Wednesday, October 16, 2013

oct 16/GLD falls to 885 tonnes of gold (28.4 million oz)/ GOFO rates now negative

Good evening Ladies and Gentlemen:

Gold closed up $9.00  to $1282.00 (comex closing time ).  Silver was up 17 cents at $21.32. 

 In the access market today at 5:15 pm tonight here are the final  prices: 

gold: $1282.60
silver:  $21.40

Oh OH!!,  GOFO numbers are now mostly in the negative as gold is now extremely scarce as the boys are finding it harder to find physical. Gold is in backwardation from 1 month out to 3 months out.

Here are today's readings with Tuesday's comparison:  GOFO rates increase in negativity .

i) One Month:  -.060000   vs  Monday: .00000
ii Two Months:  -.04833.  vs Monday:  .011667000
iii) Three Months:  .040000 vs Monday:  .0233333
iv) Six months:  +.025000  vs Monday:   .06500

Let us now head over to the comex and assess trading over there today.
Here are the details:

The total gold comex open interest  fell today by only 1193 contracts from   382,920 down to 381,727 as gold fell yesterday by $3.20.   It is becoming more difficult for the bankers to fleece some of our longs. We are now in the active delivery month of October and here the OI rose by 114 contracts up to 278.  We had 0 notices filed yesterday  so in essence we gained  114 contracts or an additional 11,400 oz that will  stand in the October delivery month. The biggest of all delivery months is the December contract month.   The December OI fell by 3778 contracts from  229,032 down to 225,254. The estimated volume today was good at 170,711 contracts. The confirmed volume yesterday  was very strong coming in at 215,235.

The total silver Comex OI fell  today by 772 contracts as silver was down in price yesterday  ( 16 cents ).  The total OI now rests tonight at 116,207 contracts.   We are now at extreme lows in OI with respect to silver (and gold) and I believe we can assume that both precious metal contracts are all in strong hands.  The  non active delivery month of October saw its OI fall by 12 contracts down to  48 contracts. We had 18 notices filed yesterday so in essence we gained 6 contracts or an additional 30,000 oz will stand for delivery in October.  The big December contract saw its OI fall by 581 contracts down to 75,071. The estimated volume today was very good today coming in at 41,478 contracts.  The confirmed volume yesterday was huge at 65,754.

Comex gold/September contract month

Oct 16.2013  opening  standings for October contract month

Withdrawals from Dealers Inventory in oz
3,997.651 (Manfra,Brinks)
Withdrawals from Customer Inventory in oz
 47,204.153 (Scotia,JPM)
Deposits to the Dealer Inventory in oz
Deposits to the Customer Inventory, in oz
No of oz served (contracts) today
 1  (100)
No of oz to be served (notices)
277 (27,700)
Total monthly oz gold served (contracts) so far this month
4090  (409,000)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month


We had huge activity in the Comex gold vaults today.

The dealer had  0 deposits  and 2 dealer withdrawals today

i) out of the dealer Manfra:  1,298.801
ii) out of dealer Brinks:  2,699.85

total dealer withdrawal:  3,997.651 oz

We had 0 customer deposit today.

total customer deposits: nil oz

 we had 2 customer withdrawal

i) Out of Scotia:  24,218.028 oz
ii) Out of JPMorgan:  22,986.125

 Total Customer withdrawals: 47,204.153  oz

Today we had 1 adjustments.

i)out of the Scotia vault:  200.46 oz was removed from the customer into the dealer at Scotia.

Thus tonight   with respect  to JPMorgan gold inventory, here is JPMorgan's Wednesday night inventory :

JPM dealer inventory remains constant tonight at: 283,102.634 oz or 8.805 tonnes

JPM customer inventory falls badly  tonight to: 158,063.381 oz  or 4.91 tonnes

we should shortly see other inventory leave JPMorgan dealer account as they settle their issuance. (and also the client or customer account)

Today, 0 notices was issued from  JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to  1 contract of which 1 notices were stopped (received)by JPMorgan dealer ( house account) and 0 notices stopped by JPMorgan customer account. 

The total dealer comex gold falls  tonight  to  717,666.692 oz or 22.32 tonnes of gold . The total of all comex gold (dealer and customer) falls to   6,859,475.994 oz or  213.35 tonnes. 

Tonight, we still have the continuing disturbing piece of news concerning the low dealer gold inventory for our  3 major bullion banks(Scotia, HSBC and JPMorgan). These 3 dealer gold inventory remain falls  tonight  to  18.298 tonnes. However we should see massive amount of gold leaves JPMorgan dealer gold to settle the delivery notices filed in October.

i) Scotia:  173,692.569 oz or 5.402 tonnes
ii) HSBC: 131,673.323. oz or  4.09 tonnes
iii) JPMorgan: 283,102.634 oz or 8.805 tonnes

total: 18.298 tonnes

Brinks dealer account which did have  the lions share of the dealer gold saw its inventory level falls tonight  to  115,727.47 oz or 3.599 tonnes.  A few months ago they had over 13 tonnes of gold at its registered or dealer account.

