As we first reported one week ago, a “red flag” emerged for the market, and big hurdle for Dow surpassing 20,000, as a result of year-end pension fund rebalancing, which as Credit Suisse calculated have to sell between $38 and $58 billion. According to CS analyst Victor Lin, the “estimated rotation out of domestic U.S. equities would be one of the largest on record” with relatively large outperformance versus other asset classes both on a monthly and quarterly basis. 

And, as yesterday’s price action showed, “prudently” said pension funds appear to have waited until the very last possible moment, i.e., the end of the year to dump billions in ultra thin tape, leaving C-grade traders in charge of execution.

Further, as RBC’s cross asset head Charlie McElliggott notes in a note this morning, yesterday’s selling was hardly the only “rebalancing day”, with today and tomorrow still on the calendar.

So what time should traders expect these selling waves?

Here is RBC’s answer:

Mean-reversion (both cross-asset and intra-asset) has officially commenced ahead of schedule, but still setting-up for a now modestly downgraded “January Effect”; that said, real money / asset-allocators have a longer-term basis to continue to shift portfolios to a more reflationary-footing which will see that equities dip bot and that UST rally sold (which is a now dangerous market consensus in and of itself!); the key to sustaining the move will HAVE to be the continued “percolation of animal spirits” in 1Q17 economic data with confidence metrics, inflation and PMIs.

The US Dollar has reversed the entirety of yesterday’s gains (and then-some) on four key ‘inputs’ over the past session and a half:

 

Large month-end FX hedging from US equities clients, where major MTD gains in stocks force USD-selling on the hedging adjustment.

• Lower US rates (= stronger USTs) from the blistering indirect takedown (highest all-time at 71.4%) at yesterday’s strong 5Y auction, which stopped 1.2bps through WI and squeezed the mongo leveraged-fund short base
• Lower US rates (= stronger USTs) boosted by the mechanical pension asset-rebalancing into bonds from stocks (on acct of massive relative performance gap MTD / QTD), most-clearly evidenced by the programmatic ~ half-hour long selling-waves seen in SPX at 9:35am, 11:55am and 3:35pm.  Expect this flow to continue through the new year, as market liquidity simply is not deep enough to ‘take it.’

In other words, anyone looking to BTFD may want to step away just before noon today – and especially tomorrow when nobody will be around – and just after the start of what is the traditional 3:30pm ramp, which if RBC is correct, will have an opposite effect on the market in the last 25 minutes of trading.

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

Via TheAntiMedia.org,

Russian military forces have discovered mass graves in eastern parts of the Syrian city of Aleppo, with many of the bodies reportedly showing signs of torture.

Maj. Gen. Igor Konashenkov, a spokesperson for the Russian defense ministry, announced the horrifying discovery on Monday. “Many of the corpses were found with missing body parts, and most had gunshot wounds to the head,” he said, according to RT, a Russian state-owned news network.

Until recently, the eastern portion of Aleppo, once Syria’s largest city and industrial and financial center, was under the control of so-called “moderate” rebels, many of whom have received both intelligence and material support from the United States and its allies in the Middle East.

Last week, Russian and Syrian military forces oversaw the evacuation of civilians from eastern Aleppo. Prior to that, the rebel-held portion of the city had been controlled by two main factions, Jabhat al-Nusra, a terrorist group with ties to al-Qaeda also known as the Nusra Front, and Ahrar al-Sham, another extremist group that receives U.S. support despite being designated a terrorist organization.

In an apparent attempt to court the U.S. government by distancing itself from al-Qaeda, the Nusra Front recently attempted to “rebrand” itself. Despite efforts to market themselves as kinder, gentler terrorists, the group has continued to commit atrocities, including burning buses intended to be used in the evacuation and even blocking food aid from reaching Aleppo’s starving residents. WikiLeaks’ archive of diplomatic cables reveals that the United States, Israel, and Saudi Arabia have sought to overthrow the government of Syrian leader Bashar Assad since at least 2006, and support for extremist fighters remains a key part of that strategy.

Konashenkov promised a full investigation into the war crimes of rebel forces in Aleppo, suggesting in his statement that the results would surprise many people who receive their news from Western mainstream media sources. He said:

“The completion of a uniquely large-scale humanitarian operation by the Russian Center for Reconciliation in Aleppo will destroy many of the myths that have been fed to the world by Western politicians. The results of only an initial survey of Aleppo neighborhoods abandoned by the so-called ‘opposition’ will shock many.”

