Posted at 7:22 PM (CST) by & filed under Bill Holter.

Dear CIGAs,

Thank you everyone for your responses to yesterday’s article, there were well over 500 to which Jim and I have responded to. I spoke this morning with a nuclear physicist to get her opinion which follows;

“Bill, the blast is hard to see because a text box is right over the explosion on my screen. In my opinion, from what I can see, the blast does not look nuclear. It resembles more an explosion of a large fuel/oil storage tank, as would be found at a port. Also, there is no info in English on how far the filmers were from the blast, which would help in scale.”

Of the many comments received, the most common was “fuel ordinance”. I try always to be accurate and get to the truth which is why we went to the source of a scientist. I now believe the explosion was in fact some sort of fuel or chemical, most common thought amongst comments was LNG (liquid natural gas). Whether the explosion was or was not an accident may never be known. Accidents do happen, the “timing” of this accident does add the flavor of curiosity.

Standing watch,
Bill

Posted at 1:06 PM (CST) by & filed under In The News.

Nothing did more to spur the boom in stocks than the decision made by the New York Federal Reserve bank, in the spring of 1927, to cut the rediscount rate. Benjamin Strong, Governor of the bank, was chief advocate of this unwise measure, which was taken largely at the behest of Montagu Norman of the Bank of England… At the time of the Banks action I warned of its consequences…  I felt that sooner or later the market had to break.
– Bernard Baruch

 

This Alarming Indicator Is Back At A Level Last Seen 10 Days Before The Bear Stearns Collapse
Submitted by Tyler Durden on 08/14/2015 10:31 -0400

One of the most disturbing and recurring themes highlighted on this site over the past year has been the ever greater disconnect between the worlds of equity and fixed income, whether in terms of implied volatility, or actual underlying risk.

clip_image001

It turns out there is an even more acute, and far more concerning divergence, which was conveniently pointed out overnight by Bank of America’s Yuriy Shchuchinov, one which again looks at the spread between credit and equity. Specifically, BofA notes that in just the past two weeks, credit spreads from our HG corporate bond index have widened another 9bps to 164bps while equity volatility is down another percentage point (although technically BofA uses the 3rd VIX futures as its measure of equity volatility rather than VIX itself to get a smoother series that is less affected by the daily noises and seasonalities).

This is how the resulting dramatic divergence looks like:

clip_image002

Why is this notable?

In BofA’s own words: “this spread currently translates into 10.26 bps of credit spread per point of equity vol, the level reached on March 6, 2008 – ten days before Bear Stearns was forced to sell itself to JP Morgan for $2/sh. Recall that – unlike the credit market – the equity market well into 2008 was very complacent about the subprime crisis that led to a full blown financial crisis.”

More…

 

Jim Sinclair’s Commentary

Good time to tighten, Janet. 

UMich Consumer Sentiment Slips As Business Expectations Collapse To 11-Month Lows
Submitted by Tyler Durden on 08/14/2015 10:08 -0400

It appears the US Consumer is losing faith. August preliminary UMich Consumer Sentiment slipped from July’s 93.1 and missed expectations. This is the 2nd weakest print since November. Longer-term inflation expectations fell back to 2.7% and expectations for household income growth slipped to just 1.6%, but the collapse in business expectations to 11-month lows is the most crucial aspect.

The headline was weak…

clip_image003

But hope is fading fast…

clip_image004

More…

 

Jim Sinclair’s Commentary

The following is a time tested method of understanding Fed statements.

clip_image005

 

Jim Sinclair’s Commentary

Let’s see who buys (steals) them.

Barrick Gold debt on the brink of junk after downgrade
Thursday, August 13, 2015 At 08:07PM
Lawrie Williams | 13 August 2015 11:16

LONDON – We have noted here before the debt level mire that most of the world’s major gold miners have found themselves in after years of chasing growth when the gold price was strong and moving upwards.

However since late 2012 the gold price has been declining, but the major debt commitments – mostly relating to significant new mining projects and expansions which came to a peak thereafter – somewhat typical of the cyclical nature of mining industry economics. But in the views of many, this has led to the companies being overstretched financially (albeit not beyond their powers to dig themselves out of the financial pit thus created). The major credit rating agencies have been treating them accordingly, based on their current debt positions. This makes the companies less attractive in the eyes of the institutions and hedge funds and can lead to a downrated entity – particularly if it falls to non-investment grade (junk) status, then likely having to pay higher interest rates in servicing its debt.

More…

Posted at 5:10 PM (CST) by & filed under Bill Holter.

Dear CIGAs,

The question of our title is very important, “Did the FINAL WAR just start?”.  If you polled Americans on this question, 99.9% would answer “no” if you took out the Middle East.  Last week I wrote “The Rumblings of War” regarding the IMF rebuffing China’s entry into the SDR.  This was followed up by “The shot heard ’round the world” on Tuesday commenting on China’s surprise devaluation.  The purpose of this writing is to show you YES, we are in fact at war!  Rather than “tell” you we are at war, I feel it is better to point out a few dots, connect some of them and then ask a few questions which might help you understand the war that is in fact being waged.  If you can answer some of the questions then connecting dots and forming your own conclusions will be easier.

As our backdrop, we are “told” the world is in recovery from the very bad experience of 2008.  Since then, various central banks have monetized debt on a massive scale, led by the Federal Reserve of the U.S..  Undoubtedly, the greatest “export” from the U.S. has been dollars themselves and financial products known as derivatives.  For the most part, the world spun merrily until last fall when Saudi Arabia decided to increase production and lower prices.  This was presumably done at the request of the U.S. and meant as a tool to injure Russia’s energy sector, economy and financial system.  Can the petrodollar which became accustomed to $100 oil be supported with sub $50 oil?  There are two sides to this coin, yes the consumer of oil saves but doesn’t lower oil price mean less liquidity in the system?  Doesn’t it mean lower velocity and less demand for dollars?