Today we had 1 notice served upon our longs for 100  oz of gold. In order to calculate what will  standing for delivery in October, I take the total number of notices served  (4090) x 100 oz per contract to give us 409,000 oz served from which add the difference between the OI standing for October (278) minus the number of contracts  served today (1)x 100 oz per contract

Thus  we have the following gold ounces standing for gold in October

4090 notices x 100 oz per contracts already served this month or 409,000 oz + 278 - 1) x 100 oz = 436,700 or 13.58 tonnes of gold.

We gained a rather large 114  contracts or an additional 11,400  oz will  stand for delivery.
This is an absolutely astounding level of gold standing in October as this month is generally a very poor delivery one at that.

Ladies and Gentlemen: we have a three-fold problem:

i) the total dealer inventory of gold falls tonight to  a very dangerously low  level of only 22.32 tonnes

ii)  a) JPMorgan's customer inventory falls to only 158,063.38.  oz. (4.91 tonnes)  This inventory will drop once the notices are filled from the JPMorgan customer account

ii  b)  JPMorgan's dealer account remains constant tonight at  283,004.004 oz but all of that gold and them some is spoken for.

iii) the 3 major bullion banks have collectively only 18.298 tonnes of gold left in their dealer account.(JPMorgan, HSBC,Scotia)

and no gold is entering the dealer comex vaults despite October being an active delivery month.


now let us head over and see what is new with silver:


Oct 16/2013:  

Opening  for the October contract month

Withdrawals from Dealers Inventorynil
Withdrawals from Customer Inventory 1,149,701.077 (CNT,Scotia,Delaware,)
Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 325,474.78 (Scotia)
No of oz served (contracts)6  (30,000 oz)
No of oz to be served (notices)42 ( 210,000)
Total monthly oz silver served (contracts) 292  (1,460,000)
Total accumulative withdrawal of silver from the Dealers inventory this month46,710.97
Total accumulative withdrawal of silver from the Customer inventory this month3,441,711.9

Today, we  had good activity  inside the silver vaults.
 we had 0 dealer deposits and 0  dealer withdrawals.

We had 1 customer deposits:

i) Into Scotia:  325,474.78 oz

total customer deposit:  325,474.78   oz

we had 3 customer withdrawals:

i) Out of Scotia: 1,142,338.88 oz
ii  Out of CNT:  988.95 oz
iii) Our of Delaware:  6,373.24  oz

total withdrawals: 1,149,701.077 oz
we had 0  adjustment  today

Registered (dealer) silver   :  43.533 million oz
total of all silver:  164,824 million oz.

The CME reported that we had 6 notices filed for 30,000 oz today
To calculate what will stand for this  active delivery month of October, I take the number of contracts served thus for the entire  month at 292  x 5,000 oz per contract = 1,460,000 oz  from which we add the difference between the OI standing for October (48) minus the notices already served today  (6)x 5000 oz to give us  1,670,000    oz standing for the month of October.

In summary:

292 contracts  x 5000 oz per contract (served) or 1,460,000 oz +  ( 48  -   6 ) x 5000 oz =  1,670,000   oz

we  gained 6 contracts or an additional 30,000 silver oz will stand this month.


The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.

And now the Gold inventory at the GLD:

Oct 16.2013: a monstrous bleed of 3.6 tonnes of gold leaves London heading for Shanghai.



Value US$36,249,668,526.43

Oct 15.2013: 



Value US$36,311,814,273.42

Oct 14.2013: 



Value US$36,741,009,270.63

Today, we lost a huge 3.6 tonnes of gold  at the GLD


The registered  vaults at the GLD will eventually become a crime scene as real physical gold  departs for eastern shores leaving behind paper obligations to the remaining shareholders.   There is no doubt in my mind that GLD has nowhere near the gold that say they have and this will eventually lead to the default at the LBMA and then onto the comex in a heartbeat  (same banks). 

As a reminder the total comex gold had inventories of around 11 million oz in 2011. Today the total comex gold remains to   6.859 million oz  (213.35 tonnes)

GLD gold:  885.53 tonnes.


and now for silver:

Oct 16.2013: we lost another 1.735 million oz of silver from the SLV

Inception Date4/21/2006
Ounces of Silver in Trust334,089,777.800
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

Oct 15.2013:   we lost 1.927 million oz from the SLV silver warehouses.

