Update on Brexit

This article looks at the background to Brexit negotiations and concludes that Britain is negotiating from a position of strength, while the EU is increasingly in a position of financial difficulty. Not only will the European Commission be forced to scale back its spending and redistribution of resources, but the euro project is threatened by capital flight between member states, despite the early signs of economic recovery which should be restoring market confidence. Politicking aside, pressure is mounting on the EU to defuse the disruption of Brexit by agreeing to a mutually beneficial deal as soon as possible.
EU finances are getting desperate
The EU cannot afford to prevaricate over Brexit because a bad Brexit risks causing it immeasurable harm. Not only does big business in Europe want a Britain with which it can freely trade, but confidence in the European Project is rapidly diminishing. The EU is a mega-state that is fading, and no one knows how to ensure its survival. Inevitably, the failings of the EU are catching up with it, and Britain’s leaving exposes the financial consequences of decades of bad management, capital destruction through wasteful redistribution and the lack of any contingency planning.
Britain’s 8bn annual contribution to the EU budget is almost the same as the cost of administering the whole Brussels establishment, so Brexit will create a budget shortfall that is almost total, which Brussels will have to make up from the remaining members. Inevitably, some of the redistribution to Brussel’s pet projects will end up being cut as well. It is for this reason that the Brussels politicians hope for a capital payment from Britain.
The Commission also has a commitment to redistribute member funds estimated at 238bn. It must have assumed prior to last year’s referendum that Britain would vote to remain and pay its share. Instead, it voted for Brexit, and the Commission will have to find the money from a capital contribution either from Britain, somewhere else, or cancel some of the projects. With these problems, the Commission is in a difficult position, wrong-footed by Brexit. And when Theresa May says no deal is better than a bad deal and means it, it really could mean an end to Brussels as we know it.
TARGET2 deteriorates further
Probably the most alarming statistic coming out of the Eurozone is the continual growth in TARGET2 imbalances. The chart below shows the latest position.
In a normally functioning TARGET2 system, imbalances should be minimal, as they were before the financial crisis. But the ECB says there’s nothing to worry about, which would be true if these imbalances are just a passing phase, to be reversed when normality returns. After nine years, this appears increasingly unlikely.

This post was published at GoldMoney on MAY 11, 2017.

The Bearish Gold Bull

The Bearish Gold Bull was the title of my presentation last weekend at the Metals Investor Forum in Vancouver, British Columbia. While the title could be ascribed to me personally for my recent tendency towards conservative and cautious views, it more importantly describes the current dichotomy in the gold sector. The mining sector saw its fundamentals hit rock bottom in 2014-2015 and became ‘bombed out’ at the end of 2015. However, while parts of the industry have performed well, as a whole it has been unable to push higher after a torrid recovery in early 2016. A big reason is the outlook for metals prices suggests lower prices before any large advance. Until metals prices are ready to rise, the miners may find themselves in a bearish bull.
The mining stocks have fallen below their 50 and 200-day moving averages and are even struggling around their 400-day moving averages (which provided support in December 2016) but this does not threaten the epic 2015-2016 bottom. There are a plethora of valuation metrics from January 2016 that are unlikely to be seen again. That time marked the worst 5 and 10-year rolling performance for gold stocks in 90 years. Gold stocks relative to the S&P 500 hit an all-time low and Gold stocks relative to Gold hit a 90 year low. Gold stocks price to book and price to cash flow valuations were the lowest in 40 years. (The data does not go back farther than that). Finally, January 2016 marked the end of the worst bear market ever. Remember this chart?

This post was published at GoldSeek on 12 May 2017.

Core CPI Slumps To 19-Month Lows – Below Fed Mandate

For the first time since October 2015, core consumer prices rose at a pace slower than The Fed’s mandate. The 1.9% YoY rise is the weakest print since Sept 2015.
The last time this pattern played out – in 2012 – The Fed unleashed Operation Twist and subsequently QE3 to stall the disinlationary dive…
This time they are hiking rates??
Perhaps even more concerning is that Core inflation ex-shelter is at its lowest since Feb 2015… and near record lows…

This post was published at Zero Hedge on May 12, 2017.

