Monetary Lunacy: The ECB Could End Up Funding Bayer’s Purchase Of Monsanto

One month ago, we were surprised to report that the junk bond issued by French telecom company Numericable would, after its 100% upsizing, become the largest high yield bond on record. As we explained this was a direct consequence of the unprecedented intervention by the ECB in the European bond market unveiled one month prior, which courtesy of Mario Draghi’s backstop to all non-financial corporate bond issuance, had made a virtual certainty that the European bond corporate market was the next bubble as there was effectively no longer any risk in holding not only investment grade, but also junk paper, now that starved for yield investors would flood into anything that carried even a modest yield premium.
Today we find an even more striking example of just how broken the global bond market has become thanks to the ECB because as Reuters writes, Bayer could receive financing from none other than the European Central Bank to help fund its takeover of the world’s largest seed company, US-based Monsanto, according to the terms of the ECB’s bond-buying program.
As reported yesterday, Monsanto turned down Bayer’s $62 billion bid on Tuesday, but said it was open to further negotiations. Bayer, which many were surprised by its eagerness to pursue a quasi-hostile offer, promptly agreed to get more actively involved in the negotiation process. Now we know why: the cost of debt would be funded by none other than the European Central Bank.

This post was published at Zero Hedge on 05/25/2016.

Cuddling and Egg McMuffins Show Economic Slowdown Underway

What do escorts and McDonald’s have in common? Both are responding to the end of economic growth, says Andrew Zatlin of Moneyball Economics.
When times get tough and people are less willing to part with their money, businesses get creative. Zatlin tracks consumer spending and business trends not just in food and dining, but also on economically-sensitive vices – alcohol, gambling, escorts, and the like – and says a pattern is emerging: ‘organic business growth has stopped and new approaches are needed,’ he writes.
In this case, after seeing sales decline for multiple quarters, fast-food giant McDonald’s decided to reach out to new customers by launching an all-day breakfast menu, which generally sells at lower prices than non-breakfast food items.
Like any other business facing a protracted decline in sales, escorts have taken a similar approach by expanding their menu to a larger array of discount items – in this case, by offering “professional cudding.”
It’s all about packaging and positioning, says Zatlin. Organic growth just isn’t there anymore so businesses across the board are resorting to new marketing fads, discounts, extra services, or whatever they need to do in order to maintain revenues, which are increasingly coming under pressure.
Here’s what Zatlin told Financial Sense in a recent podcast:

This post was published at FinancialSense on 05/25/2016.

The Billionaires Are Wrong on Gold

Recently the mainstream media has reported that several billionaires are concerned about global financial markets and have purchased significant amounts of gold to protect their portfolios.
Take Stan Druckenmiller, the famed hedge fund manager who managed money for George Soros as the lead portfolio manager for Quantum Fund. He and Soros famously ‘broke the Bank of England’ when they shorted the British pound sterling in 1992, reputedly making more than $1 billion in profits. He has reportedly used over $323 million of his own money to invest in gold. This is approximately a 30% allocation in his $1-billion family fund. His belief in gold can be attributed to his criticism of the Federal Reserve’s massive money printing and near-zero interest rates. Ongoing low rates will drive both central banks and investors into gold.
Then there’s John Paulson, the CEO of Paulson & Co., which manages over $18 billion in assets invested in credits default swaps. The company has made about $15 billion in profits by betting against subprime mortgages. In 2015 Paulson invested about $900 million in gold at close to what now appears to have been the bottom of the three-year correction. He believes gold has a place in portfolios as insurance against the unexpected. ‘We view gold as a currency, not a commodity,’ Paulson said recently. ‘Its importance as a currency will continue to increase as the major central banks around the world continue to print money.’
Typically the billionaires are ahead of the curve, making their investments before the market recognizes the trend, and increasing their wealth while everyone else wonders what happened. High net worth individuals and other savvy investors realize that owning gold is one of the best ways to manage systemic risk. However, in this case both Druckenmiller and Paulson have the right idea but the wrong execution. Instead of acquiring physical bullion stored on an allocated basis, these billionaires chose proxies of gold in the form of ETFs. Their investments in ETFs may ultimately negate the very reason for investing in gold in the first place. Only physical gold provides true diversification outside of the financial system. Physical gold is immune from counterparty risk or liquidity constraints. Investing in gold proxies may work under normal conditions for short-term trades and hedging strategies, but will be subject to the same systemic risks that financial assets will incur. The time when you need the protection of gold the most is the time when these proxies are most likely to fail and not provide the portfolio protection of bullion owned directly.

This post was published at GoldSeek on 25 May 2016.

