Tag: finance

• Top China Banks Triple Debt Write-Offs as Defaults Loom (BBG)
• PBOC suspends open market operations again (Global Times)
• Eurozone bank shares fall after ECB outlines health check plan (FT)
• O-Care falling behind (The Hill)
• Key House Republican presses tech companies on Obamacare glitches (Reuters)
• J.P. Morgan Faces Another Potential Huge Payouta (WSJ)
• Yankees Among 10 MLB Teams Valued at More Than $1 Billion (BBG)
• Free our reporter, begs newspaper as China cracks down on journalists (Reuters)
• Peugeot Reviews Cost-Saving Alliance With GM (WSJ)
• Ex-RBS IB head Hourican to lead Bank of Cyprus (FT)
• Obama’s Uncertain Path Amid Syria Bloodshed (NYT)
• Boutique Moelis Weighs an IPO in Its Vision of Future (WSJ)
• Underwriters to Lend Twitter $1 Billion (WSJ)

 

Overnight Media Digest

WSJ

* The delayed September jobs report clouded the outlook for the U.S. economy, creating a new obstacle for the Federal Reserve to wind down its controversial bond-buying program.

* Republican critics say Senator Mike Lee helped chart a doomed course that weakened the party’s standing and hurt the Utah’s economy.

* Investors are seeking at least $5.75 billion from JPMorgan in a bid to recover losses from mortgage-backed securities sold to them before the financial crisis, said people familiar with the talks.

* In 87 deals since 2006, Puerto Rico and its public agencies sold $61 billion of bonds, giving the tiny island more municipal debt per capita than any U.S. state. In the process, the territory paid Wall Street securities firms, lawyers and others about $1.4 billion.

* Online brokerage firm Charles Schwab Corp showed customers on its trading platform incorrect prices on certain fixed-income securities for about a week, the latest financial firm to suffer from technology glitches.

* The Securities and Exchange Commission is set to propose rules allowing entrepreneurs to tap large numbers of ordinary investors for small amounts of capital, advancing long-delayed “crowdfunding” provisions from last year’s Jumpstart Our Business Startups Act.

* Billionaire investor Carl Icahn sold more than half his stake in Netflix Inc for nearly $1 billion in recent days, he disclosed on Tuesday, saying it was “time to take some chips off the table.”

* Dutch lender Rabobank Groep NV is poised to pay close to $1 billion to settle allegations that it participated in a wide-ranging scheme to manipulate benchmark interest rates, according to people familiar with the matter.

* Daniel Loeb often makes headlines for publicly pitching his investment ideas. His new brainstorm: Get smaller. Loeb’s Third Point LLC will return 10 percent of its $14 billion in assets to investors, according to a letter received by investors Tuesday and reviewed by The Wall Street Journal.

* New York Times Co’s sale of the Boston Globe and Worcester Telegram & Gazette to Boston Red Sox owner John Henry has been stalled by an unsettled class-action lawsuit related to the Telegram & Gazette, Times Co said Tuesday.

 

FT

Alibaba, China’s No. 1 e-commerce firm, is considering listing on the London Stock Exchange after failing to convince Hong Kong regulators of the merits of its corporate governance concerns.

JPMorgan Chase could face a $6 billion fine from institutional investors to settle claims that it mis-sold mortgage-backed securities, according to people familiar with the matter.

Rabobank could face a near $1 billion fine from British and U.S. regulators looking to settle allegations that the Dutch lender helped manipulate benchmark interbank lending rates, three people familiar with the matter said.

A hedge fund with a reputation for aggressive campaigning to boost company performance has bought a 5 percent stake in the recently listed Royal Mail.

E-commerce company eBay said it would buy Shutl, a London-based same-day courier service, in order to take more control of product deliveries

 

NYT

* Figures for unemployment and job creation in October and November will be skewed by the temporary disappearance of hundreds of thousands of government workers and contractors, economists say.

* A Labor Department report showing lackluster hiring in September – 148,000 jobs – is expected to further put off the Federal Reserve’s decision to reduce its stimulus efforts.

* Apple applications, which essentially duplicate Microsoft Office and used to cost $10 each, will now be free to anyone who buys a new Apple device.

* A federal judge has ruled that Goldman Sachs must pay the legal fees of a former computer programmer, Sergey Aleynikov, accused of stealing code from the bank.

* SAC Capital Advisors will close its London office and cut six portfolio management teams in the United States, the hedge fund’s management revealed.

* Amazon.com Inc is expected to generate $75 billion in revenue this year by putting its customers first. Tuesday, in a very rare move, it put its bottom line first by tightening the requirements for one of its most popular shipping methods, Super Saver Shipping, which for over a decade mailed items free as long as the order met a $25 threshold. The new threshold is $35.

* Federal gridlock over the debt ceiling could adversely affect the bottom lines of big Wall Street banks and firms, a report by Thomas DiNapoli, the New York State comptroller, asserts.

* The Internal Revenue Service plans to delay the start of tax-filing season by a week or two because of the government shutdown, the agency said on Tuesday. But taxpayers will still have to turn in their 2013 returns by April 15 as usual.

* A class-action suit by delivery workers at The Worcester Telegram & Gazette prompted a judge to issue a temporary injunction preventing the sale of The Boston Globe.

* A recent court case has given the federal government a chance to sidestep Congress and eliminate private equity’s billion-dollar tax break. The question is whether the Obama administration takes up the fight.

 

Canada

THE GLOBE AND MAIL

* The Prime Minister’s Office intervened directly in the Senate
expense affair, pressing Prince Edward Island Senator Mike Duffy into a plan to repay past expense claims and instructing him on what he should say to the media, Duffy’s lawyer says.

* A split has emerged in Prime Minister Stephen Harper’s government over a fundamental principle: the rules governing the potential breakup of Canada. The Conservatives’ senior Quebec minister has declared in two media interviews that a 50-percent-plus-one vote for separation is enough for a province to secede.

Reports in the business section:

* A U.S. unit of Montreal-based CGI Group Inc, a global technology services giant with annual revenue of $10 billion, is the main contractor behind the problem-plagued, Web-based insurance exchange that plays a key role in the Affordable Care Act, commonly known as Obamacare.

* Canadian food giant Maple Leaf Foods Inc is facing a potential breakup as it puts its $1.6-billion bakery unit up for sale, at the same time as potential suitors target its meat division.

NATIONAL POST

* Hospitals and clinics should resist patient requests to be treated by doctors of a particular race, religion or sex, a top medical group is telling its members, highlighting a touchy yet reportedly common healthcare phenomenon.

* The West Coast General Hospital in Port Alberni, British Columbia, recently posted signs on its doors telling visitors to stop bringing flowers for friends and family.

FINANCIAL POST

* Canada will relax rules on foreign investment for the United States, Mexico and 12 other countries as a result of its free trade pact with the European Union.

* Sales of new homes in the Toronto housing market appear to be rebounding but activity in the country’s largest market has a long way to go to match 2012 levels.

 

China

CHINA SECURITIES JOURNAL

– Beijing is expected to roll out new policies to curb the rapid rise in home prices in the fourth quarter after China’s house prices rose 9.1 percent in September from a year earlier, the sharpest rise since January 2011, the newspaper reported without citing sources.

SHANGHAI SECURITIES JOURNAL

– Ninety-two companies have listed on the “E-board” in Shanghai, an electronic over-the-counter exchange for trading of non-listed companies. IPOs in China remain frozen.

– China will launch its new egg futures contract on Nov. 11 on the Dalian Commodities Exchange, sources said.

21ST CENTURY BUSINESS HERALD

– The province of Sichuan has unleashed a stimulus spending package of 4.26 trillion yuan ($699.11 billion) for infrastructure, environmental protection and other investment projects over 2013-2014.

CHINA DAILY

– A joint operation by U.S. and Chinese police has resulted in the closure of four child pornography sites in China and the arrest of 180 suspects in 30 provinces, with an additional 19 detained in Hong Kong.

– A top pension official voiced support for raising the retirement age to deal with strain placed on pension funds by an aging population.

SHANGHAI DAILY

– The city of Harbin is shut for a second day due to heavy pollution, with one station still showing a PM2.5 reading of 367, down from Monday’s reading of 1,000 but still as much as 15 times the levels deemed safe by the World Health Organisation.

