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Despite the averages’ close proximity to 52-week highs, the number of NYSE New Lows has recently surpassed that of New Highs.

Although the major stock averages remain within arm’s length of their highs, an increasing number of red flags has recently been popping up. As members of The Lyons Share are aware, we became increasingly bearish in the short-term during the latter stages of the recent melt up in prices. Our main concern stemmed from the wide array of indices hitting key Fibonacci Extensions of the 2015 and Fall 2016 declines. On top of that, investor sentiment has become uncomfortably bullish. And while sentiment is tricky from a timing standpoint, the exuberant extremes suggested that recent gains may not be sustainable. Lastly, while market breadth had been holding up quite well, some minor red flags had begun to pop up, especially pertaining to volume and small-cap stocks. However, as today’s Chart Of The Day reveals, the level of concern over breadth has now been ratcheted up.

As recently as last week, many market participants were abuzz over the jump in stocks making new 52-week highs. And while we have cautioned that the statistic can be quite noisy, an expansion in new highs is always welcome. However, while the stock averages remain fairly resilient, we have already seen the number of new highs plummet. On the NYSE, for example, new highs have plunged nearly 90% from their peak just a week ago. Furthermore, the number of new lows on the exchange has exceeded the number of new highs over the past three days. This is highly unusual given the averages’ relative close proximity to their 52-week highs.

Specifically, since 1970, the S&P 500 has closed within 1% of its 52-week high on nearly 3000 days. On just 78 of those days, or about 2.5%, did NYSE new lows exceed new highs. Many of those days were clustered together around roughly 27 unique occurrences.

 

Here is a close up of just the past 20 years:

 

Not all of the events preceded trouble in the stock market. In fact, nearly half of them to place during the 1999 market melt-up. However, enough of them occurred in the vicinity of significant market tops that the concern appears to be legitimate rather than merely theoretical. Such tops include cyclical peaks in 1972, 2000 and 2007 as well as major intermediate-term tops in 1990, 1998 and 2015.

In aggregate, S&P 500 returns have been subpar following these events. Even when including the dozens of dates during the 1999 rally, median returns are negative through 2 months – and also at 2 years.

This troubling data point does not guarantee imminent trouble for stocks. However, the extended status of the major averages as well as bullish sentiment extremes make this a particularly noteworthy development in the near-term. Additionally, further out, it has historically occurred near enough major tops to give one pause regarding the market’s proximity in its long-term cycle.

*  *  *

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The market is looking increasingly ugly.

Stocks are a lot like a body of water. Anyone can see where the surface level is… but what’s occurring underneath is much more difficult to observe.

Well, today the “surface” stock level looks great: the S&P 500 is a mere 1.9% off its all-time record high. The world has gone stock crazy with retail investors POURING money into the markets like it’s 1999 all over again.

Unfortunately for them, some truly nasty stuff is going on underneath the surface of the market.

The average stock in the S&P 500 is down nearly 10% off its highs.

Put another way, only a small group of stocks are holding up the entire market.  Most companies are in fact already in correction mode. Indeed, the number of S&P 500 companies above their 50-day moving averages has rolled over and is collapsing hard.

Put simply, internal momentum is quickly leaving the markets.

This is being confirmed by corporate insiders, the people who know more about the true state of their business than anyone. FEWER insiders are buying stocks today than at any point in nearly 30 years.

So while stocks look enticing on the surface, but what’s lurking underneath is going to lead to a bloodbath.

On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.

In it, we outline the coming collapse will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.

We are giving away just 99 copies of this report for FREE to the public.

To pick up yours, swing by:

http://ift.tt/1HW1LSz

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

 

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While we suggested that the lack of a solid rebound in average hourly wages clouded the Fed’s intentions on future rate hikes after March, Goldman had no such doubts and in a report issued moments after the “solid jobs report”, Goldman’s chief economist Jan Hatzius revised his forecast for upcoming FOMC moves, pulling forward the next two rate hikes, expecting interest rate increases in March, June and September, up from the previous March, September and December. More importantly, Goldman now also expects the Fed to start its “balance sheet normalization to Q4 2017 from mid-2018 previously.”

The full note:

Fed Call Change on Solid Jobs Report

BOTTOM LINE: Following the better-than-expected February employment report we have made a few modest changes to our Fed call for 2017. We now look for funds rate increases in March, June, and September (compared to March, September, and December previously), and have pulled forward our forecast for the start of balance sheet normalization to Q4 2017 from mid-2018 previously.