Moving along, did anyone really wonder “why” or what (or better yet, WHO) was behind China being put off for acceptance as a component of the SDR?  Then just two trading days later, China devalued their currency in a surprise move…followed by two more devaluations!  Remember, the U.S. has been prodding China to strengthen their currency and has gone so far as to call them a “currency manipulator”!  Now we see China doing the exact opposite of U.S. requests (demands?).  World markets have been shaken, and at a time when liquidity is quite tight.

A stronger dollar since last fall has acted as a constant and nagging “margin call” to the world which has contributed to the lack of liquidity.  Have the Chinese finally said “fine, you want to issue a margin call to the world, we will help you issue it.  Let’s see what happens to your financial system when the margin call fails to be met?”.  Do you see what I am getting at here?  The Chinese are now forcing the dollar higher by devaluing their own currency.  They understand the dollar is nothing more than a debt instrument, are they attacking and intending to destroy the dollar with its own strength?

Follow this through, a stronger dollar will decrease our exports and slow our already slow or negative economy. A too strong dollar can actually undermine itself and even kick off a derivatives chain explosion. Our banks and brokers are very thinly capitalized, can they withstand losses in derivatives caused by a currency crisis?  Can they withstand the losses from failed counterparties unable to pay?  Do you see?  A currency crisis “caused” by China could be a calamity.  China has already accused Citadel (Ben Bernanke’s new employer) of creating the crash in their equity markets, is a currency crisis retaliation for their equity crash and public shaming by the IMF?  If you understand how the Chinese think and also understand the works of Sun Tzu, Jim and I ask if China’s strategy is …  “In order to destroy the dollar permanently make it stronger temporarily.”? 

Another area to look at is gold and silver.  Supplies have recently gotten very tight, not just for retail in the U.S. but all over the world.  Has production slowed or have buyers stepped up their hoarding?  Or, have Western central banks reduced their “dis hoarding”?  Whatever it is, something in the supply/demand dynamics has definitely changed …and it has not taken much money to do it!  Are these separate events or are they tied together somehow?

This is where it gets weird or some might say “coincidental”.  Did anyone see the explosion at the Chinese port city of Tianjin yesterday?  https://www.youtube.com/watch?v=_92WaPxeqCs  “Yesterday” being one day after China devalued their currency?  I am no rocket scientist and cannot say for sure, but does this not look like a nuclear explosion?  Can someone out there explain to me in simple terms how a chemical explosion could look like this?  As for the word “coincidence”, the CIA says there is no such thing as a coincidence!

Speaking of coincidences and I have permission to pass this along to you.  Jim Sinclair wrote just a few days ago for the first time in many a moon, he said “gold has very limited downside from here and could move to $2,000 as an initial stop”.  Do you believe it was a coincidence that he speaks now?  No, he was called and was “told” by the same people who guided him in 1980 at the market top.  Do you believe it was a coincidence following Jim’s writing, the IMF shunned China followed by the shot heard ’round the world of a yuan devaluation …three times?!!!  …not to mention an explosion that could be seen from space!  My mind is made up, no it is not any coincidence at all. 

or months I have been suggesting Mr. Putin would drop a “truth bomb” revealing all sorts of false flag events and fraud perpetrated by the U.S..  I still believe this is to come and now even more likely.  Why more likely?  Because the financial sparring between East and West may have taken a very serious turn yesterday and I seriously believe a tactical nuke was set off.  If this is the case, China will provide proof and they will retaliate.  I believe the smoldering stages of what was a financial/technological/trade war have now become hot and the first shot was fired.  I truly do ask for comments regarding what happened in Tianjin.  Please do not send me opinions, I would like to hear exactly why or why not the explosion was nuclear.  I will believe a tactical nuke until someone proves to me it was not.  May God help us all with what comes!

Standing Watch,

Bill Holter
Holter-Sinclair collaboration
Comments welcome!
[email protected]

Posted at 5:01 PM (CST) by & filed under In The News.

clip_image001

 

Jim Sinclair’s Commentary

Larceny 101.

“Project Omega” – Why HFTs Never Lose Money: The Criminal Fraud Explained
Tyler Durden on 08/13/2015 11:51 -0400

Two weeks ago, without knowing the details of the most recent market-rigging and frontrunning scandal involving “alternative” market veteran ITG’s dark pool POSIT, which issued a vague 8-K it would settle with the SEC for “irregularities”, we explained what we thought had happened:

ITG had an in house prop trading group, or “pilot”, which operated for nearly two years, whose only signal was client order flow, which it would frontrun, and make millions in profits. In other words, once again precisely what we have claimed since 2009. But oh yes, not everyone is guilty of such manipulation. Only Liquidnet… and Pipeline… and ITG… and countless other ATS and HFT firms for whom clients are better known as either “easy money” or muppets.

And yes, we get the “trading experiment” narrative: calling it “criminal market manipulation and order frontrunning scheme” just does not sound like something the Modern Markets Initiative would spend millions of dollars to get Congressmen to agree on.

It turns out we were spot on, the only thing we missed was the name of this market manipulation exercise. Now, thanks to the SEC, we know: “Project Omega” (or as it was also correctly dubbed here the “criminal frontrunning scheme”) is how ITG dubbed its secretive prop-trading desk whose only purpose was to frontrun clients.

Here are the details for all you suckers who still read the HFT apologists and believe the bullshit that all these algos do is provide liquidity, when in reality all the really do is frontrun your orders, assuring them of 6 years of trading without a single day’s loss (or in the case of Virtu, one trading day loss). From the SEC:

Between approximately April 2010 and July 2011, ITG violated the federal securities laws and regulations in multiple ways as a result of its operation of an undisclosed proprietary trading desk known within ITG as “Project Omega” (“Project Omega” or “Omega”). During the period of April to December 2010, Project Omega accessed live feeds of ITG customer and POSIT subscriber order and execution information and traded algorithmically based on that information in POSIT and in other market centers. In connection with one of its trading strategies, Project Omega identified and traded with sell-side subscribers in POSIT and ensured that those subscribers’ orders were configured in POSIT to trade  “aggressively,” or in a manner that benefitted Omega by enabling it to earn the full “bid-ask spread” when taking the other side of their orders.