PEOPLE’S DAILY

– A total of 151,350 graft cases and 32 ministry-level officials were investigated for corruption from January 2008 to August 2013, according to a report from the Supreme People’s Procuratorate released on Tuesday.

 

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

BBCN Bank (BBCN) upgraded to Outperform from Market Perform at BMO Capital
BBCN Bank (BBCN) upgraded to Outperform from Market Perform at Raymond James
C.R. Bard (BCR) upgraded to Neutral from Sell at Goldman
C.R. Bard (BCR) upgraded to Overweight from Neutral at Piper Jaffray
Commercial Vehicle Group (CVGI) upgraded to Overweight from Neutral at JPMorgan
Consolidated Edison (ED) upgraded to Neutral from Sell at UBS
DuPont (DD) upgraded to Overweight from Neutral at JPMorgan
Eaton Vance (EV) upgraded to Outperform from Underperform at Credit Suisse
Fossil (FOSL) upgraded to Overweight from Neutral at Piper Jaffray
Gentex (GNTX) upgraded to Outperform from Neutral at RW Baird
Medtronic (MDT) upgraded to Buy from Hold at Deutsche Bank
Morgans Hotel (MHGC) upgraded to Buy from Neutral at MKM Partners
NuStar Energy (NS) upgraded to Equal Weight from Underweight at Morgan Stanley
NuStar GP Holdings (NSH) upgraded to Equal Weight from Underweight at Morgan Stanley
Papa John’s (PZZA) upgraded to Buy from Neutral at Janney Capital
Peoples Bancorp (PEBO) upgraded to Outperform from Market Perform at Raymond James
Syngenta (SYT) upgraded to Overweight from Neutral at HSBC

Downgrades

ARM Holdings (ARMH) downgraded to Neutral from Buy at UBS
American Campus (ACC) downgraded to Neutral from Buy at UBS
American Equity (AEL) downgraded to Market Perform from Strong Buy at Raymond James
Centene (CNC) downgraded to Sell from Neutral at Citigroup
Cimarex Energy (XEC) downgraded to Market Perform from Outperform at FBR Capital
Coach (COH) downgraded to Neutral from Buy at BofA/Merrill
Cree (CREE) downgraded to Hold from Buy at Needham
EOG Resources (EOG) downgraded to Market Perform from Outperform at FBR Capital
Eagle Bancorp (EGBN) downgraded to Market Perform from Outperform at Keefe Bruyette
Exelon (EXC) downgraded to Underperform from Hold at Jefferies
Federated Investors (FII) downgraded to Neutral from Buy at Citigroup
Infinity Pharmaceuticals (INFI) downgraded to Neutral from Buy at UBS
Integra LifeSciences (IART) downgraded to Underweight at Morgan Stanley
Lannett (LCI) downgraded to Perform from Outperform at Oppenheimer
Matador (MTDR) downgraded to Hold from Buy at Canaccord
Modine Manufacturing (MOD) downgraded to Underweight from Neutral at JPMorgan
Monarch Casino (MCRI) downgraded Hold at Brean Capital
National CineMedia (NCMI) downgraded to Neutral from Overweight at JPMorgan
Panera Bread (PNRA) downgraded to Hold from Buy at KeyBanc
Regency Energy Partners (RGP) downgraded to Underweight at Morgan Stanley
Regions Financial (RF) downgraded to Neutral from Buy at SunTrust
Resolute Energy (REN) downgraded to Market Perform from Outperform at FBR Capital
Spectra Energy Partners (SEP) downgraded to Underweight at Morgan Stanley
Symmetricom (SYMM) downgraded to Neutral from Buy at B. Riley
Twin Disc (TWIN) downgraded to Neutral from Outperform at RW Baird
Ultra Petroleum (UPL) downgraded to Neutral from Buy at ISI Group
Waters (WAT) downgraded to Neutral from Buy at BofA/Merrill
Weight Watchers (WTW) downgraded to Neutral from Outperform at Credit Suisse

Initiations

AOL (AOL) initiated with a Buy at BofA/Merrill
Expedia (EXPE) initiated with an Outperform at FBR Capital
HomeAway (AWAY) initiated with a Market Perform at FBR Capital
Liberty Media (LMCA) initiated with an Outperform at FBR Capital
Lifeway Foods (LWAY) initiated with an In-Line at Imperial Capital
MakeMyTrip (MMYT) initiated with a Market Perform at FBR Capital
NGL Energy Partners (NGL) initiated with a Neutral at Goldman
Orbitz (OWW) initiated with a Market Perform at FBR Capital
Pandora (P) initiated with a Market Perform at FBR Capital
PetSmart (PETM) initiated with a Neutral at ISI Group
priceline.com (PCLN) initiated with an Outperform at FBR Capital
Sirius XM (SIRI) initiated with an Outperform at FBR Capital
TripAdvisor (TRIP) initiated with a Market Perform at FBR Capital
Walker & Dunlop (WD) initiated with a Market Perform at Wells Fargo

HOT STOCKS

American Realty (ARCP) acquired Cole Real Estate (COLE) for $11.2B or $14.59 per share
Twitter (TWTR) secured $1B credit line
Corning (GLW) announced strategic, financial agreements with Samsung (SSNLF)
Corning (GLW) announced additional $2B of share repurchases
Canadian National (CNI) announced two-for-one stock split, announced 15M share repurchase plan
Bill Barrett (BBG) announced $371M sale of West Tavaputs natural gas property
Broadcom (BRCM) sees cutting up to 1,150 employees in restructuring

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
W.R. Grace (GRA), Encana (ECA), JAKKS Pacific (JAKK), Wellpoint (WLP), Thermo Fisher (TMO), BE Aerospace (BEAV), Nabors Industries (NBR), TSYS (TSS), ACE Ltd. (ACE), Altera (ALTR), C.R. Bard (BCR), Corning (GLW), Broadcom (BRCM), Juniper (JNPR), iRobot (IRBT), Pzena Investment (PZN), Celestica (CLS), Amgen (AMGN), Cubist (CBST), RF Micro Devices (RFMD)

Companies that missed consensus earnings expectations include:
Hudson Valley (HVB), Flagstar Bancorp (FBC), Unisys (UIS), WesBanco (WSBC), Pacific Biosciences (PACB), Ziopharm (ZIOP), Abaxis (ABAX), Datalink (DTLK), FMC Technologies (FTI)

Companies that matched consensus earnings expectations include:
AmSurg (AMSG), Horace Mann (HMN), Waste Connections (WCN), Robert Half (RHI), Super Micro Computer (SMCI), Cree (CREE)

 

NEWSPAPERS/WEBSITES

• As Blackstone Group (BX) prepares an IPO for Brixmor Property Group, investors and analysts are watching the deal to see what tone it sets for other Blackstone-led IPOs waiting in the wings. Blackstone is expected to take as many as four real-estate companies public over the next year, the Wall Street Journal reports
• Online brokerage firm Charles Schwab (SCHW) showed customers on its trading platform incorrect prices on certain fixed-income securities for about a week, the latest financial firm to suffer from technology glitches, the Wall Street Journal reports
• PSA Peugeot Citroen (PEUGY) said its alliance with GM (GM) may be reduced, as the troubled French carmaker posted a 3.7% quarterly revenue decline, Reuters reports
• Roche Holding (RHHBY) CEO Severin Schwan said he wouldn’t rule out a move into treatments for rare diseases. He wouldn’t comment on whether the company was interested in buying Alexion Pharmaceuticals (ALXN) or BioMarin (BMRN), Reuters reports
• Warren Buffett (BRK.A), who invested over $11B in IBM (IBM), said he’s confident in the computer-service provider’s prospects after the stock slumped last week, Bloomberg reports
• Toyota Motor’s (TM) in-house lender is leveraging the automaker’s AA- credit rating and cash to offer low rates to customers. Toyota’s $37B cash pile and credit ratings that outrank GM (GM) and Ford (F), enable its Toyota Financial Services unit to offer more loans and take on riskier borrowers, Bloomberg reports

SYNDICATE

Cancer Genetics (CGIX) 2.86M share Secondary priced at $14.00
Crown Castle (CCI) 36M share Secondary priced at $74.00
Gigamon (GIMO) 5.1M share Secondary priced at $38.50
Guidewire Software (GWRE) 7.76M share Secondary priced at $48.75
OCZ Technology (OCZ) files to sell 13.48M shares of common stock for holders
Venaxis (APPY) files to sell $20M of common stock
Ziopharm (ZIOP) files to sell $50M in common stock