Russian forces also found massive stockpiles of weaponry abandoned by fleeing rebel groups. “In one small area, three tanks, two cannons, two multiple rocket launchers and numerous homemade mortars were found,” reported RT.

Throughout the civil war, weaponry and equipment provided by the United States and its allies, nominally intended for so-called “moderate” groups like the Free Syrian Army, has instead ended up in the hands of terrorist groups like the Nusra Front. A BBC report from December of 2015 referred to the shipments of supplies from the West as a “Wal-Mart” for extremists.

While journalists on the ground have documented atrocities carried out by rebel groups throughout the Syrian conflict, the mainstream media has focused almost entirely on reports of war crimes committed by the Syrian government, even though many of those reports are impossible to verify.

False news about Syria has continued to proliferate in recent days, including reports of genocide carried out by the Syrian government that featured fake or recycled photos.

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Hold your real assets outside of the banking system in one of many private international facilities  –>    http://ift.tt/2cyFwvQ;

 

 

 

 

“Guilty, But Not Punished”: Another Banking Criminal Let Off The Hook

Written by Jeff Nielson CLICK HERE FOR ORIGINAL)

 

 

 

It is a verdict which we see over and over when it comes to the crimes of the Big Banks, the central banks, and their minions. These felons are caught committing serious offenses, again and again, yet receive either no punishment, or at worst some token slap on the wrist.

 

The banking felon to escape punishment this time is IMF criminal, Christine LaGarde. LaGarde’s criminal conviction came while she was still France’s Finance Minister. It involved a $400 million government pay-out authorized by LaGarde, against the advice of several other Finance Ministry officials, to “French tycoon” Bernard Tapie. LaGarde announced she wouldn’t appeal being let off the hook for her crime. How magnanimous.

 

Of course the phrase “French tycoon” is just a Corporate media euphemism for French oligarch, Bernard Tapie. LaGarde funneled $400 million of government money – the People’s money — into this oligarch’s pockets, against the advice of Ministry colleagues, in what was officially ruled “a misuse of public funds”. Even with the watered-down charge of negligence, LaGarde’s crime could have carried a penalty of up to one year in prison.

 

The problem is that it would be difficult for LaGarde to continue to serve her oligarch Masters – in her new role as head of the IMF – from inside a prison cell. So she was given a pat on the head and told to go back to work. Indeed, one has to wonder if LaGarde’s reward for enriching Bernard Tapie (even further) with public money was her prestigious appointment at the IMF?

 

If (mis)using $400 million of public money to line the pockets of an oligarch doesn’t warrant at least a year in prison, what does? But this is nothing more than what we have now come to expect in the two-tier “justice” which now prevails across the Western world.

 

Once upon a time, our societies espoused a principle known as “accountability.” People were held accountable for their actions, meaning not just the Little People. Indeed, when public officials were guilty of misdeeds back when we lived in legitimate societies, they were held more accountable than the rest of us – not less so. At the very least, they were forced to give up their prestigious position, in disgrace.

 

Now these Criminals just sneer down at the Little People when they are let off the hook for their mega-crimes, as they try to pretend that they have done nothing wrong. For the Little People, a criminal conviction (for a serious offense) can and usually does derail one’s entire life. For the high-and-mighty (especially the higher-and-mightier bankers) a criminal conviction is not even a bump in the road – the road to committing more crimes.

 

The high-and-mighty, and the corporate fronts which they wield, commit crimes which are many orders of magnitude larger than any other (financial) crimes in human history and are unpunished. Here regular readers will already recall the epitome of anti-justice:

 

U.S. ‘Justice’ Department Proclaims Big Banks Have A License To Steal

The U.S. Department of (Anti-)Justice issued a proclamation that “one of the most effective ways to combat corporate misconduct” in the financial sector would be to never prosecute financial corporations. U.S. Big Banks now had a license to steal, officially. It doesn’t matter how large the crimes, how many crimes they commit, or how many times they commit the same crimes; no punishment – not even a token prosecution.

