Category: zerohedge

With concerns rising that the market has gotten well ahead of itself over the practical reality of Trump tax cuts – most recently voiced by Goldman which over the weekend said that “we are approaching the point of maximum optimism and S&P 500 will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tailwind to corporate earnings than originally expected” – Barclays decided to look at one of recent history’s most notable tax regime changes: the Reagan tax cuts.

What it found was interesting.

First, the market wastes no time in factoring in any to corporate taxes and according to Barclays calculations, corporate tax cuts get 85-90% priced in very short order. As an example, Barclays points out that the Reagan 1986 tax cuts showed that equities price in the benefits quickly. Perhaps too quickly.

There were some other notable similarities between the current tax-regime transition and 1986, namely “the oil collapse and growth cycle were also issues in 1986.” In any case, a harbinger of the current market rally driven by Trump tax cut hopes, “the S&P 500 rallied 40% pricing in the tax plan before it was really even implemented in July 1987.“

The S&P then infamously crashed in October of 1987, for a variety of reasons, one of which, Barclays suggests, was the rapid pricing in of the Reagan tax cuts. In fact, seen this way, the infamous Black Monday crash may have been – in addition to all the other noted catalysts – a very vivid example of “sell the news.”

There was also good news: for those who survived the 30% drawdown, though the post-1987 period was marred by the crash, S&P 500 EPS actually rose 55% compared to 1986 levels. Barclays foresee a similar dynamic likely playing out whereby the market multiple prices in the first order effects of a tax plan very quickly, once known.

One could perhaps add that the market has already priced most of the tax cut without even knowing the details. On the other hand, Barclays notes, second order effects such as rates and growth will also affect the multiple. Two notable difference between the Reagan and Trump tax cuts, as the level of government indebtedness – far greater now than it was 30 years ago – and the Fed’s tightening cycle, which for the time being are seen as bullish although inevitably the market will realize that tighter financial conditions inevitably lead to lower risk prices.

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The “Russia hacked the US election” is getting its second wind.

One day after Reuters provided further details of the ongoing FBI probes – of which there are now reportedly three – into activities that are generally classified as the Kremlin’s hacking of the US presidential election, the Senate Intelligence Committee has likewise escalated its probe into Russian interference, and is requesting that agencies preserve all materials that could tie into the committee’s investigation into Russian interference in the 2016 presidential election.

The Associated Press reported Sunday, citing a congressional aide, that the committee had sent formal requests to more than a dozen organizations, agencies and individuals, including at the White House, requesting the materials related to the probe into the Russian meddling be preserved. The intelligence panel’s chairman, Richard Burr (R-N.C.), and vice chairman Mark Warner (D-Va.) sent letters out Friday, according to the AP.

Richard Burr

On Thursday, Senate Democrats wrote the White House and law enforcement agencies seeking assurances that they were preserving all materials related to contacts individuals associated with President Donald Trump had with Russians. Those letters asked for confirmation that the White House, FBI and Justice Department had instructed their employees to preserve all materials related to any contacts Trump’s administration, campaign, transition team — or anyone acting on their behalf — have had with Russian government officials or its associates.

“I think they’re going to do their job. And they have to do that. Those are things that Richard Burr and that team have to do,” White House chief of staff Reince Priebus said Sunday, a day after the disclosure by the congressional aide.

“That doesn’t mean that there’s anything there. It just means they need to do some things that satisfy their committee, that they’ve looked into something. And then they can have meetings behind closed doors that they always do in the Intel Committee, and then they’ll issue a report,” Priebus told NBC’s “Meet the Press.”

Also on Sunday, Priebus denied that members of President Trump’s campaign had contact with Russia before Trump’s victory.

“We don’t know of any contacts with Russian agents,” Priebus said on NBC’s “Meet the Press” on Sunday, one of three appearances on Sunday political shows by the White House chief of staff.

“The New York Times last week put out an article with no direct sources that said that the Trump campaign had constant contacts with Russian spies,” Priebus also said on Fox News Sunday. “I can assure you, and I’ve been approved to say this, that the top levels of the intelligence community have assured me that that story is not only inaccurate but it’s grossly overstated.”

Last Friday, FBI Director James Comey on Friday met with lawmakers from the Senate Intelligence Committee behind closed doors, amid ongoing rumors of alleged contacts between members of President Trump’s campaign and Russian officials. The committee members and Comey spent nearly three hours Friday afternoon in a secure room in the Senate basement used for classified briefings. Lawmakers refused to comment upon existing the meeting. Burr called the meeting “just a normal classified briefing.”

The committee is investigating Russian interference in the U.S. election, including probing any contact between campaign officials and Russia.