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/r4mhMm4Q06U/story01.htm Tyler Durden

There was some hilarious news overnight: such that supposedly Spain’s GDP rose 0.1% in Q3 thus ending a 2+ year recession. There is no point to even comment on this “recovery” – we will merely remind that starving your economy of imports for the sake of generating a GDP-boosting trade surplus, while consumption declines, solves nothing and point readers to charts of Spanish non-performing loans, housing prices, and unemployment, oh and the massive Bad Bank of course, and leave it at that. In terms of real news, futures are lower following a drubbing in Asia over the previously discussed concerns over tighter Chinese monetary policy. Amusingly, as Reuters notes, this has hit global shares still high on hopes of extended U.S. stimulus on Wednesday, when the dollar tentatively steadied at an eight-month low after its latest slide. The immediate casualty is the USDJPY, which continues to slide and is approaching the 200SMA. In short: fears that China may have resumed tapering have offset yesterday’s hope that “horrible” job numbers mean no Fed tapering until mid-2014…. New Normal fundamentals.

More from Reuters: European shares saw their biggest falls in two weeks as markets opened when fears of tighter policy in China were amplified by reports that some of its big banks were tripling write-offs on bad loans. Asian markets saw widespread weakness as a variety of factors ranging from a strengthening yen in Japan and fading rate cut hopes in Australia added to the negativity. “What has happened this morning is that we have the Chinese rate surge on the policy tightening fears,” said Alvin Tan, a strategist at Societe Generale in London. “That has basically generated a broad correction in risk assets and in Europe that is continuing.” Short-term Chinese money rates underscored investors’ concerns that regulators there are poised to tighten liquidity to quell growing inflationary pressures.

The benchmark seven-day repo contract, which had been steadily sliding since October 9, spiked in the morning session, a day after a policy adviser to the People’s Bank of China (PBOC) told Reuters it was weighing tightening measures. In Europe, A string of earning misses from some of the region’s biggest corporate names including chip maker STMicroelectronics (STM.PA) and brewer Heineken (HEIN.AS) added to the pressure on shares.

Market Re-Cap from RanSquawk

Touted profit taking following yesterday’s gains, together with reports of problems in China’s banking system which in turn resulted in the 1 week SHIBOR rising to a three-week high overnight meant that safe haven assets outperformed in Europe this morning. As a result, heading into the North American open, stocks are lower across the board, with financials and telecommunications sectors underperforming. Despite the marginal credit spread widening, money market rates held relatively steady, that’s even as it was confirmed that the ECB will use 8% capital benchmark to assess the health of the banking system.

There was little in terms of EU related macroeconomic commentary, but the release of the most recent BoE MPC meeting minutes revealed that the MPC voted unanimously to keep interest rates on hold. The minutes also noted that the MPC view as probable that unemployment would be lower, and output growth faster, in the second half of 2013 than expected at the time of the August Inflation Report. Going forward, market participants will get to digest another round of earnings releases, with around 40 S&P 500 constituents due to report today.

Asian Headlines

According to reports, China’s largest banks tripled the amount of bad loans written off in the first half of 2013. The five largest banks in China (including the state-backed lenders) wrote off USD 3.65bln of debt that could not be collected. The fears lifted the SHIBOR inter-bank borrowing rate to 3.78% from 3.05%.

EU & UK Headlines

BoE MPC voted 9-0 to keep QE unchanged at GBP 375bln and 9-0 to keep interest rates unchanged at 0.50%.
– Unusually hard to gauge slack in labour market, MPC has range of views on productivity, too early to draw conclusions.
– Indicators point to further house price rises, this will boost households’ collateral and help growth.
– Probable that unemployment will be lower and output growth faster in H2 2013 than forecast in August.
– No MPC member thought policy tightening was needed. and that inflation expectations remain well anchored.
– GBP rise would dampen export growth in medium term.

ECB confirmed that bank assessment will use capital benchmark of 8%. Bank assessment to begin in November 2013 and assessment to take 12 months.

German government still sees 0.5% growth this year and raises 2014 growth forecast to 1.7% vs. Prior of 1.6%.

Germany sold EUR 1.665bln in 2.5% 2044 Buxl, b/c 1.4 (Prev. 1.6) and avg. yield 2.640% (Prev. 2.470%), retention 16.75% (Prev. 18.65%)

Barclays month-end extension: Euro Agg +0.08y

Barclays month-end extension: Sterling Agg +0.02y

US Headlines

Japan Post President says has no plan to reduce US Treasury holdings.

Barclays month-end extension: Treasury +0.06y

Equities

Major European equity indices traded lower this morning, with financials and telecommunications sectors under performing, as market participants booked profits following yesterday’s gains and also fretted over reports that banks in China tripled the amount of bad loans written off in the H1 2013.

Italian and Spanish banks bore the brunt of the selling pressure, after the ECB confirmed that it is to use capital benchmark of 8% to assess the health of the banking system. The assessment to begin November 2013 and to take 12 months.

FX

With equity markets under pressure overnight as money market rates rose in China, USD/JPY also traded lower, breaking below the 200DMA line to the downside in the process. Nevertheless, despite lower spot rate, 1m implied vols are bid and 25-delta R/R also softer (lowest level since 14th October). EUR/GBP advanced above the key 100DMA line and to its highest levels since early September, buoyed by touted demand from a UK clearer.

Commodities

Analysts at Commerzbank forecast copper price of USD 7,500 by end of 2013 and nickel at USD 14,600. Gold premiums in India climbed to a record as jewellers rushed to secure supplies to meet soaring demand during festivals and weddings amid government curbs on imports.

US API Crude Oil Inventories (Oct 18) W/W 3000K vs. Prev. 5900K
– Cushing Crude Inventory (Oct 18) W/W 423K vs. Prev. 291K
– Gasoline Inventories (Oct 18) W/W -510K vs. Prev. -2200K
– Distillate Inventory (Oct 18) W/W 815K vs. Prev. -1300K

Iran are said to be contacting former oil purchasers and have said that they will be willing to cut prices if the sanctions imposed upon the country are eased.

Libyan crude exports have reached 450,000bpd according to a board member of the National Oil Corporation.

* * *

DB’s Jim Reid recaps the various other overnight odds and ends

While the September payrolls print was fairly tepid, October’s payrolls is also likely to fall short of the Fed’s hurdle rate. The White House yesterday warned that the government shutdown has led to 120,000 fewer jobs being created both directly and indirectly across the government and private sector. The White House data took into account information only through Oct. 12, though the government shutdown lasted until October 17, meaning that the ultimate effect on payrolls may be even larger. It will clearly be very difficult to get a clear message from the next payroll number.

The market reaction to the disappointing payroll number
saw risk-on and carry trades in favour. The S&P500 (+0.57%) hit another new high driven by strong gains in the ‘yieldy’ sectors including REITs (+2.25%) and utilities (+1.3%). There were also strong gains in the latter half of European trading that took many indices to YTD gains close to 25% in USD terms. Gold added 1.8% which spurred strong gains in gold mining stocks while the dollar index hit near 9- month lows.

In Asia this morning, early gains from have been erased as risk assets take a breather in the second half of the Asian session. There are intensifying concerns about policy risk in China following yesterday’s strong Chinese home price data. Indeed, 1 week SHIBOR hit a three-week high overnight, adding more than 40bp, as did the onshore 7-day repo rate, on chatter that the Chinese government is mulling a crackdown on property related lending. There is market talk that domestic Chinese banks have already hit their 2013 full year loan targets following excessive real estate lending in the last couple of months. Indeed, Bloomberg is reporting that domestic loans to property developers jumped 50% in September from a year earlier, citing a Shanghaibased advisory firm which used government data. Indeed, the Hang Seng and Shanghai Composite are 0.1% and 1.2% lower overnight. Elsewhere in Asia, the Nikkei (+-1.2%) has failed to hold onto early gains, weighed by a falling USDJPY, as the USD trades weaker against major currencies.

