price will simply be a reflection of the continued rally in the value of the yen versus the dollar. That’s it and that is all.

What’s fun is that the Bullion Banks have unwittingly sewn the seeds of their demise through their participation in this scheme. This uneconomically discovered price is being used by the Chinese, the Russian, the Indians and wise investors globally to drain The System of its remaining physical gold. Soon, the stockpiles of The West will be liquidated and, once no more physical gold remains, this entire fractional reserve pricing scheme will collapse under its own weight. When might this happen? It’s impossible to say however, as this great article from Koos Jansen points out, the West’s finite supplies are indeed dwindling:http://ift.tt/240W9nm

So, what do you do with this information? Well, first of all, you don’t get caught up in the hype. Now that you know what really affects “price”, you should be able to control your emotions both on upticks and downswings. Additionally, here at TFMR, we do quite well at recognizing inflection points and trends in gold and the USDJPY. Forewarned is forearmed, they say, and subscribers to The Vault use this knowledge to their advantage. But most importantly, recognize this:

The “price of gold” as reported by the media and repeated by analysts and pundits everywhere is no more proxy for the actual intrinsic value of gold than is virtual reality a proxy for real life. You’re told that it’s real and it may look real but it’s not. Not by a longshot. In the end, your best strategy is to mimic the Chinese, Russians and Indians. Recognize the value inherent in the fraudulently-determined “price” and act accordingly by continually converting your paper currency reserves into sound money…while you still can.

 

 

 

Please email with any questions about this article or precious metals HERE

 

 

 

 

The Illegitimacy of Comex Pricing

Posted with permission and written by Craig Hemke, TF Metals Report & Sprott Money correspondent

 

 

 

 

Our Ask The Expert interviewer Craig Hemke – aka Turd Ferguson, began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

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It would appear the Chinese central bank currency squeeze is back as money-market rates are exploding higher once again. With the outpuring of liquidity heading into the new-year holiday, the post-celebration hangover was always likely unless PBOC just kept pumping but judging by the 500bps spike in overnight Yuan interbank rates to 9.3%, more than a few banks are desperate for some liquidity. We note that the last six times that Chinese banks have suffered liquidity constraints, US equities have tumbled…

While not at the extremes of mid December or mid-January’s catastrophes, O/N Yuan depo rates are soaring…

 

As it seems PBOC is not quite as liberal with its liquidty post-new-year…

 

and that bodes ill for US equities as the global liquidity problems this signals send ripples through every conduit (and their corresponding risk asset)…

 

Still 9.3% overnight deposit rates are probably nothing, right?

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Authored by Eric Zuesse,

Whereas Bernie Sanders claims to represent the bottom 99%, Hillary Clinton claims to represent a coalition of groups who are victimized by bigots (racists, sexists, etc.: she aims at women, homosexuals, Blacks, etc.). Whereas Bernie seeks to mobilize the bottom economic 99% against the top 1% who have scooped up almost all of the economic benefits that Americans have gained since 1993, Hillary seeks to mobilize all bigotry-victims against all of the many types of bigots. These pitches are fundamentally different from one-another. In fact, they’re diametrically opposite diagnoses of the biggest ailment threatening the U.S. future: our perilous economy.

At the close of the Wisconsin Democratic debate on February 11th, Hillary Clinton made an appeal to members of labor unions, and then said:

"I think that a lot of what we have to overcome to break down the barriers that are holding people back, whether it's poison in the water of the children of Flint, or whether it's the poor miners who are being left out and left behind in coal country, or whether it is any other American today who feels somehow put down and oppressed by racism, by sexism, by discrimination against the LGBT community, against the kind of efforts that need to be made to root out all of these barriers, that's what I want to take on. … Yes, does Wall Street and big financial interests, along with drug companies, insurance companies, big oil, all of it, have too much influence? You're right. But if we were to stop that tomorrow, we would still have the indifference, the negligence that we saw in Flint. We would still have racism holding people back. We would still have sexism preventing women from getting equal pay. We would still have LGBT people who get married on Saturday and get fired on Monday.”