A Look at the Silver/Gold Ratio, Inflation/Deflation and the Yield Curve

An email from a reader (of the eLetter, I think) calling me out on trying to make too many correlations in a dysfunctional market (I think that was his bottom line point, and he’s got a good point) got me thinking about the Silver/Gold ratio and some pretty interesting post-2011 dysfunction (so it seems) in the markets.
Markets that made sense in certain ways prior to 2011 no longer make sense in the same ways. For instance, the S&P 500 used to be correlated to the Silver/Gold ratio, which itself was positively correlated to inflation and/or inflationary economic growth. Gold also liked for silver to be leading it, not the other way around.
But in 2011 a Goldilocks environment was rammed home by Ben Bernanke’s decree (in September of that year) that the Fed would ‘sanitize’ (his word for manipulate, coerce and completely screw up bond market signals that had been tried and true) inflation and its indicator signaling right out of the picture. The Fed’s ‘Operation Twist’ buying of long-term Treasury bonds and selling of short-term Treasury bonds forced a yield curve that had been out of control to the upside, downward. Brilliant!
In 2017 it’s the gift that keeps on giving, from dear old Ben as the resultant yield curve downtrend has been relentless and it has been stock bulls that have benefited despite the 2015 disturbance that temporarily shook a lot of people out of stocks. To be sure, Goldilocks has not only been Fed-induced, but also has benefited from global deflationary forces that now appear to be resolving toward an inflation phase in many global regions (here we again note Kevin Muir’s sound thought process about Europe potentially doing the US monetary policy thing).

This post was published at SilverSeek on May 12th, 2017.

Retail Sales Miss Across The Board; Grow At Slowest Pace Of 2017

Earlier today, when looking at BofA’s internal credit and debit card data, we warned to expect a miss in retail sales:
And, sure enough, the actual spending data once again did not disappoint when moments ago the Census reported April retail sales which, well, did disappoint across the board:
Retail Sales up 0.4%, missing expectations of +0.6%, up from an upward revised 0.1% Retail sales up 4.5% Y/Y, down from 5.2% in April Retail sales less autos rose 0.3% in April, est. 0.5%, unchanged from last month’s revised 0.3% Retail sales ex-auto dealers, building materials and gasoline stations rose 0.2% in April Retail sales ‘control group’ rose 0.2% m/m in April

This post was published at Zero Hedge on May 12, 2017.

Worst Restaurant Tailspin since 2009/2010 Crushes Lower End

‘Rising household debt load’ likely to ‘suppress consumption, including eating out.’
So another chain restaurant is ‘preparing’ to bite the dust. Ignite Restaurant Group, which operates the Joe’s Crab Shack chain with 113 locations and the Brick House Tavern chain with 25 locations, and used to operate the Romano’s Macaroni Grill chain with 150 locations until it sold it in 2015, is preparing to file for bankruptcy, ‘people familiar with the matter’ told Bloomberg.
In the quarter ended September 26, 2016, the last quarter for which the company bothered to release an earnings report, same-store sales fell 6.8%; total revenues plunged 10% to $120 million.
A liquidity problem turns into a solvency problem: It had $729,000 of cash and about $26 million of ‘available borrowing capacity under its current credit facility.’ Not exactly a lot, considering that the company lost $15.2 million in Q3, up from a loss of $4 million in Q3 2015.
It had $179 million in liabilities, including $113 million in long-term debt. It shares, which had traded as high as $19 in 2013, have consistently trended lower since, became a penny stock last year, and are now just about worthless (2 cents).
For chain restaurants, it’s really tough out there.
Industry-wide, same-store foot traffic fell 3.3% in April year-over-year. For the past three months, traffic is down 3.9%. Same-store sales in April fell 1.0% are down 1.8% for the past three months, according to TDn2K’s Restaurant Industry Snapshot.