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Following Trump Chief of Staff Priebus' comments earlier, it is clear, as Axios notes, President Trump's biggest problem has quickly become a leaking administration.

The real scandal here is that classified information is illegally given out by "intelligence" like candy. Very un-American!

— Donald J. Trump (@realDonaldTrump) February 15, 2017

Here are The Top 10 Leaks so far…

 

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Amid implicit acknowledgement of turmoil in The White House, Trump's Defense Secretary Jim Mattis reassured the world that the US military was "not in disarray", but was "holding the line" as government "sorts out the way ahead."

After shrugging off President Trump's 'media as enemy' narrative:

"[I've had] some rather contentious times with the press [but the press is] a constituency that we deal with…. I don’t have any issues with the press myself."

The Defense Secretary said Sunday, according to The Washington Post, that he has been talking with a “fair number of military commanders around the world” and acknowledged the chaotic nature of Trump’s administration so far.

“Welcome to democracy,” Mattis said.

 

“It’s at times wildly contentious. It’s at times quite sporting. But the bottom line is this is the best form of government that we can come up with. So, the military’s job is to hold the line, and to hold the line, and to hold the line while our government sorts out the way ahead and our people speak. We don’t have any disarray inside the military, and that’s where my responsibility resides.”

General Mattis' comments come shortly after Munich Security Conference Chairman Wolfgang Ischinger delivers some choice commentary regarding President Trump's praise of Brexit.

It would be a "non-military declaration of war" should Trump continue to advocate against the EU, #MSC2017 head Ischinger tells DW. http://pic.twitter.com/FTjrOe66ep

— dwnews (@dwnews) February 17, 2017

 

"Is President Trump going to continue a tradition of half of century of being supportive of the project of European integration or is he going to continue to advocate EU member countries to follow the Brexit example?

If he did that, it would amount to a kind of non-military declaration of war. It would mean conflict between Europe and the United States. is that what the U.S. wants? Is that how he wishes to make America great again?"

Last month, Trump welcomed the British decision on leaving the bloc, which caused negative reaction in the European Union with then French presidential candidate Manuel Valls also calling Trump’s statements a declaration of war on Europe.

Finally, as The Hill reports, Defense Secretary James Mattis’s influence in the Trump administration appears to be growing.

Mattis has seen a potential rival for Trump’s ear on national security fall to the side in Michael Flynn, the adviser asked to resign this week for misleading Vice President Pence and others about his conversations with Russia.

 

And while the national security advisor job sits empty, Mattis appears to be in a prime spot to assert his influence — something being recognized on Capitol Hill.

 

“Certainly right now, he’s the only one who has the credentials and who is in a strong position,” Sen. Jeanne Shaheen (D-N.H.) said.

Notably, it appears Mattis is being given the latitude to express his views even if they contrast with Trump’s… we'll see how long that lasts.

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After the premature resignation of Michael Flynn over his alleged conversations with the Russian ambassador, the Trump administration has made it clear it will not tolerate any dissent within the ranks. Case in point: Craig Deare, who was recently appointed the U.S. National Security Council’s senior director for Western Hemisphere Affairs, was removed from the agency days after criticizing President Trump and senior White House officials, including son-in-law Jared Kushner and daughter Ivanka Trump at a private event hosted by a Washington think tank, Politico reported.

What makes the Deare resignation notable is that he is not a holdover from the Obama administration, but came to the NSC after Trump’s inauguration from National Defense University, where he had served as the dean of administration and was selected for the role by Michael Flynn, who resigned as Trump’s national security adviser on Feb. 13, resulting a state of “controlled chaos” among Trump’s top security advisors, and leading in a scramble to find a replacement.

Craig Deare

According to Politico, at a private, off-the-record roundtable hosted by the Woodrow Wilson Center for a group of about two dozen scholars earlier in the week, Deare harshly criticized the president and his chief strategist Steve Bannon and railed against the dysfunction paralyzing the Trump White House, according to a source familiar with the situation.

“He complained in particular that senior national security aides do not have access to the president – and gave a detailed and embarrassing readout of Trump’s call with Mexican president Enrique Pena Nieto.” Some have speculated that he may have been the source of the leaked conversation between Trump and the Mexican president which led to a media furore several weeks ago.

According to Bloomberg, a second official familiar with the situation said Deare was released from his NSC position but not removed from the U.S. government. He was recruited to the security council, part of the president’s executive office, from the National Defense University and will return to his post there, the official said.

Deare’s biography shows he’s been on the faculty of the professional military university since 2001. He joined the university’s College of International Security Affairs in 2010 and most recently served as dean of administration.

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The Trump-Putin honeymoon continues to chill… that is if Trump’s top foreign policy advisors speak for the president, which remains very much unclear.

