Baltic Dry Index. 741 -08 Brent Crude 49.84
LIR Gold Target in 2019: $30,000. Revised due to QE programs.
"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper."
Hans F. Sennholz
This is a good week to join the SNB in the bunker. A default and crack
down on margin trading in Chinese stocks opens the week with Chinese equities
dropping the most since 2009. There is
rising fallout and gambling wealth destruction from last week’s SNB abandonment
of their currency peg to the euro. Later this week the ECB is widely expected
to introduce nuclear QE to “save” once again, the EUSSR from itself. A failure
to deliver, promises a European stock rout to match China’s. On Wednesday
through Saturday, the global elitist one percenter’s, get to strut, preen and pout
around 4 star Davos. Its only 5 star hotel is open but in bankruptcy. Not enough
five star, one percenter’s would be seen dead in Davos, except for this week of
grubby tip-offs and backroom deals.
And then there’s still the collapsed oil price, still struggling to hold
near 50 on Brent. A tsunami of lay-offs and debt default is rolling
relentlessly on towards the US frackers, Canadian tar pits, and deep sea
offshore oil drillers. Topping off this week of massive uncertainty and great
instability, next Sunday Greek voters get to go the polls to elect payback time
on Germany and Brussels. Frankfurt’s ECB looks like being the largest collateral
damage. All in all, it’s a good time to join the SNB in the bunker.
Up first China.
Kaisa on Brink of Dollar Default Spooks Money Managers
Jan 19, 2015 2:02 AM GMT
As Europe grapples with terrorism and Switzerland
scrapped a currency peg, the troubles of a Chinese developer that’s never
reached $3 billion in market value became something investors from New
York to London
couldn’t ignore. A missed $23 million interest payment by Kaisa Group Holdings Ltd. (1638) earlier this month puts it at risk of being the first Chinese real estate company to default on its dollar-denominated bonds.
That may signal deeper risks for China’s already fragile and corruption-prone property market, which according to World Bank estimates accounts for about 16 percent of economic growth.
Chinese companies comprised 62 percent of all U.S. dollar bond sales in the Asia-Pacific region ex Japan last year, issuing $244.4 billion of the $392.5 billion total, according to data compiled by Bloomberg. BlackRock Inc., the world’s biggest asset manager, owned Kaisa’s 8.875 percent securities due 2018 and the ones the subject of the missed coupon payment, the 10.25 percent 2020s, its latest filing on Jan. 14 shows. Funds managed by JPMorgan Chase & Co., Fidelity Investment and ING Investment Management also held some of Kaisa’s debt at the end of October, according to filings.
“The market has been too complacent,” said Raymond Chia, the Singapore-based head of Asia credit research at Schroder Investment Management Ltd., which had $447.7 billion under management as of Sept. 30. Investors would be “rational to adopt a cautious approach in view of the fact that anything can happen, anywhere, anytime. It would be irrational to continue thinking that after Kaisa none of the companies will see a similar fate.”
China Stocks Sink Most Since 2009 on Margin-Trading Suspensions
Jan 19, 2015 3:54 AM GMT
Chinese equities plunged the most in five years, led by brokerages, after
regulatory efforts to rein in record margin lending sparked concern that
speculative traders will pull back from the world’s best-performing stock
market. The Shanghai Composite Index (SHCOMP) sank 6.3 percent to 3,163.72 at 11:30 a.m. local time, poised for the steepest drop since August 2009. Citic Securities Co. (600030) and Haitong Securities Co., the nation’s two biggest listed securities firms, fell by the 10 percent daily limit after they were suspended from lending money to new equity-trading clients. The stock gauge’s 30-day volatility rose to a five-year high.
The penalties have raised concern that policy makers are trying to curb a surge in stock purchases using borrowed money, after outstanding margin loans surged to 1.08 trillion yuan ($174 billion) as of Jan. 13 from about 400 billion yuan at the end of June. The Shanghai Composite index has jumped 61 percent during the past 12 months on record volumes as individual investors piled into the market.
“Regulators are concerned that shares have run too hard, too fast,” said Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong. “They want a measured increase in the stock market. After all, margin financing is one of the reasons for people to be bullish on brokerage stocks, and these stocks have run particularly hard.”