 

MAIN POINTS: 

 

Nonfarm payroll employment increased by 235k in February, more than expected by consensus forecasts, and the underlying details of the report generally looked solid. As a result of the strong jobs numbers, benign financial conditions, and recent communication from FOMC participants, we are making a few modest changes to our Fed call for this year. Specifically, while we continue to expect three rate increases in 2017, we now look for a March hike to be followed by rate increases in June and September (versus September and December previously). In addition, we have changed our forecast for the start of balance sheet normalization: we now expect the committee to end full portfolio reinvestment in Q4 2017, instead of mid-2018. Under our forecasts for the US economy, we see it as a close call as to whether the FOMC would raise the funds rate four times this year or hike three times and begin balance sheet normalization. But for a variety of reasons—including considerations around the transition to a new Fed Chair in 2018—we see earlier balance sheet normalization as slightly more likely than a fourth funds rate increase.

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Be careful what you wish for…

Today's payrolls print has inspired more bets on a more hawkish Fed.

With The Fed the most "behind the curve" in 40 years, it is perhaps no surprise that Janet and her colleagues are desperate to get rates up as quickly as possible to preserve some ammo before this farce falters.

 

The problem for Janet is, the last time they played catch up like this, did not end well…

 

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With the SEC decision to approve a Bitcoin ETF looming, the payrolls data-inspired weakness in the USD appears to have sparked a sudden panic bid in Bitcoin, spiking the virtual currency to $1305 – new record highs.

Hard to say if someone ‘knows’ something about the SEC decision or this is a kneejerk to the dollar drop…

Additionally, as Bloomberg points ut, BitMEX, a bitcoin platform, is offering members the ability to place bets using the digital currency on whether the Winklevoss Bitcoin Trust (COIN) will be approved by the SEC. Based on the betting, the ETF has a 45% chance of approval. Odds started at about 33% a month ago and jumped to 70% last week before fading. The lawyer who worked on the initial application said it’s unlikely to get approved, while some analysts call it a “coin toss.”

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Interested in precious metals investing or storage? Contact us HERE 

 

 

 

 

The War Against Humans Wins Another Fight

Posted with permission and written by Rory Hall (CLICK HERE FOR ORIGINAL)

 

 

 

Robotics grow stronger everyday. Technology becomes “smarter” everyday and doubles its capacity approximately every two years. The giant multi-national corporations, the owners of our world, are doing their level best to automate as many task as quickly as possible.

 

Thirty plus years ago it began in earnest with the replacement of a number of human positions on the factory floors. Robots began manufacturing automobiles, processing food, medicine and a great many other task that humans used too perform. We now accept this reality as there is nothing anyone can do about it.

 

Today, with robots in a number of everyday places and automation replacing humans at every turn, why would fast-food workers believe they are any different? If google and uber are working around the clock to replace cab drivers with driverless cars why wouldn’t McDonalds want to replace the human with a robotic burger flipper, fry-frying robot and kiosk to take the order?

 

Wendy’s, to be more competitive with McDonalds, just announced the roll out of order taking kiosk in 1,000 locations all across America. McDonalds began rolling out order taking kiosk in 2016, so Wendy’s is attempting to make up for lost time, wages paid and sales lost.

 

These are just a few examples showing how every human could be replaced with technology. Most people, globally, use some type of automated banking service, email, text message and the like. All of these technologies replace letter carriers, payment processing humans and a wide variety of other, formerly, human performed task.

 

As a news website, we see more and more automated websites coming online everyday. These news sites use an RSS feed and have little to no human interaction. Once the technology is deployed, the owner moves to their human based task. The web site does 99% of the work and the human owner simply checks in to ensure the technology is working as programed.

 

Now we learn how the “Fight for $15” crowd has shot themselves in the foot. Odds are these global burger giants were planning on rolling out the above mentioned programs regardless of people demanding higher wages but it probably stoked the fire to fast-track these programs.

 

Today we find out how bad it is for the Fight for $15 crowd and the burger flippers can now be replaced with a robot. CaliBurger doesn’t pay for burger flippers, it uses a robot to do the cooking.

 

A burger-flipping robot has just completed its first day on the job at a restaurant in California, replacing humans at the grill.

Flippy has mastered the art of cooking the perfect burger and has just started work at CaliBurger, a fast-food chain. Source

And don’t think for a second the robotics developer have achieved their ultimate goal. They haven’t even started. Burger flipping robots is soooo yesterday.

 

“Though we are starting with the relatively ‘simple’ task of cooking burgers, our proprietary AI software allows our kitchen assistants to be adaptable and therefore can be trained to help with almost any dull, dirty or dangerous task in a commercial kitchen — whether it’s frying chicken, cutting vegetables or final plating.”

Cameras and sensors help Flippy to determine when the burger is fully cooked, before the robot places them on a bun. A human worker then takes over and adds condiments.
Source

Unless people begin thinking, and more importantly, doing for themselves and creating the world they wish to prosper, a great many more people are going to find themselves as a slave to the system. Universal Basic Income (UBI) is being discussed in back rooms and in open door meetings around the world. If you do a simple web search for “universal basic income” you will find out exactly what is being discussed. UBI would make anyone on the dole nothing more than cannon fodder for the globalist. Step out of line and their world would come crashing down. Say the wrong thing, protest for your human rights or simply have a robot determine the cost of “benefits” is too high and the next thing you know, with the push of a button, a person’s financial, economic and social world comes to a grinding halt.

