Tuesday, August 25, 2015

Today's Links

Monday: Dow closes down 588
"...the end of the low volatility period leads to a strong and sudden crash in prices."  Constantin Gurdgiev,  "Great Moderation or Great Delusion

1--Commodity Meltdown to 16-Year Low Pauses as Bears Take Breather

Flush from a collapse in everything from oil to aluminum to cotton, commodity bears are taking a break.
A measure of returns from 22 raw materials edged higher after tumbling to the lowest level since 1999 on Monday on concern a slowing Chinese economy will exacerbate supply gluts. Shares in miners and explorers outside China including Glencore Plc, Fortescue Metals Group Ltd. and BP Plc recouped some losses after a selloff that wiped $2.7 trillion from global equity markets.

Raw materials have plunged as supplies outstrip demand amid forecasts for the slowest Chinese growth since 1990. The largest user of energy, grains and metals was much weaker than anyone expected in the first half of the year, according to Ivan Glasenberg, head of Glencore, the world’s leading commodity trader.
Oil futures gained as much as 2.4 percent in New York, paring losses after a 5.5 percent drop on Monday. Brent, which tumbled below $45 a barrel for the first time in six years, was 2.1 percent higher. Copper rose as much as 1 percent and aluminum increased 1.6 percent, both advancing from the lowest close since 2009 on Monday.

2--Larry  Summers: See substantial risks of significant instability

3-Adult in the room---Biggest trading day ever and 10-year only dips 2 basis points while 30-year gains two basis points

Market volatility leaves bonds twisting in the wind
Ten-year Treasury note yields touched a session low of 1.90 percent, breaching the 2 percent level for the first time since April, but the security recouped most of those losses. It was last down about 2 basis points at 2.02 percent
US 10-YR2.0644
US 30-YR2.7884

The yield on 30-year Treasury bonds erased earlier losses to trade up slightly at 2.735 percent, while the yields of all other the maturities were in the red. (yield on 30 year only moved 3 basis pts

4--QE 4?  "Yeah, we could try that again, so we can go thru withdrawal again. Doesn't make much sense?" Santelli rant
QE creates mismatch between fundamentals of the economy and the price levels in the equities markets.
We will be able to calibrate the true value of stocks when the Fed comes up with the true value of interest rates and we'll get the true value of stocks.

10- year and 30 year only moved 2 basis points each..."even though the debate has been raging for years about which market is right (stocks or bond markets). Well, we know what market is right now.
Treasuries have handicapped the long-end to global growth, and the reason the moves aren't bigger is because everyone else is catching up to the reality Treasuries have been pricing all along."
What about "Can't raise rates now."
Of course they can. Does anyone want to go through this drip-drip-drip  again?
The markets are making an adjustment. Janet Yellen, let the markets do it. Don't put the markets thru it again."

5--Banks take a drubbing

What no one seems to be talking about is the serious drubbing the shares of the too-big-to-fail Wall Street banks took on Thursday and Friday of last week. That’s not something that should be swept under the rug when markets are behaving like the early days of the last financial crisis in 2008 — which saw the largest Wall Street bank bailouts in history.
While the stock losses of the largest Wall Street banks were manageable last Thursday, they picked up steam on Friday. What was particularly surprising was that JPMorgan’s losses were on a par with those of Citigroup, with Citigroup shares losing 6.06 percent in the two day period while JPMorgan was off by 6.01 percent. Bank of America, which owns the giant Wall Street stock brokerage firm, Merrill Lynch, lost 7.95 percent in the two-day span.

6--U.S. stocks end harrowing session with biggest drop in 4 years

7--JPMorgan Sheds $27.18 Billion in Market Cap in Three Trading Sessions

8--Home prices rose 4.97% YoY in June, according to Case-Shiller's 20-City index, missing expectations for the 3rd month in a row. Price appreciation has now been flat for 5 months - despite surging home sales - as bubblicious San Francisco saw price depreciation once again. Portland amd Denver saw the most appreciation in June. This is the second month in a row of sequential seasonally-adjusted declines in home prices, and along with TOL's dismal report this morning, suggests maybe another pillar of the 'strong' US economy meme is being kicked out... and Case-Shiller warn more than one rate hike by The Fed (or a stock market plunge) will stymie housing considerably.

9--U.S. Credit Traders Send Warning Signal to Rest of World Markets

10--Stock are so volatile that they’ve short-circuited the CBOE Volatility Index.