This post was published at Wolf Street on May 12, 2017.

Market Report: A pause in the decline

Gold and silver found temporary bottoms this week, with gold little changed from last Friday’s close of $1229.4 at $1228 in early European trade this morning (Friday). Silver fared slightly better, rising from $16.34 to $16.45 over the same time scale. However, the recent fall in silver has been very dramatic, the price now only up 2.6% on the year, compared with gold, up 6.4%.
Consequently, the gold/silver ratio is back to 75 again, as shown in our second chart.
Traders will be looking to see if the lower trend line of the long-term channel, which the ratio broke last summer, provides resistance to a further rise.
Chartists will be more concerned with what appears to be an established bear trend for gold, with the price and the two most watched moving averages all falling in bearish sequence. This is our next chart.
Technically, this is a powerful sell signal, though chartists will admit that the signals here are often late, with much of the downtrend over. They will also admit that for anything to fall for fifteen trading sessions without a reasonable countertrend rally is unusual, and warn short-term traders to expect a rally in gold towards $1250.

This post was published at GoldMoney on MAY 12, 2017.

Ted Butler Quote of the Day 05-12-17

While the biggest single change in the composition of the concentrated COMEX short position has been the defection of JP Morgan to becoming net long by virtue of its physical metal accumulation, there are some other more subtle changes, including the complete absence of any economic legitimacy to the current short position. In essence, there are no legitimate shorts on the COMEX, in terms of miners hedging future production or those hedging against existing physical inventory. The big shorts, apart from JP Morgan, appear to be mostly foreign banks according to CFTC data and definitely not miners from the earnings statements from public mining companies. The speculating foreign banks are precisely the type of short sellers most likely to panic when silver prices start to rally and it begins to take hold on them that JP Morgan is no longer the shorts’ protector and short seller of last resort

I have been studying the silver manipulation for more than 30 years — and over that time I have seen it spread to other commodities, certainly to gold, copper, crude oil and just about every market where the technical funds have risen as a potent market force to be manipulated and harvested. But no market has been as manipulated as has COMEX silver, thanks to the level of concentrated short selling compared to real world supplies. The recent selloff has affected many commodities and I do expect a vigorous turn up in gold, copper, crude oil, platinum and other markets once the technical fund selling is complete, but the rally to come in silver should far outdistance any other commodity rally.

A small excerpt from Ted Butler’s subscription letter on 10 May 2017.

More precious metals news & information available at
Ed Steer’s Gold & Silver Digest.

Really Bad Ideas, Part 1: Modern Monetary Theory

The past century has been an orgy of experimentation. We tried fascism, which initially looked good to some before (literally) crashing and burning. We tried communism, which looked great to many before killing millions and withering away. Fiat currency and fractional reserve banking, meanwhile, still make sense to most economists and politicians but seem to be heading for a fiery end.
And we’re not done. Lots of new ways of organizing society are competing to be the next big thing. This series will consider some of the really bad ones, starting with Modern Monetary Theory (MMT).
MMT’s basic premise is that governments don’t really need to finance themselves through taxing and borrowing when they can just create money and spend it, thus simplifying their operations and satisfying everyone’s needs. Here’s an excerpt from a long panegyric from the Nation magazine:
The Rock-Star Appeal of Modern Monetary Theory In early 2013, Congress entered a death struggle – or a debt struggle, if you will – over the future of the US economy. A spate of old tax cuts and spending programs were due to expire almost simultaneously, and Congress couldn’t agree on a budget, nor on how much the government could borrow to keep its engines running. Cue the predictable partisan chaos: House Republicans were staunchly opposed to raising the debt ceiling without corresponding cuts to spending, and Democrats, while plenty weary of running up debt, too, wouldn’t sign on to the Republicans’ proposed austerity.

This post was published at DollarCollapse on MAY 11, 2017.