As discussed yesterday, in the clearest sign yet that when it comes to diplomacy with Russia, there are two clear axes developing within the Trump administration: a Pence/Mattis/Haley foreign policy and a Trump/Bannon/Miller foreign policy, Vice President Mike Pence told the crowd at the Munich Security Conference that he would “hold Russia accountable” even as he vowed “unwavering support” for NATO. This prompted the following interesting scene moments later, as recounted by Bloomberg.

Shortly after Vice President Mike Pence pledged to “hold Russia to account” while looking for common ground in a speech to European allies, a hawkish Russian legislator reached out to shake his hand as he passed through a crowded hotel corridor.

 

“Mr. Vice President, I am from Moscow and we hope we will reach those arrangements you were talking about,” said Alexei Pushkov, a member of the defense committee in the upper chamber of the Russian parliament. He enthusiastically told reporters afterward that he saw the Vice President’s smile as a good sign.

And while Saturday’s Munich “close encounter” took just 10 seconds, despite Pushkov’s affirmative spin, Russia seems to be disappointed by how events this weekend panned out as Pence’s reassurances to NATO allies were a “far cry from previous hopes in Moscow, and fears in Europe, that U.S President Donald Trump would deliver dramatic change in the U.S.-Russian relationship, abandon an “obsolete” NATO, end sanctions over Ukraine and – as Trump once intimated during his election campaign – consider recognizing Russia’s 2014 annexation of Crimea” according to Bloomberg.

So what is the Russian sentiment now that the “Pence, Mattis axis” has emerged as the dominant one? Mostly disappointment.

“I heard nothing in the speech” that was positive, Konstantin Kosachyov, who heads the Russian parliament’s foreign affairs committee, said of Pence quoted by Bloomberg. “The new American leaders have started to reproduce the negatives that accumulated under the previous administration.” Kosachyov described Pence’s message as disturbing but added that Russia would not abandon efforts at reaching an understanding with the Trump White House.

Adding insult to Crimean injury, in a meeting with Ukrainian President Petro Poroshenko Saturday, Pence “underlined that the United States does not recognize Russia’s occupation and attempted annexation of the Crimean peninsula,” according to a summary provided by the White House.

Presenting the Russian side, in an address to the same Munich Security Conference audience later in the day, Russian Foreign Minister Sergei Lavrov’s speech on what he called “the post-Western world” was short, at eight minutes, and uncharacteristically flat. His only comment on what had been said before him was an oblique complaint that the speeches showed NATO “remained a Cold War institution.”

Lavrov told NATO Secretary-General Jens Stoltenberg that he supports the resumption of military cooperation with the alliance. Without it, the diplomats’ meetings do not make any sense, he said. “We need to resume [our] military cooperation. [And yet] NATO Secretary-General Jens Stoltenberg, surrounded by his deputies yesterday, couldn’t say that NATO is ready for this. It’s sad,” Lavrov said.

 

“NATO’s expansion has led to an unprecedented level of tension over the last 30 years in Europe,” he added. Russia is not looking for conflicts with anyone, but will always be able to protect its interests, Russia’s top diplomat said.  “What kind of relationship do we want with the US? One [based on] pragmatism, mutual respect, and an understanding of special responsibility for global stability,” he stated.

At a later press conference, Lavrov said the message he took away from Pence’s speech and an earlier meeting with U.S. Secretary of State Rex Tillerson was that Washington was willing to engage. “We are waiting for the team be to fully formed which will oversee American foreign policy,” he said. “Only then we will be able to understand what the general approaches that Trump and Pence have voiced will look like.”

* * *

Meanwhile, as we observed yesterday and as Bloomberg confirmed overnight, the new US Secretary of State, Rex Tillerson, whom Putin and other Russian leaders know and respect from his years as chief executive at Exxon Mobil Corp, has so far failed to offer any detail on the U.S. administration’s policy, according to three senior Russian officials familiar with the matter, who spoke on condition of anonymity. During a bilateral meeting with Lavrov earlier in the week, Tillerson spoke little and did not go into any specifics of arrangements for a possible Trump-Putin summit, a key Russian goal, two of the people said.

While State Department officials said Tillerson would be in “listening mode” on this trip, the upshot was it remains unclear if Trump and Putin will meet before the Group of 20 summit in Hamburg in July.

 

On Ukraine, the key obstacle in relations between President Vladimir Putin and former President Barack Obama, it is now clear the Trump administration, too, will demand concessions from Moscow before moving on to discuss any wider arrangement, said Fyodor Lukyanov, who heads the Foreign and Defense Policy Council, an advisory body to the Kremlin.