More
China Brokers Fall as Regulator Curbs New Margin Accounts
Jan 19, 2015 1:47 AM GMT
Chinese brokerages’ shares plunged after the securities regulator suspended
three of the biggest firms from adding margin-finance and securities lending
accounts for three months following rule violations. Citic Securities Co. (600030), the nation’s biggest broker, fell 14 percent as of 9:35 a.m. in Hong Kong. Haitong Securities Co. and Guotai Junan Securities Co. were among others whose shares tumbled.
The trio were suspended after letting customers delay repaying financing for longer than they were supposed to, the China Securities Regulatory Commission said on its microblog on Jan. 16, without giving more details.
Regulators may have been concerned that stock gains, partly driven by margin financing, are too rapid, according to Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong. The move came after the Shanghai Composite Index surged 63 percent in six months and brokers including Citic and Haitong announced plans to raise more money to lend to clients.
More
China’s Treasury Holdings Decline as Japan’s Rise to Record
Jan 16, 2015 9:00 PM GMT
China’s holdings
of U.S. government debt declined in November for a third straight month,
reaching the lowest level since January 2013, as Japan’s jumped to a record. China, the largest foreign holder of Treasuries, had $1.25 trillion as of November, $2.3 billion less than a month earlier, according to Treasury Department data released Friday in Washington. Japan, the second biggest, moved to within $8.9 billion of China’s lead, increasing its ownership by $19.1 billion to $1.24 trillion.
The two countries account for about two-fifths of all foreign ownership of Treasuries, which gained $53.5 billion in November to $6.11 trillion, the figures showed. Of that total, $4.13 trillion were government holdings.
The Treasury’s report, which also contains data on international capital flows, showed a net inflow of U.S. long-term securities of $33.5 billion after a $1.4 billion outflow in October. It showed a total cross-border outflow, including short-term securities such as Treasury bills and stock swaps, of $6.3 billion following a revised $179.5 billion inflow the prior month.
Data from China this week showed that the nation’s foreign-exchange reserves, the world’s largest stockpile, fell to $3.84 trillion in December from $3.89 trillion in September.
Next, more fallout from the SNB dropping the euro peg. Whose great idea
was it to let loose the fat currency gamblers with leverage of 50:1?
Bank Losses From Swiss Currency Surprise Seen Mounting
Jan 19, 2015 12:00 AM GMT
The $400 million of cumulative losses that Citigroup Inc. (C), Deutsche
Bank AG and Barclays Plc (BARC) are said
to have suffered from the Swiss central bank’s decision to end the cap on the
franc may be followed by others in coming days. “The losses will be in the billions -- they are still being tallied,” said Mark T. Williams, an executive-in-residence at Boston University specializing in risk management. “They will range from large banks, brokers, hedge funds, mutual funds to currency speculators. There will be ripple effects throughout the financial system.”
Citigroup, the world’s biggest currencies dealer, lost more than $150 million at its trading desks, a person with knowledge of the matter said last week. Deutsche Bank lost $150 million and Barclays less than $100 million, people familiar with the events said, after the Swiss National Bank scrapped a three-year-old policy of capping its currency against the euro and the franc soared as much as 41 percent that day versus the euro. Spokesmen for the three banks declined to comment.
More
Swiss Franc Trade Is Said to Wipe Out Everest’s Main Fund
Jan 17, 2015 2:39 PM GMT
Marko Dimitrijevic, the hedge fund manager who survived at least five
emerging market debt crises, is closing his largest hedge fund after losing
virtually all its money this week when the Swiss National Bank
unexpectedly let the franc trade freely against the euro, according to a person
familiar with the firm. Everest Capital’s Global Fund had about $830 million in assets as of the end of December, according to a client report. The Miami-based firm, which specializes in emerging markets, still manages seven funds with about $2.2 billion in assets. The global fund, the firm’s oldest, was betting the Swiss franc would decline, said the person, who asked not to be named because the information is private.
Armel Leslie, a spokesman for Everest Capital with Peppercomm, declined to comment on the losses. Calls to Dimitrijevic weren’t returned.
The SNB’s decision to end its three-year policy of capping the franc at 1.20 a euro triggered losses at Citigroup Inc., Deutsche Bank AG and Barclays Plc as well as hedge funds and mutual funds. The franc surged as much as 41 percent versus the euro on Jan. 15, the biggest gain on record, and climbed more than 15 percent against all of the more than 150 currencies tracked by Bloomberg.
