Jim Sinclair’s Commentary
Maybe the Simpsons are on to something…
US Retail Sales Hint At Recession, Weakest Since Financial Crisis
Tyler Durden on 05/13/2015 08:42 -0400
Despite bouncing back last month at the fastest pace in a year, April just printed the slowest YoY growth since Nov09 at just 0.9% (retail sales has still missed expectations for 4 of the last 5 months). Against expectations of a 0.2% MoM rise in April (considerably slower than the 0.9% pop in March), Retail Sales missed with a 0.0% change. Ex-Auto and Gas MoM also missed with a mere 0.1% gain (aghainst +0.5% exp.) but it was the control group that saw the biggest miss, printing 0.0% (against hopeful expectations of a 0.5% gain). There was widespresd weakness with outright declines in autos, furniture, gas, food, electronics (AAPL hangover), and general merchandise.
What is curious is that moments ahead of the release, sellsiders were overslling the retail print to appear far more important than it is, in hopes for a big beat. CRT strategist David Ader says in note that "Retail Sales is, oddly, perhaps more important than NFP…"
And now we get the talking down.
MoM saw a modest reveision in march save it from 5 monthly misses in a row:
Year-over-Year retail sales growth slowest since July 2008′s slump:
Worse, non-seasonally adjusted retail sales which however are perfectly relevant on a Y/Y basis as the same seasonal adjustment takes place every 12 months, posted their first decline since the Great Recession.
Jim Sinclair’s Commentary
Sure as the yuan rises other currencies drop in yuan terms and that includes the Dollar.
Currency Wars Defused by China as Yuan Rally Spreads Across Asia
by Lilian Karunungan
China is helping its Asian neighbors stay out of the global currency wars.
Policy makers in the world’s biggest exporter have resisted weakening the yuan as economic growth slows, seeing exchange-rate stability as key to winning global reserve-currency status from the International Monetary Fund this year. That in turn has reduced pressure on China’s regional export rivals to keep their products competitive with weaker exchange rates, according to BlackRock Inc., the world’s largest money manager.
“We don’t expect a large depreciation of the yuan,” Joel Kim, the head of Asia-Pacific fixed income at BlackRock, which oversees $4.8 trillion, said April 21 by e-mail. He predicts Asian currencies will outperform peers in other emerging markets. “If they would do something like that, for the rest of Asia and the rest of the world it would obviously set off another round of competitive devaluation.”
Foreign-exchange traders have started to take notice. The Bloomberg JPMorgan Asia Dollar Index has strengthened 2.3 percent from an almost five-year low on March 13, while the average cost of options to sell nine Asian currencies against the dollar dropped last week to the lowest since Dec. 3 versus bullish contracts. ABN Amro Bank NV, the most accurate forecaster of Asian currencies for three straight quarters, raised its June targets for the yuan, Taiwan dollar and South Korean won last week.
Taiwan and South Korea, along with Singapore, have the highest export exposure to China among Asian peers, according to Roy Teo, a Singapore-based strategist at ABN Amro. He raised his June forecast for the won by 1.8 percent to 1,100 per dollar, while increasing predictions for the yuan and the Taiwan dollar by 0.8 percent and 1.3 percent, respectively.
China’s currency will probably end the year little changed at 6.2 per dollar, compared with 6.1993 as of 9:10 a.m. London time on Wednesday, according to the median of 36 analyst estimates compiled by Bloomberg.
The yuan depreciated in the first two months of 2015 as traders speculated the People’s Bank of China would follow peers from Europe to Australia in using weaker exchange rates to support growth. The rebound began on March 3 after PBOC Deputy Governor Yi Gang said the currency “will remain very stable in the future.”
Jim Sinclair’s Commentary
This is a form of two elements meeting as in nuclear fusion.
Liquidity drought could spark market bloodbath, warns IIF
Evaporating liquidity and higher US interest rates will cause huge market swings with potentially catastrophic consequences, Institute of International Finance warns
By Szu Ping Chan
6:41PM BST 04 May 2015
Investors face a “painful” adjustment in a world of evaporating liquidity and higher US interest rates that will trigger huge market swings with potentially catastrophic consequences, the Institute of International Finance has warned.
Timothy Adams, the chief executive of the IIF, which represents the world’s biggest banks, described liquidity as the “top issue” at high level meetings of central bankers, chief executives and other financial institutions.