Inception Date4/21/2006
Ounces of Silver in Trust335,824,218.200
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

Oct 14.2013:

Inception Date4/21/2006
Ounces of Silver in Trust337,751,450.200
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

oct 11.2013:

Inception Date4/21/2006
Ounces of Silver in Trust339,678,718.200
Tonnes of Silver in TrustTonnes of Silver in Trust
One metric tonne is equivalent to 1,000 kilograms or 32,150.7465 troy ounces.

we lost 1.927 million oz of silver inventory  at the SLV.


And now for our premiums to NAV for the funds I follow:

Sprott and Central Fund of Canada. 

(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)

1. Central Fund of Canada: traded  at Negative 5.9% percent to NAV in usa funds and Negative  6.0%  to NAV for Cdn funds.  Oct16.2013)  

2. Sprott silver fund (PSLV): Premium to NAV fell to positive .54% NAV Oct 16/2013

3. Sprott gold fund (PHYS): premium to NAV fell at negative 1.21% to NAV Oct 16 2013

Note: Sprott silver trust back into positive territory at 0.97%. 
Sprott physical gold trust is back in negative territory at -.97%.

Central fund of Canada's is still in jail. 


Overnight gold and silver trading:

Key points:

1. Gold generally rises after each debt ceiling extension.

Gold Surged 17% In 15 Trading Days After Last Debt Ceiling Extension In 2011

Published in Market Update  Precious Metals  on 16 October 2013
By Mark O’Byrne

Today’s AM fix was USD 1,278.25, EUR 944.75 and GBP 797.71 per ounce.
Yesterday’s AM fix was USD 1,255.50, EUR 929.59 and GBP 787.79 per ounce.
Gold climbed $8.60 or 0.68% yesterday, closing at $1,281.30/oz. Silver rose $0.07 or 0.33% closing at $21.33. Platinum climbed $2.99 or 0.2% to $1,380.49/oz, while palladium fell $7.78 or 1.1% to $704.72/oz.

Gold in USD and Debt Ceiling 2011  - (Bloomberg)
Gold came under pressure in early Asian trading prior to turning around and rising to $1,290/oz. Gold was capped at these levels and then gave up those gains to trade flat in European trading despite Fitch placing the United States triple A rating on credit watch. 
U.S. lawmakers are scrambling to come up with an agreement to increase the federal debt ceiling before tomorrow’s deadline. Gold has not priced in a U.S. default - which could result from failure to raise the borrowing limit - on expectations that Congress will reach a deal at the last minute.
A default remains unlikely but should it happen it would roil global markets, hamper economic recovery and lead to another wave of safe haven gold buying.
More likely, is that politicians once again raise the debt limit to over $17 trillion - thereby eliminating the short term crisis but increasing the likelihood of a far bigger crisis in the coming months and years.
Physical buying remains robust particularly in China and India where premiums are rising again as gold is snapped up by canny Asian value buyers.
Gold premiums in India, the world's biggest buyer of gold along with China, hit a record $100 an ounce due to a shortage of bullion to meet festival demand. In China, premiums in the Shanghai Gold Exchange climbed to over $20 an ounce from about $7 two weeks ago.
Gold has fallen about 4% since the government shutdown began on October 1, leading many to believe that if there is no debt deal, the price could shoot up, particularly should we get a significant bout of “risk off” in markets.

Gold In USD, 3 Days - (Bloomberg)
It is interesting to note that in 2011, gold rose in the months prior to the debt ceiling agreement. Then in the immediate aftermath of the debt ceiling extension agreement on August 2nd 2011, gold surged another 17% in 15 trading days after the agreement was reached. From August 1st to August 22nd, gold rose from $1,619/oz to over $1,900/oz.
The United States lost its important AAA credit rating from Standard & Poor's late on Friday August 5th, 2011, in a dramatic vote of no confidence for the world's largest economy and the U.S. dollar.
This was a catalyst for the surge to the record nominal high of $1,920/oz two weeks later.

Gold In USD, 10 Days - (Bloomberg)
How Fitch has not downgraded the U.S. already is a mystery to analysts looking at the U.S. fiscal position and the lack of political will to tackle it. It seems likely that significant political pressure is being put on credit ratings agencies regarding their credit rating of the U.S.
The very poor fiscal position of the U.S. will gradually erode confidence in the dollar which will see it continue to lose value against gold. The continuing depreciation of the dollar and the further downgrading of the U.S. credit rating from AAA will contribute to higher prices again.
The question is when, rather than if.
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Embry scoffs at Lassonde's claim that central bankers ignore gold

