Bank Of England Orders Banks To Boost Capital To “Protect From Rising Risks”

In addition to the previously noted fireworks from Mario Draghi, also on Tuesday the Bank of England ordered banks to build greater capital cushions in the coming months to protect the U. K. financial system from risks ranging from Brexit to China to booming consumer borrowing. In its twice-annual financial stability report, the BOE’s Financial Policy Committee said that there are ‘pockets of risk’ in the financial system, and to address them the BOE set the countercyclical capital buffer at 0.5% of risk-weighted assets for U. K. loans effective in June 2018, and if nothing material changes the central bank plans to increase the level again to 1% in November.
Each increase of 0.5 percent will swell banks’ cushion of common equity Tier 1, the highest-quality capital, by 5.7 billion pounds, according to the BOE’s Financial Stability Report. The BOE opted for a staggered approach because it’s less likely to result in banks tightening lending in response.
Additionally, next month regulators will publish new guidelines for consumer lending to ensure risks are priced and managed appropriately.
‘We want to move the levels of capital back up to the level they should be — any time you move into more benign credit conditions there have been fewer defaults,’ which can lead to complacency, Governor Mark Carney said on Tuesday. Regarding Brexit, ‘there are risks around that process, so contingency planning needs to be not only put in place but also activated.’

This post was published at Zero Hedge on Jun 27, 2017.

Asian Metals Market Update: June-27-2017

I am not surprised by yesterday’s sudden crash in gold and silver. These things will happen more often on days when trading volumes are less and/or some key bullion trading nations are closed. Such moves are manipulated with the sole aim to create panic among retail investors. Sometimes these types are moves are insider trading moves wherein the big traders knows exactly the price at which certain buy stop losses or sell stop losses will get triggered. I have also seen gold and silver cartels resorting to such moves (even on day with normal volumes) either to close existing open positions or start building one way long term positions. I have seen these kinds to moves happening (in the past) in India’s MCX and NCDEX. The grapevine knows the cartel which had resorted to such moves but since such moves do not happen regularly investigations are not done. The cartel knows the penalty of such moves if they get caught. But still they try for such moves as they know that the profit from such moves is much more than fines/penalties imposed.

This post was published at GoldSeek on 27 June 2017.

Investors in Louisiana Can Now Buy Gold and Silver Without Paying Sales Tax

Good news for investors in Louisiana. They will no longer have to pay sales tax when they buy gold, silver, and platinum.
Last week, Louisiana Gov. John Bel Edwards signed a bill into law that exempts the sale and purchase of gold and silver and other precious metals from state sales and use taxes. The new law will encourage their use and takes the first step toward breaking the Federal Reserve’s monopoly on money.
Rep. Stephen Dwight (R) and Rep. Mark Abraham (R) sponsored HB396 earlier this spring. The legislation exempts the sale of platinum, gold, or silver bullion, ingots, or coins that are valued only on their precious metal content from the state sales tax. It also exempts certain numismatic (collectable) coins.
The House initially passed HB396 95-0 on May 24. The Senate followed up on June 2 and approved the measure by a vote of 30-2 with some technical amendments. The House then concurred with the Senate amendments by a vote of 103-0. With Gov. John Bel Edwards’ signature, the new law went into immediate effect on June 22.
IN PRACTICE
Imagine if you asked a grocery clerk to break a $5 bill and he charged you a 35 cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what Louisiana’s sales tax on gold and silver did. By removing the sales tax on the exchange of gold and silver, Louisiana will now treat specie as money instead of a commodity. This represents a small step toward reestablishing gold and silver as legal tender and breaking down the Fed’s monopoly on money.

This post was published at Schiffgold on JUNE 27, 2017.

China Suffers ‘Delusion’ like 1980s Japan, Faces Long Stagnation

Sudden Financial Meltdown is less likely.
The Chinese government has the situation under control and will do whatever it takes to keep it under control – that’s in essence what Premier Li Keqiang said today in a speech at the World Economic Forum in the Chinese city of Dalian.
‘We are fully capable of achieving the main economic targets for the full year,’ Li said. The mandated growth rate this year is 6.5%.
‘Currently, China also faces many difficulties and challenges, but we are fully prepared,’ he said, according to Reuters. He said this because everyone from the IMF and the New York Fed on down has been pointing at and fretting about the debt powder keg that China keeps filling with ever more volatile compounds.
‘There are indeed some risks in the financial sector, but we are able to uphold the bottom line of no systemic risks,’ he said. ‘We are fully capable of preventing various risks and making sure economic operations will be within a reasonable range.’
So the powder keg isn’t going to blow up. As ever more debt is added, the government is pursuing the shift to a consumer-driven economy, while trying to tamp down on excess and outdated capacity in some select industries such as steel and coal. These cuts, Li said, would continue.
‘No development is the biggest risk for China,’ he said, so China wants to ‘sustain medium- to high-speed economic growth over the long term.’ But given the size of China’s economy, it ‘will not be easy.’ In other words, come hell or high water, credit creation will continue in order to maintain this mandated growth.