 A CBOE spokesman said VIX, commonly known as the stock market’s fear gauge, experienced quoting problems because of the whippiness of Standard & Poor’s 500 Index prices.
The VIX is derived from the midpoint of various S&P 500 options, and the exchange claims those midpoints were tough to determine at the open.
VIX initially spiked above 50, and is now around 46.76. At these levels, VIX is pricing a global economic depression
Volatility Short-Circuits VIX

11--Dick Bove "Liquid markets, no more!"

At its base, the key problem is that the historic protections that once existed in the markets to prevent massive downslides have been removed," he said. "This country's claim that it has deep and liquid markets is being put to the test."

12---Printing money creates inflation. Asset inflation.
"It seems to me the really pernicious inflation of this cycle has been the systematic comprehensive mispricing of asset prices," Grant said

13--Fed looks ready to make mistake

Tightening policy will adversely affect employment levels because higher interest rates make holding on to cash more attractive than investing it. Higher interest rates will also increase the value of the dollar, making US producers less competitive and pressuring the economies of our trading partners.
This is especially troubling at a time of rising inequality. Studies of periods of tight labour markets like the late 1990s and 1960s make it clear that the best social programme for disadvantaged workers is an economy where employers are struggling to fill vacancies.

Summers peddles bullshit secular stagnation theory to perpetuate cash giveaway to billionaires
Much more plausible is the view that, for reasons rooted in technological and demographic change and reinforced by greater regulation of the financial sector, the global economy has difficulty generating demand for all that can be produced. This is the “secular stagnation” diagnosis, or the very similar idea that Ben Bernanke, former Fed chairman, has urged of a “savings glut”. Satisfactory growth, if it can be achieved, requires very low interest rates that historically we have only seen during economic crises. This is why long term bond markets are telling us that real interest rates are expected to be close to zero in the industrialised world over the next decade.

14---More warmongering: New U.S. Security Strategy Doesn’t Go Far Enough on South China Sea

The publication documents that Chinese island building in the SCS has added 2,900 acres of artificial land, dwarfing Vietnam’s 80, Malaysia’s 70, the Philippines’ 14, and Taiwan’s 8. China has built 17 times more artificial island area in 20 months than rival claimants combined over the past 40 years. It has generated 95% of all artificial land in the Spratlys. The Pentagon rightly emphasizes that all sovereignty claims must be based on natural land features, and calls out all parties making excessive claims.
Reassuringly, the report documents tangible American commitment to the region. As part of home-porting 60% of its naval and overseas air assets to the Pacific by 2020, the U.S. is upgrading its forward-deployed carrier; home-porting its three newest stealth destroyers; and deploying its newest air operations-oriented amphibious assault ship, two additional Aegis-capable destroyers, an additional attack submarine, and manifold advanced aircraft. It is funding wide-ranging weapons modernization, with—at long last—increased focus on missile

-15---Investors have pulled near $1 trillion from emerging markets

"The collapse in emerging market imports reflects a more fundamental drop in demand as capital outflows have forced domestic demand to shrink and lower commodity prices have eroded incomes in commodity-producing countries," said Neil Shearing of Capital Economics. "So far, there is little sign that we have reached the bottom."
Emerging market currencies again came under strain on Tuesday as traders judged that China's devaluation of the renminbi this month had removed a rare anchor of currency market stability. In addition, 6.1 percent and 6.6 percent falls in the main indices of the Shanghai and Shenzhen stock markets respectively undermined confidence in Beijing's ability to reinvigorate economic growth.

16--China stock market panic shows what happens when stimulants wear off

On the day that QE was launched in the UK, 9 March 2009, the FTSE 100 stood at 3542 points. Its recent peak on 27 April this year was 7103 points, a gain of 100.5%. There is a similar correlation between the three rounds of QE in the US and the performance of the S&P 500, which was up more than 200% during the same period.

17--China: This was the fastest growth in credit in any country, EVER,  Steven Keen

18--Pritchard, China

As I noted in last week’s post “Is This The Great Crash Of China?”, the previous crash of China’s stock market in 2007 lacked the two essential pre-requisites for a genuine crisis: private debt was only about 100% of GDP, and it had been relatively constant for the previous decade. This bust however is the real deal, because unlike the 2007-08 crash, the essential ingredients of excessive private debt and excessive growth in that debt are well and truly in place.
China’s resilience against credit crises came to an end in 2009, when in a response to government directives, Chinese banks began lending to anyone with a pulse. As Figure 3 in last week’s post showed (reproduced below as Figure 3 below), the growth in private debt rocketed from 17% per year at the beginning of 2009 (versus nominal GDP growth of 8% at the same time) to 37% per year by the beginning of 2010 (nominal GDP growth peaked six months later at 20% per year). By the beginning of this year, private debt had hit 180% of GDP and had grown by over 80% of GDP in the previous seven years.