10:32p AEST Wednesday, October 16, 2013
Dear Friend of GATA and Gold:
Interviewed by King World News, Sprott Asset Management's John Embry says he is astonished by mining entrepreneur and former World Gold Council Chairman Pierre Lassonde's assertion to MineWeb last week that central bankers pay no attention to gold:
Embry says it "is probably the most wrong-headed comment I have heard in my lifetime." It probably also means one less Christmas party invitation for Embry.
His interview with KWN is excerpted here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Morgan seen ready to admit almost manipulating a market

JPMorgan Expected to Admit Fault in 'London Whale' Trading Loss
By Ben Protess and Jessica Silver-Greenberg
The New York Times
Tuesday, October 15, 2013
For JPMorgan Chase, fines totaling billions of dollars are no longer sufficient to placate the government. Now the bank's regulators want something stiffer: a mea culpa.
A month after JPMorgan acknowledged that "severe breakdowns" had allowed a group of traders in London to run up $6 billion in losses, the bank has preliminarily reached a rare agreement to admit that the trading blowup itself represented reckless behavior, according to people briefed on the negotiations.
The bank could settle with the Commodity Futures Trading Commission as soon as this week, according to the people briefed on the negotiations, who were not authorized to discuss the private settlement talks. Aside from admitting some wrongdoing, the bank is expected to pay about $100 million to resolve the case, a trading debacle last year that has come to be known as the London Whale episode.
Unlike a settlement last month with the Securities and Exchange Commission, which largely took aim at porous controls and governance practices at the bank, the pact with the Commodity Futures Trading Commission zeros in on the bank's actual trading practices. The agency, using new authority under the Dodd-Frank Act of 2010, argues that the bank's trading was so large and voluminous that it violated a law preventing banks from recklessly using a "manipulative device" in the market for credit derivatives, financial contracts that let the bank bet on the health of companies like American Airlines.
JPMorgan's concession, part of a broader policy shift in Washington that emerged in fits and starts over the last year, is the most aggressive step in reversing a decades-long practice of allowing banks to "neither admit nor deny" wrongdoing. The deal also could set a precedent that potentially exposes a bank to scrutiny -- from the government and from shareholder lawsuits -- whenever it builds a huge trading position that alters the market.
The change in regulators' approach traces in part to criticism that Wall Street misdeeds generated only token settlements that banks could easily afford. When Mary Jo White took over the SEC this year, she outlined a new policy for extracting admissions in certain cases.
For the government, an admission by JPMorgan could provide a template for pursuing other admissions in Wall Street cases. Already, according to people briefed on the matter, the Justice Department is pushing JPMorgan to admit that from 2005 to 2007, it sold mortgage securities to investors without fully warning of the risks.
Yet the regulatory crackdown is not comprehensive. The fine print of JPMorgan's admission -- in both the SEC and CFTC cases -- provides the bank some cover from private litigation. Rather than admitting market manipulation, the bank is expected to acknowledge a series of facts that the CFTC will characterize as "recklessly employing manipulative devices." While it is a small and technical distinction, it could save the bank from an onslaught of shareholder lawsuits.
The bank also won some ground on the breadth of its wrongdoing. It agreed, the people briefed on the negotiations said, to admit wrongdoing stemming from trading on one particular day. The trading commission is likely to refer to other trading in its order against the bank, but JPMorgan is expected to neither admit nor deny wrongdoing in those instances.
The aggressive policy can have repercussions for regulators. If a bank balked at making an admission, for example, it could lead to costly litigation that government agencies can ill afford.
The JPMorgan case nearly highlighted this risk.
The bank, arguing that its trading was legitimate, resisted an admission. And the trading commission drafted a potential lawsuit. Talks reopened in recent weeks, paving the way for the admission.
JPMorgan declined to comment on the settlement talks.
The people briefed on the negotiations cautioned that the settlement could face delays since the government is now shut down. The trading commission is operating with about 30 employees, a fraction of its roughly 700-person staff.
David Meister, the agency's enforcement chief, is among those working. If a settlement emerges in the coming days, it could be his last at the agency. Mr. Meister recently announced plans to depart the agency after overhauling the enforcement unit.
Despite the recent push, the agency had yet to charge a big Wall Street bank over a "manipulative devices" violation. For years, the agency had to prove that a trader intended to manipulate the market, and successfully created artificial prices.
But under Dodd-Frank, the financial regulatory overhaul passed after the crisis, the agency must show only that a trader acted "recklessly." The agency harnessed that new authority to pursue the JPMorgan trading, where it was unclear whether the traders had intended to distort the market. All together, the bank's traders increased their position in a credit derivative index by $34 billion in early 2012, according to a Senate report.
"The commission is trying to flex its muscle under the Dodd-Frank standard and is also going an extra yard to get an admission," said Hugh J. Cadden, a former enforcement official at the CFTC.
The trading commission was the sole holdout in settling London Whale cases. In September, JPMorgan paid $920 million to four other regulatory agencies -- the SEC, the Financial Conduct Authority of Britain, the Federal Reserve, and the Office of the Comptroller of the Currency. The bank also admitted to the SEC that it had violated federal securities laws. The agency, however, continues to investigate the trading loss.
Even before a settlement, federal prosecutors and the Federal Bureau of Investigation in Manhattan have brought criminal charges against two of the traders: Javier Martin-Artajo and Julien Grout, who were accused of covering up the size of their losses. The traders deny wrongdoing. A third trader, Bruno Iksil, sidestepped charges, striking a nonprosecution deal.
As JPMorgan faces a broader wave of scrutiny -- at least seven federal agencies, several state regulators, and two foreign countries are investigating the bank -- its legal bills have mushroomed. On Friday, JPMorgan announced that it would have to set aside $9.2 billion to cover those legal expenses at a cost that led the bank to report its first quarterly loss under Jamie Dimon, its chief executive.
A portion of that money is expected to cover a settlement with the Justice Department over questionable mortgage practices. So far the discussions for that deal have languished, said people familiar with the matter. JPMorgan has offered to pay a roughly $7 billion fine and provide a billion dollars in relief for struggling homeowners, the people said.