More…

 

Jim Sinclair’s Commentary

Simple solution. Under our system sign a bill and bail ourselves out, of course increasing the debt accordingly. Push the enter button on the computer and off we go.

150 Days: Treasury Says Debt Has Been Frozen at $18,112,975,000,000
By Terence P. Jeffrey | August 12, 2015 | 11:50 AM EDT

(CNSNews.com) – The portion of the federal debt that is subject to a legal limit set by Congress closed Monday, August 10, at $18,112,975,000,000, according to the latest Daily Treasury Statement, which was published at 4:00 p.m. on Tuesday.

That, according to the Treasury’s statements, makes 150 straight days the debt subject to the limit has been frozen at $18,112,975,000,000.

$18,112,975,000,000 is about $25 million below the current legal debt limit of $18,113,000,080,959.35.

On July 30, Treasury Secretary Jacob Lew sent a letter to the leaders of Congress informing them that he was extending a “debt issuance suspension period” through October 30.

In practice, that means that unless Congress enacts new legislation to increase the limit on the federal debt before then, the Treasury will continue for at least the next eleven weeks to issue Daily Treasury Statements that show the federal debt subject to the limit beginning and ending each day frozen just below that limit.

The Daily Treasury Statement for March 13 was the first to show the debt subject to the limit closing the day at $18,112,975,000,000. Every Daily Treasury Statement since then has reported the same thing: the debt closing the day at $18,112,975,000,000.

Every Daily Treasury Statement since Monday, March 16, has also reported the debt beginning and ending each day at $18,112,975,000,000.

clip_image002

More…

 

Jim Sinclair’s Commentary

Remember step #2 of this great drama is the destruction of the middle class, forever. Serfdom is an important part of the playbook. Want to kill something? Red tape it.

Our Government, Destroyer of Jobs
If our government can’t destroy all the private-sector jobs directly, it will do so indirectly by borrowing so much money the system collapses.
Wednesday, August 12, 2015

Conventional economists and pundits are puzzled why jobs growth has been so anemic in this “recovery.” Here’s one factor they overlook: our government. In theory, our government is supposed to encourage private sector job growth. In reality, all the hundreds of pages of regulations are killing job growth, one small business and one job at a time.

Correspondent/entrepreneur Ray Z. was kind enough to share his experience of trying to open a bagel shop and create six jobs:

“For many years, many of my friends and family who have come to my home and experienced my cooking, have told me that I should “open a restaurant”. Of course, I took this with a grain of salt, :0 since many people say this exact phrase, to many other people. There are a lot of people who are able to create very delicious meals.

About five years ago, there was a restaurant for sale, not too far from my home and business. I thought about buying the restaurant, but at that time, the economy was not doing well and I wanted to take a wait and see attitude before I committed to anything. Eventually, the restaurant closed down and a different type of business opened up in the space that had been a restaurant. That business went under in the middle of 2014 and I decided it might be time to open a retail food establishment in the space that used to be a restaurant. How hard could it be?

I signed a lease with the property owner for his 1000 square foot space. I contracted with a general contractor and designed the restaurant floor space on a CAD program I have on my office machine.

Having boot-strapped two seven figure companies from the ground up over the past 25 years, I knew all of the permits needed in order to open a regular business. First, I had to have my attorney file for incorporation in my state. Then, I secured my FEIN (Federal Employer Identification Number) from the IRS, opened a bank account, got my sales and use tax permit (to collect sales taxes) from the State and contacted the person at the state level who is responsible for food establishments at the state level. The department that handles such things is the Nevada Health Department.

More…

 

clip_image004

 

clip_image006

Posted at 4:59 PM (CST) by & filed under Jim's Mailbox.

Jim,

The race to the bottom is on steroids now!

CIGA Dr. K.

Both ECB And BOJ Warn More QE May Be Response To Chinese Currency War
Submitted by Tyler Durden on 08/13/2015 08:10 -0400

Minutes from the ECB’s most recent policy meeting reveal that Mario Draghi and company have a number of concerns about the pace of economic growth in the euroarea and about the outlook for inflation which, much to the governing council’s surprise, “remains unusually low.”

Board members also took note of increasingly volatile EGB markets and made special mention of the second bund VaR shock which took place at the first of June, something the central bank attributes to “overvaluation [and] one?way market positioning related to the public sector purchase programme.” In other words: “our bad.”

The bank gave itself the now customary pat on the back for the “success” of PSPP noting that the “moderate frontloading of purchases” (a reference to the effective expansion of QE that was leaked to a room full of hedge funds at an event in May) was going smoothly, other than the above-mentioned nasty bout of extreme volatility.

As for the economy and inflation, well, that’s not going so hot. “Overall, the recovery in the euro area was expected to remain moderate and gradual, which was considered disappointing from both a longer-term and an international perspective [while] consumer price inflation had remained unusually low.”

Between that rather grim assessment and the comments cited above regarding volatility, one is certainly left to wonder what it is exactly about PSPP that’s going so “smoothly.”

But as interesting as all of that is (or isn’t), the most compelling comments were related to China. Here’s the excerpt:

In particular, financial developments in China could have a larger than expected adverse impact, given this country’s prominent role in global trade.

Consider that, and consider the following statement sent to Bloomberg by an adviser to Japanese PM Shinzo Abe:

If [the Chinese move to devalue to yuan] suppresses external demand in Japan too much, the BOJ may further relax monetary policy.

More…

Posted at 7:50 PM (CST) by & filed under In The News.

clip_image001

 

U.S. Wages Have Fallen EVERY Quarter of the ‘Recovery’
By Jeff Nielson

For 6 ½ long years, we have been bombarded with the mythology known as “the U.S. economic recovery” by the mainstream media. Exposing this fantasy is simple, since the gulf between myth and reality has grown to such absurd proportions.