France Goes Dark? Staff In 19 French Nuclear Power Plants To Go On Strike Tomorrow

Following strikes over the unpopular French labor reform, that started over the weekend and crippled the French refining industry leading to gasoline shortages and rationing, things are about to get far more serious for the country whose economy has already been threatened with a sharp slowdown as a result of a relentless wave of labor unrest. According to Reuters, staff in France’s 19 nuclear plants – which by definition we assume is essential – have voted to go on strike on Thursday as part of protests over a labour reform, according to a CGT union official.
While industry experts say planned strikes are unlikely to provoke blackouts because of legal limits on strike action in the nuclear industry and France’s ability to import power from neighbouring countries, it would not be at all surprising to see the opposite outcome.

This post was published at Zero Hedge on 05/25/2016.

Confirmed, The Entire Economic System Is One Big Manipulation – Episode 980a

The following video was published by X22Report on May 25, 2016
Europe unemployment is manipulated just like the US. The private central bank countries are all manipulating the data. More young Americans live with their parents than at any time since the great depression. Layoffs continue, major corporation are continually laying off employees. Tiffany sales decline and the retail apocalypse continues. Service sector tumbles. Baltic Dry Index declines. State tax revenue declines showing that the quality and the number of jobs have declined dramatically.

All Dressed Up with Nowhere to Go

In difficult times, fashion is alwaysoutrageous
– Elsa Shiaparelli
Trenched for severe weather, we’ve all donned the thick wooly coat at times. Oversized and tailored for the apocalypse, bear fur goes on easy – it’s taking it off that’s the hard part. With more than seven years of daylight from the throes of the financial crisis, past traumas still haunt perceptions, through scars both phantom and felt.
‘The economy will surely be swept away by a tidal wave of corporate default’ – Albert Edwards
Fool me once shame on you, fool me three times, well – that’s a trend. Despite the incessant clarion calls from the deflationist’s camp that the waters are once again lapping at the levees, we see a more pragmatic outcome developing, one that turns the capital tide from our shores to theirs, on the back of a weaker US dollar and rising inflation expectations. ‘Theirs’ – referring to those economies hardest hit over the past several years as the dollar became motivated by the apparent policy differential as the Fed slowly crept towards normalizing policy from their then leading crisis stance during the financial crisis. And while the hand wringing of a strong dollar has begun in earnest again as the Fed postures their next move, we continue to believe that the buck’s ship has sailed and is running downwind from its cycle high last year.
Jesting aside, these remain difficult times to navigate for investors and we understand why many believe that the table is set for another global crisis. Should the US dollar rekindle lasting momentum to the upside, we just might agree. But what we speculate they miss is the silver lining in greater market disequilibriums across the world in the wake of the financial crisis, that should help buttress growth and inflation expectations going forward as the US dollar comes off a cyclical high. While global growth certainly won’t benefit as robustly from the harmonic expansions of yesteryear, the collective capacity to turn down is mitigated as well, as we trudge across the transitional divide (see Here) to the next secular growth cycle.

This post was published at GoldSeek on 25 May 2016.

A Non-Random Straight-Line Walk Up Wall Street

Malkiel would be shocked…

As we noted previously, one of the bedrock notions in modern finance is the ‘Random Walk Hypothesis’, which essentially says that every day is a new one. Markets are like Buddhist monks in this paradigm, waking up with nothing and taking their begging bowl into the streets to see what fate brings. If markets are up 5 days in a row, the sixth day may be up or down in line with long term trends. And long term here means the life span of a Galapagos Island tortoise.

This post was published at Zero Hedge on 05/25/2016.

MAY 25/CHINA AGAIN DEVALUES AND THUS FIRES A WARNING SHOT TO THE USA NOT TO RAISE RATES/OIL IS LOADING UP ON CHINESE SOIL DUE TO DEALS THEY MADE WITH POORER OPEC MEMBERS/THE IMF WILL NOT PARTICIP…