A meeting in Munich Saturday of the so-called Normandy format to resolve the conflict — comprising France, Germany, Russia and Ukraine — ended with a bland commitment to further the stalled peace process. In a sign of its impatience, the Kremlin separately announced that it will for the first time recognize the documents of citizens in Ukraine’s separatist Donetsk and Lugansk regions as valid in Russia, a measure it described as temporary. Poroshenko attacked the move as a breach of international law.

* * *

And yet despite the unexpectedly “pro-establishment” diplomatic  exchanges, the reality is that everything could still change on a dime: both for Europeans as well as Russians who gathered eagerly in Munich this year to hear from some of the new U.S. administration’s most senior officials, there was by Saturday a recognition that no immediate clarity will be forthcoming on core aspects of U.S. foreign policy. The reason: The two men who ultimately will decide NATO and Russia policy — Trump and Putin — were not in the room.

As we reported yesterday, while US NATO allies were reassured after listening to various U.S. speeches in Munich guaranteeing commitment to NATO’s collective defense commitment, Article 5, and talk of shared values, Carl Bildt, a former prime minister of Sweden who was in the audience, said “But people know the president will be making the decisions.” With the message in Trump’s foreign policy tweets often at odds with the comments of his officials, many European leaders are hoping the apparently more traditional foreign policy stances of Pence, Mattis and Tillerson will prevail. Russia is placing its hopes on Trump himself for a more radical change.

“Trump right now is the one guy who wants to engage with Putin,’’ said Michael McFaul, a former U.S. ambassador to Moscow. “He is surrounded by people that are much more skeptical.”

For now, that’s the message the Russians attending the transatlantic alliance’s annual security conference heard loud and clear. Following the much anticipated meeting between Trump and Putin, however, all of the recent NATO “reassurance” by the US diplomatic corps ex-Trump, may disintegrate overnight.

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Submitted by Jesse via Jesse's Cafe Americain blog,

"And I'll leave you with one set of numbers that I found today, which is just an absolute for this whole thing. In 2015, Wall Street Bonuses, not regular compensation, bonuses, seven years after they were bailed out with the public purse, totaled $29.4 billion dollars. Total compensation paid to every single person in this country who makes minimum wage totaled $14 billion…

 

The era of neo-liberalism is over. The era of neo-nationalism has just begun."

 

Mark Blyth

 

"Caesar was swimming in blood, Rome and the whole pagan world was mad.  But those who had had enough of transgression and madness, those who were trampled upon, those whose lives were misery and oppression, all the weighed down, all the sad, all the unfortunate, came to hear the wonderful tidings of God, who out of love for men had given Himself to be crucified and redeem their sins.

 

When they found a God whom they could love, they had found that which the society of the time could not give any one— happiness and love."

 

Henryk Sienkiewicz, Quo Vadis: The Time of Nero

When historians look back on this period of the last forty years and diagnose what went wrong, they might do worse than to conclude that at the root of it was a general failure of character, from the top down.

The replacing of honor and duty with egoism and greed as the most honored of civic virtues was a long and slow process.  It took root and was nurtured in a portion of the population that was served by it during the Reaganomics revolution, but eventually spread to those institutions and groups that had generally provided a bulwark for freedom and justice against the perennial amorality of the greedy.

Although they were certainly not the root cause of it, the Clintons played a prominent role in sealing the deal between the political and the financial class, and throwing the whole thing into a higher gear. They made political corruption, which heretofore had been hidden in the closets,  fashionable.

Indeed, it may not be too much to say that they were to soft corruption in politics what Henry Ford was to automobile production.  They certainly did not invent it, and were probably not the worst compared to some of their colleagues across the aisle, but they industrialized it, and knocked down the last bastions of public conscience in the process by showing how well greed could pay off while still maintaining some semblance of public respectability.

There will be a three day weekend in the US markets because of President's Day on Monday.

There was some surprisingly good 'soft' data this week in the Philly Fed and Empire Manufacturing reports.  Let us see if those translate into good, hard economic numbers.

The crux of the problem is the huge imbalance between corporate power and the ability of worker's to achieve increasing wages.  Without increasing wages, broader aggregate demand in the form of consumption cannot be sustained.

It was sustained during a long period of wage stagnation by innovative debt instruments associated with the housing bubble that was greatly encouraged by the financial sector and their servants in the political and professional classes.  The fraud which they helped to perpetuate was conscious and pre-meditated.  The crafted specific financial offerings towards that purpose.

However, in the aftermath of the housing bubble collapse, the ability and willingness of the average American to go into debt for ordinary consumption is reluctant to say the least.  At least half the nation is living paycheck to paycheck with little to no savings.

This is not going to end well or easily as you might expect.  However, the elites have been winning for so long, and are so full of themselves, and so firmly committed to their schemes that I think they will finally let the whole thing hit the wall in some way, and then make the people another deal that they cannot refuse, as they had done with the bank bailouts in 2008.