 

But even before the subservient U.S. government officially sanctioned U.S. Big Bank crime, in perpetuity, the criminals of Wall Street already considered crime a way of life in their occupation, as expressed (euphemistically) in this Reuters headline from 2012:

 

Many Wall Street executives says wrongdoing is necessary: survey

One-quarter of the “senior executives” (i.e. master criminals) of Wall Street admit that committing crimes is a way of life. The other 75% won’t admit it. The banking mouthpieces at Bloomberg couldn’t hide their smirks as they wrote the following words:

The statute of limitations has run out on the majority of the most egregious cases stemming from the financial crisis [the Crash of ‘08], but there is always more to do. Wall Street is like the Silicon Valley of financial crime: It’s always innovating. [emphasis mine]

 

Revering financial criminals, for committing the worst financial crimes. Americans have a long tradition of revering their gangsters, and bankers are the gangsters of the 21^st century: banksters. Readers know the crime syndicate which employs the services of these banksters as “the One Bank”: a crime syndicate which, by itself, controls 40% of the global economy.

 

Along with all that corporate power comes political power: controlling 100% of Western governments (except Iceland), controlling 100% of the “justice” machinery in these Puppet States. The new Trump regime is nothing more than Goldman Sachs Inc., a rancid government stuffed with more Goldman Sachs stooges than any other U.S. regime in history.

 

Why stuff the Trump government with so many Goldman Sachs stooges at this particular time? Because the Next Crash is coming, and the banking crime syndicate wants there to be several sets of (loyal) hands dishing out sugar-plums to the banking crime syndicate, just like former Goldman Sachs CEO Hank Paulson did in 2008, as U.S. Treasury Secretary.

 

Of course mere foot soldiers like Paulson and Blankfein and Dimon don’t get to pocket the kick-backs and too-big-to-fail blackmail payments funneled into the coffers of the Big Bank crime syndicate. Ultimately all that pillaged public money ends up in the pockets of the “Godfathers” of the banking crime syndicate – the oligarchs.

 

These are the world’s real “richest people”: trillionaires. The planet’s premier thieves. They are not to be confused with all the B-list billionaires on the absurd “world’s richest lists” fabricated by the Corporate media – which itself is just another tentacle of the One Bank. How did the Top 0.1% in the U.S. “acquire” as much wealth as the entire bottom-90%? Obviously they didn’t earn it.

 

The political lackeys and banking lackeys steal millions of times more for their oligarch Masters than any other thieves in history, but go unpunished. But it wasn’t always this way, as expressed in the neatly titled article “Should Crimes of Capital Get Capital Punishment?”

The history of drastic punishment for financial crimes may be nearly as old as wealth itself.

The Code of Hammurabi, more than 3,700 years ago, stipulated that any Mesopotamian who violated the terms of a financial contract – including the futures contracts that were commonly used in commodities trading in Babylon – “shall be put to death as a thief.”
…

In medieval Catalonia, a banker who went bust wasn’t merely humiliated by town criers who declaimed his failure in public squares throughout the land; he had to live on nothing but bread and water until he paid off his depositors in full. If, after a year, he was unable to repay, he would be executed – as in the case of banker Francesch Castello, who was beheaded in 1360. Bankers who lied about their books could also be subject to the death penalty.

In Florence during the Renaissance, the Arte del Cambio – the guild of mercantile money-changers [i.e. bankers] who facilitated the city’s international trade – made the cheating of clients punishable by torture… [emphasis mine]

The article appeared, ironically, in the Wall Street Journal. In some parts of the world today, the most-serious financial crimes already carry the ultimate penalty: death.

19 Chinese White Collar Criminals Who Were Handed The Death Sentence

How many Western bankers would we need to shorten by about a foot, with a rusty guillotine, before the rest of these Criminals tell their oligarch Masters to start doing their own stealing? Nobody can answer that question with certainty. There is only one way to find out: experimentation.

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

 

 

 

“Guilty, But Not Punished”: Another Banking Criminal Let Off The Hook

Written by Jeff Nielson CLICK HERE FOR ORIGINAL)

via http://ift.tt/2hQL0SK Sprott Money

With the world still napping in a post-Christmas daze, the ECB surprised Italian bank watchers on December 26 when it advised the insolvent, and nationalized, Monte dei Paschi that its capital shortfall had increased by 76% from €5 billion to €8.8 billion as a result of a deposit flight, aka “bank run”, that had accelerated and led to a deterioration in the bank’s liquidity.

The week before, Monte Paschi admitted, it had already suffered roughly €14 billion in deposit outflows, or 11%, in the first nine months of the year as shown in the chart below.

And then, out of nowhere, the ECB said on Monday that Monte Paschi “was solvent but signaled the bank’s liquidity position had rapidly deteriorated between the end of November and December 21.“

Needless to say, Italy was furious at the ECB for unexpectedly admitting that the country’s banks are not only in a worse shape than presented at a time when the government requested the parliament’s approval to issue an additional €20 billion in new public debt to fund bank nationalizations, but that the bank run gripping at least one of Italy’s banks was substantially more aggressive than portrayed.