China increases its inventory of USA debt:

(courtesy Ambrose Evans Pritchard)

Ambrose Evans-Pritchard: Watch what China does with U.S. debt, not what it says

By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, October 15, 2013
So much for the hot rhetoric from Beijing questioning the creditworthiness of US debt and consigning the US dollar to the dustbin of history.
The latest data shows that China's foreign reserves soared by $163 billion in the third quarter to $3.66 trillion, one of the biggest jumps ever.
Mark Williams and Qinwei Wang from Capital Economic called the rise "astonishing." They estimate that China's central bank must have bought $70 billion of foreign bonds last month in a frantic bid to hold down the currency.
We won't know for a while where the money went, but a big chunk must have gone into US Treasuries. So bear that in mind when you read the Xinhua claims that the US debt ceiling fight "has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonised."
... For the complete commentary:

Your most important commentary of the day.  The GLD has only 28 million oz left in its inventory and a huge short position.  The shedding of gold from the GLD is heading over to Shanghai. The total liquidation in the GLD this year is 34%

The Sprott gold funds has lost 1% this year.

(courtesy Kingworldnews/Bill Kaye)

GLD being looted to feed Asian demand, Kaye tells KWN

12:05p AEST Wednesday, October 16, 2013
Dear Friend of GATA and Gold:
Hong Kong-based fund manager William Kaye today tells King World News that the gold exchange-traded fund GLD is being looted to meet gold demand in Asia.
Kaye adds about the recent bombings of the gold market: "When we see all of these massive paper sell orders in thin trading, as Art Cashin was saying to King World News, this is where the most obvious footprints of corruption exist. You just don't see 80 or 90 tons of gold dumped onto the market at odd hours. Suddenly an entity shows up and wants to sell 80 or 90 tons of gold and does it like a monkey at a zoo would probably handle the sell order. No sophisticated entity would sell in this manner. So this manipulative selling has the Fed and the Bank for International Settlements written all over it because they don't care about mark-to-market losses, and they don't need to worry about net capital rules."
An excerpt from the interview is posted at the King World News blog here:
Meanwhile Sprott Asset Management's John Embry tells King World News that central planners have destroyed the rule of law in the United States:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


WOW!!! premium for gold in India has just hit 100 dollars per oz.

(courtesy Mike Krieger/zerohedge)

Gold Price Premiums Hit Record In India: 8% Above London Spot

Tyler Durden's picture

Submitted by Mike Krieger of Liberty Blitzkrieg blog,
This story is just further proof of the complete and total mess that has been made of the Indian gold market over of the course of this year due to government intervention. We noted 2 days ago that the premium for physical was rising, but now it is at a record. The other part of the problem is that when you are dealing in physical supplies you can’t just deliver paper contracts. Somehow I don’t think that would cut it for Indians on festival days or their daughters’ weddings.
From Reuters:
(Reuters) - Gold premiums in India, the world’s biggest buyer of the precious metal, hit a record $100 an ounce, about 8 percent over London prices, on a shortage of supplies to meet festival demand, traders said on Tuesday.

“There are no supplies in the domestic market, and there is a little demand due to festivals… what little supplies that come, go to exporters,” Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation (GJF) told Reuters.

Most suppliers in Mumbai and Kolkata have started quoting premiums in excess of $100 an ounce above London prices, more than double the $40 charged last week, Bamalwa said.