There is no better starting point than the farcical claim by Barack Obama that “10 million new jobs” have been created during this non-existent recovery. In fact, the U.S. government’s own numbers show that the total number of employed Americans has fallen by more than 3 million over that span, in spite of the population growth over those past 6 ½ years.

clip_image002

The chart above is now somewhat dated, as the St Louis Fed has deliberately changed the format of this chart in order to make it harder to reproduce. Updated, the U.S. civilian participation rate has now fallen to a 36-year low, and as the chart clearly shows, it has fallen at afaster rate since the start of this mythical recovery.

The lie: “10 million new jobs created”. The fact: more than 3 million jobs lost. This is a reality-gap of 13 million jobs, or exactly 2 million jobs per year. The U.S. economy hasn’t been “creating” 1.5 million new jobs per year. It’s been losing roughly ½ million jobs every year of this fantasy-recovery.

Then we have the “heartbeat” of the U.S. economy, its velocity of money. A chart of this heartbeat shows that it has plummeted far lower than at any other time in the 56-year history of this data series. This doesn’t merely show a dying economy, it shows a dead economy.

More…

 

Jim Sinclair’s Commentary

That action is very Chinese as it really does not have a logical fact decision pattern Westerners can easily understand.

China stuns financial markets by devaluing yuan for second day running
Stocks, currencies and commodities fall sharply across region as investors fear a stalling China economy and possible currency war despite Beijing’s assurances
Martin Farrer and Fergus Ryan in Beijing
Wednesday 12 August 2015 03.40 EDT Last modified on Wednesday 12 August 2015 08.52 EDT

China stunned the world’s financial markets on Wednesday by devaluing the yuan for the second consecutive day, triggering fears the world’s second largest economy is in worse shape than investors believed.

The move sent fresh shockwaves through global markets, pushing shares sharply lower and sending commodity prices further into reverse as traders feared the move could ignite a currency war that would destabilise the world economy.

There were widespread losses in Asia, and in Europe stock markets suffered falls of about 1%, with the FTSE 100 tumbling almost 2% at one stage.

The Chinese currency hit a four-year low on Wednesday after the People’s Bank of China set the yuan’s daily midpoint even weaker than inTuesday’s devaluation.

With the bank having said that Tuesday’s move was a “one-off depreciation”, the rapid drop in the value of China’s currency – about 4% in the past two days – dealt a blow to appetite for risky assets, and markets across the region plunged amid concerns that Beijing has embarked on a damaging currency war.

The unexpected yuan devaluation saw Chinese stocks slump in Hong Kong, with the Hang Seng China Enterprises Index sliding 2.6%, extending its loss this quarter to 15%. The Shanghai Composite Index lost 1% to 3,886.32 and the CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 1.2% to 4,016.13 points.

Shares in airlines were hit particularly hard as investors feared a weaker yuan would contribute to higher fuel bills. Air China lost 4.4% while rivals China Eastern and China Southern dropped close to 6%.

Contributing to the slump were worse than expected economic figures with fixed-asset investment falling short of expectations. The crucial gauge on the country’s growth came in at 11.2% for the first seven months from the same period last year, acording to official data. Economists had forecast a rise of 11.5%.

China’s factory output for July also missed expectations, coming in at 6% year-on-year growth instead of the 6.6% expected. Adding to the slew of bad data was retail sales for July, which amounted to approximately 2.43tn yuan, up 10.5% from June, but also short of market expectations of a 10.6% rise.

The Nikkei stock market index in Japan fell 1.6%; South Korea’s Kospi was down 0.56%.

More…

 

China Currency War Contagion Spills Out, Leads To Global FX Heatmap Bloodbath, PBOC Intervention
Tyler Durden on 08/12/2015 05:28 -0400

Overnight, as previously reported, the world was shocked to find that following the record 1.9% devaluation yesterday, China’s ongoing attempt to bring its currency into balance was not a “one-off” thing as the PBOC desperately wanted to spin it, but tumbled by 1.6% again just this morning to a 6.3306 fixing, the lowest since October 2012.

clip_image003

That was just the start of the bad news: shortly after the second devaluation in a row, China reported retail sales (10.5%, exp. 10.6%) and Industrial output (6.0%, exp. 6.6%) which both missed expectations. As Goldman summarized “July activity data came in below market expectations. IP growth moderated meaningfully from June both in yoy terms and on a sequential basis. In conjunction with other recent weak data such as the July trade report, these indicators (which senior officials would have had earlier) help explain the move weaker in the currency over the past two days.”

More:

3Q GDP growth faces significant further downward pressures as the economy will hit a bump in August and September. Beijing and its surrounding regions, the most important heavy industrial zone in the country, will restrict construction, production and transportation between 20 August and 4 September. All previous such restrictions (Olympics in 2008, Youth Olympics and APEC Summit in 2014) were associated with weak growth. With the A-share equity market range-bound amid intensive government supports, the extra 0.5ppt direct contribution from heightened financial sector activity to first-half GDP growth will likely fade too.

Today’s data at least partially explains the two very unusual moves by the PBOC yesterday: (1) the decision to allow the currency to depreciate, (2) releasing very strong (at least on the surface, see China: July money and credit data above expectations, but underlying growth not as strong as headline numbers suggest, Aug 11, 2015) July monetary data very early in the morning. The moves were likely intended to be a preemptive measure to show the market the economy has a brighter side too and the government is taking actions to support growth.

We expect the government to take other loosening measures, including further RRR cuts, more supports for policy banks, more government bond issuance, and pressures on local governments to take actions to spend idle fiscal deposits to support FAI growth. Slightly higher recent CPI inflation may make policymakers a bit more reluctant to ease via (benchmark) rate cuts than through the other approaches — in the past, policymakers have seemed to view benchmark rates as more closely linked to inflation outcomes, though we think their impact on the economy is relatively modest.

More…

 

Jim Sinclair’s Commentary

A Presidential candidate that actually understands this stuff?

Presidential candidate Trump: China devaluation will devastate US
Tuesday, 11 Aug 2015 | 9:46 AM ETReuters

Republican presidential candidate Donald Trump on Tuesday said China’s devaluation of the yuan would be “devastating” for the United States.