The anger culminated overnight when in unusually critical comments of the ECB, Italy’s economy minister Pier Carlo Padoan said in a newspaper interview the central bank’s new capital target was the result of a “very rigid stance” in its assessment of the bank’s risk profile. He bashed Draghi saying, that the European Central Bank “should have explained more clearly why it nearly doubled its estimated capital shortfall for the ailing Monte dei Paschi di Siena (BMPS.MI) bank, which is being bailed out by the state.“

“It would have been useful, if not kind, to have a bit more information from the ECB about the criteria that led to this assessment,” Padoan told financial daily Il Sole 24 Ore.

The ECB told the Italian treasury of its decision in a letter, which Padoan said was just five lines long and which has not been made public.

Confusion spread quickly, and as Reuters writes, “it irked the Rome government and has quickly turned into a political issue. A group of lawmakers from the ruling Democratic Party asked Padoan and Italy’s foreign minister on Wednesday to explain in parliament what had happened.”

In retrospect, Padoan should be grateful the ECB did not provide “more information”, because the reason for the capital shortfall is simple: an accelerating bank jog, or perhaps an all out run, affecting at least Monte Paschi and perhaps other banks. And the only thing that makes bank runs worse is the realization that one is taking place. So by keeping its mouth shut, the ECB prevented what may have been a far worse panic.

And, ironically, by protesting, Padoan only makes articles such as this one – which are happy to answer his questions and resolve his confusion – possible, and in turn raises concerns and fears among the Italian population about what else its government isn’t telling it.

Ignoring the finer nuances of popular delusions, one side effect of the ECB’s unwelcome announcement is that the higher capital requirement substantially increases the cost of the bank’s rescue by the government after it failed to raise the €5 billion on the market. The treasury is now set to pump in around €6.5 billion to salvage the lender, “raising concerns that its newly created 20-billion-euro bank bailout fund may not have enough money for other weak banks.” The government says the fund is sufficient; others, such as this website, laughed violenetly when the tiny €20 billiion “bazooka” number was announced.

As Reuters notes, the rest of the money Monte dei Paschi needs will come from the forced conversion of its subordinated bonds into shares, in line with European rules on bank crises. The lender fared the worst in EU-wide banking stress tests published in July.

The ECB has declined to comment on its rationale for the larger capital shortfall.

According to a Reuters source close to the matter, the bank’s estimate of a 5 billion euros capital gap was based on the results of the stress test, conducted on end-2015 data, and included assumptions such as the sale of its whole portfolio of defaulting loans – a key plank of its plan to raise money privately.

Given that plan’s failure and the bank’s worsening balance sheet over the past year, the ECB wants to ensure Monte dei Paschi has enough capital to safely meet a Common Equity Tier 1 (CET 1) ratio of 8 percent in an adverse scenario, so it would be able to restore investor and customer confidence, the source said.

 

At 8% under the adverse scenario, Monte dei Paschi would still be below the average of the ECB’s stress test, in which banks would see their CET 1 ratio fall to 9.4 percent from 13.2 percent.

 

The 8 percent threshold in the adverse scenario was also a requirement the ECB set for ailing Greek banks in a 2015 review.

The new Prime Minister Gentiloni also chimed in, saying during a press conference he was “a bit surprised to receive the news, out of the blue and on Christmas day. It’s important that the reasons behind this assessment are shared and that there is a dialogue because we need to handle this issue together … We will stick to our guns.”

Which is odd, because also according to the Reuters source the ECB had offered to explain its stance to both the Italian treasury and Monte dei Paschi. In other words, while the prime minister and Padoan both complain about the ECB’s “mysterious ways”, the central bank is quite willing to explain to everyone just what is going on, yet Italy won’t allow it, for reasons unknown.

Meanwhile, the brand new Italian government did what all of its predecessors have done so well: it stuck its head in the sand and ignore the problem.

Padoan said the exact amount of capital Monte dei Paschi will have to raise will be determined once it presents a new business plan to the ECB and the European Commission, but he played down the bank’s problems.

“The bank is in optimal condition and will have great success,” he said.

Readers will be forgiven not to believe Padoan, the same person who less than three months ago, on September 2 at the Ambrosetti Forum said that “we are not talking about a bailout. Bailout is ruled out in the European context.”

