How China Cornered The Fed With Its “Worst Case” Capital Outflow Countdown

Last week, in “What China’s Treasury Liquidation Means: $1 Trillion QE In Reverse,” we took a look at the potential size of the RMB carry trade, noting that according to BofAML, the unwind could, in the worst case scenario, be somewhere on the order of $1 trillion.
Extrapolating from that and applying Citi’s take on the impact of EM reserve drawdowns on 10Y UST yields (which, incidentally, is based on “Financing US Debt: Is There Enough Money in the World – and at What Cost?“, by John Kitchen and Menzie Chinn from 2011), we noted that potentially, if China were to use its FX reserves to offset the pressure on the yuan from the unwind of the great RMB carry, the effect could be to put more than 200bps of upward pressure on the 10Y yield.
Going farther, we also said that $1 trillion in FX reserve liquidation by the PBoC would essentially negate around 60% of QE3. In other words, China’s persistent FX interventions amount to reverse QE or, as Deutsche Bank calls is “quantitative tightening.”
Now, SocGen is out with a description of China’s “impossible trinity” or “trilemma”. Here’s the critical passage:

This post was published at Zero Hedge on 08/31/2015.

Dow Futures Plunge 240 Points As Oil Drops 4% Ahead Of China PMI

Just when you thought it was safe to listen to the stability-preaching talking heads, crude futures are sliding and US equity futures are tumbling as Asia opens. Worse still XIV (VIX inverse ETF) has tumbled to fresh lows with a 24 handle in the after-hours market, suggesting more downside for stocks. With all eyes on China PMIs – though, there is little need for a weak PMI to be present for China to unleash moar measures, and a strong PMI will be scoffed at – it seems, the end-of-month rip-fest is fading fast…
Oil is sliding back..

This post was published at Zero Hedge on 08/31/2015.

Brazil Throws In Towel On Budget; Citi Compares Fiscal Outlook To “Bloody Terror Film”

Late last week, Brazil officially entered a recession as the economy contracted 1.9% in Q2, a quarter in which Brazilians suffered through the worst stagflation in over ten years.
What was perhaps worse than the GDP print however, was budget data for July which was meaningfully worse than expected. “On a 12-month trailing basis the consolidated public sector recorded a 0.9% of GDP primary deficit in July, worse than the 0.6% of GDP deficit recorded in December and, therefore, increasingly distant from the new unimpressive 0.15% of GDP surplus target,” Goldman noted.
We summed the situation up as follows: ‘No primary surplus for you!”
And while analyzing LatAm fiscal policy doesn’t make for the most exciting reading in the universe, this particular budget battle is critical for a number of reasons, the most important of which is that Brazil’s investment grade credit rating might just depend on it and to the extent the country is forced to concede that it will not, after all, hit its primary surplus target this year, junk status could be just around the corner. Needless to say, if Brazil is cut to junk, that will do exactly nothing to help the country combat a bout of extremely negative market sentiment tied to Brazil’s rather prominent role in the great emerging market unwind.
Sure enough, government sources have now confirmed that embattled President Dilma Rousseff – whose political woes are making it nearly impossible to pass legislation designed to plug gaps – will now submit a 2016 budget proposal that projects a deficit. Here’s Bloomberg:

This post was published at Zero Hedge on 08/31/2015.

Three US Citizens Sentenced For Conspiracy To Start A Revolution Using WMDs

While the US has had a surge in violence over the past several years, its defining feature was the generally chaotic and uncoordinated nature of each such – usually lethal – act.
That changed over the weekend when the FBI announced three US citizens – Brian Cannon, 37, Terry Peace, 47, and Cory Williamson, 29, – were sentenced to 12 years in prison for “conspiring to use weapons of mass destruction in attacks against federal government agencies. The defendants planned to attack critical infrastructure while motivating militia groups in other states to rise up and join them in removing government officials who they believed had exceeded their Constitutional power.”

This post was published at Zero Hedge on 08/31/2015.

If The Fed Is Always Wrong, How Can Its Policies Ever Be Right?