This post was published at Wolf Street on Jun 27, 2017.

Hong Kong Small Caps Crash Amid Marketwide Margin Call: “It’s A Domino Effect”

Dozens of HKEx penny stocks plunged 40%~90% today amid rumor HKEx will force all "zombie stocks" to delist.
HKEx denies the rumor!
— Simon Ting (@simonting) June 27, 2017

A few weeks ago, we reported that in a bizarre development – and the latest in a long series of red flags involving Chinese and HK stocks – various Chinese small and micro cap companies had asked employees to buy their stock while promising to cover losses” amid rising margin call pressures as the underlying stocks had been drifting lower. As we also noted, China has a broader issue with collateral that could endanger the health of its financial system, such as fraudulent or “ghost” collateral, where pledged products either don’t exist or are already sold or pledged to multiple lenders.
This in turn led BofA strategist David Cui warned that a potential “vicious selling circle” could lead to a replay of China’s mid-2015 market crash. “As the 2015 experience shows, with high leverage, a vicious selling circle can quickly develop,” he said, noting a “moderate” risk of broad-based financial instability. To which we concluded that “at that point either Beijing will have to step in with another bailout, or scenes such as this one which emerged during the 2015 market rout, will become the norm once again.”
Less than three weeks later we got a vivid example of just how dire the impact of a coordinated margin calls on Chinese markets could be, when overnight dozens of Hong Kong microcap stocks plunged amid what started as a rumor that the local exchange will force all “zombie companies”to delist (since denied)…

This post was published at Zero Hedge on Jun 27, 2017.

The Super Bubble Is in Trouble

You do not need to be a financial market wizard to see that especially bond markets have reached bubble territory: bond prices have become artificially inflated by central banks’ unprecedented monetary policies. For instance, the price-earnings-ratio for the US 10-year Treasury yield stands around 44, while the equivalent for the euro zone trades at 85. In other words, the investor has to wait 44 years (and 85 years, respectively) to recover the bonds’ purchasing price through coupon payments.
Meanwhile, however, the US Federal Reserve (Fed) keeps bringing up its borrowing rate; and even the European Central Bank (ECB) is now toying with the idea of putting an end to its expansionary policy sooner rather or later. Most notably, however, US long-term rates have come down since the end of 2016, despite the Fed raising its short-term interest rate. How come?
Presumably, investors seem to expect that the Fed might not hike interest rates much further, and/or that higher short-term interest rates will prove to be short-lived, to be reversed quite quickly. In any case, bond markets do not seem to expect interest rates to go back to normal levels – that is toward pre-crisis levels – anytime soon. Several reasons could be responsible for such an expectation.

This post was published at Ludwig von Mises Institute on June 27, 2017.

Follow-Up on Bills; Supply Side

Returning to the theme of the parallel evolutionary developments in the early 20th century as compared to the last decades of it, in 1908 famed Gilded Age industrialist Andrew Carnegie wrote what seems today a misplaced article for New York Outlook magazine. The steel magnate lamented the state of American banking, which he called within his piece ‘at least one humiliation to lessen self-glorification.’
The purpose of his writing was in support of gold. That’s what seems out of place to our ‘modern’ senses, for the US was by then restored to the fullest gold standard. The constant silver agitation of the later 1800’s had been put to the past twelve years before Carnegie’s article. Bimetallism had been settled in favor of the gold, so what possible of its virtues was left to extol?
Men have railed against gold as if it had received some adventitious advantage over other articles. Not so; gold has made itself the standard of value for the same reason that the North Star is made the North Star-it is the nearest star to the true north, around which the solar system revolves. It wanders less from, and remains nearer to the center than any other object. It changes its position less. To object to gold as the standard of value, therefore, is as if we were to refuse to call the star nearest of all stars to the true north, the North Star.
The problem was instead currency rather than money. In those days this was not a distinction of semantics. US banks had been limited in their currency issues by the remnants of Civil War finance. In other words, a bank was constrained by the amount of, among other things, government debt on its books. It was a way in the 1860’s to help pay for war while also ensuring, in theory, bank currency backed by solid and the most liquid instruments.

This post was published at Wall Street Examiner on June 26, 2017.