And that is where the right preparations and the willingness to do what is required of this generation will be most important.

No one ever said that it would be easy, or that we would be going to heaven on featherbeds.

I find the current political situation to be as bad as I thought it would be when I forecasted it about ten years ago.   The worst is yet to come.

The corruption in the system is becoming much more apparent.  The extreme biases in the mainstream media in favor of their particular owner's faction is fairly obvious.

The liberal establishment, in their zeal to excuse themselves and their failure to support the working class, is embracing a kind of McCarthyism with an ease that is almost astonishing in its hypocrisy.  The hypocrisy on display at MSNBC is almost as embarrassing as that on Fox News.

That the Wall Street Democrats brought their own political failure on themselves by their strong and enduring pivot to the wealthier urban professionals is something that escapes their consciousness.

And on the other hand, the Republican establishment is gone bananas in their service to greed.  I figure if they are able to beat down Trump like the Democrats beat down Bernie, then we are in for a real reckoning.

This is nothing new. Indeed, this resembles the America of the past more than most people realize.  Our education is slanted and poor, and our national self-image is a masterpiece of public relations.

The discussing of politics is 'fun' and avoids having to make comments on what is certainly a confusing period in American economics.  I try to stay on that topic, especially since so few are actually shedding light on it these days.  But truth be told, money and politics are often about power, and nevermore as in times of general corruption, when might makes right.  Or at least policy that they call right.

This is the worst, most sluggish 'recovery' we have seen in modern times here.  But since it has a bipartisan stamp, it is difficult for some to wrap their politically black and white heads around it.

And I hate to resort to it, but in historical terms what we are seeing is more like a 'class war' from ages long ago than any kind of financial new era.  The moneyed class turned the law and the thought leaders framing to their own benefit, and would now do anything they can to keep their ill-gotten gains.

Wrap it up in a credibility trap and tie a bow around it, and here we are.

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In the latest surprising announcement to emerge from the Trump White House, the WSJ reports that the Trump administration is considering changing the way the U.S. trade deficit is calculated, a shift that would make America’s trade gap appear even greater than it has been in recent years, potentially making future trade skirmishes and wars with America’s export-heavy trade partners far more likely. 

According to WSJ sources, the White House is considering not counting re-exports from the US trade balance: i.e., excluding from U.S. exports any goods first imported into the country, such as cars, and then transferred to a third country like Canada or Mexico unchanged. Such an approach would inflate trade deficit numbers because it would typically count goods as imports when they come into the country but not count the same goods when they go back out.

As the WSJ notes, data on trade balances and surpluses, widely followed by Congress, are at the center of a political battle over whether existing trade agreements should be retained, renegotiated or tossed out altogether. Should the change be implemented, it would have a stark effect on data involving countries that have free trade deals with the U.S., and in some cases the new methodology would even change a trade surplus into a trade deficit.

As the charts below show, the total impact of the “redefinition” would amount to roughly $250 billion per year, and would have the most acute impact on Nafta partners, Mexico and Canada, which are the top two destinations for US re-exports.

Ironically, it was just one week ago that we explained that in the new Trumpian (ab)normal, FX traders would soon need to learn a new skill: “how to read trade flows.” Today’s WSJ story confirms not only that, but suggests that even more newly acquired skills are on deck. Meanwhile, even more opposition in government appears to be emerging, this time among bean counters tasked with estimating US trade flows who are opposed to the proposed trade adjustment:

Career government employees objected last week when they were asked to prepare data using the new methodology, according to the people familiar with the discussions. These employees at the U.S. Trade Representative’s office complied with the instructions, but included their views as to why they believe the new calculation wasn’t accurate. One person familiar with the discussions said the employees were told the new calculations were to be presented to members of Congress.

There is of course the possibility that this latest leak of Trump economic tactics is merely a trial balloon to gauge the market response:

Trump trade officials said the idea is part of an early discussion and that they are examining various options. It is unclear whether the administration would adopt any new approach for measuring trade as part of official government data, or just use the higher deficit calculation to make the case for new trade deals.

 

“We’re not even close to a decision on that yet,” said Payne Griffin, the deputy chief of staff at the office of the U.S. Trade Representative. “We had a meeting with the Commerce Department, and we said, ‘Would it be possible to collect those other statistics?’”

A spokeswoman for the Census Bureau which calculates the trade deficit said she wasn’t aware of discussions about changing the data.

Still, should the new calculation be implemented, some say it would lead to a more accurate picture of the value of products produced in one country and consumed in another. With their focus on domestic manufacturing, Trump administration officials want to measure exports of American-made products, not items shipped from abroad and re-exported.