Gold imports have virtually dried up in India after the federal government introduced the 80/20 rule, creating confusion among government officials on its implementation and halting shipments for about two months.

The World Gold Council has said India’s gold demand could rise as much as 15 percent this quarter to 300 tonnes as pent-up demand following a good monsoon keeps the country on track for yearly demand estimated at 1,000 tonnes.
If that demand number is correct, then India and China alone are on track to consume 75% of the world’s total gold production in 2013. Fortunately for them, Western investors are more than comfortable accepting pieces of paper.
Full article here


Overnight sentiment from trading in Europe and Asia:

1. Stocks ignoring reality pumped up by Senator Reid's optimism of a deal
2.  Details from Jim Reid/Deutsche bank

(courtesy zero hedge/Jim Reid/Deutsche bank)

With Less Than A Day Until The X-Date, Hope And Optimism Remain If Not Much Else

Tyler Durden's picture

It's gotten beyond silly: with less than a day to go until the first X-Date, beyond which if Jack Lew is correct (he isn't) all hell will break loose if the US doesn't have a debt deal in place, stocks couldn't care less, Bills continue to sell off, carry traders only care how big the central banks' balance sheets are, all news are generally shunned and yet stocks have soared 600 DJIA points on Harry Reid's relentless optimism a deal will get done, even though so far none has. Today, as we observed on Monday, we expect more of the same: stocks and futures will ignore the reality that the midnight hour will come and go with no deal in place, but will continue to explode higher as Harry Reid's latest set of "optimism" headlines hits the tape in low volume trading. We expect the first big hope rally around POMO time, then shortly after Senate comes back in Session, around noon. Then for good measure, another one just before market close. Why not: it's not like the "market" even pretend to be one anymore. Keep an eye on today's 4-Week bill auction before noon. It should be a far bigger doozy than yesterday's longer-dated bills.
US Government Shutdown Update from Bloomberg and RanSquawk:
Fitch placed US 'AAA' sovereign on rating watch negative. Fitch said the US was placed on rating watch negative as US authorities have not raised Federal debt ceiling in a timely manner. Fitch also cut its US GDP growth 2013 forecast to 1.6% from 1.9% and cut its 2014 GDP growth forecast to 2.6% from 2.8%. Fitch added that the rating watch negative status will be resolved by end of Q1 2014. There were also comments from the US Treasury that Fitch's decision reflects urgency with which congress should act to remove the threat of default.
The House Rules Committee postponed its hearing as support for Speaker John Boehner’s new plan appeared to be in serious doubt. Following the House postponing the vote, US Senate leaders resumed negotiations on a deal to avert default and fund the government, where a senate source commented that US Senate leaders could announce a deal within hours.
GOP Representative Dent said House Speaker Boehner is to allow a 'clean' Senate bill vote and that the House is likely to take up and approve a senate bill.
The US senate are due to reconvene at 1100CDT/1700BST and US President Obama is to meet with Treasury Secretary Lew at 1325CDT/1925BST on Wednesday.
Market Re-Cap
European Equities are seen broadly negative, with consumer goods and tech sectors underperforming, following a number of disappointing premarket earnings reports and a lack of progress in the US to resolve the deadlock in Washington. The CAC 40 is the worst performing index in the European morning as large cap stocks Danone and LVMH trade lower by around 3% and 6% respectively after both co.’s missed expectations in their earnings reports.
Late yesterday Fitch placed the US 'AAA' sovereign on rating watch negative, pointing to the fact that US authorities have not raised Federal debt ceiling in a timely manner. As a result, credit spreads widened this morning and the Eurodollar curve steepened, albeit marginally.
In FX GBP/USD traded higher by 40 pips and broke above the 1.60 handle approaching its 21DMA to the upside as USD weakened throughout the morning and the UK’s better than expected jobs report drove participants to further doubt the BoE’s forward guidance of low rates into 2016. Meanwhile, having risen to its highest level since late Sep, GBP SONIA 12X24 forward rate fell sharply following the release of the aforementioned jobs report, which revealed that even though UK jobless claims fell the most in 16 years, the unemployment rate held steady at 7.7%.
Looking ahead, markets will pay close attention to the US Senate who are due to reconvene at 1100CDT/1700BST as we enter the penultimate day of the debt ceiling deadline, additionally US President Obama is to meet with Treasury Secretary Lew at 1325CDT/1925BST on Wednesday. Also Fed's Beige Book will be released later on in the session, also, given the recent rise in yields on soon to be maturing T-Bills, today's sale of USD 68bln by the US Treasury in T-Bills across various short-dated maturities will likely be closely watched.
Asian Headlines
China's NDRC says it feels optimistic about keep CPI this year under 3%.
The PBOC said China credit rose relatively fast in Sept with the country having ample liquidity and reiterated their prudent monetary policy.
EU & UK Headlines
UK ILO Unemployment Rate 3-Months (Aug) 7.7% vs. Exp. 7.7% (Prev. 7.7%)
Avg Weekly Earnings 3M/Y (Aug) 0.7% vs. Exp. 1.0% (Prev. 1.1%, Rev. to 1.2%)
Weekly Earnings ex. Bonus 3M/Y (Aug) 0.8% vs. Exp. 1.0% (Prev. 1.0%)
UK Jobless Claims Change (Sep) M/M -41.7K vs. Exp. -25.0K (Prev. -32.6K, Rev. -41.6K)
Claimant Count Rate (Sep) M/M 4.0% vs. Exp. 4.2% (Prev. 4.2%)
EU Trade Balance (Aug) SA M/M 12.3bln vs. Exp. 11.8bln (Prev. 11.1bln, Rev. 11.0bln)
ECB's Praet said we are in relatively normal range in EUR FX rate and discussion on liquidity measures are open.
German Chancellor Merkel's parties see no common ground to form a coalition with Greens and decide not to pursue any further talks on forming a coalition government between the parties.
US Headlines
CME to add 12% to base margins for OTC interest rate swap portfolios due to uncertainty around US debt ceiling impasse. (FT-More)
Equities are seen broadly lower as sentiment is weighed upon by US debt ceiling concerns and poor earnings. Specifically Danone shares trade lower by 3% after reporting Q3 overall LFL sales growth up 4.2% vs. Exp. up 4.8% and co. lowers 2013 forecasts. Similarly LVMH shares see losses of 6% after reporting Q3 Revenue EUR 7.02bln vs. Exp. EUR 7.24bln, Q3 Organic sales growth 8% vs. Exp. 10% although the co. remains upbeat for the rest of the year. These two co.s have caused underperformance for the CAC 40.