He warned that the raft of regulation introduced in the wake of the 2008 crisis could potentially cause market gyrations larger than last October’s “flash crash” in US Treasuries.
While Mr Adams supports tougher rules that have made the banks more resilient, he said a complex web of regulatory reform may have left banks less able to respond to the next crisis.
“There’s just less capacity for making markets,” he said. “Officials will say: we expect some volatility and this was part of this broader scheme of regulatory reform. But for the private sector there is this issue of: is the total effect of all of these various regulatory changes likely to produce outcomes larger than each individual regulatory reform and its consequences?
"The cumulative unintended could end up being much larger than the one-off intended – we just don’t know.”
Jim Sinclair’s Commentary
I think the worm has turned!
ETF companies boost bank credit lines amid liquidity concern
NEW YORK | By Ashley Lau and Michael Flaherty
The biggest providers of exchange-traded funds, which have been funneling billions of investor dollars into some little-traded corners of the bond market, are bolstering bank credit lines for cash to tap in the event of a market meltdown.
Vanguard Group, Guggenheim Investments and First Trust are among U.S. fund companies that have lined up new bank guarantees or expanded ones they already had, recent company filings show.
The measures come as the Federal Reserve and other U.S. regulators express concern about the ability of fund managers to withstand a wave of investor redemptions in the event of another financial crisis. They have pointed particularly to fixed-income ETFs, which tend to track less liquid markets such as high yield corporate bonds or bank loans.
"You want to have measures in place in case there are high volumes of redemption so you can meet those redemptions without severely impacting the liquidity of the underlying securities," said Ryan Issakainen, exchange-traded fund strategist at First Trust. The company has increased a credit line it has set up to $80 million at the end of last year, the most recent reporting period, from what was originally a $20 million line in early 2013. The line is shared by two of its ETFs and two mutual funds with a combined $645 million in assets.
Under the Wall Street reform act known as Dodd-Frank, banks have been shedding their bond inventories, resulting in less liquidity in fixed-income markets. Because there are fewer bonds available for trading, a huge selloff in the bond markets could worsen the effect of a liquidity mismatch in bond ETFs.
Vanguard, the second-largest U.S. ETF provider, lined up its first committed bank line of credit last year and now has a $2.89 billion facility backed by multiple banks and accessible to all of Vanguard’s funds, covering some $3 trillion in assets, the Pennsylvania-based fund company told Reuters. The new setup is to "make sure that funds will be available in time of market stress when the banks themselves may have liquidity concerns," Vanguard said.
The issue for ETFs is this: When investors sell fund shares and there aren’t enough ETF buyers in the market, the ETF manager in many cases will need to immediately sell shares of the underlying securities in the fund to meet those redemptions. But a sudden selloff of an ETF in an illiquid market could cause the manager to have to dump those securities at any price, causing their share prices to collapse. With a line of credit, fund managers could instead meet redemptions and take their time to sell some securities.
"These funds offer daily or even intraday liquidity to investors while holding assets that are hard to sell immediately, thus making the funds vulnerable to liquidity risk," U.S. Federal Reserve Vice Chair Stanley Fischer said in a speech in March in Germany, pointing directly to ETFs and saying they have mushroomed in size while tracking indexes of "relatively illiquid" assets.
Jim Sinclair’s Commentary
What is not broke?
Chicago "Junking" Triggers $2.2 Billion Payment, Deepening Financial Crisis
Tyler Durden on 05/13/2015 07:49 -0400
In early March, we discussed the rather deplorable state of Illinois’ public pension plans which, we noted, are underfunded by some 60%. On a statewide basis, making up the deficit would cost around $22,000 per household, which gives you an idea of the cost to taxpayers of the grossly underfunded pension liabilities.
A month later, we pointed out the fact that spreads between Chicago’s muni bonds and USTs had blown out to the tune of 60bps as mayor Rahm Emanuel’s re-election became more assured. We also highlighted a WSJ graphic showing that when it comes to unfunded public worker pension liabilities per person, nobody does it like Chicago.
The situation worsened materially last Friday when the Illinois Supreme Court struck down a pension reform law that aimed at closing the state’s $105 billion hole.
Via The Chicago Tribune:
The Illinois Supreme Court on Friday unanimously ruled unconstitutional a landmark state pension law that aimed to scale back government worker benefits to erase a massive $105 billion retirement system debt, sending lawmakers and the new governor back to the negotiating table to try to solve the pressing financial issue.