 

Robotics and automation are beginning to move into areas of our lives that people just 10 years ago couldn’t or wouldn’t see. Today, we had all better be on high alert or the job we thought would never be performed with automation or a robot will be gone with the push of a button.

 

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

 

The War Against Humans Wins Another Fight

Posted with permission and written by Rory Hall (CLICK HERE FOR ORIGINAL)

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It appears that the “animal spirits” unleashed by President Trump are not contained to the stock market: according to the BLS, one of the most notable observations to emerge from the February (and January) jobs reports is that the number of Americans no longer in the labor force plunged since December, declining by 736,000 in January (to a modest extent due to a data revision) and a further 176,000 in February.  The combined two-month addition of 912,000 was the biggest drop in the “not in labor force” series on record.

At the same time, the Household survey reported that the number of employed workers, a number used in the calculation of the unemployyment rate, jumped from 152,081 to 152,528, an increase of 447.

Furthermore, a breakdown of the labor participation rate by age group shows that the recently stagnant and all important 25-54 age group has seen a notable improvement in recent months.

While on the surface this is great news for the US job market as many of those who until recently thought they would be unable to find a job, and had stopped being counted by the BLS, are once again back in the labor market, the flip side is that this sudden increase in new potential hires may keep wages suppressed longer than expected, as what until recently was observed as “lack of slack in the job market” turns out to merely have been “workers on the sidelines.”

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While the headline print for payrolls beat economists' expectations, it failed to beat the whisper number (and earnings were weak) and it appears traders are fading the media's exuberance…

Payrolls printed 235k vs 200k expectations (but was only in line with the whisper number of 235-240k) and earnings disappointed… the result appears to be "sell the news" in the dollar…

 

And gold is back above $1200..

 

As Bond yields leak lower…

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The US economy added 235,000 jobs in February, beating upward revised expectations of 200K, in-line with whisper expctations of 233K. Last month’s report was upward revised from 227K to 238K with the net addition for the past two months coming to +9K.

Nonfarm private payrolls rose 227k up from 221k prior and above the estimate of 215k. Manufacturing payrolls rose 28k after rising 11k in the prior month; this also beat the +10k consensus estimate.

The unemployment rate stayed at 4.7%, while the labor participation increased fractionally from 62.9% to 63.0%. In February, the number of people not in the labor force declined by 176K to 94,190K, the lowest since April 2016 as more Americans are returning to the labor force. Additionally, the number of people who “currently want a job” declined to only 5,597K.

The Underemployment rate came in at 9.2%, down from 9.4% in January.

And while the headline data was stronger than expected, the growth in average hourly earnings disappointed again, rising 0.2% M/M, below the 0.3% increase expected, following last month’s disappointing 0.1% increase. Still, on a year over year basis, average hourly earnings rose 2.8%, in line with expectations. Similarly, average weekly earnings also rose by 2.8%, slightly better than expectations.

The bottom line: the number is good enough for the Fed to hike next Wednesday, although for those looking at earnings to provide color on the pace of future rate hikes, they may have to wait until the next jobs report.

More details from the report:

Total nonfarm payroll employment increased by 235,000 in February. Job gains occurred in construction, private educational services, manufacturing, health care, and mining.

 

In February, construction employment increased by 58,000, with gains in specialty trade contractors (+36,000) and in heavy and civil engineering construction (+15,000). Construction has added 177,000 jobs over the past 6 months.

 

Employment in private educational services rose by 29,000 in February, following little change in the prior month (-5,000). Over the year, employment in the industry has grown by 105,000.

 

Manufacturing added 28,000 jobs in February. Employment rose in food manufacturing (+9,000) and machinery (+7,000) but fell in transportation equipment (-6,000). Over the past 3 months, manufacturing has added 57,000 jobs.

 

Health care employment rose by 27,000 in February, with a job gain in ambulatory health care services (+18,000). Over the year, health care has added an average of 30,000 jobs per month.

 

Employment in mining increased by 8,000 in February, with most of the gain occurring in support activities for mining (+6,000). Mining employment has risen by 20,000 since reaching a recent low in October 2016.

 

Employment in professional and business services continued to trend up in February (+37,000). The industry has added 597,000 jobs over the year.

 

Retail trade employment edged down in February (-26,000), following a gain of 40,000 in the prior month. Over the month, job losses occurred in general merchandise stores (-19,000); sporting goods, hobby, book, and music stores (-9,000); and electronics and appliance stores (-8,000).

 

Employment in other major industries, including wholesale trade, transportation and warehousing, information, financial activities, leisure and hospitality, and government, showed little or no change over the month.

 

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in February. In manufacturing, the workweek was unchanged at 40.8 hours, and overtime remained at 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls has been 33.6 hours since August 2016.