Now we know that a bailout was not ruled out after all. As for the “optimal condition” of Monte Paschi, we will wait a few more weeks for the bank jog to yank another several billion from the insolvent lender, at which point the ECB will “surprise” everyone that the bank has an even greater capital shortfall.

via http://ift.tt/2hsv5Jw Tyler Durden

Submitted by John Rubino via DollarCollapse.com,

The world has gotten so used to ultra-low interest rates that even economists and money managers seem to be shocked by what happens when rates start creeping back towards normal levels.

Some of the mini-bubbles that formed in an essentially free-money environment are now starting to leak. Notably:

US Housing
While the action in this sector is nothing like the raging mania of the 2000s, prices in many hot US markets are at all-time highs, while affordability is at or near an all-time low. And now rising mortgage rates are beginning to bite.

Pending Home Sales Reflect “Dispirited” Buyers.

(Mortgage News) – Pending sales, which were widely expected to make a good showing in November, pulled back sharply instead. The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts for existing home purchases, declined 2.5 percent to 107.3 in November from 110.0 in October. NAR said “the brisk upswing in mortgage rates and not enough inventory dispirited some would-be buyers.” The decrease brought the PHSI to its lowest level since January of this year and it is now 0.4 percent below the index last November which stood at 107.7.Analysts polled by Econoday had been upbeat about the November outlook. The consensus was for an increase of 0.5 percent with some analysts predicting as much as a 2.0 percent gain.

 

Lawrence Yun, NAR chief economist said, “The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election. Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract.”

US Auto Sales
Cars and trucks have been one of the economy’s bright spots for several years — which seems to have gotten everyone just a little too excited. Auto financing practices have lately begun to resemble those of the subprime mortgage bubble: Today’s average loan is for more money, lasts much longer, and is held by a much weaker credit than ever before. Now, with interest rates rising and pretty much every potential buyer already locked into a car mortgage, the bubble optimism is evaporating.

GM Plant Closures Could Signal Trouble for U.S. Auto Industry

(NBC) – General Motors will temporarily idle five U.S. assembly plants next month in a bid to reduce bloated inventories.

 

The cuts focus on plants building sedans and coupes, such as the Chevrolet Cruze, Cadillac CTS and Chevy Camaro, which have been losing momentum as American motorists by the millions shift from passenger cars to utility vehicles and other light trucks.

 

But the move could also signal a broader slowdown of the U.S. automotive market after three consecutive years of record sales. The big questions are how fast and how far a slide the industry could be facing.

 

Forecasts by IHS Automotive and other research firms say sales could slide by 200,000 vehicles or more, with a variety of factors threatening to create even more of a downturn. These include rising fuel prices and increasing interest rates. Automakers could offset higher monthly payments by offering new loan and lease subsidies, but such moves would, in turn, impact industry profitability.

 

GM’s decision to cut production at plants in Michigan, Ohio, Kansas, and Kentucky comes as it watches inventories surge, in some cases, to nearly three times what the industry considers the norm: about 60 to 65 days’ worth of vehicles on dealer lots. The company has a 177-day backlog of Camaros, while its overall inventory grew from a 79-day supply in October to 84 days at the end of November.

China
That the world’s second largest economy — with a debt load that has quintupled in the past seven years — can be called a “mini-bubble” illustrates the size of the meta-bubble in which it has emerged.

The story in a nutshell is that China responded to the Great Recession by borrowing more money in the following half decade than any other country ever, and wasting a big part of the proceeds. Now its banking system is cracking under the strain of mounting bad debts, and newly-rich Chinese are getting their capital out of Dodge at a rate that if allowed to continue will bring on a full-scale credit crisis. Already-extant capital controls will apparently be tightened up shortly.

No Happy New Year in China as Currency, Liquidity Fears Loom

(Bloomberg) – China bulls could be facing a grim New Year’s eve.

 

China’s markets are seeing renewed pressure this month as the Federal Reserve projects a faster pace of rate increases for 2017 and its Chinese counterpart tightens monetary conditions to spur deleveraging and defend the exchange rate. The declines are capping off a tough year for investors during which bonds, shares and currency all slumped.

 

China’s 10-year government bond yield has surged 21 basis points in December, poised for its biggest monthly increase since August 2013, and its first annual gain since that same year, China bond data show. The yuan’s 6.6 percent decline in 2016 puts it on course for its worst year since 1994, while the Shanghai Composite Index is headed for its largest drop in five years.