Good evening Ladies and Gentlemen:
Gold: $1,223.50 DOWN $5.40 (comex closing time)
Silver 16.26 UP 2 cents
In the access market 5:15 pm
Gold $1224.15
silver: 16.32
i) the May gold contract is a non active contract. Yet we started the month with 5.67 tonnes of gold standing and it has increased every single day and today sits at 6.886 tonnes of gold standing:
The amount standing for gold at the comex in May is simply outstanding at 6.886 tonnes. The previous May 2015, we had only .08 tonnes standing so you can certainly witness the difference as the demand for gold by investors/sovereigns is on a torrid pace. This makes the excitement for June gold that much more intense as more players are refusing fiat and demanding only physical metal. I will be reporting daily as to how which is standing for delivery through the active month of June. June is the second largest delivery month after December.
Despite the whacking of silver, it’s OI refused to decline like gold. Our bankers and the CFTC are ‘quite baffled’ by this. We are now in our 6th year of high open interest in silver with a low price. This has never happened before.
If I am a betting man, it looks to me like China is the long taking delivery in gold and they are the longs waiting patiently to strike in silver.
Let us have a look at the data for today.
At the gold comex today we had a GOOD delivery day, registering 53 notices for 5300 ounces for gold, and for silver we had 5 notices for 25,000 oz for the non active May delivery month.
Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 249.98 tonnes for a loss of 53 tonnes over that period.
In silver, the open interest ROSE by 101 contracts UP to 203,682 DESPITE THE FACT THAT THE PRICE OF SILVER WAS DOWN by 17 cents with respect to YESTERDAY’S trading.. In ounces, the OI is still represented by just over 1 BILLION oz i.e. .1.018 BILLION TO BE EXACT or 145% of annual global silver production (ex Russia &ex China)
In silver we had 5 notices served upon for 25,000 oz.
In gold, the total comex gold OI fell by a CONSIDERABLE 8,603 contracts DOWN to 542,958 as the price of gold was DOWN $22.90 with yesterday’s trading(at comex closing). They certainly got the liquidation in gold but not silver.
We had no change in gold inventory at the GLD The inventory rests at 868.66 tonnes. .
We had no change in silver inventory at the SLV/Inventory rests at 335.739 million oz.
First, here is an outline of what will be discussed tonight:

This post was published at Harvey Organ Blog on May 25, 2016.

Expert Warns Of Venezuela-style Hyperinflation: ‘This Will Not End Well For The United States’

Though completely outside the realm of possibility for an entertained, well fed, and oblivious American public dependent on ever-growing debt to make ends meet, there are serious economic, financial and monetary headwinds set to flip the entire system upside down. If there’s one thing we can learn from the collapse of monetary systems in Zimbabwe, Argentina, and most recently Venezuela, it’s that printing money only works until you lose the confidence of your creditors and the public at large, at which point the whole thing detonates with such velocity and speed that millions are left scrounging for even the most basic of necessities.
According to K92 Mining President Bryan Slusarchuk, this is exactly the kind of scenario Americans should be concerned with because central banks and governments around the world have not only printed obscene sums of money to keep the system afloat, but used even more worthless foreign currency reserves to further prop up their own. As Slusarchuk notes, there is absolutely nothing of real value backing any of it, which spells disaster for Western nations:
Western nations have central bankers colluding together trying to prop up eachother’s reserve with equally worthless foreign currency reserves that are fiat-based paper. Unfortunately, I just don’t think this ends well for Western countries like the United States and Canada who have lost sight of this…

This post was published at shtfplan on May 24th, 2016.

Why Cheap Shale Gas Will End Soon

Enthusiasts believe that shale gas is simultaneously cheap, abundant and profitable thus defying all rules of business and economics. That is magical thinking.
The recently released EIA Annual Energy Outlook 2016 sparkles with pixie dust as it forecasts almost unlimited gas supply at low prices out to 2040 and beyond. Exuberant press reports herald a new era of LNG exports that will change the geopolitical balance of the world and make America great again.
But U. S. shale gas production is declining because of low prices and shale gas companies are in deep financial trouble because in the real world, price and cost matter.
That is not magical.
First Quarter 2016 Financial Performance
The financial performance of shale gas-weighted E&P companies in the first quarter of 2016 was a disaster.
Chesapeake Energy, the biggest shale gas producer in the world, had negative cash from operations. That means that oil and gas sales didn’t even cover operating costs much less capital expenditures like drilling and completion.
Other shale gas-weighted companies including Anadarko, Comstock and Petroquest also had negative cash from operations. Goodrich and Sandridge are in bankruptcy and Exco and Halcon will soon follow. Ultra, Forest, Quicksilver, Swift and Talisman were lost in action last year.

This post was published at Zero Hedge on 05/25/2016.

Jim Rickards: If the Fed Does Raise Rates, Look Out Below (Video)

A June interest rate hike is the talk of the town. Jim Rickards doesn’t think it will happen, but if it does, he says, ‘Look out below.’
Rickards appeared on RT’s Boom Bust to explain why. First, he makes the case that we shouldn’t listen to every word that comes out of every Fed regional bank president’s mouth. He suggests they are likely ‘testing the waters.’ As for the constant harping on jobs numbers, Rickards agrees with what we’ve been reporting. The employment outlook isn’t really all that good:


This post was published at Schiffgold on MAY 25, 2016.