The ruling also reverberated at City Hall, imperiling a similar law Mayor Rahm Emanuel pushed through to shore up two of the four city worker retirement funds and making it more difficult for him to find fixes for police, fire and teacher pension funds that are short billions of dollars.
That ruling, it turns out, would be the death knell for Chicago’s credit rating, at least as far as Moody’s is concerned. Citing “expected growth in the city’s highly elevated unfunded pension liabilities,” the rating agency cut the city to junk at Ba1. This is bad news for Chicago for a number of reasons, not the least of which is the fact that Emanuel was looking to refi nearly a billion dollars in floating rate debt into fixed rate notes and borrow another $200 million to pay off the related swaps — clearly this will now be far more difficult. The ratings agency’s actions also given creditors accelerated payment rights, meaning the city could be on the hook for some $2.2 billion in principal and interest on its outstanding liabilities.
Rot Of Empire: Moody’s Downgrades Chicago To Junk Bond Status
May 13, 2015
It’s doubtful that Warren Buffet’s Moody’s Investor Services will face the same wrath from Obama that Obama inflicted on S&P after S&P downgraded the U.S. Government debt rating from triple-A to double-A. After all, Warren Buffet owns Obama.
But recall that Moody’s did not downgrade Enron to junk status until Enron hit the wall. While I’m not suggesting that Chicago will hit the wall anytime in the next few weeks, it does suggest that the White House is probably evaluating bail-out ideas.
I’m not sure how Obama thinks he can smooth this one by all Federal taxpayers outside of the State of Illinois (which itself is running something like an admitted $21 billion budget deficit). But, then again, something like 45% of registered Democrats have expressed voting support for a criminal (Hillary Clinton), so anything is possible in this Orwellian paradise.
Here’s a summary of Moody’s downgrade “rationale:”
The Ba1 rating on Chicago’s GO debt incorporates expected growth in the city’s highly elevated unfunded pension liabilities. Based on the Illinois Supreme Court’s May 8 overturning of the statute that governs the State of Illinois’ (A3 negative) pensions, we believe that the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably. Whether or not the current statutes that govern Chicago’s pension plans stand, we expect the costs of servicing Chicago’s unfunded liabilities will grow, placing significant strain on the city’s financial operations absent commensurate growth in revenue and/or reductions in other expenditures.
Our negative outlook reflects our expectation that Chicago’s credit challenges will continue, both in the near term and in the long term. Immediate credit challenges include potential draws on liquidity associated with rating triggers embedded in the city’s letters of credit (LOCs), standby bond purchase agreement (SBPA), lines of credit, direct bank loans, and swaps [Oops – banks can and should pull the plug]. The current rating actions give the counterparties of these transactions the option to immediately demand up to $2.2 billion in accelerated principal and accrued interest and associated termination fees.
Chicago, like Detroit before it, is emblematic of the Rot of Empire. Large industrial-based cities have been gutted by modern day Robber Barons who have moved the bulk of America’s industrial base to cheap-labor eastern hemisphere domains. These large Rust-Belt metropolitan areas are collapsing under the weight massive budget deficits and catastrophically underfunded public employee pension funds.
I would hazard an educated guess that if Moody’s has determined that Chicago is regarded as below investment grade, the stark reality is that Chicago is likely on the verge of collapse barring some likely smoke-filled back room deals cut between Obama and his former puppet-master, Rahm Emanuel (Mayor of Chicago).
I Bet You Didn’t Even Notice It?
Author : Bill Holter
Published: May 11th, 2015
All hell broke out in the credit markets during the overnight hours last Thursday morning, I’ll bet you didn’t even notice it. Before getting into the meat of this piece, it is important to understand “what’s important”. The press constantly harps on the “Dow Jones this or the S+P that”. People come home from work and turn on their TV’s to see what “the market” did. Others have their smart phones or computers at work set to display the stock markets to keep themselves informed.
I am going to tell you, the stock market(s) are merely a side show to the grand Big Top circus of the credit markets. This is true in the U.S., all of Europe and Asia, it is true everywhere. This is the case because the credit (bond) markets are so much larger than the equity markets. The world revolves around credit. Everything revolves around credit. Our daily lives will be turned upside down when the credit markets seize up, and yes, I said “when”, not “if”.