The Australian dollar has retreated from multi-month highs despite a higher than expected inflation reading, reversing some of the solid post-payrolls gains. In Europe today, the ECB is set to release the names of the 130 or so  systemically important Eurozone banks that it will begin supervising in 2014. Though the composition of that list shouldn’t generate too many surprises, there will be some attention paid to the details of the ECB’s upcoming Asset Quality Review. The AQR is expected to focus on bank loans made to the real estate, SME, shipping and structured finance areas. The ECB is also expected to outline a series of stress tests in conjunction with the European Banking Authority, which markets are expecting will be more stringent than the central’s banks prior two stress tests. Details of the bank system health checks are expected to be released at 9am Frankfurt time today. Ahead of the AQR, there were reports in both Reuters and Bloomberg yesterday that the ECB will require the largest banks that it will supervise to hold an 8% tier one ratio, comprising a 7ppt capital buffer and a supplemental 1ppt for large systemically important institutions. The article says that the 8% threshold shouldn’t be an issue for the vast majority of banks, but this ultimately depends on the outcome of the AQR’s findings. Looking at the rest of the day ahead, business confidence readings are  due in France. A 30yr German bund auction will also be held this morning. There is not much on the data docket in the US except for weekly mortgage applications and the House Price index for August. It’s another big day on the earnings calendar with close to 40 S&P 500 companies reporting today. Companies include macro-bellwethers Boeing and Caterpillar.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xyiFbis396o/story01.htm Tyler Durden

Following the past two days of reports in which we noted that both the broader Chinese housing market was overheating and reflating at an unprecedented pace as 69 of 70 cities posted Y/Y home price gains, while a separate report showed a blistering 12% price increase in Shanghai new homes in one week, it was only a matter of time before the PBOC resumed its tighter policy posturing, which infamously sent 7 Day Shibor to 25% briefly in June and nearly led to a collapse in the local banking system, in an attempt to pretend it is still in control of what is now the world’s fastest growing credit bubble.

And predictably enough, as reported overnight by the Global Times, the PBOC suspended its open market operations Tuesday without injecting money as usual, a move that analysts said was in response to a surge in foreign capital inflows in September. It was only the second time since July 30 that the People’s Bank of China (PBOC), the central bank, has abstained from injecting liquidity into the market, and follows the last liquidity injection operation which took place last Thursday: since then the Chinese Cental Bank has been strangely quiet.

The PBOC normally conducts reverse repurchase (or repo) operations Tuesday and Thursday, injecting liquidity into the market by partially offsetting maturing bills. It injected 10 billion yuan ($1.63 billion) worth of seven-day reverse repo contracts on October 15, and then withheld the 14-day reverse repo on Thursday (October 17), the first time it had done so since late July. This drained a net 44.5 billion yuan from the market last week, according to Reuters calculations.

The central bank’s move was in response to a surge in foreign capital inflows last month, which resulted in increasing liquidity in the market, Hao Yijun, a Shanghai-based bond trader at China Guangfa Bank, told the Global Times.  The PBOC purchased 126.4 billion yuan worth of dollars in September amid large dollar inflows, an increase of 99 billion yuan from August, the PBC’s data showed Monday.

Withholding from open market operations and draining funds indicates a moderate tightening of monetary policy, Hao said.

And sure enough, just like the last time the PBOC proceeded to “surprise” the market with its own tapering intentions, overnight funding rates soared, with the one-day repo rate surged 67 bps, most since June 20, to 3.7561%; while the seven-day repo rate rose 42 bps, most since July 29, to 4.0000%.

“Liquidity is tighter because there are some reverse repos maturing this week,” Shanghai-based Xu Hanfei, analyst at Guotai Junan Securities, says in interveiw; “PBOC’s decision to refrain from injecting funds via reverse repos suggests policy may be shifting to a tighter one to keep inflation in check amid capital inflows.”

However, all of the above is merely yet another exercise in futility, and prompted by manipulated inflation data which are hardly accurate and indicative of reality. As such, just like in the summer, all it would take for the PBOC to yield to the market is for repo and SHIBOR rates to soar into the double digits, and all shall return to normal. Which would mean a return to what China does best: injecting epic amounts of debt into the system.

Which brings us to the far more important story, one reported by Bloomberg overnight, and one which we predicted is inevitable over a year ago: namely that the Chinese banks, filled tothe gills with bad and non-performing debt, are finally preparing for the inevitable default onslaught and as a result have suddenly tripled their debt write offs in what can be best described as preparing for an avalanche of defaults.

From Bloomberg:

China’s biggest banks tripled the amount of bad loans written off in the first half, cleaning up their books ahead of what may be a fresh wave of defaults.

Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four largest rivals expunged in the first six months 22.1 billion yuan ($3.65 billion) of debt that couldn’t be collected, up from 7.65 billion yuan a year earlier, filings showed. That didn’t pare first-half profits, which climbed to a record $76 billion, as provisions were set aside in earlier periods when the loans began souring.

In other words, even China is now engaged in America’s favorite pastime: covering up losses by releasing loss reserves at the same time… a somewhat paradoxical process as one indicates a rapid deterioration in current and future credit conditions, while the other merely takes advantage of generous accounting fudges and prior stability.

Erasing the worst of the bad debts may allow the banks to mitigate a surge in nonperforming-loan ratios amid rising defaults in the world’s second-largest economy. China has eased rules for writing off debt to small businesses since 2010 and policy makers are pushing the lenders to increase risk buffers following an unprecedented credit boom that began in 2009.

 

“The banks and the regulators’ interests are aligned in speeding up write-offs,” said Ma Kunpeng, a Beijing-based analyst at Credit Suisse Founder Securities Ltd. “This prepares them for a rainy day.”

 

The China Banking Regulatory Commission, led by Shang Fulin, urged banks in April to set aside more funds to cover defaults, write off some bad loans and curb dividend payments while earnings are ample to create a buffer in case of an economic downturn.

 

Worries about the slowdown have persisted even after expansion of China’s gross domestic product rebounded to 7.8 percent in the third quarter. Growth may slow to 7.6 percent this year, the weakest pace since 1999, according to the median estimate of economists in a Bloomberg survey.

Naturally, it is not rocket science that the only reason why China is growing at its current pace is because it is once again injecting record amount of liquidity into the system, and if the credit spigot is open, th country growsl if it’s shut – it stagnates, as we described in “China: No Leverage, No Growth.”

But a far bigger problem is that while China’s debt is already at record levels, it needs an increasingly greater “credit impulse” to generate the same or smaller amount of GDP “growth” as before, a phenomenon we described in April.

The nation’s debt-to-GDP ratio, excluding central government and financial debt, widened to 207 percent as credit growth continued to outpace productivity gains, Mike Werner, an analyst at Sanford C. Bernstein & Co. in Hong Kong, wrote in an Oct. 21 note to clients. That’s making investors nervous about bad loans rising at banks, he said.

But while banks are finally starting to catch up to the reality that their balance sheets are woefully unprepared for what may be an epic superbubble house of cards crashing on everyone’s head, a key issue is that the price discovery process of insolvent entities in China is simply non-existant.

China’s courts have also been processing bankruptcies faster. The eastern province of Zhejiang, a region south of Shanghai that’s home to many of the country’s largest private companies, accepted 143 bankruptcy petitions last year, according to the most recent figures reported by its high court in May. That’s almost twice the number from a year earlier.

 

The rising bankruptcies may have helped Bank of Communications, the nation’s fifth-largest lender, become the most aggressive among the top five in expunging bad loans from its books so far: its write-offs surged sevenfold to 4.82 billion yuan in the first six months. A press officer for the Shanghai-based lender, known as BoCom, declined to comment.

Oh, so a “whopping” 143 bankruptcy petitions is considered “faster” and an improvement? And this is in a nation that has 4 times the population of the US? To be sure, the fact that China has a major denial problem about the true extent of its credit bubble has not escaped investors:

Third-quarter net income at the five banks may have risen 11 percent from a year earlier to a combined 226 billion yuan, according to Edmond Law, an analyst at UOB Kay Hian (Hong Kong) Research. Nonperforming loans probably climbed by a “mild” 5 percent in the three months to Sept. 30 as lenders continued to write off or sell bad debt, he wrote in an Oct. 10 report.