Euro Surges, Bunds Tumble On Unexpectedly Hawkish Draghi Comments

The euro surged to its highest in two weeks after Mario Draghi, speaking at the ECB forum in Sintra, Portugal, surprised markets who expected yet another dovish speech from the central banker, who instead signaled that stimulus tapering may be closer than the market anticipated and said factors weighing on inflation in the euro zone were “mainly temporary” and the central bank could look through them.
Speaking at the ECB’s annual policy forum, Draghi highlighted a recovering euro zone economy that ‘the threat of deflation is gone and reflationary forces are at play’ and that that the effects that keep inflation subdued are temporary and won’t let inflation deviate from its trend over the medium term. but added that stimulus in the form of the ECB’s monetary support was still needed.
The market broadly interpreted his unexpected comments as opening the way for the start of tapering even as core inflation readings fail to reach fresh highs. As Reuters adds, Draghi’s comments “sounded to investors like he was ready to give more ground on German demands that the ECB get on with starting to reduce the volume of extra euros it is feeding monthly into the economy.”

This post was published at Zero Hedge on Jun 27, 2017.

Schaeffler Crashes After Unexpected Profit Warning, Drags European Autos

The recent sharp slowdown in US auto sales has claimed an unexpected victim: one of Germany’s biggest auto suppliers, Schaeffler, which overnight slashed it earnings guidance for 2017, cutting its full year adjusted EBIT margin to 11%-12% from 12%-13% due to “substantially lower 2Q earnings”, higher costs and “price pressures in the OEM business” and as a result now sees FY FFC at 500MM, down from 600MM previously.
The unexpected warning sent Schaeffler stock tumbling as much as 14% after the Frankfurt open, its biggest decline since its October 2015 IPO. The warning by the German auto supplier, promptly dragged down the broader Stoxx 600 Automobiles & Parts Index (-1.7%), and hitting peers such as Faurecia -2.9%, Continental -2.8%, Valeo -2.6%.
In addition to slamming its stock, the warning sent the yield on the company’s 3.75% Bonds of 2021 surging (courtesy of Tassos Vossos)

This post was published at Zero Hedge on Jun 27, 2017.

WHEN THIS MASSIVE BUBBLE POPS… What Will Happen To The Precious Metals?

As the Mainstream financial media continues to promote the biggest market bubble in history, only a small fraction of investors are prepared for the disaster when it finally POPS. The markets are so insane today, it seems as if fundamentals don’t matter any more. However, they actually do if we look at the numbers closely.
In order to invest in the correct assets going forward, one must choose between those with a low RISK and high REWARD versus assets with a high RISK and low REWARD. While this may seem like common sense, I can assure you, the market makes no sense whatsoever today. And most investors are doing quite the opposite. Go figure.
If we look at the following charts in this article, we can clearly see which of the following assets, the DOW JONES, GOLD or SILVER, enjoy the lowest risk and highest reward.

This post was published at SRSrocco Report on JUNE 26, 2017.

Google Fined A Record 2.4 Billion For Skewing Search Results In European Antitrust Ruling

Google suffered a major regulatory blow on Tuesday, when the EU’s antitrust regulator fined Alphabet’s Google a record 2.42 billion ($2.71 billion) fine for “abusing its dominance in search” and favoring its own comparison-shopping service in search results: a decision with far-reaching implications for both the tech sector and already strained transatlantic relations. The EU further ordered the search giant to apply the same methods to rivals as its own when displaying their services in search results.
Margrethe Vestager, the EU’s competition commissioner, said Google ‘denied other companies the chance to compete’ and left consumers without ‘genuine choice.”
Google’s strategy for its comparison shopping service wasn’t just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors. What Google has done is illegal under EU antitrust rules.

This post was published at Zero Hedge on Jun 27, 2017.

Global Equity Markets Mostly Weaker; Focus On Central Bankers’ Speeches

This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
(Kitco News) – World stock markets were mostly weaker overnight and U. S. stock indexes are also pointed toward modestly lower openings when the New York day session begins.
Gold prices are seeing a short-covering bounce with moderate gains Tuesday after prices hit a five-week low on Monday.
In overnight news, European Central Bank President Mario Draghi said at a conference in Portugal the ECB will not be in a hurry to wind down its accommodative monetary policy because the European Union’s collective economy is still in recovery mode. However, he also said the Eurozone economy is growing ‘above trend’ and said inflation will increase at some point down the road, which will prompt the ECB to tighten its monetary policy. Draghi’s overall upbeat comments on the Eurozone lifted the euro currency and sent European bond yields higher.
Fed Chair Janet Yellen is scheduled to make a speech in London Tuesday, where she may remark on the U. S. economy and Fed monetary policy.