This was the fastest growth in credit in any country, EVER. It dwarfs both Japan’s Bubble Economy and the USA’s combination of the DotCom and Subprime Bubbles. China’s bubble drove private debt up by as much in 5 years as Japan managed in over 17 years, and more than the USA’s debt rose in the entire Clinton-Bush debt bubble from 1993 until 2010

18--It turned into a global rout after the Shanghai composite index crashed 8.5pc on China’s “Black Monday”, pulverizing its July lows after the central bank (PBOC) - oddly passive - refused to come to the rescue as expected with a cut in the reserve requirement ratio for banks.
Beijing’s botched efforts to prop up the country’s stock markets have collapsed. An estimated $300bn of state-orchestrated buying achieved nothing, overwhelmed by an avalanche of selling by investors forced to cover margin debt. ...

Spending contracted 19.9pc in January as local government reform went horribly wrong. It did not recover fully until May and June, when the new bond market took off. The fiscal stimulus will feed through over the next six months. ...

China is burning through foreign reserves at a blistering pace to stabilize the yuan and offset capital flight estimated at $35bn a week. This is automatically tightening monetary policy, squeezing liquidity, and risks holding back the very recovery in China needed to quell doubts.

19--PPT at large?? Forbes

It sure looks like the U.S. plunge protection team is out in full force this morning.
Our indices are off the lows made from the open and a lot of stocks that were down to absolutely ridiculous levels have also bounced back and some are even trying to go green amidst the carnage.
U.S. Plunge Protection Team Out In Force This Morning, Forbes

20--Paul Craig Roberts

"....we learned that the central bank of Switzerland, the Swiss National Bank, purchased 3,300,000 shares of Apple stock in the first quarter of this year, adding 500,000 shares in the second quarter. Smart money would have been selling, not buying. It turns out that the Swiss central bank, in addition to its Apple stock, holds very large equity positions, ranging from $250,000,000 to $637,000,000, in numerous US corporations — Exxon Mobil, Microsoft, Google, Johnson & Johnson, General Electric, Procter & Gamble, Verizon, AT&T, Pfizer, Chevron, Merck, Facebook, Pepsico, Coca Cola, Disney, Valeant, IBM, Gilead, Amazon.

Among this list of the Swiss central bank’s holdings are stocks which are responsible for more than 100% of the year-to-date rise in the S&P 500 prior to the latest sell-off." ("Central Banks Have Become a Corrupting Force" Counterpunch

 21--Foreign central banks are being used to conceal flagging sales of US Treasuries which prop up the critically-ill US dollar. Check it out:

From November 2013 through January 2014 Belgium with a GDP of $480 billion purchased $141.2 billion of US Treasury bonds. Somehow Belgium came up with enough money to allocate during a 3-month period 29 percent of its annual GDP to the purchase of US Treasury bonds.
Certainly Belgium did not have a budget surplus of $141.2 billion. Was Belgium running a trade surplus during a 3-month period equal to 29 percent of Belgium GDP?
No, Belgium’s trade and current accounts are in deficit.

Did Belgium’s central bank print $141.2 billion worth of euros in order to make the purchase?
No, Belgium is a member of the euro system, and its central bank cannot increase the money supply.
So where did the $141.2 billion come from?

There is only one source. The money came from the US Federal Reserve, and the purchase was laundered through Belgium in order to hide the fact that actual Federal Reserve bond purchases during November 2013 through January 2014 were $112 billion per month."
("The Fed Is The Great Deceiver", Paul Craig Roberts and Dave Kranzler

22--Petrodollars leave world markets for first time in 18 years - BNP
Petrodollar recycling peaked at $511 billion in 2006, BNP said.
"At its peak, about $500 billion a year was being recycled back into financial markets. This will be the first year in a long time that energy exporters will be sucking capital out," said David Spegel, global head of emerging market sovereign and corporate Research at BNP.
In other words, oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer.

23---China dumping Treasuries? Russell Napier titled "The Great Reset - Act II", in which the former CLSA strategist, asks a simple question:
"how US Treasury bulls in the private sector would react if they knew in advance that the second largest owner of Treasuries, the PBOC, was a forced seller of Treasuries. Such compelled selling would be obvious before US markets opened each morning as downward pressure on the RMB exchange rate in Asia forced the PBOC to liquidate foreign currency assets to defend the fixed exchange rate. Would even Treasury bulls stand in the way of such a large and predictable liquidation? If they didn’t then the second phase of The Great Reset would come to pass and the decline of EM external deficits would force tighter monetary policy in both EM and DM."
24---China's Record Dumping Of US Treasuries Leaves Goldman Speechless
We then put China's change in FX reserves alongside the total Treasury holdings of China and its "anonymous" offshore Treasury dealer Euroclear (aka "Belgium") as released by TIC, and found that the dramatic relationship which we first discovered back in May, has persisted - namely virtually the entire delta in Chinese FX reserves come via China's US Treasury holdings. As in they are being aggressively sold, to the tune of $107 billion in Treasury sales so far in 2015.