 

Uncertainty about the quality of assets at Chinese banks has made global investors nervous, sending stock in the lenders to near record-low valuations this year. ICBC fell 2.2 percent to close at HK$5.28 in Hong Kong and the shares are trading at 0.98 times estimated book value for 2014, while Construction Bank lost 2.3 percent and changed hands at 0.94 times book, according to data compiled by Bloomberg.

In conclusion:

“The China bank stocks are under pressure due to bad debt write-offs,” Sandy Mehta, chief executive officer of Value Investment Principals Ltd. in Hong Kong, wrote in an e-mail. “The new leadership in China is serious about the financial sector getting its house in order, and addressing any asset quality issues.”

Judging by the market’s reaction, where the Shanghai Composite closed down 1.25% and the Nikkei was lower by 2% (with futures sliding even more on a renewed strength in the JPY), the market is finally starting to pay attention to the Chinese credit bubble, which unlike the US can afford only so much liquidity, either domestic or foreign, before the spillover sends far less anchored prices soaring.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9c9M2BcCdKs/story01.htm Tyler Durden

Following the past two days of reports in which we noted that both the broader Chinese housing market was overheating and reflating at an unprecedented pace as 69 of 70 cities posted Y/Y home price gains, while a separate report showed a blistering 12% price increase in Shanghai new homes in one week, it was only a matter of time before the PBOC resumed its tighter policy posturing, which infamously sent 7 Day Shibor to 25% briefly in June and nearly led to a collapse in the local banking system, in an attempt to pretend it is still in control of what is now the world’s fastest growing credit bubble.

And predictably enough, as reported overnight by the Global Times, the PBOC suspended its open market operations Tuesday without injecting money as usual, a move that analysts said was in response to a surge in foreign capital inflows in September. It was only the second time since July 30 that the People’s Bank of China (PBOC), the central bank, has abstained from injecting liquidity into the market, and follows the last liquidity injection operation which took place last Thursday: since then the Chinese Cental Bank has been strangely quiet.

The PBOC normally conducts reverse repurchase (or repo) operations Tuesday and Thursday, injecting liquidity into the market by partially offsetting maturing bills. It injected 10 billion yuan ($1.63 billion) worth of seven-day reverse repo contracts on October 15, and then withheld the 14-day reverse repo on Thursday (October 17), the first time it had done so since late July. This drained a net 44.5 billion yuan from the market last week, according to Reuters calculations.

The central bank’s move was in response to a surge in foreign capital inflows last month, which resulted in increasing liquidity in the market, Hao Yijun, a Shanghai-based bond trader at China Guangfa Bank, told the Global Times.  The PBOC purchased 126.4 billion yuan worth of dollars in September amid large dollar inflows, an increase of 99 billion yuan from August, the PBC’s data showed Monday.

Withholding from open market operations and draining funds indicates a moderate tightening of monetary policy, Hao said.

And sure enough, just like the last time the PBOC proceeded to “surprise” the market with its own tapering intentions, overnight funding rates soared, with the one-day repo rate surged 67 bps, most since June 20, to 3.7561%; while the seven-day repo rate rose 42 bps, most since July 29, to 4.0000%.

“Liquidity is tighter because there are some reverse repos maturing this week,” Shanghai-based Xu Hanfei, analyst at Guotai Junan Securities, says in interveiw; “PBOC’s decision to refrain from injecting funds via reverse repos suggests policy may be shifting to a tighter one to keep inflation in check amid capital inflows.”

However, all of the above is merely yet another exercise in futility, and prompted by manipulated inflation data which are hardly accurate and indicative of reality. As such, just like in the summer, all it would take for the PBOC to yield to the market is for repo and SHIBOR rates to soar into the double digits, and all shall return to normal. Which would mean a return to what China does best: injecting epic amounts of debt into the system.

Which brings us to the far more important story, one reported by Bloomberg overnight, and one which we predicted is inevitable over a year ago: namely that the Chinese banks, filled tothe gills with bad and non-performing debt, are finally preparing for the inevitable default onslaught and as a result have suddenly tripled their debt write offs in what can be best described as preparing for an avalanche of defaults.

From Bloomberg:

China’s biggest banks tripled the amount of bad loans written off in the first half, cleaning up their books ahead of what may be a fresh wave of defaults.

Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four largest rivals expunged in the first six months 22.1 billion yuan ($3.65 billion) of debt that couldn’t be collected, up from 7.65 billion yuan a year earlier, filings showed. That didn’t pare first-half profits, which climbed to a record $76 billion, as provisions were set aside in earlier periods when the loans began souring.

In other words, even China is now engaged in America’s favorite pastime: covering up losses by releasing loss reserves at the same time… a somewhat paradoxical process as one indicates a rapid deterioration in current and future credit conditions, while the other merely takes advantage of generous accounting fudges and prior stability.

Erasing the worst of the bad debts may allow the banks to mitigate a surge in nonperforming-loan ratios amid rising defaults in the world’s second-largest economy. China has eased rules for writing off debt to small businesses since 2010 and policy makers are pushing the lenders to increase risk buffers following an unprecedented credit boom that began in 2009.

 

“The banks and the regulators’ interests are aligned in speeding up write-offs,” said Ma Kunpeng, a Beijing-based analyst at Credit Suisse Founder Securities Ltd. “This prepares them for a rainy day.”

 

The China Banking Regulatory Commission, led by Shang Fulin, urged banks in April to set aside more funds to cover defaults, write off some bad loans and curb dividend payments while earnings are ample to create a buffer in case of an economic downturn.

 

Worries about the slowdown have persisted even after expansion of China’s gross domestic product rebounded to 7.8 percent in the third quarter. Growth may slow to 7.6 percent this year, the weakest pace since 1999, according to the median estimate of economists in a Bloomberg survey.

Naturally, it is not rocket science that the only reason why China is growing at its current pace is because it is once again injecting record amount of liquidity into the system, and if the credit spigot is open, th country growsl if it’s shut – it stagnates, as we described in “China: No Leverage, No Growth.”

But a far bigger problem is that while China’s debt is already at record levels, it needs an increasingly greater “credit impulse” to generate the same or smaller amount of GDP “growth” as before, a phenomenon we described in April.

The nation’s debt-to-GDP ratio, excluding central government and financial debt, widened to 207 percent as credit growth continued to outpace productivity gains, Mike Werner, an analyst at Sanford C. Bernstein & Co. in Hong Kong, wrote in an Oct. 21 note to clients. That’s making investors nervous about bad loans rising at banks, he said.

But while banks are finally starting to catch up to the reality that their balance sheets are woefully unprepared for what may be an epic superbubble house of cards crashing on everyone’s head, a key issue is that the price discovery process of insolvent entities in China is simply non-existant.

China’s courts have also been processing bankruptcies faster. The eastern province of Zhejiang, a region south of Shanghai that’s home to many of the country’s largest private companies, accepted 143 bankruptcy petitions last year, according to the most recent figures reported by its high court in May. That’s almost twice the number from a year earlier.

 

The rising bankruptcies may have helped Bank of Communications, the nation’s fifth-largest lender, become the most aggressive among the top five in expunging bad loans from its books so far: its write-offs surged sevenfold to 4.82 billion yuan in the first six months. A press officer for the Shanghai-based lender, known as BoCom, declined to comment.

Oh, so a “whopping” 143 bankruptcy petitions is considered “faster” and an improvement? And this is in a nation that has 4 times the population of the US? To be sure, the fact that China has a major denial problem about the true extent of its credit bubble has not escaped investors:

Third-quarter net income at the five banks may have risen 11 percent from a year earlier to a combined 226 billion yuan, according to Edmond Law, an analyst at UOB Kay Hian (Hong Kong) Research. Nonperforming loans probably climbed by a “mild” 5 percent in the three months to Sept. 30 as lenders continued to write off or sell bad debt, he wrote in an Oct. 10 report.

 

Uncertainty about the quality of assets at Chinese banks has made global investors nervous, sending stock in the lenders to near record-low valuations this year. ICBC fell 2.2 percent to close at HK$5.28 in Hong Kong and the shares are trading at 0.98 times estimated book value for 2014, while Construction Bank lost 2.3 percent and changed hands at 0.94 times book, according to data compiled by Bloomberg.

In conclusion:

“The China bank stocks are under pressure due to bad debt write-offs,” Sandy Mehta, chief executive officer of Value Investment Principals Ltd. in Hong Kong, wrote in an e-mail. “The new leadership in China is serious about the financial sector getting its house in order, and addressing any asset quality issues.”

