Saturday, 8 July 2017

Weekend Update 08/07/17 Hamburg Day Two. Market Rigging US Style.

Finance is the art of passing money from hand to hand until it finally disappears.

Robert Sarnoff.

In Hamburg, an inflection point?  A lot of posturing, rioting, photo ops, and little else on day one. And so on to day two of the Great Hamburg Pow Wow of the deaf and deafer. From London, China seems to be the big winner, so far, albeit winner is relative in this Hamburg summit. Germany’s developing fiasco? Can Migrant Mad Merkel’s “Sherpas” save it on day two?

Some people make things happen, some watch while things happen, and some wonder what happened?


Trump Pushing America First Prompts G-20 Deadlock on Free Trade

By Robert Hutton and Raymond Colitt
World leaders meeting in Hamburg ran into a major rift over global economic policy as President Donald Trump held firm to his America First doctrine at the expense of unity.

The first day of a two-day summit of Group of 20 leaders was marred by disagreement on free trade and on climate change, with Trump’s protectionist stance the chief sticking point. During a working lunch, Trump stressed that he will always defend the American worker, according to a western diplomatic official familiar with the closed-door session.

French President Emmanuel Macron challenged Trump’s view that the U.S. is losing out on trade, the official said. Taking out his mobile phone, Macron said that when he bought it, he created a trade deficit with the U.S., but that when America built it, it created a trade deficit with China. His point was that it doesn’t make sense to talk about bilateral trade deficits in a multilateral world, the official said.

The exchange illustrates the world’s struggle to come to terms with the Trump era and his administration’s determination to remold the postwar global consensus in favor of the U.S. The last major summit, of G-7 leaders in May, ended with the U.S. isolated on climate change. With impasse again threatening, this time on trade, government officials known as sherpas were preparing to work into the night in a bid to forge a compromise that all G-20 leaders can support.

“The sherpas still have a big chunk of work ahead on the statement on trade,” German Chancellor Angela Merkel, the summit host, told reporters. “These discussions are very difficult -- I don’t want to beat around the bush.”

Outside the talks, tension hung in the air as sporadic violence broke out among anti-globalization protesters and anarchist groups. Locals woke to find cars burning in parts of the city, police called in reinforcements and the sound of buzzing helicopters could be heard all day. At one point Melania Trump was unable to leave her hotel because of security concerns.

Back in the room, negotiations stumbled even after Merkel said most G-20 leaders are committed to trade that’s “free” but also “fair,” a semantic concession to Trump’s complaint that global commerce is biased against the U.S.

Italian Prime Minister Paolo Gentiloni, who hosted the G-7 in Sicily, said that discussion on bolstering growth without “defensive stands on protectionism” remained open. The issue of climate change is “naturally linked” to trade, with an “overwhelming majority” of G-20 countries supporting Paris accord, he said.

“We have to decide, either we go for free and fair trade, or each nation protects its own garden,” he told reporters.

Saturday’s sessions will tackle migration -- another area where leaders disagree -- and a “partnership with Africa,” then digitization, empowering women and employment. However, Trump’s protectionist bent looks set to dominate in Hamburg as it did in Sicily.

Chinese President Xi Jinping kicked off this meeting with a coded criticism of how certain “major developed nations” have “significantly backtracked” on globalization, and made a pitch for nations such as his own and Russia to step up and fill the leadership vacuum. Later, over lunch, Trump sat with his arms folded and scowled as Xi spoke, according to the diplomatic official.

Even President Vladimir Putin, who met with Trump for the first time Friday, pushed the U.S. leader to come around on trade, according to Russia’s economy minister.

“Nineteen countries were speaking about free trade and one country was highlighting that this country -- United States -- needs reciprocal approach to the trade,” Maxim Oreshkin said in an interview in English with Bloomberg Television. “So that was kind of dissonance between the position of United States and position of all other countries.”

Communist China’s becoming a key player in global capitalism

The launch of Bond Connect is the latest in a series of steps that open up China’s markets to overseas investors
By Cary Huang 8 Jul 2017 / UPDATED ON
In October the International Monetary Fund included the yuan as a fifth global reserve asset; last month Morgan Stanley Capital International (MSCI) added Chinese stocks to its benchmark index following the Stock Connect schemes between Hong Kong’s stock market and bourses in Shanghai and Shenzhen; and on Monday, the launch of Bond Connect will allow overseas investors to invest in the China interbank bond market.