However, several economists interviewed by the Journal, were not impressed and were uneasy with fully excluding re-exports from exports but not imports. “As a statistician, you generally want symmetry,” said Steve Landefeld, former BEA director. “If you’re going to begin to exclude re-exports from the U.S. export figures, you probably for reasons of symmetry” would want to adjust import figures as well.

Some further considerations:

Re-exports are currently included in “total exports” figures most frequently cited and used by the Census Bureau to calculate the trade balance. On the imports side, officials are also exploring switching to “imports for consumption,” a slightly narrower way of measuring imports that would make less of a difference in the overall balance.

The Obama administration, which resisted calls from critics of its trade policy to change the figures, argued that excluding items re-exported from the U.S. export column but including them in U.S. imports could inflate the trade deficit or trim surpluses. In July 2010 Obama also promised to double American exports in five years. He failed.

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Submitted by Ronan Manly, BullionStar.com

On 5 February, the Financial Times of London (FT) featured a story revealing that the London Bullion Market Association (LBMA) plans to begin publishing data on the amount of real physical gold actually stored in the London precious metals vaulting network. The article titled “London gold traders to open vaults in transparency push” can be read here (accessible via FT subscription or via free monthly FT read limit).

This new LBMA ‘monthly vault data’ will, according to the FT’s sources, be published on a three-month lagged basis, and will:

“show gold bars held by the BoE, the gold clearing banks, and those [vaults] operated by the security companies such as Brink’s, which are also members of the LBMA.”

The shadowy source quoted in the FT article is attributed to “a person involved in setting up the programme”, but at the same time, although “the move [to publish the data] is being led by the LBMA“, the same LBMA ”declined to comment” for the FT story. This then has all the hallmarks of a typical authorised leak to the media so as to prepare the wider market for the data release.

On 16 February, the World Gold Council in its “Gold Investor, February 2017″ publication featured a focus box on the same gold vault topic in its “In the News” section on page 4, where it states:

“Enhanced transparency from the Bank of England

The Bank of England is, for the first time, publishing monthly data revealing the amount of gold it holds on behalf of other central banks.

 As a leading custodian of gold, with one of the largest vaults in the world, the Bank of England’s decision is highly significant. Not only will it enhance the transparency of the Bank’s own gold operations; it will also support the drive towards greater transparency across the gold market.

The data reveals the total weight of gold held within the Bank of England’s vaults and includes five years of historical data.”

The Proposed Data

Based on these two announcements, it therefore looks like the gold vault data release will be a combined effort between the LBMA and the Bank of England, the blood brothers of the London Gold Market, with the Bank of England data being a subset of the overall LBMA data. While neither of the above pieces mention a release date for the first set of data, I understand that it will be this quarter, i.e. sometime before the end of March. On a 3 month lagged basis, the first lot of data would therefore probably cover month-end December 2016, because that would be a logical place to start the current dataset, rather than, for example, November 2016.

While the Bank of England data looks set to cover a 5 year historical period, there is no indication (from the FT article) that the wider LBMA vault data will do likewise. From the sparse information in the FT article, the LBMA data will “show gold bars held“. Does it mean number of gold bars, or combined weight of gold bars? What exactly it means, we will have to wait and see.

The Bank of England data will capture “total weight of gold held“. Notice that in the above World Gold Council piece it also states that the data will cover the amount of gold that the Bank of England “holds on behalf of other central banks.” There is no mention of the amount of gold that the Bank of England holds on behalf of commercial bullion banks.

Overall, this doesn’t exactly sound like it is “enhancing the transparency of the Bank’s own gold operations” as the World Gold Council puts it. Far from it. Enhancing the transparency of the Bank of England’s gold operations would require something along the lines of the following:

• Identities of all central banks and official sector institutions (ECB / IMF / BIS / World Bank) holding active gold accounts at the Bank of England. Active gold accounts meaning non-zero balances
• Identities of all commercial / bullion banks holding active gold accounts at the Bank of England
• A percentage breakdown between the central bank gold held in the Bank of England vaults and the bullion bank gold held in the Bank of England vaults
• An indicator for each gold account as to whether it is a set-aside earmarked custody account or whether it is a fine troy ounce balance account
• Information for each central bank and official sector institution as to whether any of “its” gold is lent, swapped or repo’d
• Information for the bullion bank gold accounts as to whether the gold recorded in those accounts is borrowed, sourced from swaps, sourced from repos, or otherwise held as collateral for loans
• Information on the gold accounts of the 5 LPMCL clearing banks showing how much gold each of these institutions holds each month and whether the Bank of England supplies physical gold clearing balances to these banks
• Information on when and how often the London-based gold-backed ETFs store gold at the Bank of England, not just using the Bank of England as sub-custodian, but also storage in their own names, i.e. does HSBC store gold in its own name at the Bank of England which is used to supply gold to the SPDR Gold Trust
• Information on whether and how often the Bank of England intervenes into the London Gold Market and the LBMA Gold Price auctions so as to supply gold in price smoothing and price stabilisation operations in the way that the Bank of England’s Terry Smeeton seems to have been intervening into the London Gold Market in the 1980s
• Information on the BIS gold holding and gold transactions settlements accounts at the Bank of England and the client sub-account  details and central bank identities for these accounts
• Information on gold location swaps between gold account holders at the Bank of England and gold accounts at the Federal Reserve Bank of New York, the Banque de France, and the Swiss National Bank, and BIS accounts in those locations
• Gold for oil swaps and oil for gold swaps