“They’re just destroying us,” the billionaire businessman, a long-time critic of China’s currency policy, said in a CNN interview.

“They keep devaluing their currency until they get it right. They’re doing a big cut in the yuan, and that’s going to be devastating for us.”

Earlier on Tuesday, China devalued its currency following a series of poor economic data in the yuan’s biggest fall since 1994. Some said this could signal a long-term slide in the exchange rate.

China has been a frequent theme for Trump since he entered the 2016 presidential campaign, promising to be a tougher negotiator with Beijing in order to bolster the U.S. economy.

“We have so much power over China,” he told CNN. “China has gotten rich off of us. China has rebuilt itself with the money it’s sucked out of the United States and the jobs that it’s sucked out of the United States.”

More…

 

The ‘Death Cross’ Forms on the Dow Chart
Joseph Ciolli

The Dow Jones Industrial Average’s biggest decline in a month is proving the final nail in its death cross.

That’s what technical analysts call it when the 50-day moving average falls below the 200-day mean, a formation that was achieved today as the gauge declined for the eighth time in nine days. The pattern is commonly interpreted as a signal price momentum is fizzling out.

clip_image005

“If you don’t make any upside progress, the moving average will start to flatten and eventually turn down,” Jonathan Krinsky, chief market technician at MKM Holdings LLC, said by phone. “There are fewer and fewer stocks holding up the market, and that’s generally not a good thing.”

The 30-company Dow’s moving averages have been on a collision course since Apple Inc., which has the eighth-heaviest weighting, dropped 7.4 percent on July 22. The iPhone maker tumbled another 4.9 percent today, bringing its decline from a February high to 14 percent.

More…

 

Jim Sinclair’s Commentary

QE for eternity.

The Fed Is Out Of Options, “QE Is All It Can Do Here” Art Cashin Predicts
Submitted by Tyler Durden on 08/11/2015 23:43 -0400

Weakness in commodities “is not transitory,” Art Cashin tells CNBC, if you look at things like copper, “this is really a deflationary push… where things can get a little out of control.” The Fed says they must get off zero interest rates because,, as Cashin notes, “they can’t do anything else.” However, as the venerable floorman who has seen it all explains, “they’re in a kind of silly loop where they did QE expecting a reaction… didn’t get it.. and then they did QE again because it didn’t live up to their expectations… but I think they have no other options, if things get negative on the economy, QE is all they can do.”

Which is exactly what we said a month ago…

Even the CNBC anchors realize the folly of Fed ways now, noting “but aren’t they just pushing on a string?” Indeed they are and as Scotiabank’s Guy Haselmann noted earlier, it will cost us…

Fed policy today and over the past several years may prove to be counter-productive in the long-run.

Sustainable growth is best served by an interest rate where capital is deployed efficiently.  The long-run consequences of policy during the past few years could easily mean lower long-run potential growth and inflation.  Today’s consumption and market speculation was paid for with huge amounts of accumulated debt.

Tomorrow’s revenues will have to be steered toward servicing that debt.  Future revenue will also have to replenish the deficient levels of R&D and infrastructure investment of the past few years.

Cashin explains The Fed’s bind…

More…

 

China Currency War Contagion Spills Out, Leads To Global FX Heatmap Bloodbath, PBOC Intervention
Submitted by Tyler Durden on 08/12/2015 05:28 -0400

Overnight, as previously reported, the world was shocked to find that following the record 1.9% devaluation yesterday, China’s ongoing attempt to bring its currency into balance was not a “one-off” thing as the PBOC desperately wanted to spin it, but tumbled by 1.6% again just this morning to a 6.3306 fixing, the lowest since October 2012.

clip_image006

That was just the start of the bad news: shortly after the second devaluation in a row, China reported retail sales (10.5%, exp. 10.6%) and Industrial output (6.0%, exp. 6.6%) which both missed expectations. As Goldman summarized “July activity data came in below market expectations. IP growth moderated meaningfully from June both in yoy terms and on a sequential basis. In conjunction with other recent weak data such as the July trade report, these indicators (which senior officials would have had earlier) help explain the move weaker in the currency over the past two days.”

More:

3Q GDP growth faces significant further downward pressures as the economy will hit a bump in August and September. Beijing and its surrounding regions, the most important heavy industrial zone in the country, will restrict construction, production and transportation between 20 August and 4 September. All previous such restrictions (Olympics in 2008, Youth Olympics and APEC Summit in 2014) were associated with weak growth. With the A-share equity market range-bound amid intensive government supports, the extra 0.5ppt direct contribution from heightened financial sector activity to first-half GDP growth will likely fade too.

Today’s data at least partially explains the two very unusual moves by the PBOC yesterday: (1) the decision to allow the currency to depreciate, (2) releasing very strong (at least on the surface, see China: July money and credit data above expectations, but underlying growth not as strong as headline numbers suggest, Aug 11, 2015) July monetary data very early in the morning. The moves were likely intended to be a preemptive measure to show the market the economy has a brighter side too and the government is taking actions to support growth.

More…

 

John Kerry Warns “Dollar Will Cease To Be Reserve Currency Of The World” If Iran Deal Rejected
Tyler Durden on 08/11/2015 14:16 -0400

Scaremongery… or maybe the whole point, as Obama’s former chief economist noted, is to lose reserve status. Take That China!!

https://www.youtube.com/watch?v=PCAFnCo6nyM

As Jared Bernstein previously explained…

There are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world’s reserve currency. It’s a core principle of American economic policy. After all, who wouldn’t want their currency to be the one that foreign banks and governments want to hold in reserve?

But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.

The reasons are best articulated by Kenneth Austin, a Treasury Department economist, in the latest issue of The Journal of Post Keynesian Economics (needless to say, it’s his opinion, not necessarily the department’s). On the assumption that you don’t have the journal on your coffee table, allow me to summarize.