 

The three-month interbank rate known as Shibor rose for a 50th day, its longest streak since 2010, to an 18-month high on Wednesday. The overnight repurchase rate on the Shanghai Stock Exchange jumped to as high as 33 percent the day before, the highest since Sept. 29. As banks become more reluctant to offer cash to other types of institutions, the latter have to turn to the exchange for money, said Xu Hanfei, an analyst at Guotai Junan Securities Co. in Shanghai.

 

 

The onshore yuan’s surging trading volume suggests outflows are quickening, according to Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc. The daily average value of transactions in Shanghai climbed to $34 billion in December as of Wednesday, the highest since at least April 2014, according to data from China Foreign Exchange Trade System. The offshore exchange rate dropped 0.15 percent on Wednesday to trade near a record low, while the onshore rate was little changed.

None of these, not even China, are by themselves enough to destabilize a global financial system that’s still awash in new credit. But all three at once? Maybe.

And of course there are more potential eruptions waiting in the wings, what with the Italian bank bail-out getting harder as deposits flee those sinking ships and US stocks at record levels and thus (if – an admittedly big if – history is still a reliable guide) due for a correction.

So whether or not these current dramas amount to anything memorable, they clearly represent limits on the global financial bubble. More such limits will emerge shortly.

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

With the topic of Yuan’s relentless plunge to all time lows clearly bothering China and threatening to breach the symbolic level of 7 Yuan for the dollar, overnight Beijing decided to do something about it. Only instead of actually implementing much needed, and long overdue economic reforms, banking sector deleveraging or financial liberalization, China once again took the easy way out, when it revised its recently introduced trade-weighted FX currency basket by diluting the role of the dollar and adding another 11 currencies as, in Bloomberg’s words, “officials seek to project an image of stability in the yuan.”

Alas, “projecting an image of stability” for the dollar may be problematic as explained most recently last night in “With China Facing Currency, Liquidity Crises, Ex-PBOC Official Urges Use Of “Nuclear Option.” Even more embarrassing for Beijing is that the Politburo believes it can fool the general public with such cheap dollar-store, no pun intended, gimmicks.

As a reminder, the basket was unveiled in December 2015 as a way of shifting focus away from the yuan’s moves against the dollar in the wake of China’s unexpected August 2015 devaluation. PBOC Deputy Governor Yi Gang said last month the yuan’s depreciation versus the dollar was largely driven by the strength of the greenback and the market should refer to its performance against the basket as the economy maintains stable growth.

Here are the specifics: starting January 1, the weighting of the dollar will fall to 22.4% from 26.4% in the basket, China Foreign Exchange Trade System said in a statement Thursday. Additions include the South Korean won, the South African rand, the United Arab Emirates’ dirham, Saudi Arabia’s riyal, Hungary’s forint, Poland’s zloty and Turkey’s lira.

The dollar and currencies that are pegged to the greenback, such as the riyal and the Hong Kong dollar, will take up 30.5 percent of the new basket, down from 33 percent currently. The won will have a 10.8 percent weighting when it’s added from next month.

Why is China cutting the weighing of the USD by as much as 15%? Simple: because while much of the rest of China’s FX basket has been flat, the USD has been soaring, driven by speculation about Trump’s fiscal stimulus and upcoming Fed hikes. This in turn has forced China to respond not so much to broad FX strength, but only to moves in the dollar by devaluing its currency in small increments.

It is seeking to avoid that for the future, and as a result, “the move is aimed to reduce the impact of dollar strength on the overall performance of the basket,” said Christy Tan, head of markets strategy in Hong Kong at National Australia Bank Ltd. “It will also make it easier for China to manage yuan stability versus the basket, since the yuan will need to appreciate less versus other non-dollar currencies amid dollar strength.”

The divergence between the Yuan’s value only relative to the dollar, which is plunging, and the value of the overall trade-weighted basket, which is rebounding, is shown in the Bloomberg chart below.

As Bloomberg adds, the weighting of the basket will be evaluated on an annual basis and updated at the “appropriate time”, according to CFETS. The new composition covers exchange rates of the nation’s main trading partners, it said, adding that the newcomers will take 21.1 percent of the overall weighting.

“The new basket is more comprehensive and a better reflection of China’s trade relations,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “In the near term, the PBOC’s target would still be to keep the yuan stable versus the basket.”

Meanwhile, no amount of superficial definition revisions can change the fact that the yuan is headed for its steepest yearly plunge against the dollar in more than two decades, and when the year turns, policy makers will be faced with a triple whammy of the renewal of citizens’ $50,000 quota of foreign-currency purchases, prospects of further Federal Reserve interest-rate increases, and concern that U.S. President-elect Donald Trump may slap punitive tariffs on China’s exports to the world’s largest economy, as observed last night.