Bernie Sanders closed instead with:

“This campaign is not only about electing someone who has the most progressive agenda, it is about bringing tens of millions of people together to demand that we have a government that represents all of us and not just the 1 percent, who today have so much economic and political power.”

Hillary Clinton is saying that what’s “holding people back” is bigotry.

Bernie Sanders is saying that what’s holding people back is concentration of too much power in too few people – not meaning a concentration of too much power in a freely and democratically elected government (which Republicans constantly attack as having too much power), but instead meaning a concentration of too much power in the richest 1% who buy  the government, and who use it to make American workers compete against  the workers in Haiti, Honduras, Vietnam, etc., so as to benefit the global stockholders of international corporations by lowering wages, instead of to benefit American workers by increasing wages. He’s attacking a system that benefits global stockholders by lowering wages everywhere to some lowest common denominator, so as to increase profits and stock-values and executive compensation everywhere. Workers don’t receive the benefits of that; the stockholders and executives in international corporations do. That’s the “1%”, though actually it’s even more concentrated in the top 0.1%.

Hillary Clinton is saying that the main problem in America is America’s bigots — it’s no economic motivation, by billionaires who essentially buy the government, nor by anyone else. This political view, in which there are essentially no economic classes, but only bigots and their victims, is fundamentally different from Sanders’s view. It’s so different that in some other countries they would constitute two different political parties.

Sanders is saying that the main problem in America is actually America’s corruption — a system that he says has been very successfully gamed by “the billionaire class.”

That’s what the Democrats’ Presidential choice comes down to.

This choice is a stark one. Democratic voters are being asked which is the primary issue for government to overcome: countervailing excessive greed by the super-rich, or countervailing all bigotry by anyone? Both greed and bigotry are bad, but which is more the main function of government to countervail? That’s the question.

Hillary Clinton is saying that what American workers are pitted against is, essentially, bigots, individuals who are bigoted — bigoted against gays, against women, against Blacks, against Hispanics, etc.; they’re not  pitted against the controlling stockholders who are collectively represented by their corporation’s management and who want higher profits from paying lower wages. Hillary Clinton focuses on the cultural divide, the  various types of inter-ethnic conflicts, as being “what we have to overcome to break down the barriers that are holding people back.”

Bernie Sanders is saying that the big problem American workers are up against isn’t bigots — rich and poor — as much as it’s the unlimited greed of the controlling stockholders who are represented by management (even if they’re not  bigots). His diagnosis is that not only should workers have the collective-bargaining right against the corporation’s owners, just like those corporate owners themselves already possess the collective-bargaining right via managers they hire, but that workers should also be more the focus of government’s concern and sympathy than stockholders are, because there are far more workers than owners, and because a one-person-one-vote democracy is far better than a one-dollar-one-vote ‘democracy’ (the latter of which is otherwise called an “oligarchy” or an “aristocracy”), the latter of which is what Sanders campaigns to put a stop  to.

Hillary Clinton is saying that there is no common and shared enemy that oppressed employees have:  instead, the main problem is racist bigots in the case of Blacks; it’s homophobic bigots in the case of homosexuals; it’s misogynist bigots in the case of females, etcetera; and, if a Black happens also to be a homophobe, or a homosexual happens to be also an anti-Black racist, then each one of those victim-groups will be fighting against the bigoted members of the other  victim-groups. The chief job of the government, led by the U.S. President, is then somehow to punish all types of bigots equally, regardless of their particular  group, so as to minimize the complaints about bigotry from, and by, all Americans. That’s a balancing of groups against groups — a balancing of ethnicities. This is Clinton’s diagnosis and cure for America’s economic problems.