Judging by the market’s reaction, where the Shanghai Composite closed down 1.25% and the Nikkei was lower by 2% (with futures sliding even more on a renewed strength in the JPY), the market is finally starting to pay attention to the Chinese credit bubble, which unlike the US can afford only so much liquidity, either domestic or foreign, before the spillover sends far less anchored prices soaring.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9c9M2BcCdKs/story01.htm Tyler Durden

Today’s AM fix was USD 1,311.75, EUR 959.51 and GBP 813.24 per ounce.
Yesterday’s AM fix was USD 1,316.00, EUR 962.27 and GBP 814.05 per ounce.

Gold rose $1.10 or 0.08% yesterday, closing at $1,315.20/oz. Silver climbed $0.31 or 1.42% closing at $21.19. Platinum rose $2.64 or 0.2% to $1,433.74/oz, while palladium increased $8.50 or 1.2% to $747/oz.

Gold hovered in a tight range today between $1,310/oz and $1,330/oz. Traders await the release of U.S. jobs data to gauge the health of the struggling U.S. economy. A poor U.S. nonfarm payrolls number should lead to safe haven buying that could lead to a breach of resistance at $1,330/oz and gold soon testing $1,380/oz.

Gold in US Dollars – 40 Days

A good jobs number could see gold weakening below short term support at $1,310/oz and a possible retrenchment to $1,280/oz.  

The U.S. September jobs data has been postponed for 16 days due to the partial U.S. government shutdown that began on October 1st.  U.S. Fed Bank President of Chicago, Charles Evans, commented in an interview yesterday that the fiscal discord in D.C. will probably delay the decrease in the Fed’s monthly bond buying which is gold positive.

The market continues to digest the continuing fall in the holdings of the biggest gold exchange-traded-holdings fund dropped the most in 15 weeks as gold flows from London to Switzerland and on to Asia. Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 10.51 tonnes to 871.72 tonnes on Monday — its biggest fall since early July. It is believed that this gold is flowing East to willing and eager buyers in China particularly.

Gold bullion dealers in India are struggling to get gold bullion and are paying record premiums just ahead of the peak festival season next month.

Marc Faber the author of “The Gloom & Doom Report” was interviewed on CNBC’s Squawk Box today.

Faber commented, “The question is not ‘tapering’, the question is at what point will they increase the asset purchases to say $150 billion, $200 billion, or a trillion dollars a month.”

Faber was one of the few investment advisers to clearly warn of the coming global financial and economic crisis in the months and years pre-Lehman. His company Marc Faber Limited provides investment advisory services to financial institutions, corporate clients, family offices and high net worth individuals around the world.

Mark Faber 

‘QE-4-EVA’ is here to stay, as Faber laid out “every government program that is introduced under urgency and as a temporary measure is always permanent.”

Simply put, “The Fed has boxed itself into a position where there is no exit strategy,” and while inflation may not be present in the ‘chosen’ indicators, Faber trumpets, there’s been incredible asset inflation – “we are the bubble. We have a colossal asset bubble in the world [and] a leverage or a debt bubble.”

There will be massive wealth destruction, he concludes, “one day this asset inflation will lead to a deflationary collapse one way or the other. We don’t know yet what will cause it.”

Last April, Faber said the world will face “massive wealth destruction” in which “well to-do people will lose up to 50% of their total wealth.”

In this morning’s Squawk  Box appearance, he said that could still happen but possibly from higher levels because of the “asset bubble” caused by the Fed.

Faber, whose advice has protected millions of investors in recent years, warned of a global systemic crisis possibly due to the massive size of the global derivatives market which is now worth over an incredible $700 trillion.

He warned “when the system goes down,” and only plastic credit cards are left, “maybe then people will realize and go back to some gold-based system.” He wisely said that, “I advise everyone to have some gold.”

Gold in US Dollars – 5 Years

Faber has warned in recent months that there could be a flight out of cash and overvalued bonds and into equities and gold.

In January, in response to a question from Yale University’s Robert Shiller querying the recommendation to hold gold, Faber said: “I’m prepared to make a bet, you keep yourU.S. dollars and I’ll keep my gold, we’ll see which one goes to zero first.”

GoldCore’s 10th Anniversary Gold Sovereign & Storage Offer

Click For Details: Gold Sovereigns
@ 5% Premium Over Spot  (normally 8.5%-15% premium) & 1st Year’s Storage @ Half Price
Offer Closes October 25th

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/K5XJBH6H1Bs/story01.htm GoldCore

Today’s AM fix was USD 1,311.75, EUR 959.51 and GBP 813.24 per ounce.
Yesterday’s AM fix was USD 1,316.00, EUR 962.27 and GBP 814.05 per ounce.

Gold rose $1.10 or 0.08% yesterday, closing at $1,315.20/oz. Silver climbed $0.31 or 1.42% closing at $21.19. Platinum rose $2.64 or 0.2% to $1,433.74/oz, while palladium increased $8.50 or 1.2% to $747/oz.

Gold hovered in a tight range today between $1,310/oz and $1,330/oz. Traders await the release of U.S. jobs data to gauge the health of the struggling U.S. economy. A poor U.S. nonfarm payrolls number should lead to safe haven buying that could lead to a breach of resistance at $1,330/oz and gold soon testing $1,380/oz.

Gold in US Dollars – 40 Days

A good jobs number could see gold weakening below short term support at $1,310/oz and a possible retrenchment to $1,280/oz.  

The U.S. September jobs data has been postponed for 16 days due to the partial U.S. government shutdown that began on October 1st.  U.S. Fed Bank President of Chicago, Charles Evans, commented in an interview yesterday that the fiscal discord in D.C. will probably delay the decrease in the Fed’s monthly bond buying which is gold positive.

The market continues to digest the continuing fall in the holdings of the biggest gold exchange-traded-holdings fund dropped the most in 15 weeks as gold flows from London to Switzerland and on to Asia. Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 10.51 tonnes to 871.72 tonnes on Monday — its biggest fall since early July. It is believed that this gold is flowing East to willing and eager buyers in China particularly.

Gold bullion dealers in India are struggling to get gold bullion and are paying record premiums just ahead of the peak festival season next month.

Marc Faber the author of “The Gloom & Doom Report” was interviewed on CNBC’s Squawk Box today.

Faber commented, “The question is not ‘tapering’, the question is at what point will they increase the asset purchases to say $150 billion, $200 billion, or a trillion dollars a month.”

Faber was one of the few investment advisers to clearly warn of the coming global financial and economic crisis in the months and years pre-Lehman. His company Marc Faber Limited provides investment advisory services to financial institutions, corporate clients, family offices and high net worth individuals around the world.

Mark Faber 

‘QE-4-EVA’ is here to stay, as Faber laid out “every government program that is introduced under urgency and as a temporary measure is always permanent.”

Simply put, “The Fed has boxed itself into a position where there is no exit strategy,” and while inflation may not be present in the ‘chosen’ indicators, Faber trumpets, there’s been incredible asset inflation – “we are the bubble. We have a colossal asset bubble in the world [and] a leverage or a debt bubble.”

There will be massive wealth destruction, he concludes, “one day this asset inflation will lead to a deflationary collapse one way or the other. We don’t know yet what will cause it.”

Last April, Faber said the world will face “massive wealth destruction” in which “well to-do people will lose up to 50% of their total wealth.”

In this morning’s Squawk  Box appearance, he said that could still happen but possibly from higher levels because of the “asset bubble” caused by the Fed.

Faber, whose advice has protected millions of investors in recent years, warned of a global systemic crisis possibly due to the massive size of the global derivatives market which is now worth over an incredible $700 trillion.

He warned “when the system goes down,” and only plastic credit cards are left, “maybe then people will realize and go back to some gold-based system.” He wisely said that, “I advise everyone to have some gold.”

Gold in US Dollars – 5 Years

Faber has warned in recent months that there could be a flight out of cash and overvalued bonds and into equities and gold.

In January, in response to a question from Yale University’s Robert Shiller querying the recommendation to hold gold, Faber said: “I’m prepared to make a bet, you keep yourU.S. dollars and I’ll keep my gold, we’ll see which one goes to zero first.”