Conversely the FTSE MIB stands alone in positive territory as Monti Paschi provides a lift after source reports that the co. is to meet with the Italian government to discuss a sale of their stake.
Apple is cutting iPhone 5C orders by less than 20% in Q4 but increasing orders for the iPhone 5S according to sources. Aftermarket earnings from the US included Intel, Yahoo and CSX, which all beat expectations in their Q3 EPS reports.
Overnight news bulletin from Bloomberg and RanSquawk
  • Fitch placed US 'AAA' sovereign on rating watch negative as US authorities have not raised Federal debt ceiling in a timely manner.
  • UK ILO Unemployment Rate 3-Months (Aug) 7.7% vs. Exp. 7.7% (Prev. 7.7%) and Jobless Claims Change (Sep) M/M -41.7K vs. Exp. -25.0K (Prev. -32.6K, Rev. -41.6K)
  • Markets anticipate the earnings from large cap companies IBM, Bank of America, PepsiCo, eBay, American Express, BlackRock, Bank of New York Mellon today.
  • U.S. equity futures advance and JPY weakens against all its peers after Senate leaders said they’ll resume talks on the debt limit as the deadline looms; GBP gains vs most major peers after U.K. job claims dropped most in 16 yrs.
    U.K. unemployment rate remained at 7.7 percent while jobless claims dropped the most since 1997 amid signs the labor market is improving
  • Senate leaders press toward fiscal deal with House in disarray
  • Investors holding $120b of Treasury bills coming due tomorrow are increasingly worried that they won’t get  paid
  • New Zealand’s dollar touched a 1-month high after data showed inflation accelerated to the fastest pace in two years, fanning speculation RBNZ will raise borrowing costs.
  • China’s stocks fell the most in 3-wks after JP Morgan advised reducing holdings; companies linked to Shanghai’s free-trade zone tumbled on concern valuations are excessive
We conclude as always with the overnight recap by Deutsche's Jim Reid
Following a tipsy turvy session overnight the S&P 500 fell 0.71% to close near the day’s lows on news that a House Republican driven fiscal proposal had failed to receive enough internal support. The spotlight is now  firmly back to the Senate with Senator Reid and Senator McConnell quick to resume negotiations to hopefully craft a bipartisan deal before the looming deadline. As reported by the New York Times, under the emerging Senate deal, the government would be funded through 15th January and the debt limit extended until the 7th February. Both the House and Senate would also need to agree on a detailed tax-and-spending blueprint for the next decade by 13th December. A proposal to delay the imposition of a tax on medical devices has been dropped from the deal, as has a complicated tax on self-insured unions and businesses participating in the health care exchanges. All that remained for Republicans was the language around tightening income verification for those seeking subsidies on the insurance exchanges but that language was still being negotiated.
A spokesman for Reid said that the majority leader was “optimistic that an agreement is within reach” with McConnell but that there are still risks of delays. Assuming that a Reid-McConnell agreement is struck, a parliamentary maneuver could be used to allow the majority leader to quickly move the deal to the Senate floor today. However this would require unanimous consent to ensure a final vote on the same day. In the absence of unanimous consent, things may just drag on for a bit longer. Indeed several articles have highlighted the risks of further delays if Senator Ted Cruz or other conservative hardliners chose to object. Cruz has repeatedly said that “I will do everything necessary and anything possible to defund Obamacare.” So reaching a broad agreement aside there are still a few hoops to go through before it can be considered a done deal. All eyes clearly will be on this today as we await for further developments from Capitol Hill.
On the other hand, Fitch was certainly in less of a “wait and see” mode yesterday. The US sovereign’s AAA rating was placed on Rating Watch Negative in a post market announcement. The agency continues to believe that the debt ceiling will be raised soon but highlighted that the political brinkmanship and reduced financing flexibility could increase the risk of a US default. This is somewhat at odds with Moody’s which again reiterated that it expects that the US government will pay interest and principal on its debt even if the debt ceiling isn’t raised.
Default concerns are also being reflected in the short term funding costs of the US government. The yield on the $120bn in T-bills maturing this Thursday has risen by about 17bp over the last two days to close at 0.363% yesterday. 1- month T-bill yields were also up by 19bps from the intraday lows yesterday to close at around 0.349% - highest in 5 years. Yesterday’s bills auctions also didn’t go well as 3-month T-bills were priced at the highest discount rate since 2011. The Treasury will sell a total of US$68bn in T-bills across various shortdated maturities today so something for markets to watch out for besides events in Washington.
On that note, we came across an interesting comment from Citi’s CFO who said that the bank no longer held USTs maturing before 1 November and had minimal exposure to US debt maturing before 16 November. Citigroup yesterday reported lower-than-expected quarterly earnings as fixed income and US mortgage revenue weakness dominated. After market also saw Intel reported better-than-expected numbers for Q3 although worldwide PC shipments is said to have declined by 8.6% during the quarter. Asian equity markets are on the weak side this morning but S&P 500 Futures are actually trading half a percentage point higher overnight on hopes of a Senate driven deal today. The Hang Seng and the Shanghai Composite are around -0.4% and -1.3% lower, respectively. Asian credit spreads are generally tighter across the board with the Asia iTraxx about 4bps tighter on the day. Gold has given back some of yesterday’s gains currently at around $1279.5/oz whilst the Dollar index is firmer overnight.
Looking ahead to today, the Fed’s Beige Book, mortgage applications and the NAHB Housing Market index for October are the notable economic releases. We will also hear from the Fed’s Pianalto, Geroge and Fisher through the day. Bank of America, PepsiCo and IBM are some of the bigger names reporting today but in reality data and company results will continue to take a backseat for now. All eyes will continue to be firmly set on developments in Washington.