Markets All Too Quiet Ahead Of Inflation, Retail Sales Data

Asian stocks and S&P futures are both feeling the weather this morning, while European stocks are little changed as traders have decided to hold back until today’s key US CPI and retail sales data is released in under two hours.
Commodities have posted another modest rebound, driven by a rise in metal prices that has helped ease a China-led rout even as oil traded modestly in the red. The Bloomberg Commodity Index rose for a third day, recovering from a 16-month low on May 9.

This post was published at Zero Hedge on May 12, 2017.

BofA Has A Last Minute Warning Ahead Of Today’s Retail Sales Number

With retailers reporting abysmal Q1 earnings data, there is much at stake in today’s retail sales report, perhaps even more than in the CPI report (which either this month, or June at the latest, will post a steep drop due to energy “base effect” as oil prices today are now lower than a year ago). Yet despite the deplorable earnings reports by prominent retail names , Wall Street remains optimistic and expects a strong rebound in April, with consensus looking a +0.6% mom headline print increase and +0.4% mom rise in the core.
Such expectations may prove overly optimistic. The reason is that according to the latest Bank of America’s internal credit and debt card spending report, retail sales ex-autos increased far less than consensus expects, or 0.2% mom seasonally adjusted. This leaves retail sales ex-autos running at a 0.1% mom rate on a three-month moving average. And while there are month to month fluctuations, the BAC data has converged with the Census data on a three-month average, which according to the bank suggest that “there are slight downside risks to the consensus forecast for Friday’s retail sales report. (Note that the BAC data in the chart is as of April while the Census data is as of March).”

This post was published at Zero Hedge on May 12, 2017.

About That “Underwhelming” US-China Trade Deal: Much Less Than Meets The Eye

Overnight, the US Department of Treasury released the initial result of the 100-day Sino-China trade and economic negotiations, a month after the presidential summit at Mar-a-Lago in early April. Under the negotiations led by Steven Mnuchin and Secretary of Commerce Wilbur Ross in the United States and Vice Premier Wang Yang from China, the two countries reached agreements on some “early harvest” items and made progress on some key issues in agricultural trade, financial services, investment, and the energy area.
While there were no surprises in the agreement, whose terms had been leaked previously by the president himself, here are some of the key details per Citi:
Consensus reached to open China’s market wider for US agricultural and energy products On agricultural trade, China will allow imports of US beef on conditions consistent with international food safety and animal health standards and consistent with the 1999 Agricultural Cooperation Agreement, and will hold a meeting in May to conduct science-based evaluations of pending U. S. biotechnology product applications. Meanwhile, US promises to resolve the issue on importing cooked poultry products from China. In the energy field, US will treat China no less favorably than other non-FTA trade partners with regard to LNG export authorizations.

This post was published at Zero Hedge on May 12, 2017.

CNBS – All The BS You Will Trade On

This is utterly ridiculous.
Cramer is once again, along with the rest of the CNBS lie machine, trying to both slam retailers (who are clearly getting hammered) while also pumping Spamazon.
What he’s saying is that Amazon is growing sales while all the “department stores” are losing sales.
Here’s the problem — he’s using the data from the MARTS report out this morning, otherwise known as “retail sales” but using the “adjusted numbers” — which is clearly bogus because the same month is in question in both cases.

This post was published at Market-Ticker on 2017-05-12.

Home Capital Depositors Have Withdrawn 94% Of Funds In Past 6 Weeks

According to its latest daily update, Canada’s biggest non-bank lender Home Capital Group showed the rate of withdrawals by depositors was slowing, one day after the company raised doubts about its ability to continue as a going concern, albeit for a simple reason: there are almost none left. In other words, over the past six weeks, depositors have withdrawn 94% of funds from Home Capital’s high-interest savings accounts since March 28, when the company terminated the employment of former Chief Executive Martin Reid.
Also on Friday, Home Capital said its liquid assets stood at C$962 million at the end of Thursday, which, combined with the total undrawn on the HOOPP credit facility (which as a reminder yields 22.5%) gives the distressed company access to C$1.56 billion in available liquidity and credit capacity.
Also overnight, Home Capital released the terms of the usurious credit facility with the Healthcare of Ontario Pension Plan, that was first announced April 26 in a May 11 filing.
Here are the details via BBG:
C$2 billion credit facility is secured against two pools of mortgages, Pool A and Pool B, ‘reflecting two tiers of collateral credit quality’ If collateral from Pool A is pledged, co is able to draw upon 50% of posted value from facility; Pool B allows 26%

This post was published at Zero Hedge on May 12, 2017.