One of the most curiously persistent surrealisms of Washington, DC is the reflexive deference given the Federal Reserve System. The Washington elite tends to accord more infallibility to the Fed than do Catholics the Pope.
Now comes one of the world’s top monetary reporters, Ylan Q. Mui, to make a delicate observation at the Washington Post’s Wonkblog, in Why nobody believes the Federal Reserve’s forecasts. Mui:
‘The market recognizes that the Fed has repeatedly erred on the optimistic side,’ said Eric Lascelles, chief economist at RBC Global Asset Management. ‘Fool me 50 times, but not 51 times.’ Even the government’s official budget forecasters are dubious of the Fed’s own forecast.
This is a theme that Mui has touched on before. In 2013, she wrote Is the Fed’s crystal ball rose-colored?:
The big question is whether Fed officials can get it right after years in which they have regularly predicted a stronger economy than the one that materialized. In January 2011, Fed officials predicted that GDP would grow around 3.7 percent that year. It clocked in at 2 percent. In January 2012, they anticipated growth of about 2.5 percent. We ended up with 1.6 percent. To give Ms. Mui’s competition its due, Dr. Richard Rahn at the Washington Times last April crisply noted:

This post was published at Zero Hedge on 08/31/2015.

The Petrodollar Unwinding Will Decimate The Economy – Episode 754a

The following video was published by X22Report on Aug 31, 2015
Foreign investors are nervous and they are removing their investments from China. Japan factory output declines. Canada is heading into a major recession. Chicago PMI and Dallas manufacturing implode. Walmart give employees a raise then cuts hours. Retail department stores is now declining. Central banks removing their gold from the FED. The petrodollar is unwinding which will send the economy into a full blown collapse. Central bankers are now blaming this collapse on China. Obamacare Cadillac tax kicks in the year 2018.

Why America Should Be On High Alert For A Major Earthquake Along The New Madrid Fault

Did you know that a magnitude 3.5 earthquake hit the New Madrid fault about a week ago? According to Fox News, the New Madrid fault line is approximately twenty times larger than the San Andreas fault in California, and it is starting to wake up. Most people don’t realize this, but this fault zone has produced some of the largest earthquakes in U. S. history. In 1811 and 1812, immensely powerful earthquakes along the New Madrid fault rang church bells in Boston and permanently changed the course of the Mississippi River. If we had similar earthquakes today, the devastation would be unimaginable. Unfortunately for us, earthquake activity in the middle part of the country is becoming much more common. The USGS says that the number of significant earthquakes in the middle part of the country has more than quintupled in recent years, and the USGS has publicly admitted that the New Madrid fault zone has the ‘potential for larger and more powerful quakes than previously thought’. Very few Americans are talking about this right now, but as you will see below, the threat is very, very real.
According to international insurance giant Swiss Re, if the 1811 and 1812 New Madrid earthquakes were to repeat today, the losses would be in the hundreds of billions of dollars…
A series of big shakes – of the sort last seen in 1811 and 1812 – would cause about $300 billion in damage, Swiss Re says. The cost would be double the damage from Hurricane Katrina in New Orleans in 2005.
Houses – especially brick ones – would collapse. Buildings would sink sideways into liquefying earth. Bridges might tumble into the rivers. The route of the Mississippi River could change – as it did in the last big quake.
People would die, perhaps by the thousands. Being mainly a property reinsurer, Swiss Re didn’t estimate the human toll.
Could you imagine what that would do to our nation?

This post was published at End Of The American Dream on August 31st, 2015.

A Hot September for Catalonia

September will be a make-or-break month for Spain’s richest region, Catalonia. In 12 days’ time the streets of its capital, Barcelona (from where I’m writing), will once again broil with uncountable crowds of local people solemnly marking the Diada, a national day for a nation that doesn’t officially exist.
Two weeks later, on September 27, the region will hold its most important elections since Spain’s late dictator Francisco Franco passed away 40 years ago. If the pro-independence parties win a majority of seats (68 out of 135) in Catalonia’s parliament, they will unilaterally declare independence from Spain.
That’s the plan at least, although the chances are that Madrid will have something to say in the matter. And that something is unlikely to be pleasant.
Rhyming History
Once again, history is seemingly rhyming south of the Pyrenees, as divisions rise and gulfs widen – not just between pro-independence Catalans and nationalist Spaniards, but between Catalans themselves.
As in Scotland, the separatists and unionists are closely matched in terms of numbers, with roughly two million people on either side. As one side clings to the dream of independence, the other frets about splitting from the rest of Spain, not to mention the potential for economic chaos, social division, and expulsion from the European Union.

This post was published at Wolf Street by Don Quijones – August 31, 2015.