More
In ECB damage control news, the ECB spin meisters seem to be close to panic.
ECB Weighing QE Through National Central Banks, Spiegel Reports
Jan 17, 2015 12:01 AM GMT
European Central Bank President Mario Draghi briefed German Chancellor
Angela Merkel and Finance Minister Wolfgang Schaeuble on quantitative-easing
plans under which national central banks would buy bonds issued by their own
country, Spiegel magazine reported. The plan, which tries to avoid a transfer of risk between member states, envisages purchases in line with the ECB’s capital key with a limit of 20 percent to 25 percent of each country’s debt, Spiegel said in an article published yesterday, without saying where it got the information. Greece would be excluded from the program because its bonds don’t fulfill the necessary quality criteria, the magazine said.
An ECB spokesman declined to comment on the design of any QE program. A German government spokesman said earlier yesterday that Merkel and Draghi met on Jan. 14 for “regular informal talks,” while declining to comment on the topic.
Klaas Knot, governor of the Dutch central bank, told Spiegel that no “concrete proposal” has yet been made. The Governing Council will meet on Jan. 22 in Frankfurt to set monetary policy.
Officials presented various forms of quantitative easing to the council at a Jan. 7 meeting, and Draghi signaled in an interview with Die Zeit that the ECB is ready to take a decision as early as next week. Officials have courted the German public in a flurry of interviews, arguing that more stimulus is needed to fend off deflation in the 19-nation currency region.
More
Draghi Push Seen Delivering $635 Billion With QE Forecast
Jan 19, 2015 12:01 AM GMT
Mario Draghi
is likely to announce a 550 billion-euro ($635 billion) bond-purchase program
this week and won’t skimp too much on the details, economists say. The European Central Bank president will make his biggest push yet to steer the euro area away from deflation by announcing quantitative easing on Jan. 22, according to 93 percent of respondents in a Bloomberg News survey. The median estimate of the size of the package tops the 500 billion euros in models presented to officials this month.
Draghi’s goal at a press conference after the Governing Council gathers will be to convince investors he has a strategy big and bold enough to reinvigorate the moribund economy. Speculation over his plans has already sent the euro to an 11-year low, with the fund flows probably contributing to the Swiss National Bank’s shock decision to end a cap on the franc.
More
A QE fudge by the ECB would inevitably and deservedly fail
How the European Central Bank structures quantitative easing makes no difference, the risk of default will be shared between all countries that use the single currency
Last week, I asked the head of a large investment bank what difference it made if the European Central Bank conducted quantitative easing directly or through all the different national central banks in the eurozone.He didn’t know. Which maybe gives you some idea of how complicated this issue is.
He and everyone else in the markets will have to get their heads around this issue very soon, though. On Thursday, Mario Draghi, the president of the European Central Bank is, at long last, expected to green-light a programme of quantitative easing.
But how will that programme be structured? It is widely expected to include the purchase of sovereign bonds. However, reports over the weekend suggested that ECB and German officials are still arguing about who will buy which bonds.
One option apparently being considered is for all the different national central banks to purchase their own country’s bonds.
This
would allow the ECB to swerve around two very tricky problems. First, it
wouldn’t have to buy Greek sovereign bonds just days before Greece goes to the
polls. There’s a strong possibility the far-Left Syriza party will win the
election, leading to a showdown with Brussels and a not insignificant chance
that Greece will leave the eurozone, defaulting on its debts as it goes. Why
would anyone, least of all the ECB, buy Greek bonds with that looming?
More
In other news, Berlin, Brussels and Frankfurt need to come up with yet more cash urgently for Europe’s bottomless pit, aka Kiev Ukraine.
Ukraine Faces Default Risk as Russia Puts Neighbor on Notice
Jan 16, 2015 2:54 PM GMT
The economic pressure being applied by Russia is threatening to push Ukraine to the brink of
default, putting the burden on the U.S. and its allies to keep the war-ravaged
nation afloat. The question of Russia calling a $3 billion bond, which Prime Minister Dmitry Medvedev this week said will “soon” be decided, is pushing the government in Kiev toward debt-restructuring talks with other creditors, according to economists from London to New York. Such a request by the Kremlin would trigger a sovereign default for Ukraine, said Regis Chatellier, a strategist at Societe Generale SA (GLE) in London.