Will The Fed Hike In June? It’s All In The Hands Of China Now, Deutsche Bank Explains

Over the weekend, Deutsche Bank’s chief credit strategist Dominic Konstam released a report in which as we documented, he explained his reasons why “the market is not ready for a June hike.” This was his key point:
The operative question is whether markets are sufficiently calm for the Fed to use the June 2016 meeting to pave the way for a July hike. We think the answer is no because the issue is not just the timing of a single hike toward some static goal for rate level in 2017. What is at issue is the existence of some Shanghai ‘accord’ whereby global policymakers have agreed explicitly or implicitly that excessive dollar strength is counterproductive and that policymakers should shift their focus to domestic demand and structural reform within an environment of dollar stability, at least through the next G20 in early autumn. If there is no accord then divergent monetary policy could drive the dollar stronger, restarting among other things speculation against CNH versus the dollar rather than CNY versus the entire CNY basket with now very familiar results: reserve loss exacerbating higher Fed expectations for US rates, and downward pressure on risk assets with a non-trivial chance that China might devalue and, worse yet, do so in a lumpy fashion.
He added that “the risk case is then that an overly aggressive Fed would push real yields up and breakevens down, thus undermining risk assets generally.”

This post was published at Zero Hedge on 05/25/2016.

Another Blistering Auction: Foreign Central Banks Just Can’t Get Enough Of 5Y Paper

Following yesterday’s surprisingly strong 2 Year auction, the US Treasury pulled off another blistering auction when moments ago it sold $34 billion in 5 year paper (Cusip R77), at a high yield of 1.395%, stopping through the when issued by 0.8 bps, a surprising outcome following two consecutive tailing auctions, with a Bid to Cover of 2.60, the highest since November 2014. Incidentally, the yield of 1.395% was lower than last month’s 1.41% when June rate hike odds were in the single digits.

This post was published at Zero Hedge on 05/25/2016.

These Crisis Markets Got Crushed… Time to Get in?

America is Ground Zero
J. Spittler, editor of The Daily Dispatch: What are some of your most successful crisis investments?
Nick Giambruno: In 2013, the tiny European island of Cyprus had a banking crisis. Its stock market plunged 98%. It was one of the most significant financial crises in recent memory.
So Doug Casey and I packed our suitcases and boarded a plane for Cyprus. We put our ‘boots to the ground’ and looked through the rubble for incredible bargains.
At the time, there were sound, productive, and well-run businesses in Cyprus making money and paying dividends. Some of these companies were trading for less than 50% of their book value…literally pennies on the dollar.
We recommended eight Cypriot stocks to our readers. One was a resort company that operates luxurious beachfront hotels in Cyprus. We made a 210% gain on that one. We booked a 170% gain on a technology company. We also recommended two consumer goods companies. One of those doubled. The other nearly doubled.
We’ve also had success recently. This month, we locked in a 103% gain on a beaten-up gold stock. I expect other stocks in the Crisis Investing portfolio to deliver even bigger gains.

This post was published at Wolf Street by Wolf Richter ‘ May 25, 2016.

Gold Daily and Silver Weekly Charts – Option Expiration Completed

Just as Hillary Clinton represents what has gone wrong with our political system and its inability to reform itself, as least to me, so the Comex represents what has been bent and twisted out of shape in the trading markets.
If you trade precious metals on the Comex, you may as well mail your wallet to them with a note inviting them to take out whatever they wish, and mail you back the empty, if they would be so kind.
Silver has been a big ‘tell’ this week. Silver is bit tight, mostly because there are no central bank stores available for ready manipulation, except of course the silver hoard at JPM perhaps as a proxy.
But the gold bullion supply in London and parts East is ‘troubled.’ And that is a big difference.
Option expiration is complete.

This post was published at Jesses Crossroads Cafe on 25 MAY 2016.

Nigeria Currency Devaluation Looms As FX Forwards Crash To Record Lows

Despite US equity investors’ exuberance over bouncing crude oil prices, the world’s crude producers continue to suffer and while Venezuela is in the headlines every day (having already collapsed into chaos), Nigeria appears the nearest to that abyss next. Having urged investors “don’t panic” last year, and seeing dollar reserves drying up rapidly earlier this year, recent “lies” about the nation’s statistics have raised fears of a looming devaluation as FX forwards have crashed to 291 Naira to the dollar (current peg is 199).
As Bloomberg notes, traders boosted bets Nigeria’s currency will tumble after policy makers said they would allow greater flexibility in the foreign-exchange market.
Rates on three-month naira-dollar forward contracts jumped 20 percent to a record 297 per dollar, suggesting investors see the currency close to that level at the end of the period. The central bank has pegged the naira at 197-199 since March 2015 amid a plunge in oil prices that contributed to the economy contracting in the first quarter.
In early May, officials began a “policy review” suggesting a devlauation possible and then a week ago the central bank voted for “more flexibility in exchange rate” dynamics…

This post was published at Zero Hedge on 05/25/2016.