China ‘Punishes’ 197 People for ‘Spreading Rumors’ Online About Tianjin Explosion, Stock Market Crash

One hundred and ninety seven people have been punished by Chinese authorities under what Reuters has called a ‘special campaign’ to stop Chinese people from ‘spreading rumors’ online regarding the recent, yet officially still unexplained explosions in Tianjin and China’s recent stock market tumble. The accused are presumed by most media outlets reporting on this to have been detained.
At least 165 online accounts have also been forcibly closed down for’relevant violations’.
The country’s Public Security Ministry has reportedly stated ‘such behaviour needs to be wiped out’. The government claimed those detained are being punished because they, ’caused panic, misled the public and resulted in disorders in stock market or society.’
According to the statement, these people are punished for circulating rumors such as ‘man jumped to death in Beijing due to stock market slump,’ ‘at least 1,300 people were killed in Tianjin blasts’ and some seditious rumors about China’s upcoming commemorations of the 70th anniversary of the end of World War II. (source)
So not just rumors but ‘seditious rumors’.

This post was published at The Daily Sheeple on August 31st, 2015.

Why This Correction Will Likely Lead To Another Painful Bear Market

Back in May I wrote a post arguing that the record-high levels of margin debt should make investors more cautious. Basically, there is compelling evidence to suggest that margin debt is a very good indicator of long-term fear and greed in the stock market.
When margin debt is relatively high it signals that greed is predominantly driving stock prices. Conversely, when margin debt is relatively low it indicates that fear is the predominant factor. If an investor believes it’s wise to ‘be fearful when others are greedy and greedy when others are fearful,’ as Warren Buffett suggests, then it’s probably going to be hard to find a better indicator for long-term investors looking to do so.
This also makes perfect sense from an economic viewpoint. Relatively high levels of margin debt suggest there is little potential demand left for equities and plenty of potential supply to pressure prices lower. Conversely, relatively low levels of margin debt suggest there is little potential supply and plenty of potential demand to pressure prices higher. And, in fact, this is exactly how margin debt has worked its magic on stock prices over the past 20 years.
One of the most valuable ways I have found to view margin debt levels is in relation to overall economic activity. The chart below shows that when margin debt has approached 3% of GDP in the past it’s usually been a good signal that greed has gotten out of hand. Back in April this measure hit a new record.

This post was published at Wall Street Examiner by Jesse Felder ‘ August 31, 2015.

AUGUST 31/ANOTHER 73 TONNES OF GOLD DEMAND INTO CHINA/ANOTHER EXPLOSION IN CHINA’S SHANDONG PROVINCE/GRENADE RIPS INTO UKRAINIAN PARLIAMENT IN KIEV/DALLAS MFG FED INDEX CRASHES INTO NEGATIVE TERR…

Good evening Ladies and Gentlemen:
Here are the following closes for gold and silver today:
Gold: $1131.60 down $1.50 (comex closing time)
Silver $14.57 up 3 cents.
In the access market 5:15 pm
Gold $1135.00
Silver: $14.63
Here is the schedule for options expiry:
LBMA: options expire Monday, August 31.2015:
OTC contracts: Monday August 31.2015:
First, here is an outline of what will be discussed tonight:
I reported to you late Friday night, that an additional 58 contracts of gold were served upon. There has been no additional filings.
At the gold comex today on first day notice, we had a poor delivery day, registering only 4 notices for 400 ounces Silver saw 167 notices for 835,000 oz.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 224.60 tonnes for a loss of 78 tonnes over that period.
In silver, the open interest fell by 5161 contracts despite the fact that silver was up in price by 12 cents on Friday. Again, our banker friends used the opportunity to cover as many silver shorts as they could. The total silver OI now rests at 158,436 contracts In ounces, the OI is still represented by .819 billion oz or 117% of annual global silver production (ex Russia ex China).
In silver we had 167 notices served upon for 835,000 oz.
In gold, the total comex gold OI collapsed to 413,158 for a loss of 2479 contracts. We had 4 notices filed on first day notice for 400 oz today.
We had no change in tonnage at the GLD today/ thus the inventory rests tonight at 682.59 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex. In silver, we had a huge addition of 954,000 in silver inventory at the SLV tune of / Inventory rests at 325.922 million oz.
We have a few important stories to bring to your attention today…

This post was published at Harvey Organ Blog on August 31, 2015.