 

In February, average hourly earnings for all employees on private nonfarm payrolls increased by 6 cents to $26.09, following a 5-cent increase in January. Over the year, average hourly earnings have risen by 71 cents, or 2.8 percent. In February, average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $21.86 in February.

 

The change in total nonfarm payroll employment for December was revised down from +157,000 to +155,000, and the change for January was revised up from +227,000 to +238,000. With these revisions, employment gains in December and January combined  were 9,000 more than previously reported. Monthly revisions result from additional reports received from businesses since the last published estimates and from the recalculation of seasonal factors. Over the past 3 months, job gains have averaged 209,000 per month.

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On Friday 3 March 2017, in a surprise announcement with implications for the global silver price, the London Bullion Market Association (LBMA) informed its members that the current administrator and calculation agent of its recently launched LBMA Silver Price auction, Thomson Reuters and the CME Group respectively, will be pulling out of providing their services to the problematic London-based silver price benchmark within the near future. Thomson Reuters and the CME Group also issued statements on 3 March identical to that of the LBMA.

The exit is surprising because Thomson Reuters and the CME Group only began administering / calculating the LBMA Silver Price auction two and a half years ago in August 2014, when, amid much hubris, the duo were awarded the silver price contract after a long-drawn-out and high-profile tender process. Notably, the Thomson Reuters  / CME contract with the LBMA was for a 5-year term running up to and into 2019. So the duo are now pulling out mid-way through a contract cycle.

More surprisingly, in their statements on 3 March, the LBMA / Thomson Reuters and CME allude to a new European Benchmark Regulation being in some way responsible for the hasty departures. However, given that the units of CME and Thomson Reuters that are parties to the LBMA contract are the benchmark subsidiaries “CME Benchmark Europe Limited” and “Thomson Reuters Benchmark Services Limited”, which specialise in administering and calculating benchmarks, this excuse about a European Benchmark Regulation makes no sense.

In essence, the exit of CME and Thomson Reuters is a major embarrassment for all concerned, and could lead to further reputational damage for the parties involved. It also now re-focuses market scrutiny on an area which the LBMA and its associates could well wish to forget, i.e. the former London Silver Fixing run by the infamous London Silver Market Fixing Limited, a company which itself is still one of the defendants, along with HSBC, Bank of Nova Scotia and Deutsche Bank, in a live New York class action suit that is scrutinizing what plaintiffs describe as manipulation in in the London silver market.

LBMA Silver Price: A Regulated Benchmark

Note that the LBMA Silver Price benchmark is now a “Regulated Benchmark” under United Kingdom HM Treasury Legislation, and is one of 8 financial market benchmarks regulated by the UK’s Financial Conduct Authority (FCA). So this is not some backwater obscure benchmark that we are talking about. This is a benchmark with far-reaching effects on the global precious metals markets and is a sister reference price to the LBMA Gold Price benchmark. The reference prices from these benchmarks are used from everything from valuing Exchange Traded Funds (ETFs) to being the price reference points in ISDA swaps, and bullion bank structured products such as barrier options.

According to the LBMA’s usual public relations mouthpiece Reuters, which relayed the CME – Thonson Reuters news to the broader market on 3 March, the LBMA will be:

“looking to identify a new provider in the summer, and have the new platform up and running in the autumn”

This dramatic “exit stage right” by Thomson Reuters and the CME Group is a far cry from their initial and persistent corporate spin of being "committed" to the silver price auction, which they claimed both at auction launch in August 2014, and also as recently as 2016 when they grovelled with promises of process improvement and wider participation in the auction in the wake of the silver price manipulation fiasco in the LBMA Silver Price auction on 28 January 2016.

It was on 28 January 2016 that the midday silver auction took a whopping 29 rounds to complete and the price derived in the auction was manipulated down by a massive 6% under where silver spot and silver futures prices were trading at that time. See the beginning of BullionStar blog “The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing” for further details about the 28 January auction fiasco.

Where is the Commitment?

On 15 August 2014, the day the LBMA Silver Price auction was launched, the CME professed its long-term commitment to the silver markets, with William Knottenbelt, MD at CME Group stating:

“Through our existing relationships with market participants and the broader silver marketplace we are uniquely positioned to provide a seamless transition for the spot silver benchmark in London.” 

“CME Group has a long and successful history of offering benchmark risk management and price discovery solutions for the global precious metals markets.” 