Anything less does not constitute transparency.

And its important to remember that any publication of gold vault data by the LBMA and Bank of England is not being done because the LBMA suddenly felt guilty, or suddenly had an epiphany on the road to Damascus, but, as the FT correctly points out:

“the LBMA, whose members include HSBC and JPMorgan, hopes to head off the challenge and persuade regulators that banks trading bullion should not have to face more onerous funding requirements.”

The Current Data

As a reminder, there is currently no official direct data published on the quantity of real physical gold bars held within the London gold vaulting system. This vaulting system comprises the vaults of eight vault operators (see below for list).

Once a year in its annual report, the Bank of England provides a Sterling (GBP) value of gold held by its gold custody customers, while the LBMA website states a relatively static total figure of “approximately 6,500 tonnes of gold held in London vaults” that it claims are in the vaults in its network. But beyond these figures, there is currently no official visibility into the quantity of London Good Delivery gold bars held in the London vaults. There are, various ways of estimating London gold vault data using the Bank of England annual figure and the LBMA figure together with Exchange Traded Fund gold holdings and central bank divulged gold holdings at the Bank of England.

These approaches have been documented in BullionStar articles “Central bank gold at the Bank of England” and “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults“, both from September 2015, and more recently “Tracking the gold held in London: An update on ETF and BoE holdings” from September 2016.

The September 2015 estimates calculated that there were 6,256 tonnes of gold in total in the London vaults, with 5,134 tonnes at the Bank of England (as of end February 2015), and 1,122 tonnes in London “not at the Bank of England“, all of which was accounted for by gold-backed ETFs which store their gold in London. These calculations implied that there was nearly zero gold stored in London outside the Bank of England that was not accounted for by ETF holdings.

The “Tracking the gold held in London” estimates from September 2016 used a figure of 6,500 tonnes of gold in total in the London vaults, and showed that there were 4,725 tonnes inside the Bank of England vaults, of which about 3,800 tonnes was known to be held by central banks (and probably a lot of the remainder was held by central banks also) and that there were 1,775 tonnes of gold outside the Bank of England. The article also calculated that there were 1,679 tonnes of gold in the gold backed ETFs that store their gold in London, so again, there was very little gold in the London vault network that was not accounted for by ETFs and central bank gold.

The Vaults of London

Overall, there are 8 vault operators for gold within the LBMA vaulting network. These 8 vault operators are as follows:

• The Bank of England
• HSBC Bank plc
• JP Morgan Chase
• ICBC Standard Bank Plc
• Brink’s Limited
• Malca-Amit Commodities Ltd
• G4S Cash Solutions (UK) Limited
• Loomis International (UK) Ltd

HSBC, JP Morgan and ICBC Standard are 3 of the London Gold Market’s clearing banks that form the private company London Precious Metals Clearing Limited (LPMCL). The other two member of LPMCL are Scotia Mocatta and UBS. Brink’s, Malca-Amit, G4S and Loomis are the aforementioned security companies. The LBMA website lists these operators, alongside their headquarters addresses.

Bizarrely, the FT article still parrots the LBMA’s spoon-fed line that the vaults are “in secret locations within the M25 orbital motorway”. But this is far from the truth. Many of the London vault locations are in the public domain as has been covered, for example, on this website, and the FT knows this:

JP Morgan: http://ift.tt/1rJdKB1

Malca-Amit http://ift.tt/2lUgxpB

G4S: http://ift.tt/2lpWYY3

And perhaps HSBC: http://ift.tt/2lUccCA

G4S location http://ift.tt/2lpROLZ

Malca-Amit location http://ift.tt/2lUb3Lt

HSBC possible location http://ift.tt/2lpLcx3

And obviously, the Bank of England vaults are where they always have been, under the Bank’s headquarters in the City of London: http://ift.tt/1SXVCxT

It’s slightly disappointing that we spend time and effort informing the London financial media where some of the London gold vaults are, and then they continue to parrot the LBMA’s misleading “secret locations” line. I put this fake news down to a decision by the FT editors, who presumably have a stake in playing along with this charade so as not to rock the boat with the powerful investment banks that they are beholden to.