Now, all of China’s main financial commodities – currency, stocks and bonds – can be included in an international investor’s portfolio as Beijing further opens up its financial markets.

The Chinese economy will benefit from allowing international investors to access its domestic debt market, which will help finance the sustainable growth of the world’s second-largest economy. The increased trading volumes will tend to lower the cost of capital.

The opening up of the Chinese onshore bond market to foreign investors will help equip it for inclusion in major global bond indices. The most optimistic calculations suggest the world’s third-largest bond market, after the US and Japan, could eventually represent 18 per cent of the major world bond indices. Goldman Sachs Group estimated that if Chinese bonds were included in three key benchmarks, it would translate into inflows equalling about US$250 billion.

The foreign fund will not only boost China’s corporate financing, but also help offset its foreign-exchange outflows, which in 2016 saw a monthly drop of US$10 billion to US$20 billion.

It will signify another big step towards the yuan’s internationalisation as a result of the opening up of a big pool of investable and yuan-denominated assets to global investors. The inclusion of the Chinese currency in the IMF’s Special Drawing Rights and the intake of A-shares into the MSCI Emerging Markets index have created huge demand for yuan-denominated assets and the Bond Connect will create a supply of such assets.

Elsewhere, yet another red flag for our over-priced and manipulated stock markets. Below the Great Bubble that mispriced central bank debt blew.

The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do.

Warren Buffett.

If this ominous pattern holds, it may be time to bail stocks and load up on commodities

Published: July 6, 2017 5:24 p.m. ET
Over the past half-century, commodities have never been cheaper relative to equities than they are right now. And while the stock market continues to notch new highs, an eerie calm hangs over the commodity trading pits.

“With wild price swings, massive upcycles, exciting resource discoveries and extreme weather events all playing into things, there’s usually never a dull day in the sector,” writes Visual Capitalist’s Jeff Desjardins. “That being said, it’s hard to remember a more lackluster period for commodities than in the last couple of years.”

This chart from Incrementum AG suggests it won’t last:

---- As you can see, the divergence is certainly reaching historic levels thanks to a 200%-plus move on the S&P SPX, -0.94%  since the 2009 crisis compared with a 31% decline for the Goldman Sachs Commodity Index over the same period.

We saw similar extremes in the early 1970s and leading up to the dot-com bubble. In both of those cases, of course, stocks began to crumble.

Will this time be different?

For bottom-fishing purposes, here are the biggest commodity losers so far this year:

---- “For commodity bulls, the good news is that the sector is no longer tanking,” Desjardins explained in his chart-heavy blog post. “The bad news, however, is that all the recent action has been in relatively niche sectors, as metals like cobalt, zinc, and lithium all have their day in the sun.”

Next, “human error” or is someone, or some government agency using algorithms to rig and manipulate  US futures markets? My money is on the latter, and manipulation by government agency via friends of the Fed, ahead of the Great London Bullion Market Association reform.

The whole system is thoroughly corrupted, but that’s just the inevitable outcome of the Great Nixonian Error of Fiat Money, communist money, August 15, 1971.  We are deep into the end game of fiat money, and its ultimate collapse. Our central banksters are one “next Lehman” away from the destruction of this corrupt system, although the next Lehman, is more likely to be a systemic European bank failure, or a blow up in the Great Chinese Ponzi economy.

Another Bullion Flash Crash Is Testing Traders

By Luzi-Ann Javier and Susanne Barton
After-hours surges and plunges that have whipsawed gold and silver prices over the past two weeks are unnerving traders.

Silver futures sank as much as 10 percent, as more than 25 million ounces of the precious metal traded within a minute just after 7 a.m. in Singapore Friday. Last week, gold fell below its 200-day moving average after 1.8 million ounces were transacted in a minute at 4 a.m. in New York. A day later, gold spiked after a similar trade involving more than 800,000 ounces.

Such moves, which occurred at times when liquidity in these markets is generally lowest, are giving traders an additional headache at a time when investor sentiment is already turning bearish. Hedge funds are retreating, while exchange-traded fund investors are pulling out of gold, pushing the precious metal to the lowest in almost four months.

“All fundamental factors aside, it does tremendous technical damage to the market,” Bill O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said by telephone. “There should be some effort to study this and come to some solution that will make for a more orderly trading pattern. This type of activity is not good for a fair playing field.”