More recently, on 22 March 2016, when CME and Thomson Reuters introduced changes to the silver auction in the wake of the 28 January 2016 auction price manipulation, both parties released more spin about their continued commitment to the auction. Thomson Reuters’ Head of Benchmark Services, Tobias Sproehnle, in a statement that now looks to be hollow, said:

“these changes together with a comprehensive consultation with the broader silver community – producers, intermediaries and consumers – are a further demonstration of Thomson Reuters and CME Group’s commitment to providing innovative, market leading benchmarks for the Silver market.“

While Gavin Lee, the head of CME Benchmark Services, led with an equally hubristic statement that:

“in consultation with Silver market participants, we are always looking for new ways to develop this benchmark further“

These statements from CME and Thomson Reuters, less than a year ago, run totally contrary to the fact that they are now going to abandon the LBMA Silver Price auction ship, which will necessitate the appointment of a replacement administrator and calculation agent. Where is the continued “commitment” to the silver benchmark that they were we eager to espouse last March?

Even last October 2016, less than 5 months ago, when Morgan Stanley joined as a handful of other bullion banks as the only direct participants in the auction, CME and Thomson Reuters were out in force with a press release espousing their continued commitment to the LBMA Silver Price benchmark,with Head of Benchmarks for Thomson Reuters, Tobias Sproehnle, professing that:

“we continue to welcome new participants to this essential mechanism for the markets"

Why the Hasty Departure?

The Reuters News report last Friday 3 March was short on information about the rationale for the departure :

“A spokesman for Thomson Reuters confirmed the company was stepping down from the process. CME could not immediately be reached for comment.”

Not very informative or cooperative from either party,when one of the providers was not even available to explain its exit rationale, and the other merely confirms a known fact to its in-house news arm.

However, if you look at the CME Group website, a short announcement was added to its website on 3 March 2017, which stated that:

“The forthcoming European Benchmark Regulation, due to be implemented in January 2018, prompted a review of the existing LBMA Silver Price administration arrangements and, in consultation with the LBMA, CME Group and Thomson Reuters have decided to step down from their respective roles in relation to the LBMA Silver Price auction.“

This statement was also added to the Thomson Reuters website on 3 March.

Before briefly looking at the relevance of this “European Benchmark Regulation”, which the Reuters news article even failed to mention, its notable that the CME / Thomson Reuters early withdrawal was also covered on 3 March by the MetalBulletin website.

According to MetalBulletin (subscription site):

“CME is looking to streamline its precious metals division, with contracts in this area being its fastest growing asset. The exchange wants to focus on its core products, Metal Bulletin understands.”

What MetalBulletin means by this I don’t know. The logic doesn’t make any sense, and the sentence doesn’t even make sense. Benchmarks are a core product of CME group. CME even states that it offers:

“the widest range of global benchmark products across all major asset classes”

CME Benchmark Europe Limited was specifically set up in 2014 to provide the calculation platform for the LBMA Silver Price. Furthermore, CME has just launched a suite of silver and gold futures contracts for the London market (launched in late January 2017), the silver contract being the “London Spot Silver Futures (code SSP)“. Even though these CME contracts have had no trading interest so far, the CME claims that it is currently “working with major banks to synchronize their systems to start trading” these contracts (London Spot Silver Futures and London Spot Gold Futures).

So why would CME want to voluntarily ditch the provision of a high-profile London silver benchmark, when it could attain trading synergies between the LBMA Silver Price and its new London silver futures contracts, or at the very least improve brand recognition in the market?  And not to forget that CME and Thomson Reuters claim a”commitment to providing innovative, market leading benchmarks for the Silver market“. 

News agency Platts, in a story dated 8 March 2017, touches on what are likely the real reasons for the CME / Thomson Reuters departures: 

“CME and [Thomson] Reuters opted to give up their respective duties of the price management due to internal differences"

"many have called for the LBMA Silver Price to be centrally cleared to boost participation"

"A producer source recently said steps were being taken by CME to clear the price discovery mechanism centrally before the announcement to step down"

"Sources agreed the main issue was the lack of participation in the number [auction]"

"A senior source agreed 'I don't think anyone would want it [silver price] in its current form. It needs a minimum to be cleared to attract further participation"

The topic of central clearing and wider participation is briefly explained below.

European Benchmark Regulation

Turning to the new “European Benchmark Regulation”, what exactly is it, and why would it be relevant for the LBMA and CME and Thomson Reuters to mention the European benchmark Regulation in the context of them pulling out of the LBMA Silver Price auction?

At its outset, the European Benchmark Regulation was proposed by the European Commission. The Commission’s proposal was also issued in coordination with a range of entities and initiatives such as MiFID, the Market Abuse Directive, the benchmark setting processes of the  European Securities and Markets Authority (ESMA) and European Banking Authority (EBA), and also the IOSCO financial benchmark principles.

According to law firm Clifford Chance:

” The new [EU] Regulation is a key part of the EU’s response to the LIBOR scandal and
the allegations of manipulation of foreign exchange and commodity benchmarks“

“The Regulation imposes new requirements on firms that provide, contribute to or use a wide range of interest rate, currency, securities, commodity and other indices and reference prices.”