The FT also reminds us in its article that “last year a gold vault owned by Barclays, which can house $80bn of bullion, was bought by China’s ICBC Standard Bank.“

This Barclays vault in London was built by and is operated by Brink’s, and presumably after being taken over by ICBC Standard, it is still operated by Brink’s. Logistically then, this ICBC Standard vault is most likely within the Brink’s complex, a location which is also in the public domain, and which even hosts an assay office as was previously mentioned here over a year ago. The Barclays vault (operated by Brink’s) is even mentioned in a Brink’s letter to the SEC in February 2014, which can also be seen here -> Brinks letter to SEC February 2014.

• HSBC – w tonnes
• JP Morgan – x tonnes
• ICBC Standard – y tonnes
• Brink’s – z tonnes

Conclusion

At the LBMA conference in Singapore last October, there was talk that there were moves afoot for the Bank of England to begin publishing data on the custody gold it holds on a more regular basis. It was also mentioned that this data could be extended to include the commercial bank and security carrier vaults but that some of the interested parties were not in favour of the idea (perhaps the representative contingents of the powerful HSBC and JP Morgan). Whatever has happened in the meantime, it looks like some data will now be released in the near future covering all of the participating vaults. What this data will cover only time will tell, but more data than less is always welcome, and these data releases might also help show how near or how far we were with earlier estimates in trying to ascertain how much gold is in the London vaulting system that is not accounted for by ETF holding or central bank holdings.

Revealing the extent of the gold lending market in London is critical though, but this is sure to remain a well-kept secret, since the LBMA bullion banks and the Bank of England will surely not want the general market to have any clue as to which central banks don’t really have any gold while still claiming to have gold (the old gold and gold receivables “tiresome” trick), in other words, that there is serious double counting going on, and that some of the central bank gold has long gone out the door.

 

 

 

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Last week’s mega-merger announcement, the deliberately leaked acquisition of Unilever by the Warren Buffett-backed Kraft Heinz – a deal which would create a giant consumer goods conglomerate – has fallen apart, following Unilever’s adverse reaction to the deal, and speculation that Kraft would not pursue a hostile transaction.  As the FT reports, Kraft Heinz withdrew its $143bn pursuit of consumer products rival Unilever only two days after it publicly confirmed its interest in acquiring the Anglo-Dutch company.

The proposed transaction would have been the largest-ever takeover in the food or beverage industry, and would have created a company with combined sales of nearly $85 billion, second only to Swiss giant Nestle.

On Friday, the Anglo-Dutch company said that the $50-a-share cash and stock offer, an 18 per cent premium to its closing price on Thursday, from Kraft Heinz “fundamentally undervalues Unilever”. It added: “Unilever rejected the proposal as it sees no merit, either financial or strategic, for Unilever’s shareholders. Unilever does not see the basis for any further discussions.”

In a joint statement, Kraft Heinz said it had “amicably agreed to withdraw its proposal for a combination of the two companies.” The companies added: “Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever.”

The statement came days after the deal was widely leaked in advance of Friday’s confirmation, as we showed on Friday when we demonstrated a surge in Unilever and Kraft call purchases by certain lucky “information arbitrageurs.”

 

 

It remains to be seen if the SEC has likewise pulled its probe (or ever started one) into who leaked the transaction ahead of time, and who profited.

Kraft Heinz said in the statement that its “interest was made public at an extremely early stage. Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction”. It added: “It is best to step away early so both companies can focus on their own independent plans to generate value. We remain focused on driving long-term value while always putting our consumers first.”

Both companies had began meetings with the UK government over the weekend after British prime minister Theresa May ordered her top officials to examine the proposed takeover attempt to see if it needed government intervention, according to the FT.

The Kraft Heinz bid was a major test for the UK government’s industrial policy, after Mrs May called for greater powers to prevent predatory takeovers, citing the Kraft Foods’ 2010 takeover of UK chocolate maker Cadbury in which the acquirer later reneged on promises to retain factories in Britain.

A deal would have brought together the company behind Kraft Mac & Cheese and Heinz Tomato Ketchup with the maker of Dove soap, Ben & Jerry’s ice cream.

Unilever shares jumped 13% to close Friday at a record 44.80 euros in Amsterdam, while Kraft Heinz, based in Pittsburgh and Chicago, also surged 11% to a record in New York trading. US stock markets are closed on Monday.

via http://ift.tt/2ladBGL Tyler Durden