Gold has lost about $47 since the session before that 1.8 million ounce-trade that many blamed on a ‘fat-finger,’ or erroneous trade. While O’Neill believes that trade may have been done in error, he said the precious metal struggled to bounce back from its low on June 26 because the transaction pushed the price below the 200-day moving average, triggering automated sell orders set by algorithmic traders, thereby sustaining the slump.

In the case of Friday’s silver plunge, the unusual increase in volatility triggered the so-called “velocity logic,” a safeguard set in place by CME Group, pausing the market for 10 seconds, spokesman Chris Grams said in an email.

“Our markets worked as designed,” Grams said. The pause allowed “liquidity to come back into the market. Per our rule book, prices were adjusted in the September and December silver futures contracts and several mini futures contracts.”

Silver futures for September delivery pared their losses to settle 3.5 percent lower at $15.425 an ounce at 1:36 p.m. in New York, after tumbling to as low as $14.34 before the CME safeguard was triggered.

In the case of gold, the CME said no such temporary halt were ordered for gold on June 26, when prices fell as much as 1.6 percent, or $19.90 an ounce.

The last time velocity logic was triggered for gold was in January 2014 at 10:14 a.m. in New York, after the metal fell more than $30 an ounce in about a minute. Prices fell as much as 2.1 percent that day, in trading of more than 8,000 contracts.

The volume surge may have already raised red flags for the Commodity Futures Trading Commission, which regulates the precious metals futures market, according to Bob Haberkorn, a senior market strategist at RJO Futures in Chicago.

“Regulators look at anything that has sudden, sharp and long moves,” George Gero, a managing director at RBC Wealth Management in New York, said. “That’s their normal job.”

CFTC Public Affairs Deputy Director Donna Faulk-White said the commission doesn’t comment on, or even acknowledge the existence of, any possible investigations.

“These so-called ‘flash crashes’ that occur periodically are frustrating to traders caught on the wrong side of the downdraft,” Jim Wyckoff, senior analyst at Kitco Metals Inc., a research company in Montreal, said in report. “It also makes many market watchers question the viability of futures markets, which are supposed to create more liquidity and better price discovery.”

We close for the week with one of London’s great mysteries finally about to get explained. How much physical gold and silver really exists in the London Bullion Market Association (LBMA) vaults. After the London banking Libor false reporting, rigging scandal, this report is awaited with intense interest, and will be gone over by global silver sleuths with a fine-tooth comb. After the US MF Global, commodity hypothecation, collapse and scandal, is an unpleasant dose of London reality about to shake gold and silver.  What if the same London bullion is hypothecated multiple times, China style?

"a company for carrying out an undertaking of great advantage, but nobody to know what it is".

The South Sea Bubble 1720

Posted on 3 Jul 2017 by Ronan Manly

How many Silver Bars are in the LBMA Vaults in London?

Sometime in the coming days, the London Bullion Market Association (LBMA) plans to begin publishing gold and silver vault holding totals covering the network of commercial precious vault operators in London that fall under its remit. This follows an announcement made by the LBMA on 8 May.

There are seven commercial vault operators (custodians) in the LBMA custodian vault network namely, HSBC, JP Morgan, Brinks, Malca Amit, ICBC Standard Bank, Loomis (formerly Viamat), and G4S. Note that ICBC Standard Bank has a vault which is operated by Brinks on behalf of ICBC Standard. It is also quite possible that some of the HSBC vaults, such as the famous GLD gold vault, are located within Brinks facilities.

Adding in the Bank of England gold vaults under the Bank of England’s head office in the City of London, the LBMA vaulting network comprises eight sets of vaults. However, the Bank of England vaults do not store silver, or at least there is no evidence that the Bank of England stores silver. However, the other 7 vault operators can and do store silver, or at least most of them do. It’s unclear whether the G4S vault stores anything on behalf of anyone, but that’s a different story.

The forthcoming LBMA vault data will represent actual physical gold and silver holdings, i.e. real tangible precious metals, as opposed to the intangible and gargantuan paper gold and paper silver trading volumes generated each day in the London precious metals markets.

The LBMA will report physical holdings data on an aggregated basis for each of gold and silver, i.e. one quantity number will be reported each month for vaulted gold, and one quantity number will be reported each month for vaulted silver. The LBMA data will be on a 3-month lagged basis. For example, if the LBMA begins reporting this data in early July (which it probably will), then the first set of data will refer to the end of March period.

The uncertainty as to when the LBMA will begin to publish its vault holdings data is purely because the LBMA has not provided a specific publication commencement date. At first, the LBMA announced that the reporting would begin “in the summer”. Subsequently, it announced that it’s vault reporting would begin in July.