Without a fully functioning credit market, distribution will break down, real estate markets will cease to exist except for cash purchases or barters. Companies will cease to exist because their access to money to run their companies will be nonexistent. Amongst many other “effects”, cash or currencies themselves will also be affected. All currencies everywhere on the planet are a function of, backed or supported by, and actually exist solely as a result of functioning credit markets. The saying goes, “money makes the world go ’round”, this is not true today. Today, “credit makes the world go ’round”!
With the above as an understanding, what happened last Wednesday night/Thursday morning in the wee hours was terrifying. Globally the credit markets began to melt down! This was a global event and almost ALL credits were being sold. To put this in perspective, German bond yields went from .59% to over .76%, this was nearly a 30% rise in yields …within hours. Remember, Germany is considered THE safest credit in Europe. The 10 year bund was yielding under .05% just two weeks ago, the yield had risen more than 15 fold!
Within hours of the U.S. market opening, the central banks of the world had stepped in and brought yields back to mostly unchanged. Can you imagine how much capital had to be deployed? Of course, much of this was done via derivatives but what was the end result? More derivatives outstanding and the central banks have again levered their balance sheets further to save the day. The intraday losses on both credit and their derivatives must have been staggering, had yields not returned to unchanged, this could have torpedoed the entire system.
What is my point here? First, the movements in terms of capital were huge. Intraday, literally trillions were won and lost. If the central banks had not stepped in and yields ended the day at their highs, many losers would have been more insolvent than they probably already are. As I have been saying for several months, I believe there are dead bodies out there, only the financial coroners will not issue death certificates. In other words, …insolvencies are being hidden!
A foundation of BAD credit is no foundation at all!
Author : Bill Holter
Published: May 12th, 2015
That didn’t take long did it? I of course am speaking of the second overnight and global meltdown of the credit markets …in the last four business days! Before getting into this topic which I believe will soon be seen in retrospect and by historians far into the future as “THE” trigger event. The second piece I sent out yesterday “I bet you didn’t even notice it” was written over the weekend, I planned to send it out for Tuesday’s reading. After sending it to Jim Sinclair to see what he thought, he strongly urged me to get that piece out for Monday. Had I not followed his advice, yesterday’s piece would have been a day late, and old news by the time it went public. So, I am eating a bit of humble pie here, the first fruit has already fallen from the seed of our partnership!
Just as we saw last Wed. night/Thurs. wee hours, credit markets again melted down overnight. The following charts clearly illustrate this.
…But wait, just as last Thursday, credit again reversed so, …no harm no foul?
It is so important you understand “what” is happening and have an idea of “why”. Let me tackle the what part first, We are witnessing sovereign bonds and their yields move in wider standard deviations than most commodities ever do. When you hear the word “commodity” you should think “risky risky” because they have wild moves limit up and limit down, it’s the way the game is played and should be expected.
Sovereign notes and bonds are (were) the opposite. They are THE bedrock of the entire financial system. They are “supposed to be safe”. They are supposed to be for widows and orphans. Sovereign credits are THE core to nearly all retirement funds on the planet. If everything else fails, it is this sector, government bonds, which should stand tall and stave off the failure of retirement plans. The action over the last week is anything but bedrock or “stable”, in fact, it is volatility in the bond markets that are endangering everything financial; suffice it to say “a foundation of BAD credit is not foundation at all”!
The Bottom Is In!
Author : Bill Holter
Published: November 17th, 2014
This past Friday was a near carbon copy of the previous Friday for the precious metals. Both were “outside reversal” days where the overnight and morning sessions were quite weak, only to bottom and then reverse to the upside strongly on very heavy volume by the day’s end. First, this type of action is almost unheard of for precious metals and has happened only a handful of times over the last 15-20 years. Also, both reversals were quite large from the day’s early lows to their final closes, the range was 3-4% which obliterated the long held “2% rule”. We have now seen this twice in exactly 6 trading days and both were on a Friday.
I want to emphasize “FRIDAY” and put it in capital letters to boot. Friday is the end of the week where there is no trading over the weekend. (It is also the most important day to chartists where the charts cut off and print a close for the weekly period.) Once business closes on Friday, participants are basically frozen in their position until Monday morning …or until the market reopens. Market participants obviously know this and either position themselves accordingly or square their books going into weekends, it has been this way since the beginning of markets. That said and as you know, I am a believer that we will see a system wide “re set” and this will in most all likelihood occur over a weekend.