It is widely recognized that various countries, including China, Singapore and South Korea, suppress the value of their currency relative to the dollar to boost their exports to the United States and reduce its exports to them. They buy lots of dollars, which increases the dollar’s value relative to their own currencies, thus making their exports to us cheaper and our exports to them more expensive.

In 2013, America’s trade deficit was about $475 billion. Its deficit with China alone was $318 billion.

Though Mr. Austin doesn’t say it explicitly, his work shows that, far from being a victim of managed trade, the United States is a willing participant through its efforts to keep the dollar as the world’s most prominent reserve currency.

When a country wants to boost its exports by making them cheaper using the aforementioned process, its central bank accumulates currency from countries that issue reserves. To support this process, these countries suppress their consumption and boost their national savings. Since global accounts must balance, when “currency accumulators” save more and consume less than they produce, other countries — “currency issuers,” like the United States — must save less and consume more than they produce (i.e., run trade deficits).

This means that Americans alone do not determine their rates of savings and consumption. Think of an open, global economy as having one huge, aggregated amount of income that must all be consumed, saved or invested. That means individual countries must adjust to one another. If trade-surplus countries suppress their own consumption and use their excess savings to accumulate dollars, trade-deficit countries must absorb those excess savings to finance their excess consumption or investment.

More…

 

Will China Play The ‘Gold Card’?
Tyler Durden on 08/11/2015 13:36 -0400

Submitted by Hugo Salinas Price via Plata.com,

Alasdair Macleod has posted an article at www.goldmoney.com which I think is important.

The thrust of the article is that China, at some point, will have to revalue gold in China; which means, in other words, that China will decide to devalue the Yuan against gold.

Since “mainstream economics” holds that gold is no longer important in world business, such a measure might be regarded as just an idiosyncrasy of Chinese thinking, and not politically significant, as would be a devaluation against the dollar, which is a no-no amongst the Central Bank community of the world.

However, as I understand the measure, it would be indeed world-shaking.

Here’s how I see it:

Currently, the price of an ounce of gold in Shanghai is roughly 6.20 Yuan x $1084 Dollars = 6,721 Yuan.

Now suppose that China decides to revalue gold in China to 9408 Yuan per ounce: a devaluation of the Yuan of 40%, from 6721 to 9408 Yuan.

What would have to happen?

Importers around the world would immediately purchase physical gold at $1,084 Dollars an ounce, and ship it to Shanghai, where they would sell it for 9408 Yuan, where the price was formerly 6,721 Yuan.

The Chinese economy operates in Yuan and prices there would not be affected – at least not immediately – by the devaluation of the Yuan against gold.

Importers of Chinese goods would then be able to purchase 40% more goods for the same amount of Dollars they were paying before the devaluation of the Yuan against gold. What importer of Chinese goods could resist the temptation to purchase goods now so much cheaper? China would then consolidate its position as a great manufacturing power. Its languishing economy would recuperate spectacularly.

The purchase of physical gold would take off, no longer the activity of detested “gold-bugs”, but an activity linked to making money, albeit fiat money. Inevitably, the price of physical gold in Dollars would separate from the price of the “paper gold” traded on Comex and go higher, leaving paper gold way behind in price.

If the US were to provide the market with physical gold in the quantities being purchased for trade with China, it might be able to prevent the rise in the price of gold in Dollars; however, we know that Comex has only one ounce of physical gold for every 124 owners of paper gold, so that action would be impossible. China would be sucking up the world’s gold at a huge rate, if the price of gold in Dollars were to remain where it is at present.

The only way that the US might counter the Chinese move, would be to revalue gold in Dollars; which is to say, the US would have to effect a corresponding devaluation of the Dollar against gold, to nullify the effect of the Chinese devaluation of the Yuan against gold.

More…

 

This Is Not A Drill: India, Russia And Thailand Prepare For Currency War
Tyler Durden on 08/11/2015 11:22 -0400

When China sneezes, the world catches a cold. Alternatively, when China devalues, the rest of the (exporting) world scrambles to not be the last (exporting) nation standing, and to do so next, before everyone else does.

Case in point, at least three major emerging market nations announced they are bracing for currency war.

First India, where NDTV ask rhetorically “How China’s Devaluation of Renminbi Impacts India” and answers:

1) The Indian rupee slipped to a two-month low of 64.26 against the US dollar on Tuesday tracking the devaluation of the renminbi. Other currencies such as the Australian dollar and the South Korean won also lost ground.

2) The over 0.5 per cent fall in the rupee weighed on traders’ sentiments, resulting in a drop in equity markets. Both the BSE Sensex and the Nifty traded with 0.4 per cent losses.

3) According to SV Prasad of Chime Consulting, renminbi’s devaluation may push the Reserve Bank of India to cut interest rates in India. Lower interest rates will put off foreign investors and will further weaken the rupee, he added.

4) However, fund manager Sandip Sabharwal said India should not be too worried about the devaluation in renminbi. “Analysts are out with predictions of how a 1.5 per cent fall of Chinese currency will lead to a sharp increase in dumping etc. However the Indian rupee has also fallen nearly 0.8 per cent in sympathy and is now down 5 per cent over the last one year. It is hard to see a major impact of this on Indian stock markets or the economy unless yuan depreciation becomes a trend which seems unlikely at this stage,” he said.

5) A fall in the value of the rupee is good for Indian exporters and sectors such as IT and pharma are seen gaining from the depreciation in the rupee. IT stocks were the top performers in stock markets today. However, China-focused Indian companies saw selling pressure because the devaluation of renminbi will make imports costlier in the country. As a result metal stocks saw selling pressure and underperformed broader markets.

Then there is Thailand, where the senior executive vice president of the Stock Exchange of Thailand, Pakorn Peetathawatchai, said that “China is a very important market and a weaker yuan makes our exports there more expensive.” He added that weaker yuan also increases travel costs for Chinese tourists.

Well, yes, it’s called “war” for a reason.