“Most of the new rules will not apply until 1 January 2018″

“The new Regulation imposes broad ranging and exacting requirements
on a wide range of market participants. It may reinforce the trend to discontinue benchmarks and reference prices“

According to law firm Simmons & Simmons:

The Regulation seeks to:

• improve governance and controls over the benchmark process, in particular to ensure that administrators avoid conflicts of interest, or at least manage them adequately
• improve the quality of input data and methodologies used by benchmark administrators
• ensure that contributors to benchmarks and the data they provide are subject to adequate controls, in particular to avoid conflicts of interest
• protect consumers and investors through greater transparency and adequate rights of redress.

The Regulation aims to address potential issues at each stage of the benchmark process and will apply in respect of:

• the provision of benchmarks
• the contribution of input data to a benchmark, and
• the use of a benchmark within the EU.

All of these goals aspired to by the legislation of the European Benchmark Regulation seem reasonable and would benefit users of the LBMA Silver Price auction, so given the above, it seems very bizarre that CME and Thomson Reuters and the LBMA stated last Friday 3 March that:

“The forthcoming European Benchmark Regulation, due to be implemented in January 2018, prompted a review of the existing LBMA Silver Price administration arrangements…“

Remember that the CME and Thomson Reuters service providers to the LBMA Silver Price are their specialist benchmark units “CME Benchmark Europe Limited” and “Thomson Reuters Benchmark Services Limited”. That is what these units do, administer and calculate benchmarks. That is all that they do. The European Benchmark Regulation has been on the radar of the markets for a few years now, especially on the radars of the benchmark units of CME and Thomson Reuters. The Regulation didn’t suddenly appear out of nowhere last week, as the above statement is appearing to hint at.

The statement from CME, Thomson Reuters and the LBMA was also bereft of any explanation as to what their "review of the existing LBMA Silver Price administration arrangement" found. Why so? Why not share this review with the global silver market instead of keeping it secret. Assuming that is, that there actually was such a review undertaken.

Is this European Benchmark Regulation just an excuse being thrown out to distract from other issues that might really be behind CME and Thomson Reuters stepping down.

Or perhaps CME and Thomson Reuters are aware of issues within the current administration of the LBMA Silver Price that would make it difficult to comply with the new legislation or that would make it too onerous to comply? But such rationale doesn’t make sense either because why are CME and Thomson Reuters not bailing out of the all the benchmarks that they are involved in? Furthermore, if the European Benchmark Regulation is a factor, why would any other benchmark service provider such as ICE Benchmark Administration (IBA) or the London Metal Exchange (LME) bother to take part in the LBMA’s forthcoming tender process to find a replacement for Thomson Reuters and CME?

Perhaps CME and Thomson Reuters are worried about future reputation damage of being associated with the LBMA Silver Price due to some brewing scandal? Or perhaps the powerful bullion banks within the LBMA wanted to scupper any change that there will ever be wider participation or central clearing in any future version of the auction?

I will leave it to readers to do their own research on this and draw their own conclusions.

A Banking Cartel vs. Wider Auction Participation

A major issue that has dogged the LBMA Silver Price auction since launch is that it never gained any level of “wider participation” or market representative participation. There are only 7 bullion banks authorised by the LBMA to be direct participants in the silver auction, and there are zero direct participants from the silver mining, silver refineries, and silver users sectors.

This is despite the LBMA, CME and Thomson Reuters all misleading the global silver market on this issue on many occasions, and claiming that there would be very wide participation in the auction after it was launched. See BullionStar blog “The LBMA Silver Price – Broken Promises on Wider Participation and Central Clearing” for a huge amount of factual evidence to back up this statement, including webcasts by CME, Thomson Reuters and the LBMA, and an interview by Reuters with LBMA consultant Jonathan Spall, formerly of Barclays. Here are a few examples:

The LBMA’s Ruth Crowell was claiming back in July and August 2014 that they were interested in having at least 111 direct participants:

“clear demand for increased direct participation, and we had 25% of those 444 coming back saying they would be interested, and we’re still interested in having all of those participants on board”

“The advantage with centralised clearing, particularly for the pricing mechanism, is that we can really exponentially grow the amount of direct participants“

Jonathan Spall, LBMA Consultant stated that:

“The hope of course is that we get many more participants in the new benchmark process….while it is likely that we will start by having banks involved it is ultimately hoped that the wider market will participate, be they refiners, miners etc.“

“Ultimately – and as I said before – the intention is that there is much wider participation. So yes, refiners, miners etc.“

Harriett Hunnable, then of the CME Group, stated:

“So this is really the new world, this is not the old fixing…..this is wider participation…and the London bullion market is really encouraging that…this is the new world, or the LBMA Silver Price!”.

According to the CME / LBMA / Thomson Reuters presentations, there was supposed to be a “phase 3 introduction of centralised clearing”

“Central counterparty clearing will enable greater direct participation in the London Silver Price“

In summary, central clearing would allow direct participants to participate directly in the auction without the need for bi-lateral credit lines. Currently, only large banks that can set up bi-lateral credit lines with each other can even begin to think of being direct participants. However, after the initial spin in July and August 2014 prior to the benchmark being launched, the plan for central clearing was quietly dropped by the LBMA / CM and Thomson Reuters.