What Can Offer Better Market Timing Than Standard ‘Timing Cycles?’

Other than traders of metals, some of the most emotional and angry traders/investors I have seen in the ‘blog-o-sphere’ are those who solely follow timing cycles. While there are many different cycles people follow, most seem to confound those who attempt to trade them.
While there may be certain segments of time that seem to work, they often leave people scratching their heads when the market changes cycles without warning. Well, markets don’t warn when they change their timing, do they? And, in fact, I have seen cycles analysts blow up many of their followers’ accounts.
Now, as I went through my own search of analysis methodologies early in my investment career, I always attempted to maintain an open mind and heavily contemplated any methodology which seemed to have a following. And, clearly, timing cycles have a strong following. But, intellectual honesty in the market is what will maintain your account on the correct side of the market, and anything that is unable to pass the test of intellectual honesty should be viewed quite skeptically.
Along those lines, when I contemplated these timing cycles, I had an open question which no timing cycles analyst was ever able to answer:
If markets are non-linear in nature, how can a finite, linear timing window accurately prognosticate the market more than 50% of the time?
You see, when you assume price and time are linear, you’re overlooking the clear nonlinear nature of price movement. Traditional cycle analysis assumes linear and angular movement of price through time. But, if you understand that sentiment drives asset prices and is non-linear in nature, then does it make sense that the timing of sentiment is linear?

This post was published at GoldSeek on 12 May 2017.

China and India step up to the gold demand plate — Lawrie Williams

As always appears to be the case, statistics on gold demand can be contradictory which is perhaps why gold’s fundamentals are so difficult to tie down. Take the World Gold Council (WGC)’s latest Gold Demand Trends report which suggests global gold demand fell by 18% (228 tonnes) during Q1, compared with the admittedly very high (record) figures achieved in Q1 2016. But within the report there do appear to have been some major anomalies.
Firstly, the slump in assessed demand was largely for two reasons – sharply reduced gold ETF inflows and a fall in Central Bank gold reserve increases. But, it should be noted, that gold inflows into the ETFs did remain positive over the quarter and the Central Bank figures were skewed by China’s non reporting of any gold reserve changes since its currency was accepted as part of the IMF’s Special Drawing Rights (SDR) in October last year. In Q1 2016, China had announced additions of 35.2 tonnes to its official reserves – some 15% of the fall in assessed gold demand during the latest quarter. If one takes China out of the equation other Central Bank gold additions came to a positive 7.4 tonnes – and on its reserve reporting track record China’s zero reserve addition figure has to be considered suspect.
Coming back to Central Bank shortfalls, can we believe the China figures at all? One should recall that up until July 2015 China only reported any reserve increases at five of six year intervals maintaining the pretence that it was not adding to its reserves monthly, as it obviously was. But, in the immediate run up to the IMF decision to re-jig its SDR make-up to include the yuan, the Asian nation began announcing monthly reserve increases. Once the yuan officially became a part of the SDR, China has reported zero gold reserve increases. Can this just be coincidence?
China is known to favour building its gold reserve as an important facet of securing its place in the global trade picture and its whole gold reserve adding policy has always been shrouded in secrecy. Some China-watching analysts will argue that, in fact, its real gold reserve is far higher than the officially stated figure of 1,842.6 tonnes. After all it has been the world’s largest gold producer for some years now.