More…

 

Wage Growth Meme In Tatters As Unit Labor Cost Growth Tumbles, Huge Downward Revisions
Tyler Durden on 08/11/2015 08:40 -0400

Instead of an exuberant 6.7% surge in Q1 unit labor costs, heralded by any and all mainstream economists and talking heads as proof that long-awaited wage growth is here, the historical revision slashes it to a mere 2.3% increase, which followed by Q2′s dismal 0.5% increase – the weakest since Q3 2014, suggests wage growth in America is anything but robust. Nonfarm productivity also missed expectations, rising just 1.3% QoQ, a verymodest rebound after two quarters of declines.

clip_image007

Momentum lost.

More…

 

Jim Sinclair’s Commentary

Looks like the Chinese are having an easy time of getting rid of their US Treasuries.

China Slashes U.S. Debt Stake by $180 Billion, Bonds Shrug
Daniel Kruger Wes Goodman
August 9, 2015 — 12:00 PM EDT Updated on August 10, 2015 — 3:26 PM EDT

clip_image009

To get a sense of how robust demand is for U.S. Treasuries, consider that China has reduced its holdings by about $180 billion and the market barely reacted.

Benchmark 10-year yields fell 0.6 percentage point even though the largest foreign holder of U.S. debt pared its stake between March 2014 and May of this year, based on the most recent data available from the Treasury Department. That’s not the doomsday scenario portrayed by those who said the size of the holdings — which peaked at $1.65 trillion in 2014 — would leave the U.S. vulnerable to China’s whims.

Instead, other sources of demand are filling the void. Regulations designed to prevent another financial crisis have caused banks and similar firms to stockpile highly rated assets. Also, mutual funds have been scooping up government debt, flush with cash from savers who are wary of stocks and want an alternative to bank deposits that pay almost nothing. It all adds up to a market in fine fettle as the Federal Reserve moves closer to raising interest rates as soon as next month.

“China may be stepping away, but there is such a deep and broad buyer base for Treasuries, particularly when you have times of uncertainty,” Brandon Swensen, the co-head of U.S. fixed-income at RBC Global Asset Management, which oversees $35 billion, said from Minneapolis.

Voracious Appetite

America has relied on foreign buyers as the Treasury market swelled to $12.7 trillion in order to finance stimulus that helped pull the economy out of recession and bail out the banking system. Overseas investors and official institutions hold $6.13 trillion of Treasuries, up from about $2 trillion in 2006, government data show.

China was a particularly voracious participant, boosting its holdings from less than $350 billion as its economy boomed and the nation bought dollars to keep the yuan from soaring.

More…

Posted at 8:30 PM (CST) by & filed under Bill Holter.

Dear CIGAs,

The shot just heard ’round he world (for those with ears to listen) was a surprise 2% devaluation by the Chinese of their currency the yuan.  I have spoken to many whom I respect to hear their opinions and theories.  This is a very important move by China and one which will affect the entire financial world.  Getting this “completely right” may be quite tough, but getting it mostly right is imperative.

Let’s begin by making a comparison.  I have in the past compared today’s China and the U.S. to the last great global bubble and deflation centered around the U.S. and Great Britain.  China is today’s up and coming financial and productive economy while the U.S. has lived off the fat as the reserve currency and entered decline as Britain did 80+ years ago.  In the early 1930′s, “competitive devaluations” were used to beggar thy neighbor and steal market share of trade.  This, along with tariffs (Smoot-Hawley for example) were put into place.  International trade collapsed just as it is beginning to again today with clear evidence.  The global economy lives on trade and will also die by it (or lack of!).

So why the devaluation?  First, it needs to be said China does not think like the West does.  They are not full blown capitalists and any edict from Beijing, right, wrong or indifferent will be followed almost blindly.  To a large extent they are still a “command” economy but have moved toward allowing capital to find its highest and best use.  This also comes with the baggage of speculation which often times produces bubbles.  No doubt malinvestment has occurred in stocks, real estate, commodities, production and yes, DEBT.  The picture is not very different from that of the U.S. back in the second half of 1929 (with the exception of a few short seller “executions”).

The Chinese move certainly argues against any rate hike in the U.S..  In fact, the yuan has risen over the last 5+ years, this has been desired by the U.S..  I can only assume a devaluation is not desired.  Any further devaluations can be viewed as against U.S. desires and a direct shot back at the “IMF and friends”.  Though the devaluation is much smaller than the Swiss earlier in the year, losses into a very levered and illiquid global market will need to be absorbed.  How this is done will be interesting as China just issued margins calls on many markets.  China also has made capital flight more difficult recently, some of the world’s hot real estate markets will (already are”) feel the pinch.  Again, remember the backdrop is a very illiquid world right now! 

China has lowered rates and eased monetary policy several times recently.  They have outlawed short selling and done whatever they could to stem the meltdown in their markets to no avail.  Devaluing is the next logical choice but already we see the bandwagon of reaction where Russia, India and Thailand are all considering devaluations of their own, the currency war is going into overdrive.  This is not so much about currencies as it is about market share of trade.  The problem is this, the global “pie” of GDP and thus trade is beginning to shrink.  Liquidity (remember the IMF recently warned of this) is tightening everywhere which means cash flows are shrinking.  The ability to meet debt service requirements are becoming more difficult in a world saturated in debt. 

In essence, China’s debt bubble is popping and along with it comes deflation.  This devaluation, though small (for now) aims to “export” some of the deflation to their trading partners.  The current move should not be seen as a one off move, it will not be and further devaluations can be expected.  China is simply doing and will do what “is good for China”.

I believe China asked for inclusion in the SDR basket while believing it would not happen.  They have already set up trade banks, credit facilities, currency swaps and even clearing systems not to mention wooing new trade partners.  Their rebuke however should not be taken lightly.  Even if China did not expect to be included, their public rebuke now gives them a public reason to do what is good for China.  China can no longer be blamed for anything they do in their own self interest.  This would include moving away from trade in dollars and also changing partners.  It would also include the massive sale of U.S. Treasuries and dollars themselves.  I would not be shocked to hear of oil, China, Saudi Arabia and “renminbi settlement” all in the same sentence shortly!