GoldCore’s 10th Anniversary Gold Sovereign & Storage Offer

Click For Details: Gold Sovereigns
@ 5% Premium Over Spot  (normally 8.5%-15% premium) & 1st Year’s Storage @ Half Price
Offer Closes October 25th

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/K5XJBH6H1Bs/story01.htm GoldCore

Authored by Eric Sprott of Sprott Global Resources,

Dear World Gold Council Executives;

As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.

In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading. It is not the first time that GFMS (and World Gold Council) statistics come under pressure from the investment community. In his now celebrated “The 1998 Gold Book Annual”, Frank Veneroso demonstrated the inconsistencies in GFMS gold demand data and proceeded to show how they grossly underestimated demand. The tremendous increase in the price of gold over the following years vindicated his conclusions.

For very different reasons, we are now at a similar pivotal point for gold. Over the past few years, we have seen incredible incremental demand from emerging markets. Indeed, so much so that the People’s Bank of China has announced that it is planning to increase the number of firms allowed to import and export gold and ease restrictions on individual buyers.¹ In India, the government has been fighting a losing battle against gold imports by imposing import taxes and restrictions.² Moreover, Non-Western Central Banks from around the world are replacing their U.S. dollar reserves by increasing their holdings of gold.³

But, demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.

To illustrate my point, Table 1 below contrasts mine production with demand from some of the world’s largest gold consumers. According to WGC/GFMS data, the world will mine, on an annualized basis, about 2,800 tonnes of gold for 2013.

But, I adjusted these figures to reflect mine production from China and Russia, which never leaves the country and is used solely to satisfy domestic demand. After adjustments, we have a total world mine supply of about 2,140 tonnes. On the demand side, I make some in-house adjustments to better represent demand from emerging markets. To proxy for gold consumption in China, Hong Kong, India, Thailand and Turkey, I use net imports of gold, as reported by their various governmental agencies. While imports might in general be an imperfect proxy for demand, those countries see very little re-export of what they import and keep most of it for themselves, so it is not unreasonable to assume that what they import they “consume”, on top of their domestic production. To this I add the demand, as estimated by the GFMS, from other countries and that of central banks. I annualized the year-to-date figures and found that for this year, annualized total demand is approximately 5,200 tonnes. On that basis, “core” annualized demand is approximately 3,000 tonnes more than mine supply.

TABLE 1: WORLD GOLD SUPPLY AND DEMAND 2013, IN TONNES

Sources: GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1 & Q2. Chinese mine supply comes from the China Gold Association and is up to August 2013, the annualized number is a Sprott estimate.⁵ Russian mine supply comes from the WBMS (Bloomberg ticker WBMGOPRU Index) and is for 2012, 2013 statistics are still unavailable. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Aug. 2013 and is annualized to account for the 4 missing months to the year. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1 & Q2 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1 & Q2. ETFs data comes from Bloomberg’s ETFGTOTL Index.

However, these figures also exclude what the GFMS dubs “OTC investment and stock flows”, which is a name for a simple plug because no one really knows what is traded in the OTC market. Also, to remain conservative and avoid possible double counting, I exclude the category “technology” from my demand estimate, which the WGC/GFMS estimates to be about 400 tonnes a year.⁶ Certainly, some of this demand is captured by the demand numbers for China, Turkey, India or Thailand, but it is near impossible to disentangle them. Nonetheless, it should be kept in mind that my demand estimate is conservative and probably understated by a few hundred tonnes.

Of course, another important source of supply is gold recycling, which the GFMS estimates at about 1,300 tonnes for the year. However, this number is questionable at best as gold recycling is hard to estimate. But, most importantly, a large share of it is probably done in India and China, which as mentioned before do not re-export their gold. In the context of my analysis, recycling from those countries should therefore be excluded from the total supply number.

The real incremental source of supply this year has been the flows out of ETFs. According to data compiled by Bloomberg, and as shown at the bottom of Table 1, ETFs have seen outflows of approximately 724 tonnes year-to-date. On an annualized basis, this represents an additional supply of 917 tonnes. But, this incremental supply is only temporary. As shown in Figure 1 below, ETF holdings of gold seem to have stabilized at around 1,900 tonnes after a rapid decline in the first few months of 2013.

The evidence presented here is clear, demand for physical gold is extremely strong and, in reality, without the massive outflows from ETFs (half of world mine supply), it is hard to imagine how this demand would have been met. Since ETFs have a finite size (about 1,900 tonnes left), these outflows cannot continue for much longer (see our article on the topic).⁷ All these observations point to a considerable imbalance between supply and demand (unless Western Central Banks decide to fill this void with what is left of their reserves). If recycling was reduced by one half (China, India and Russia) and the temporary sales from ETFs were excluded, demand could be as high as 5,185 tonnes versus supply of 2,140 tonnes. The supply-demand imbalance is obvious to all.

FIGURE 1:TONNES OF GOLD IN ETFS

Source: Bloomberg

As was the case when Frank Veneroso first published his book in 1998, the GFMS methodology understates demand and the World Gold Council, by using data from the GFMS, misleads the market place.

To conclude, I urge the leaders of the World Gold Council, for the benefit of their own members, to improve the quality of their data and find alternative sources than the GFMS, which paints a misleading picture of the real demand for gold. This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment. Gold has been one of the best performing asset classes since 2000, and the World Gold Council should be promoting it accordingly.

Regards,

Eric Sprott

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Sc2zzCdKzLk/story01.htm Tyler Durden

Authored by Eric Sprott of Sprott Global Resources,

Dear World Gold Council Executives;

As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.

In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading. It is not the first time that GFMS (and World Gold Council) statistics come under pressure from the investment community. In his now celebrated “The 1998 Gold Book Annual”, Frank Veneroso demonstrated the inconsistencies in GFMS gold demand data and proceeded to show how they grossly underestimated demand. The tremendous increase in the price of gold over the following years vindicated his conclusions.

For very different reasons, we are now at a similar pivotal point for gold. Over the past few years, we have seen incredible incremental demand from emerging markets. Indeed, so much so that the People’s Bank of China has announced that it is planning to increase the number of firms allowed to import and export gold and ease restrictions on individual buyers.¹ In India, the government has been fighting a losing battle against gold imports by imposing import taxes and restrictions.² Moreover, Non-Western Central Banks from around the world are replacing their U.S. dollar reserves by increasing their holdings of gold.³

But, demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.

To illustrate my point, Table 1 below contrasts mine production with demand from some of the world’s largest gold consumers. According to WGC/GFMS data, the world will mine, on an annualized basis, about 2,800 tonnes of gold for 2013.

But, I adjusted these figures to reflect mine production from China and Russia, which never leaves the country and is used solely to satisfy domestic demand. After adjustments, we have a total world mine supply of about 2,140 tonnes. On the demand side, I make some in-house adjustments to better represent demand from emerging markets. To proxy for gold consumption in China, Hong Kong, India, Thailand and Turkey, I use net imports of gold, as reported by their various governmental agencies. While imports might in general be an imperfect proxy for demand, those countries see very little re-export of what they import and keep most of it for themselves, so it is not unreasonable to assume that what they import they “consume”, on top of their domestic production. To this I add the demand, as estimated by the GFMS, from other countries and that of central banks. I annualized the year-to-date figures and found that for this year, annualized total demand is approximately 5,200 tonnes. On that basis, “core” annualized demand is approximately 3,000 tonnes more than mine supply.

TABLE 1: WORLD GOLD SUPPLY AND DEMAND 2013, IN TONNES

Sources: GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1 & Q2. Chinese mine supply comes from the China Gold Association and is up to August 2013, the annualized number is a Sprott estimate.⁵ Russian mine supply comes from the WBMS (Bloomberg ticker WBMGOPRU Index) and is for 2012, 2013 statistics are still unavailable. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Aug. 2013 and is annualized to account for the 4 missing months to the year. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1 & Q2 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1 & Q2. ETFs data comes from Bloomberg’s ETFGTOTL Index.

However, these figures also exclude what the GFMS dubs “OTC investment and stock flows”, which is a name for a simple plug because no one really knows what is traded in the OTC market. Also, to remain conservative and avoid possible double counting, I exclude the category “technology” from my demand estimate, which the WGC/GFMS estimates to be about 400 tonnes a year.⁶ Certainly, some of this demand is captured by the demand numbers for China, Turkey, India or Thailand, but it is near impossible to disentangle them. Nonetheless, it should be kept in mind that my demand estimate is conservative and probably understated by a few hundred tonnes.