Furthermore, the real question when determining the “risk” of Chinese exposure to the dollar is not what some arbitrary weighing in FX basket is, but what exposure to USD-denominated debt Chinese companies have as a percentage of total foreign-denominated paper. Here, we are confident that the number is far, far greater than just 22.4%.

Ironically, the move may end up backfiring, and lead to even greater basket weakness should the dollar strength continue in the new year:

“Adding a batch of emerging-market currencies into the basket will likely increase two-way volatility of the yuan’s fixing and the exchange rate,” said Ken Cheung, Hong Kong-based Asia currency strategist at Mizuho Bank Ltd. “If the dollar extends its rally next year, particularly against the emerging-market currencies under Donald Trump’s presidency, the onshore and offshore yuan will come under heavier pressures.”

Well, if that happens, CFETS will simply undo what it did overnight, and restore the dollar’s full weighing, while suggesting to the market it was only joking.

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

Who could have possibly thought that a soaring dollar would have an adverse impact on the US trade deficit, and thus, the US economy. Well, not the Fed, if only for now, because just as the Fed hiked rates only for the second time in a decade, the US advance goods trade deficit soared from $61.9 billion to $65.3 billion, far higher than the consensus print of $61.6 billion. This was the highest advance trade gap since March of 2015 when the dollar was likewise soaring.

The reason for the far greater than expected deficit: exports of goods fell 1.0%, while imports of goods rose 1.2%.

Exports of Goods were down 0.99% in November, according to the advance estimate. Most of this $1.2 billion decline came from a $1.8 billion drop in exports of capital goods, which was offset by a $1.2 billion rise in exports of industrial supplies.

Imports of Goods were up 1.19% in November, according to the advance estimate. This $2.2 billion rise was largely a result of a $2.0 billion rise in industrial supplies imports.

All else, equal, this means that Q4 GDP is about to be revised between 0.2% and 0.4% lower, from its current perch, which according to the Atlanta Fed is currently at 2.5%.

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Submitted by Leonard Hyman & William Tilles via OilPrice.com,

Donald Trump in the White House and Theresa May in 10 Downing Street. They will open the door to more nuclear spending, no doubt. Prime minister May has already given a green light to Britain’s most expensive energy project, a heavily subsidized nuclear power station at Hinkley Point. Based on the most recent federal budgeting approvals, we expect that no U.S. nuclear weapons programs will want for funds. But, despite all the post-election industry euphoria, should we anticipate a full renaissance for U.S. commercial nuclear power? Is that just a bridge too far, so to speak? Let's look at the what will go into some of these decisions.

1.Need for the product. With no growth in the market for electricity, the industry needs new power plants only to replace old ones and to decarbonize output in order to mitigate global warming. The Trump administration has declared an end to the so-called war on coal, which makes it less likely that the electric industry will have to close old coal fired generating stations soon and it has categorized global warming as a hoax, which removes an excuse to build non-carbon producing nuclear units. The nuclear industry will need another rationalization for expansion.

2.Economics. Nuclear power looks like an expensive means of producing base load electricity with significant known risks and ongoing waste storage/disposal issues. A new 1,000 MW nuclear plant ordered today for 2025 in service would cost about $10 billion. New renewables can produce power at no higher a cost per kwh, without the same long construction schedule and need to build so large a unit. A new base load gas fired unit of the same size capacity could be completed in a few years and cost one fifth as much per MW and produce at a lower cost per kwh. Producing a commodity like electricity at a relatively high price in a competitive market is not a winning business strategy. Nuclear has to offer something else.

3. Base load generation. Nuclear plants run as base load units, something renewables cannot do — at least not until economical energy storage comes into the picture– because of the intermittency of their output. Still, renewables, particularly wind in the U.S. midwest and Texas, will temporarily displace more large central station power generation, forcing more units to “cycle”. Nuclear plants are less well suited for this duty. Flexibility and load following may become more highly valued than base load. This also reflects a change in the electric industry itself. The former command and control or paternalistic relationship between utility and consumer is changing. At a minimum consumers are dictating how their energy is produced, agreeing for example to pay premiums for “greener” forms of electricity. In other words, nuclear has something to sell in the base load market, but that market may be in decline. Related: Are Abandonded Mines A Solution For This Energy Dilemma?