We explained all of his on Friday in "China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium", and frankly we have been surprised that this extremely important topic has not gotten broader attention.

25--China dumping Treasuries FX

21--China Slashes U.S. Debt Stake by $180 Billion, Bonds Shrug

22--Slower US bond demand may urge Fed rethink

China’s Treasury buying is likely to ease, forcing rates higher 

23--China's holdings of US Treasuries continues to rise
Updated:2015-08-18 10:10
WASHINGTON -- China's holdings of US Treasury securities rose for the fourth month in June, while Japan had kept cutting its holdings to the lowest level since 2013. China's holdings of the treasuries rose about $900 million to $1.271 trillion in June, the latest data from the Treasury Department showed Monday. China has increased its US treasuries holdings for four months in a row and remained the largest holder of US government debt. Japan, which overtook China as the biggest foreign holder in February but fell back to the second place in March, cut its holdings by $17.8 billion to $1.197 trillion in June, the lowest since 2013. Japan's holdings have been falling for three consecutive months. In June, overall foreign holdings of US Treasury securities rebounded to $6.175 trillion after falling for two months. ...

24--China selling treasury bonds for 40 bln yuan
Updated:2015-08-06 14:05
The Chinese Ministry of Financewill sell two batches of treasury bonds for a total of 40 billionyuan (about 6.5 billion U.S. dollars) in August, it announcedWednesday.One batch is worth 20 billion yuanat an annual coupon rate of 4.5 percent with a maturity of threeyears, while the other is worth 20 billion yuan at an annual couponrate of 4.87 percent with a maturity of five years.These bonds will be sold from Aug.10 to 19 to individuals only.

25--Mike Norman on USTs

Bloomberg and other financial media outlets are running a story about how China sold $180 billion in Treasuries and the market did nothing.

Why are we not surprised?

It seems that Bloomberg and the rest of the financial media mental midgets are still clueless. They still believe, I guess, that China sets rates in the U.S. or, that dollars come from anywhere else, but the U.S. government.

We have long said here in Mike Norman Economics that the worries over China selling our Treasuries or, any other entity selling Treasuries is meaningless because, a) there will always be demand for Treasuries when the Federal Gov't is spending $11 trillion per year (Gross "withdrawals" as per the Treasury's end of the Fiscal Year statement), which equates to vast amounts of resrves piling up in the bankiing system. And, b) when reserves pay nothing and Treasuries pay something.

26--As global selloff deepens, US stock market teeters on edge of collapse

There can be little doubt that the Federal Reserve Board and related government agencies intervened behind the scenes to organize the massive buying spree that halted the opening market plunge. Reports emerged later that the New York Stock Exchange had invoked an obscure and rarely used rule to preempt panic selling. Rule 48 speeds up the opening of trading by suspending a requirement that stock prices be announced at the beginning of the session. This may have been used to facilitate an intervention by the Fed.

Given the role of the Fed in financing the tripling of stock prices since the 2008-2009 crash by holding interest rates at near-zero and pumping trillions of dollars into the financial markets, such an intervention to once again rescue the financial elite would not be an aberration. The entire policy of the Fed and other major central banks and governments since the eruption of the crisis seven years ago has been focused on engineering a vast redistribution of wealth from the working class to the corporate-financial elite through a combination of austerity and record high stock prices.

The unprecedented bull market has been the main mechanism for further enriching the world’s multimillionaires and billionaires, even as the real economy was starved of productive investment and remained mired in stagnation. The current stock market panic reflects the growth of deflationary pressures in the global economy that are overpowering the efforts to inflate and maintain financial bubbles for the benefit of the rich and the super-rich....

A former adviser to ex-British Prime Minister Gordon Brown was more apocalyptic. Damian McBride tweeted advice on “the looming crash,” stressing the need to put “hard cash in a safe place” and not assume that banks will be open. Suggesting the eruption of civil strife and state repression, he counseled the need to stock up on “bottled water, tinned goods & other essentials at home to live a month indoors.”

27--Turkey on the brink of something very ugly indeed, Amanda paul


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