If I am correct and this is not a one off devaluation, much of the world’s population will shortly sniff out some of the ramifications.  Remember, China invented paper currency and are professionals at blowing them up, their people are students of history and know this.  A full out stampede into gold (and silver) before their currency gets devalued again and again may very well start.  The Western banks are short paper gold, owing gold contractually, China knows this and knows it is THE Achilles Heel to the dollar.  If the Asian population were to go on the rampage buying physical metal and created a vacuum of availability, the West will be shown to be naked.  Could Washington accuse China of “busting” the exchanges?  Is the very stubbornly high open interest in silver of Chinese origin?  I believe we will find out that yes, it is and has been for well over a year.  (My “Kill Switch” theory now might make batter sense but a topic for another day).

Please understand this, China fully understands consumers in the West are tapped out.  They can see through the bogus numbers Washington produces and the wonks on Wall St. continually tout.  They understand the Western system is built entirely on debt as in I OWE YOU!  And they understand the system was set up originally as an “IOU nothing” system!  They understand “it’s over”.

I do believe China wants to assume “a” if not THE reserve currency status in the future.  They know they possess more gold than the U.S..  Would it not make sense to devalue your currency and even make it undervalued for the start of a new system for competitive reasons?  Yes I know, they do not have enough gold to back the yuan currently …at current price.  Will they pull a page out of FDR’s playbook and revalue gold higher since they are the largest hoarder in the world?  Could they confiscate from their loyal citizens to leapfrog their holdings even further?  Remember, the tried and true way(s) out of deflation are to print, devalue (versus neighbors AND gold) and of course go to war.  Whether you want to believe it or not, we are now at war both financially and technologically.  Unfortunately, financial and trade wars often times turn into hot wars.   China just fired a shot heard ’round the world for those listening and it was not a celebratory shot by any means!

To finish, could it be China knows this will end in a complete collapse of the financial markets AND real economies of the world, in particular of the West?  They already have the largest productive capacity in the world.  Are they going to devalue their currency so it is “competitive” when the reset occurs?  Have they stripped the West of their gold reserves leaving China with the greatest “monetary” hoard on the planet?  Could there be a better position to be in than having the most “money” and greatest productive capacity …with a middle/lower class of your society numbering in the hundreds of millions needing “stuff” to truly enter the 21st century? 

I will leave you with this graphic from Visual Capitalist: 

clip_image001

In a world levered to the gills and no ability to grow out from under, which is better to have?  Assets or liabilities?   Lots of questions with answers soon to be revealed I believe!

Standing watch,

Bill Holter
Holter-Sinclair collaboration

Posted at 7:01 AM (CST) by & filed under Bill Holter.

Dear CIGAS,

Last year at this time, I wrote and asked readers who owned shares in gold and silver producers to send their companies a letter. I ask that you do this once again.  Please don’t believe I am under any delusions whatsoever because herding cats is a near impossibility. Almost no one dislikes gold and misunderstands their own product more than the current management in the mining industry.  However, doing nothing will certainly accomplish nothing, doing something at least has a “chance” albeit slim.  Below is a letter I plan to send to each producing mining company and precious metals mutual fund that I own personally. Gold and silver prices have been diluted by paper contracts to the point where no money can be made producing gold, and an industry wide loss producing silver.  Years ago, Rob McEwen of Goldcorp decided to withhold the sale of gold production to be held in their treasury until prices were higher.  THIS is exactly what needs to be done now as a counterbalance to the unbacked paper contracts being sold to dilute and depress prices. The COMEX and naked shorts need to be starved for metal, the strong physical demand is doing this slowly while the mining industry could do this very quickly.

Please, copy and paste the below and sign with your name to any producing mining companies you have investments in. Also, do the same for any gold mutual funds you may own and ask the money manager to contact their holdings with this same letter. Government has an incentive to keep metals prices down and the lapdog regulators are allowing it to happen.  Price manipulation is illegal, if the authorities will not fix it, hopefully the industry itself has sense enough to finally do something!  I’m not holding my breath on this one.

Standing watch,

Bill Holter
Holter-Sinclair collaboration

———————————————————

Suggested letter to your gold producing company, by Bill Holter.

Dear Sirs,

I am a believer in hard money and as such am an investor in mining shares, your company being one of them. As you well know, hard times have hit the producers of both gold and silver. Gold and silver prices have been forced down, capital, either debt or equity is very scarce for our industry and share prices are back to the levels they traded at when gold was under $400 more than 10 years ago.

Much evidence has been uncovered by GATA (Gold Anti Trust Action committee) over the last 15 years showing how gold and silver prices have been suppressed and continually manipulated yet we’ve heard not a sound from the industry itself. Many mining concerns pay dues each year to the World Gold Council which at the very best seems to be an antagonist to gold and silver, at worst a Trojan horse. I know of no other industry which does not promote their own product nor protect it from outside malicious pricing practices. This needs to change and the most logical catalyst is from within the mining industry itself.

It makes no sense at all to expend labor and capital to lose money, especially when your product is a finite resource and will not ever replenish. If working harder and digging more ore was an answer then I would be cheerleading the machines. The fact is, the more that gets dug up in the current environment the more money is lost and precious ore forever wasted. As a shareholder I ask that any product over and above expenses be withheld from sale until free and fair prices are present.

The facts are well documented, global demand is and has outstripped supply of gold and silver for many years …yet the prices are dropping. Your “product” is being diluted by paper sales of “representative metal” while the board of directors do nothing at all. Actually, the mining industry itself is aiding the suppression scheme by delivering metal. This can only start one company at a time, why not our company? Why do we deplete our ore reserves and not receive fair value for our capital and labor?

Whether this proposed action is taken or not remains to be seen. Shortages of metal will occur sooner or later as physical demand and backwardation will eventually take the metals higher in price by multiples. Hopefully our company still has reserves left to be sold at fair profit margins. Many companies will not be in existence within a couple of years unless those with the fiduciary responsibility to protect our companies and shareholders …also protect our product from fraudulent dilution.

Best regards, _________.