The CME and Thomson Reuters have now had 32 months in which to introduce central clearing into the silver auction and it hasn’t happened. Nor will it now. The fact of the matter is that the LBMA banks do not want wider participation and they don’t want central clearing of auction trades either. These banks, which at the end of the day are just costly intermediaries, essentially want to monopolise the silver auction and prevent wider participation, and prevent true silver price discovery. Could it be the banks through their LBMA front that have sabotaged the contract with CME and Thomson Reuters so as to reset the contract and re-start another tender process (choosing ICE or LME) that will ensure that no wider participation can ever see the light of day?

It’s also important to note that there is no way for miners and refiners to be direct participants in the silver auction. This is because the LBMA has designed the auction participant rules to keep out refiners and miners (and anyone else that is not a bullion bank). The rules are specifically designed so that only bullion banks can satisfy the LBMA’s Benchmark Participant criteria. See section 3.13 of the LBMA Silver Price auction methodology document accessible here.

Currently only 7 bullion banks are direct participants in the auction, namely HSBC, JPMorgan Chase, Bank of Nova Scotia (ScotiaMocatta), Toronto Dominion, UBS, Morgan Stanley, and China Construction Bank.  Most of these banks are very influential on the LBMA Management Committee. HSBC, Scotia and Mitsui were in the auction from Day 1 on 15 August 2014. UBS joined the auction on 26 September 2014, JP Morgan Chase Bank joined on 14 October 2014, Toronto Dominion Bank joined on 6 November 2014. Mitsui left in either late 2015 or January 2016 (the exact date is unclear). China Construction Bank only joined the auction on 6 May 2016.

As mentioned above, Morgan Stanley only joined the LBMA Silver Price auction on 25 October 2016 (which is just 4 months ago), at which point the LBMA / CME and Thomson Reuters had the audacity to spin that 7 LBMA bullion banks trading in a shadowy auction of unallocated silver accounts in London somehow represents the global silver market:

CME: “The addition of another member brings greater depth and diversity to the market and underlines the ongoing globalisation of the Silver Price as a leading, liquid precious metals benchmark.”

Thomson Reuters: “With the addition of Morgan Stanley to the panel, the LBMA Silver Price provides even deeper insight into the global silver market. We continue to welcome new participants to this essential mechanism for the markets.”

LBMA: “They [Morgan Stanley] add depth and liquidity to the auction and I look forward to other market participants joining in the future.”

LBMA Silver Price is NOT Representative of Silver Market

But, to reiterate (and as was stated previously in this blog), the LBMA Silver Price auction is not representative of the global Silver Market whatsoever, and it does not meet some of the simplest IOSCO benchmark requirements:

“IOSCO benchmark principles state that a benchmark should be a reliable representation of interest, i.e. that it should be representative of the market it is trying to measure. Interest is measured on metrics such as market concentration. In the Thomson Reuters methodology document (linked above), on page 11 under benchmark design principles, the authors estimate that there are 500-1000 active trading entities in the global silver market.”

The Thomson Reuters methodology document from August 2014 also admitted that “volumes in the LBMA Silver Price are a fraction of the daily volume traded in the silver futures and OTC markets”.

Why then are 7 LBMA bullion banks allowed to monopolize the representation of 500 – 1000 active trading entities from the global silver market within the auction, an auction that its worth remembering generates a silver reference price which is used as a global silver price reference and pricing source?

Refiners and Miners

Based on the current LBMA Silver Price auction rules, the vast majority of the world’s silver refiners cannot directly take part in the silver auction since only Full Members of the LBMA can even think of becoking a direct participant.

However, only 8 precious metals refiners are even Full Members of the LBMA, while there are another 25 refiners that are Associates of the LBMA. Of the 8 full members, 5 of these refiners are on the LBMA refiner Referee panel, namely, Argor-heraeus, Metalor and PAMP from Switzerland, Rand Refinery from South Africa, and Tanaka Kikinzoki Kogyo from Japan. These refiners were added to the panel as LBMA Associates in 2003, and were only made Full Members in 2012. The only reason they happened to be fast-tracked as Full Members of the LBMA was due to their status as Referees for the LBMA good delivery list. Even the other major Swiss based refinery Valcambi is still not a Full Member of the LBMA.

Based on the current participant criteria of the Silver auction, where only full LBMA members could conceivably become direct participants, 25 of the refiners that are LBMA Associates cannot directly take part in the auction even if they wanted to. Candidates for Full LBMA Membership also have to jump through a number of hoops based on sponsorship by existing members, business relationships, due diligence, and involvement in the precious metals markets.