This post was published at Sharps Pixley

China’s private investor gold surge seen as strong signal

The 30% rise in China’s private investor gold demand in the first three months of this year is seen as ‘a very strong signal’ by World Gold Council member and market relations head John Mulligan, who views this market as being one of good potential ongoing growth.
The rise in China’s private investor gold bar and coin demand to 106 t was the main contributor to a 9%-higher overall global retail investment market demand rise to 289.8 t, which is worth more than $11-billion.
Playing a role in strengthening demand in China were local premiums at a level of more than $14/oz above the global spot price of gold.
But despite the demand surge, per capita investment in gold in China remains low, and Mulligan sees Chinese demand as a staying trend over the longer term.
Also important is the ongoing strength of European gold demand of 61 t in the three months to the end of March, which was 9% up on the first quarter of 2016.

This post was published at Mining Weekly

Gold Imports by India Said to Rise More Than Four-Fold in April

Gold imports by India gained more than four-fold in April driven by jewelers restocking in anticipation of a recovery in sales during the wedding season that will last till mid-June.
Shipments rose to 98.3 metric tons last month from 22.2 tons a year earlier, according to a person familiar with provisional data from the finance ministry, who asked not to be identified as the data aren’t public. Imports were affected a year earlier because of a strike by jewelers to protest an excise tax on jewelery made and sold locally. Finance Ministry spokesman D. S. Malik declined to comment on the data.
Indian demand recovered this year as cash supply improved following measures taken by the government to curb unaccounted-for money, a move labeled as demonetization. Annual purchases may be at the higher end of an estimated range of 650 tons to 750 tons in 2017, according to the World Gold Council. Sales during the auspicious gold buying day of Akshaya Tritiya at the end of April were about 5 percent higher than last year, Sreedhar G. V., managing director at Sree Rama Jewels, said.
‘After demonetization, the entire country was at a standstill,’ Sreedhar, a former chairman of the All India Gems & Jewellery Trade Federation, said by phone from Bengaluru. ‘Now since the money flow has started and gold prices have also come down, there has been good demand in the market.’

This post was published at bloomberg

At retirement dinner, Eric Sprott praises GATA’s work

Sprott Asset Management founder and philanthropist Eric Sprott, honored last night in Toronto at a retirement testimonial dinner sponsored by the company, praised GATA’s work and called on GATA Chairman Bill Murphy and your secretary/treasurer to stand and be recognized. Some people in the audience of about 200 actually applauded, through the audience consisted mainly of ordinarily respectable people from the Canadian financial industry. Of course they may have just been trying to be polite and to humor Sprott. But some later confessed to following GATA’s work and to have been persuaded by it.
Sprott went on mischievously to contrast what he called “the GATA table,” at which Murphy and your secretary/treasurer were seated with Sprott Asset Management’s John Embry and economist Ian Gordon of Longwave Group, with what he called “the World Gold Council table,” at which two former chairmen of the council were seated: Franco-Nevada founder Pierre Lassonde and Goldcorp Chairman Ian Telfer. Sprott noted that during the dinner no rolls had been thrown from the GATA table toward the World Gold Council table.
Civility and cordiality were maintained though Lassonde repeatedly has dismissed complaints of gold market manipulation and has insisted that central banks couldn’t care less about gold while GATA has dismissed the World Gold Council as an accomplice with central banks in gold price suppression, a facilitator of “paper gold” and the shorting of the monetary metal.

This post was published at GATA

Barclays chief apologises to shareholders for trying to identify whistleblower

Jes Staley has apologised to Barclays shareholders for the ‘error’ that the bank’s chief executive admitted he had made in trying to uncover the identity of a whistleblower.
Seeking to take the sting out of the bank’s annual meeting on Wednesday, Mr Staley said: ‘I feel it is important that I acknowledge to you – our shareholders – that I made a mistake in becoming involved in an issue which I should have left to the business to deal with.’
‘I have apologised to the board, and I would today like to apologise to you as well, for that error,’ said the 60-year-old American who was hired to run Barclays in December 2015.
The Barclays board has given Mr Staley a formal reprimand and promised to cut his pay by a ‘very significant’ amount for ordering the bank’s security team to try to identify a whistleblower who had made allegations about a recently recruited colleague.

This post was published at Financial Times