As to whether the LBMA vault holdings numbers published each month will include or exclude the Bank of England gold vaults holdings is also unclear. At the end of April, the Bank of England went ahead and separately began to publish vault holdings numbers for its own gold vaults, also on a 3-month lagged basis. More information on this Bank of England initiative can be read in BullionStar blog “Bank of England releases new data on its gold vault holdings

Incidentally, the Bank of England has now updated its website (updated 30 June) with the gold holdings figure for its vaults as of the end of March, and is reporting total physical gold holdings of 163.36 million troy ounces, which equates to 5081 tonnes of gold.

When the LBMA begins to publish its numbers, it will be clear as to whether the LBMA gold number includes the Bank of England gold holdings or not, and this will probably even be specified in a footnote of the report. Excluding the Bank of England vaults (or at least the non-loaned gold in the Bank of England vaults which is not under the title of bullion banks), the remaining lion’s share of the LBMA’s gold holdings number comprises gold held by Exchange Traded Funds (ETFs) in London.

----- Although gold usually generates the most headlines, it’s important not to forget about silver, and the fact that this new LBMA reporting will also provide a monthly aggregated total for the amount of physical silver held in the LBMA vaulting network in London. The silver stored in these LBMA vaults is in the form of variable weight London Good Delivery silver bars.

The recommended weight range for a Good Delivery silver bar is between 900 troy ozs and 1100 troy ozs, however, these bars will often weigh in the region of about 1000 troy ounces each. The minimum purity of a London Good Delivery silver bars is 99.9% pure silver. For example, on the BullionStar website there is a Heraeus 0.999 silver bar weighing 947.75 troy ounces. This Heraeus silver bar is an example of a Good Delivery silver bar.

Since silver has a lower value to weight ratio than gold and is bulkier to store, silver a) takes up more room and b) can be stored in secure warehouses rather than ultra-high secure vaults that are used to store gold. This is particularly true in expensive cities such as London where it is more economical to store silver in locations with lower commercial rental values.

In the LBMA vaulting network, London Good Delivery silver bars are stored 30 bars per pallet, i.e. a formation of 10 bars stacked 3 bars high. Since each bar weighs approximately 1000 oz, each pallet will weigh about 30,000 ozs, i.e. each pallet would weigh about 1 tonne.

---- So how much of this 15,201 tonnes of ‘Custodian Vaults’ silver that is said to be in Europe is actually in London vaults? Apart from London, there would presumably also be significant physical silver holdings vaulted in Switzerland and to a lessor extent in countries such as Germany, the Netherlands and maybe Austria etc. So whats’s a suitable percentage for London? Given London’s extensive vaulting network and prominence as a hedge fund and institutional investment centre, a 40-50% share of the European ‘custodian vault’ silver holdings would not be unrealistic, with the other big percentage probably vaulted in Switzerland.
This would therefore put previously ‘Unreported’ silver holdings in the London vaults at between 6080 tonnes and 7600 tonnes (or an additional 182,000 to 230,000 Good Delivery Silver bars).

Adding this range of 6080 – 7600 tonnes to the 12,040 tonne figure that the 11 ETFs above hold, gives a total figure of 18,120 – 19,640 tonnes of silver stored in the LBMA vaults in London (545,000 – 585,000 Good Delivery silver bars).

---- Conclusion

When the LBMA finally manages to publish its first report on the silver and gold stored in the LBMA vaults in London in the coming days, we will have a clearer picture of how much physical silver is actually in these mysterious and opaque vaults.

A lower bound based on ETF holdings and BullionVault and GoldMoney holdings would be about 12600 tonnes of silver. A higher bound that also reflects ‘Custodian Vault’ holdings could be in the region of 18120 – 19640 tonnes of silver. There would probably also be some LBMA bullion bank float, which may or may not be included in ‘Custodian Vault’ figures, that could push the silver total to over 20,000 tonnes or more.

---- Hopefully with the above analysis and the upcoming aggregated LBMA silver vaulting numbers, these “credible investors” (and the hundreds of millions of other silver investors around the world) will now be less in the dark about the amount of silver in the London LBMA vaulting network, and will now have better information with which to make investment decisions when buying silver and selling silver.
More. Much, much, more.

True, governments can reduce the rate of interest in the short run, issue additional paper currency, open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression. 

Ludwig von Mises.

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