4. Power markets. Neither U.S. nor UK power markets will support unsubsidized or non-mandated new generation. To the extent that the U.S. wholesale power markets remain both deregulated and regulated in parts, this is also a negative for new nuclear capacity. Deregulated power markets, both here and in the UK, aren’t permitting wholesale prices high enough to finance new gas fired capacity much less new nukes. Regulators will want a cost benefit analysis before approving a new nuclear facility. Basically, this means that a new nuclear project in order to proceed will need a subsidy of one sort or another. A carbon tax would do the job even better. But what GOP politician would vote for that tax, especially if some of their constituents view the issue of global warning as a hoax?

5. Nuclear as infrastructure. As currently built, nuclear projects require a large contingent of well paid labor and massive amounts of steel and concrete. A handful of qualified engineering firms, the usual suspects, also build other infrastructure and one can only think that these politically connected firms can lobby for nuclear projects as hard as they lobby for new bridges or highways. Nuclear construction then could play a role as a component of the as part of the infrastructure program needed to boost the economy. The problem, however, is that nuclear infrastructure has some drawbacks.

6. Resilience needed. Infrastructure should be resilient and anti-fragile. In battle, would we rather attack our enemy in a swarm formation as part of a horde of thousands or ponderously approach the fields of honor as a monolithic “death star”. The former is anti-fragile. The latter, as we all know from the movies (no spoiler intended), is powerful but most definitely fragile. The “enemy” here approaches from two sides: technological obsolescence (which is slowly confronting all central station power generators) and simple obsolescence from a harsher operating environment. In plain terms, stuff just wears out faster. It’s a riskier business that’s for sure.

7. Investor-owned operators needed. The two major U.S. electric utilities with an outsized presence in nuclear power, Entergy and Exelon, could be characterized as the Dogs of the UTY, thanks to their less than stellar stock performances. EDF, the builder of the new British station, almost didn’t get to a positive decision on the new plant due to a revolt on the part of concerned directors. Do investors want more nuclear power? Probably not without subsidies or guarantees.

8. Coastal locations needed. One problem with commercial nuclear power is not that it produces expensive electricity via fission, but that its voracious need for cooling water requires mostly coastal or riparian sites. Ignore the technology for a moment. Rising seas, hurricanes, storm surges and the like could render an ever broader swath of coastline unsuitable for infrastructure of any sort. Even if the Trump administration sees no issues, property and casualty insurors as well as and bond investors might.

9. Using nuclear subsidies as corporate welfare. New York and Illinois both launched programs best described as Welfare for the Nuclear Elderly. It’s heart-warming to see such generosity just prior to the holiday season aimed at aging, uneconomic nuclear plants. This sounds to us like a job creation/preservation program for rural areas (where high paying jobs are scarce) masquerading as an environmentally beneficial, carbon mitigating proposal. There is nothing inherently evil about subsidizing private sector jobs in the electric utility industry. We just wish they’d drop the low carbon fig leaf as a rationale or change the market so it pays for the supposed virtues of nuclearinstead of making this a political handout. But note that handouts to old nukes do not encourage the building of new ones.

10. Nuclear for defense. Defense spending may crowd out civilian needs.Themilitary already plans to modernize its nuclear warfare capability over comingdecades. In fact, if we think about where nuclear power as an energy source has worked best, it is in military-maritime applications, things like submarines and arctic icebreakers. If a nuclear accident on a naval vessel at sea occurs resulting in all hands lost–that is clearly a tragedy. If Indian Point goes full metal Fukushima, rendering significant parts of Westchester County, NY uninhabitable, we don’t even have the adjectives much less the liability coverage. We also doubt that military applications will take a back seat in the new administration. Beyond that, there are two big nuclear related projects in the U.S.: completion of the Yucca Mountain nuclear waste repository in Nevada and construction of a vitrification facility at the Hanford, WA site now holding significant amounts of highly radioactive materials in less than perfect circumstances. More than likely, the military, Yucca and Hanford will absorb the lion’s share of new nuclear-related infrastructure monies.

Without a rationale rooted in decarbonization or in shortage of alternative fuels or energy sources, the new administration in the U.S. can only make a weak case for commercial nuclear power. If it will not embrace direct subsidies (which the incoming Congress may be reluctant to do as a matter of principle), the administration may have a hard time finding private partners for nuclear projects. But it can, and probably will, make a strong case for completing the huge nuclear tasks already on the government’s plate. That spending could boost the economy just as much as putting up new nuclear power stations.

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