Hillary’s diagnosis isn’t economic or systemic, but instead cultural and individual — it’s actually individual against individual, instead of stockholders against employees. And, just as a particular victim of bigotry can also be a bigot (for example, a Black can be homophobic, sexist, or etc.), a particular employee can also be a stockholder; some individuals stand on both sides at once, there too; but those are all individual matters, not  systemic matters, and so they’re not really authentic issues of governmental policy. Hillary Clinton says that they are themain  issues of governmental policy — that people’s problems are mainly individual  problems, against bigots; not  systemic problems, against stealers-of-the-public’s-government — and she says that the government should focus on individuals’ problems, not on systemic problems. That’s her view, which she expresses on almost every occasion, though she doesn’t put it in quite this way — a systematic way.

Bernie Sanders, in contrast to Hillary Clinton, is saying that the oppressed do  have a common and shared (a systemic) enemy. Here is how he expressed this in a speech to the Democratic National Committee on 28 August 2015:  “We need a political movement which is prepared to take on the billionaire class and create a government which represents all Americans, and not just corporate America and wealthy campaign donors.” He was saying this to individuals — specifically, to the Democratic Party’s chief political agents — most of whose own career success has largely depended upon  that “billionaire class,” but Sanders was up-front to them about it. He even calls this “movement” a “revolution.” He’s not trying to hide his opposition to the staus-quo.

The Democratic Party’s Presidential contest isn’t really a contest between ‘idealism’ versus ‘pragmatism,’ such as some propagandists claim. To characterize either candidate as ‘the idealist’ versus ‘the pragmatist’ is false. That characterization of this contest is actually deeply deceptive, because it focuses on vague abstractions, whereas the real issue in the Democratic Party primaries now is totally nitty-gritty, and it concerns two alternative diagnoses of what has been going wrong with America’s economy in recent decades.

In Bernie’s view, American democracy is now in the emergency room; in Hillary’s view, complainers (against anything other than  bigots) are like mere hypochondriacs who simply don’t understand the experts who say that things aren’t so bad, and that therefore no “revolution” is needed.

Is America’s basic governmental problem bigotry (i.e., certain cultural and ‘values’ problems), as Hillary says;

 

or is it instead corruption (i.e., certain economic and governmental problems), as Bernie says?

These are two very different conceptions of what the U.S. Presidency is about.

And that’s the central choice in the Democratic Presidential primaries. More than anything else, that’s what the choice between Clinton and Sanders comes down to.

*  *  *

Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of CHRIST’S VENTRILOQUISTS: The Event that Created Christianity.

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There are 60 major stock exchanges throughout the world, and their range of sizes is quite surprising.

As Visual Capitalist's Jeff Desjardin notes, at the high end of the spectrum is the mighty NYSE, representing $18.5 trillion in market capitalization, or about 27% of the total market for global equities.

At the lower end? Stock exchanges on the tiny islands of Malta, Cyprus, and Bermuda all range from just $1 billion to $4 billion in value. Even added together, these three exchanges make up just 0.01% of total market capitalization.

 

 

The Trillion Dollar Club

There are 16 exchanges that are a part of the “$1 Trillion Dollar Club” with more than $1 trillion in market capitalization. This elite group, with familiar names such as the NYSE, Nasdaq, LSE, Deutsche Borse, TMX Group, and Japan Exchange Group, comprise 87% of the world’s total value of equities.

Added together, the 44 names outside of this aforementioned group combine for just $9 trillion, or 13%, of the world’s total market capitalization.

Northern Dominance

From a geographical perspective, it is the Northern Hemisphere that is dominant. North America and Europe both hold 40.6% and 19.5% respectively of the world’s markets, and the vast majority of Asia’s 33.3% lies north of the equator in places like Shenzhen, Hong Kong, Tokyo, and Shanghai.

Notable exchanges that are south of the equator include the Australian Securities Exchange, the Indonesia Stock Exchange, the Johannesburg Stock Exchange and the Brazilian BM&F Bovespa.

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