Medvedev’s comments highlight the economic front in the conflict as the fighting in Ukraine’s easternmost regions flares up and policy makers in Moscow struggle to contain a currency crisis in Russia. As Ukrainian government bonds trade below 60 cents on the dollar, the Kremlin’s latest weapon is the debt that Russia bought as part of a 2013 rescue package signed with the nation’s then-leader, Viktor Yanukovych.
The prospect of Russia demanding early redemption “could be the catalyst” for a wider debt overhaul, Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said by e-mail.
“Restructuring of some sort is practically a foregone conclusion given the severity of the deterioration in the financial and economic environment.”
More
"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."
Murray N. Rothbard
At the Comex silver
depositories Friday final figures were: Registered 66.31 Moz, Eligible 108.12
Moz, Total 174.43 Moz.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally
doubled over.
Today, Greece heads for an epic showdown with Mrs.
Merkel’s Berlin. After so many years of the German jackboot crushing the
Greeks, the Greeks can wreak havoc if they elect a government on Sunday pledged
to default but still stay in the dying euro.
Greece heads for a Euro collision
A radical Left-wing leader who has promised to end "fiscal waterboarding" is poised to win a snap election - and square up to EU moneylenders
Time and again, thousands of
protesters have gathered in Syntagma Square in the heart of Athens to march
against Greece’s agony of recession and austerity.
The streets nearby have been a
theatre for so much unrest that broken windows go unnoticed and shops and
doorways are permanently stained with Left-wing graffiti.
Yet after five years of economic
crisis and countless demonstrations, Greeks will have the chance to seize back
their destiny next Sunday when they vote in a snap general election.
This was an opportunity they were
never supposed to have. Antonis Samaras, the prime minister, had hoped to
battle on and see through the austerity plan that should reduce Greece’s public
debt to a mere 110 per cent of national income by 2020. But MPs inside the
elegant sand-coloured parliament on the eastern edge of Syntagma Square failed
to choose a new president last month, triggering an election for Jan 25.
Mr Samaras, the leader of the
centre-Right New Democracy Party, has imposed punitive cuts in exchange for a
£190 billion bail-out from the European Union and the International Monetary
Fund.
With all the passion of a man who believes he is performing the Herculean
task of restoring his country to health, the prime minister argues that his
policies are finally showing results.
Last year, Greece ran a primary
budget surplus for the first time since the onset of the eurozone crisis; the
economy may even return to growth in 2015.
But the voters beg to differ.
Millions of Greeks believe the price of the bail-out has been too high.
Youth
unemployment stands at 50 per cent and the state is busily laying off thousands
of employees.
Alexis Tsipras, the leader of the
hard-Left Syriza party, says that Greece is being compelled to suffer “fiscal
waterboarding”. At a rally last week, he declared that it was “time for the
people, not foreign interests, to decide Greece’s future”.
All the evidence shows that the
message of this 40-year-old populist is striking home. Every opinion poll for
the past two months has put Syriza in first place with a consistent lead of
between three and five percentage points. The latest survey showed the party
widening its advantage, reaching 34.5 per cent compared with 29 per cent for
New Democracy.
Unless there is a shock of
earthquake proportions, Syriza is set to win this election – and Mr Tsipras
will then become prime minister of Greece and one of the youngest national
leaders in the world.
He may fall short of an overall
majority in the 300-seat parliament, but the electoral system awards an extra
50 seats to whichever party comes first in the popular vote, with the remaining
250 being handed out on a proportional basis. If the pundits are right and
Syriza tops the poll, Mr Tsipras will hold the whip-hand in any coalition
government.
And that is when his problems
will begin. Mr Tsipras has promised to renegotiate the bail-out package,
including by writing-off “most” of the debt.
Yet he also wants to keep Greece
in the euro. Despite the trauma of the past five years, a solid majority of
about 70 per cent of Greeks wants to stay in the euro. If Mr Tsipras wins this
election, he will have triumphed by the simple device of telling the voters
exactly what they want to hear, namely that Greece can have the euro without
austerity.
MoreThe monthly Coppock Indicators finished December.
DJIA: +138 Up. NASDAQ:
+247 Down. SP500: +198 Down.
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