Of course, another important source of supply is gold recycling, which the GFMS estimates at about 1,300 tonnes for the year. However, this number is questionable at best as gold recycling is hard to estimate. But, most importantly, a large share of it is probably done in India and China, which as mentioned before do not re-export their gold. In the context of my analysis, recycling from those countries should therefore be excluded from the total supply number.

The real incremental source of supply this year has been the flows out of ETFs. According to data compiled by Bloomberg, and as shown at the bottom of Table 1, ETFs have seen outflows of approximately 724 tonnes year-to-date. On an annualized basis, this represents an additional supply of 917 tonnes. But, this incremental supply is only temporary. As shown in Figure 1 below, ETF holdings of gold seem to have stabilized at around 1,900 tonnes after a rapid decline in the first few months of 2013.

The evidence presented here is clear, demand for physical gold is extremely strong and, in reality, without the massive outflows from ETFs (half of world mine supply), it is hard to imagine how this demand would have been met. Since ETFs have a finite size (about 1,900 tonnes left), these outflows cannot continue for much longer (see our article on the topic).⁷ All these observations point to a considerable imbalance between supply and demand (unless Western Central Banks decide to fill this void with what is left of their reserves). If recycling was reduced by one half (China, India and Russia) and the temporary sales from ETFs were excluded, demand could be as high as 5,185 tonnes versus supply of 2,140 tonnes. The supply-demand imbalance is obvious to all.

FIGURE 1:TONNES OF GOLD IN ETFS

Source: Bloomberg

As was the case when Frank Veneroso first published his book in 1998, the GFMS methodology understates demand and the World Gold Council, by using data from the GFMS, misleads the market place.

To conclude, I urge the leaders of the World Gold Council, for the benefit of their own members, to improve the quality of their data and find alternative sources than the GFMS, which paints a misleading picture of the real demand for gold. This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment. Gold has been one of the best performing asset classes since 2000, and the World Gold Council should be promoting it accordingly.

Regards,

Eric Sprott

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Sc2zzCdKzLk/story01.htm Tyler Durden

The dismal news keeps coming for the Fukushima nuclear power facility. According to NHK World, TEPCO is admitting to detecting radioactive cesium about one kilometer off shore. While the level is low, it is the secoond time radioactive substances have been found that far offshore and it is believed to be from wastewater leaking out with the groundwater. The company, reassuringly, says the leak poses no environmental risk… As if that was not enough, Bloomberg reports TEPCO also found high levels of radiation in the drainage ditches and wells at the site. Of course, this will likely be met with cries of delight by Abe who will “need to build a bigger wall” to contain the leaks and thus create a Keynesian utopia from the ‘broken nuclear plant fallacy’ that is ongoing.

 

Via NHK World,

Tokyo Electric Power Company says a very small amount of radioactive cesium has been detected about one kilometer off the damaged Fukushima Daiichi nuclear plant it operates.

 

TEPCO has been analyzing seawater taken at 5 locations outside the plant’s harbor. This is to monitor the spread of radioactive substances in wastewater that’s believed to be seeping out with groundwater.

 

A sample taken last Friday about one kilometer offshore was found to contain 1.6 becquerels of cesium-137 per liter.

 

The level is far below the 90 becquerels-per-liter limit for releasing cesium-137 into the sea. But it is the second time the substance has been detected at this location since monitoring began in August. The previous finding was on October 8th.

 

TEPCO says it does not know why cesium has been found at that specific spot. But the company says it poses no environmental risk as the level is near the minimum detection threshold. It adds that hardly any cesium is being found elsewhere in the sea outside of the port.

 

Via Bloomberg,

Co. found 59,000 Bq/L of beta radiation levels from water taken yesterday at B-2 drainage ditch at Fukushima Dai-Ichi plant, higher than previous record of 34,000 Bq/L in Oct. 17 sample, according to an e-mailed statement from the utility.

 

Co. detects 350,000 Bq/L of tritium radiation at monitoring well “No. 1-12” near turbine buildings, according to a separate statement

 

First time to take sample from monitoring well “No.  1-12”

 

Co. found record 790,000 Bq/L of tritium radiation    near H4 storage tank area on Oct. 17

 

 

We just can’t wait to see the Olympic sailing events with boats whose hulls are lead-shielded…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YNfx2pJBb0E/story01.htm Tyler Durden

Originally posted at Python Sweetness blog,

This is probably the most painful bug report I’ve ever read, describing in glorious technicolor the steps leading to Knight Capital’s $460m trading loss due to a software bug that struck late last year, effectively bankrupting the company.

The tale has all the hallmarks of technical debt in a huge, unmaintained, bitrotten codebase (the bug itself due to code that hadn’t been used for almost 9 years), and a really poor, undisciplined dev-ops story.

Highlights:

To enable its customers’ participation in the Retail Liquidity Program (“RLP”) at the New York Stock Exchange,5 which was scheduled to commence on August 1, 2012, Knight made a number of changes to its systems and software code related to its order handling processes. These changes included developing and deploying new software code in SMARS. SMARS is an automated, high speed, algorithmic router that sends orders into the market for execution. A core function of SMARS is to receive orders passed from other components of Knight’s trading platform (“parent” orders) and then, as needed based on the available liquidity, send one or more representative (or “child”) orders to external venues for execution.

 

13. Upon deployment, the new RLP code in SMARS was intended to replace unused code in the relevant portion of the order router. This unused code previously had been used for functionality called “Power Peg,” which Knight had discontinued using many years earlier. Despite the lack of use, the Power Peg functionality remained present and callable at the time of the RLP deployment. The new RLP code also repurposed a flag that was formerly used to activate the Power Peg code. Knight intended to delete the Power Peg code so that when this flag was set to “yes,” the new RLP functionality—rather than Power Peg—would be engaged.

 

14. When Knight used the Power Peg code previously, as child orders were executed, a cumulative quantity function counted the number of shares of the parent order that had been executed. This feature instructed the code to stop routing child orders after the parent order had been filled completely. In 2003, Knight ceased using the Power Peg functionality. In 2005, Knight moved the tracking of cumulative shares function in the Power Peg code to an earlier point in the SMARS code sequence. Knight did not retest the Power Peg code after moving the cumulative quantity function to determine whether Power Peg would still function correctly if called.

 

15. Beginning on July 27, 2012, Knight deployed the new RLP code in SMARS in stages by placing it on a limited number of servers in SMARS on successive days. During the deployment of the new code, however, one of Knight’s technicians did not copy the new code to one of the eight SMARS computer servers. Knight did not have a second technician review this deployment and no one at Knight realized that the Power Peg code had not been removed from the eighth server, nor the new RLP code added. Knight had no written procedures that required such a review.

 

16. On August 1, Knight received orders from broker-dealers whose customers were eligible to participate in the RLP. The seven servers that received the new code processed these orders correctly. However, orders sent with the repurposed flag to the eighth server triggered the defective Power Peg code still present on that server. As a result, this server began sending child orders to certain trading centers for execution.

 

19. On August 1, Knight also received orders eligible for the RLP but that were designated for pre-market trading.6 SMARS processed these orders and, beginning at approximately 8:01 a.m. ET, an internal system at Knight generated automated e-mail messages (called “BNET rejects”) that referenced SMARS and identified an error described as “Power Peg disabled.” Knight’s system sent 97 of these e-mail messages to a group of Knight personnel before the 9:30 a.m. market open. Knight did not design these types of messages to be system alerts, and Knight personnel generally did not review them when they were received

The remainder of the document is definitely worth a read, but importantly recommends new human processes to avoid a similar tragedy. None of the ops failures leading to the bug were related to humans, but rather, due to most likely horrible deployment scripts and woeful production monitoring. What kind of cowboy shop doesn’t even have monitoring to ensure a cluster is running a consistent software release!? Not to mention deployment scripts that check return codes..

We can also only hope that references to "written test procedures" for the unused code refer to systematic tests, as opposed to a 10 year old wiki page.

The best part is the fine: $12m, despite the resulting audit also revealing that the system was systematically sending naked shorts.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/P4f-Ivzph7Y/story01.htm Tyler Durden