I wasn’t sure when sitting down to write this how I’d structure it, meaning give you evidence and lead to a conclusion or the reverse? My conclusion is that we have hit a precious metals BOTTOM and are now reversing, the worst is over in my opinion! I must confess, I called a bottom 2 days after the low in June of 2013, some 16 months ago …which stood as correct until 2 weeks ago… I was wrong. I did not in any way believe the $1,180 level in gold would be broken, it was. That level was broken the day after the last FOMC meeting when 7 days’ worth of global production was sold at 12:30 AM on the COMEX. Clearly this sale was meant to “break the charts” and break the spirits of any remaining PM bulls. It did break the charts and sentiment along with it. I actually saw a bullish/bearish sentiment reading this past week at “0″ bulls, I can’t remember where I saw it but I can tell you in 30 years I have never seen this before in any market.
OK, here is what I see and what leads me to believe we now have a hard bottom in. We had the two consecutive reversal Fridays and both on very big volume. These can be considered “impulse waves” if you will. The previous week’s raid occurred just as the GOFO lease rates were again going negative (an impossibility in any normal market scenario). Since then, the GOFO rates have gone further negative and have now seen two (possibly three, we will know on Monday?) record negative consecutive days. GOFO rates should never be negative yet they are more negative than any time since 2001 when the gold bull market began. Negative lease rates mean that the real metal is scarce which a direct contradiction to dropping prices is. I will say this, while the COMEX can create 7 days’ worth of paper gold and sell it while everyone is sleeping to “make” price, they cannot create real gold out of thin air to satisfy real leasing needs. What I am saying is this, rates in the “real” market show gold as very scarce, NOT plentiful as price would suggest.
Another anomaly occurred this past Thursday and Friday. Scotia was served 920 Nov. COMEX gold contracts on Thursday and another 462 Friday. This is VERY strange and can only be explained as “someone either needs or wants gold…NOW!” I say “now” because the November month is historically a very small delivery month, there are only a few days left and there were only 33 contracts open prior to these 920, and 462 being served. This represents 92,000 ounces of gold, almost three tons and 46,200 ounces or nearly 1 1/2 tons. In a contract that is going off the board in short order, for what possible reason would this ever be done? Who is the ultimate buyer and why now? We can’t know “who?” we can only speculate on “why now?” but we do know one thing for an absolute. Someone is desperate for gold and has to have it immediately! I have never seen anything like this in the COMEX metals in the last 15 years happen even once …but back to back day’s smacks of something really different! Stay tuned as I plan to write more about this anomaly and the GOFO backwardation in my next piece.
Other pieces to the puzzle include very high open interest for Dec. silver, still contracted for more than 7 ounces for each ounce represented in registered inventory. Interestingly, the bullish consensus on the dollar has never ever been higher than it is right now, everyone has moved to one side of the boat. Russia announced a doubling of their purchases over the last three months to 55 gold tons while China is averaging nearly this amount weekly …and India looks to again be ramping up purchases. We also have seen a rampage in Europe, particularly Germany where silver demand has recently been voracious. So much so that many mints have gone “back order” including the U.S. mint suspending the sales of Silver Eagles. Anecdotally, I would also like to mention the premiums on U.S. Gold Liberty coins has risen dramatically over the last two weeks, so much so that they now actually cost more than when gold itself was $30-$40 higher. I understand, “they don’t make these anymore” but dealers are being forced to raise what they will pay owners to entice product. NONE of this is the action of a market where the thought process is “get me out now!”
As a backdrop, we still need to hear from the G-20 and what was decided there along with the Swiss vote at the end of the month and also the “nuisance” factor of ISIS announcing they will create their own currencies …made of gold and silver. We already know the APEC/G-20 meetings have respectively shown little U.S. respect as President Obama was pictured far from the center and (I mean no disrespect) between two women…followed by Mr. Putin being isolated by his lonesome for the G-20 photo. I bring this up because China/Russia obviously knows the game of proper diplomacy, I can see no way a U.S. president would ever be treated like this unless something was afoot and close to being made public (I wrote about this in my “G-20 Massacre” article last week). As for the treatment of Mr. Putin who now says he will leave the summit early, do the G-7 members really believe there is an upside to poking “the bear”?