For a refiner to even become a LBMA 'Associate', the refinery must have already attained Good Delivery Status for its silver or gold bars. There are about 80 refineries on the LBMA’s current Good Delivery List for silver, most of which are not even Associates of the LBMA The chance of the vast majority of these refiners taking part in the LBMA silver auction is nil since not only are they not LBMA Full Members, they are not even LBMA Associates.

Based on the current auction criteria, it’s without doubt literally impossible for nearly all silver producers / silver miners on the planet to directly participate in the LBMA Silver Price auction. Precious metal mining companies are not normally officially connected to the LBMA, and would more naturally be members of the Silver Institute or World Gold Council or another mining sector organization. Mining companies cannot be silver auction participants since there are no mining companies that are Full Members of the LBMA. The only mining companies that are even “Associates” of the LBMA are Anglogold Ashanti and Coeur Mining.

In 2014, Coeur Mining’s treasurer, referring to the LBMA Silver auction said:

“We hope to have the opportunity to become a direct participant down the road and look forward to working with the LBMA, CME and other silver producers to drive the evolution of this market.”

The unfortunate Coeur Mining now looks like it has been strung along by the LBMA with empty promises that it can somehow someday participate in the silver auction, but this is literally a fiction given the way the auction rules are currently set up.

Conclusion

In its announcement on 3 March, the LBMA said that it will shortly launch a tender process to appoint a replacement provider. The LBMA told Reuters News:

“We would be looking to identify a new provider in the summer, and have the new platform up and running in the autumn”

However, given the abysmal track record of the LBMA Silver Price, the question that should really be asked at this time is why the bullion bank controlled LBMA is even allowed to be in charge of such an important “Regulated Benchmark” as a global silver price benchmark, a benchmark that has far-reaching effects on global buyers and sellers of the physical metal silver.

Take a brief look back at how the last tender process run by the LBMA for the London silver price was handled.

A Silver Price Seminar held by the LBMA on 19 June 2014 was not even open to the wider bullion market. As Ruth Crowell, CEO of the LBMA, told the publication MetalBulletin in an October 2014 interview:

“Not just our members, but ISDA members, and any legitimate members of the market were invited to the seminar. We also had observers from the FCA and the Bank of England. We wanted to keep [attendance] as wide-ranging as possible but to avoid anyone who perhaps would be disruptive“

What is this supposed to mean? To prevent anyone attending the seminar who might have a different view on how the global silver price benchmark should be operated that doesn’t align with the view of the LBMA?

The actual process of selecting the winning bid from the shortlist of tender applicants was only open to LBMA Full members and Seminar attendees via a 2nd round voting process. The independent consultant review that was part of the selection process, was conducted by someone, Jonathan Spall, who was not independent of the former fixings and so should not have been involved in the process.

Promises of wider participation involving refiners and miners were abandoned by the CME, Thomson Reuters and the LBMA. Promises of central clearing of auction traded were thrown out the window by these same people. Prior to launch, the auction platform was hastily built by Thomson Reuters and CME without an adequate market-wide solution for clearing silver trades. Another of the bidders, Autilla/LME, had a working auction solution which would have allowed wider market participation at August 15 2014 go-live, but this solution was rejected by the LBMA Management Committee, LBMA Market Makers and the LBMA Data Working Group at a closed meeting in July 2014 These groups had the ultimate say in which applicant won the tender.

There were only 3 participants in the LBMA Silver Price auction (all of them banks) when it was launched in August 2014, and two of which, HSBC and Scotia, were parties to the former London Silver Fixing. The LBMA Silver Price auction was therefore an example of same old wine in a new bottle. The same 2 banks, HSBC and Scotia are now defendants in a silver price manipulation class action suit in New York. There are now only 7 direct participants in the LBMA Silver Price. These are all bullion banks. Ludicrously, this is 32 months after the auction has been launched. The LBMA accreditation process specifically prevents refiners and miners from joining the auction. Since there are 500 – 1000 trading entities of silver globally, even a village idiot could see that the LBMA Silver Price mechanism is totally unrepresentative of the global silver market and that it cannot faciliate proper silver price discovery.

The defection of CME and Thomson Reuters now provides a one-off opportunity for the global silver market to insist that the current scandal ridden current auction be scrapped and taken out of the hands of the bullion bank controlled London Bullion Market Association (LBMA). It is also an opportunity to introduce a proper silver price auction in its place that is structured to allow direct participation by hundreds of silver trading entities such as the world’s silver refiners and miners, an auction that employs central clearing to allow this wider participation, and an auction that is based on trading real physical silver and not the paper credits representing unallocated claims that the participating London bullion banks shunt around between themselves each day. This could help lead to real silver price discovery in the global silver market. However, the chances of this happening with the LBMA still involved in the new tender process are nil, and either the London Metals Exchange (LME) or ICE Benchmark Administation (IBA) will probably ride to the rescue of the LBMA bulion banks in the not too distant future and pick up the pieces from CME / Thomson Reuters. 

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