Say Goodbye To Normal – We’re Going Medieval

The tremors rattling markets are not exactly what they seem to be. A meme prevails that these movements represent a kind of financial peristalsis – regular wavelike workings of eternal progress toward an epic more of everything, especially profits! You can forget the supposedly ‘normal’ cycles of the techno-industrial arrangement, which means, in particular, the business cycle of the standard economics textbooks. Those cycle are dying.
They’re dying because there really are Limits to Growth and we are now solidly in grips of those limits. Only we can’t recognize the way it is expressing itself, especially in political terms. What’s afoot is a not ‘recession’ but a permanent contraction of what has been normal for a little over two hundred years. There is not going to be more of everything, especially profits, and the stock buyback orgy that has animated the corporate executive suites will be recognized shortly for what it is: an assest-stripping operation.
What’s happening now is a permanent contraction. Well, of course, nothing lasts forever, and the contraction is one phase of a greater transition. The cornucopians and techno-narcissists would like to think that we are transitioning into an even more lavish era of techno-wonderama – life in a padded recliner tapping on a tablet for everything! I don’t think so. Rather, we’re going medieval, and we’re doing it the hard way because there’s just not enough to go around and the swollen populations of the world are going to be fighting over what’s left.

This post was published at Zero Hedge on 08/31/2015.

Witch Hunt Victim “Confesses”: Word Police in China vs. Word Police in US

Witch Hunt Review
As I noted earlier today China Starts Witch Hunt for Those Obstructing Government Efforts to Prop Up Stocks.
Public Confession
It took less than a day for the a victim of the witch hunt to be rounded up for public display. The Financial Times reports China Reporter Confesses to Stoking Market ‘Panic and Disorder’.
A leading journalist at one of China’s top financial publications has admitted to causing ‘panic and disorder’ in the stock market, in a public confession carried on state television.
The detention of Wang Xiaolu, a reporter for Caijing magazine, comes amid a broad crackdown on the role of the media in the slump in China’s stock market, which is down about 40 per cent from its June 12 peak. Nearly 200 people have been punished for online rumour-mongering, state news agency Xinhua reported at the weekend.
‘I shouldn’t have released a report with a major negative impact on the market at such a sensitive time. I shouldn’t do that just to catch attention which has caused the country and its investors such a big loss. I regret’.’.’.'[it and am] willing to confess my crime,’ [said Xiaolu] When the market turmoil began in June, Beijing imposed restrictions on media reporting of the stock market. The independent China Digital Times, which monitors internet censorship in the country, said in June media were told to avoid stoking panic.
‘Do not conduct in-depth analysis, and do not speculate on or assess the direction of the market,’ it reported an official directive as saying. ‘Do not exaggerate panic or sadness. Do not use emotionally charged words such as ‘slump’, ‘spike’ or ‘collapse’.’

This post was published at Global Economic Analysis on AUGUST 31, 2015.

Gold Daily and Silver Weekly Charts – Charts Undecided – Goldman Takes A Little More

We say goodbye to August, and the active month for gold at The Bucket Shop, and welcome the first stirrings of September, which promises to be much more interesting for silver.
Prices were heavy for the metals most of the day, with silver showing a little more perkiness, but gold doggedly hanging on to close for a slight gain.
We have an interesting, if yet undecided, chart formation on the daily gold chart in a potential cup and handle formation that, if activated and confirmed, will target a minimum objective of around $1,255 and even a likely test of the big prior support from the trading range at $1,270.
To put this potential formation to ‘work’ gold must continue to hold its successful retest of 1120 on the ‘handle,’ and move to take and break the top of the cup at 1170. This is no mean feat, since gold is being pressed upon so heavily by the meddlers in the FOREX crosses. Despite the propaganda, it most certainly is a currency of the world.
Silver is just coming into its own and September will most likely to provide some fireworks for the beta rocket, depending on which way the black swans start coming home to roost. We have already seen the first deliveries taken for September, as noted on the clearing report below, of about 835,000 ounces.
I keep hearing stories of retail shortages and premiums that are certainly interesting. I will be more interested if we start seeing some pressures at the wholesale level.
Gold went out quietly, with Goldman stopping another 49 August contracts for their ‘house account.’

This post was published at Jesses Crossroads Cafe on 31 AUGUST 2015.

5 Trends That Are Shredding the Global Economy

The next period of risk-off will last a lot longer than a few months.
When stock markets free-fall 10 % in a matter of days, it’s natural to seek some answers to the question why now?
Some are saying it was all the result of high-frequency trading (HFT), while others point to China’s modest devaluation of its currency the renminbi (a.k.a. yuan) as the trigger.
Trying to finger the proximate cause of the mini-crash is an interesting parlor game, but does it really help us identify the trends that will shape markets going forward?
We might do better to look for trends that will eventually drag markets up or down, regardless of HFT, currency revaluations, etc.
Five Interconnected Trends At the risk of stating the obvious, let’s list the major trends that are already visible.
The China Story is Over
And I don’t mean the high growth forever fantasy tale, I mean the entire China narrative is over:

This post was published at Charles Hugh Smith on AUGUST 31, 2015.