This post was published at Wall Street Examiner by Jim Wyckoff ‘ June 27, 2017.

“Hawkish Shock” From Draghi, PBOC Intervention Fail To Move Futures As Attention Turns To Yellen

S&P futures were fractionally in the red, pressured by a drop in European shares following what several desks called a “hawkish shock” speech by Mario Draghi at the annual ECB forum in Portugal, even as oil rose for a fourth day, boosted by favoriable remarks from China’s premier Li, while the Yuan surged 0.4% amid speculation of more PBOC interference in the yuan.
The overnight session was divided in two parts: the early European focus on a spike higher in Chinese yuan, with some speculating on PBOC intervention, others cite tightening in yuan forward curve. Metals and crude both rallied broadly in response, USD pushed weaker against G-10.
Speaking of the sharp move in both the onshore and offshore Yuan, Ken Cheung, a currency strategist at Mizuho told Bloomberg ‘This seems like intervention” and added that “They may be eager to keep the onshore yuan quarter-close to near 6.8 per dollar. The quarter-end rate may be an important indicator for foreign central bank reserve managers to consider adding the yuan as assets. Other reasons could be maintaining a strong yuan outlook before the launch of the Hong Kong bond connect.”

This post was published at Zero Hedge on Jun 27, 2017.

McMansions Are Back And They’re More Hideous Than Ever

The McMansion rose to prominence in the early-to-mid-2000s and to this day is the epitome of the excesses created by the biggest mortgage bubble in the history of mankind. In suburbs all across America, these 3,000 – 5,000 square foot, cookie-cutter monstrosities, with their foam pillars and lots that were just barely larger than the footprint of the houses themselves, were popping up faster than you could say “subprime mortgage.”
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Unfortunately, as we’re forced to report frequently here, Americans tend to have very short-term memories and can’t seem but help but constantly repeat the sins of their past. As such, it’s hardly a surprise that the average size of new homes in the U. S. is once again skyrocketing at an even faster rate than the early part of this century.

This post was published at Zero Hedge on Jun 26, 2017.

The Money-Velocity Myth

For most financial commentators an important factor that either reinforces or weakens the effect of changes in money supply on economic activity and prices is a velocity of money.
It is alleged that when the velocity of money rises, all other thing being equal, the buying power of money declines (i.e., the prices of goods and services rise). The opposite occurs when velocity declines.
If, for example, it was found that the quantity of money had increased by 10% in a given year, – while the price level as measured by the consumer price index has remained unchanged – it would mean that there must have been a slowing down of about 10% in the velocity of circulation.
The mainstream view of money velocity According to popular thinking the idea of velocity is straightforward. It is held that over any interval of time, such as a year, a given amount of money can be used again and again to finance people’s purchases of goods and services. The money one person spends for goods and services at any given moment can be used later by the recipient of that money to purchase yet other goods and services.
For example, during a year a particular ten-dollar bill might have been used as following: a baker John pays the ten-dollars to a tomato farmer, George. The tomato farmer uses the ten-dollar bill to buy potatoes from Bob who uses the ten dollar bill to buy sugar from Tom. The ten-dollars here served in three transactions. This means that the ten-dollar bill was used 3 times during the year, its velocity is therefore 3.

This post was published at Ludwig von Mises Institute on June 27, 2017.

Goldman, Citi Turn Positive On Gold – Despite ‘Mysterious’ Flash Crash

Goldman and Citigroup Turn Positive On Gold – Despite ‘Mysterious’ Flash Crash
– Gold bounces higher after ‘mysterious’ one minute ‘flash crash’ mistake
– $2 billion, 50 tons or 1.8 million ounces ‘fat finger’ trade blamed
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– Massive selling at 0400 EST when U. S. markets closed and thin trading amid holidays in Muslim countries including Turkey, Singapore and Malaysia.
– Mystery is that ‘fat fingers’ in gold market are always sell trades that push prices lower

This post was published at Gold Core on June 27, 2017.

Prada Is Selling A $185 Paper Clip

We finally have some good news for the distressed US retail industry.
In light of recent deteriorating spending trends within the luxury segment, with Bank of America internal card data showing a relentless decline in retail spending among the wealthiest segment…
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… one would perhaps think that the conspicuous consumption excesses that marked the peak of the last bubble were long behind us.
One would be wrong: first there was Balenciaga selling a $2,145 handbag that was a spitting image of an IKEA tote sold for $1 at the iconic store, and now, there is the $185 Prada paper clip.

This post was published at Zero Hedge on Jun 26, 2017.