Bill Holter comments on the last few weeks events:

(courtesy Bill HOlter

Conspiracy theorists.”  They are all over the place.  They are nuts.  They are just a bunch of “disgruntled’s” because they either didn’t get their way or they are a bunch of idealists who think the world should fit their crazy theories.  But hold on there just a second, many of the past “theories” has already been proven as absolute fact.  In the words of Tyler Durden when describing the at market volume dumps in the gold market had this to say:

Wednesday morning : Portuguese 10 year bond yield: flat in  basis points from Tuesday night: 6.22%



As of 02:24:00 ET on 10/16/2013.


Your closing 10 year Portuguese bond yield Wednesday night: down 3 basis point from  this morning.



6.190.04 0.56%
As of 11:58:00 ET on 10/16/2013.

Your closing Japanese yield Wednesday morning: down 2 basis point in yield to .65%)

Japan Govt Bond Year to maturity 10 Year Simple Yield



0.650.02 2.53%
As of 23:59:00 ET on 10/16/2013.


And now for your closing Japanese 10 year bond yield from NY:  (down another 1 basis point  from this morning..
very strange with all of that QE that Japan is undergoing!!

Japan Govt Bond Year to maturity 10 Year Simple Yield



0.640.03 4.17%
As of 03:59:00 ET on 10/16/2013.

USA dollar Index Wednesday morning: 80.30 down 15 cents.


Your opening currency crosses this Wednesday morning:

EUR/USA:  1.3557  up   .0031
USA/JAPAN YEN  98.26    up  .065
GBP/USA  1.6036    up .0045
USA/CAN  1.0368  down   .0009

This morning the Euro is a lot stronger trading well above the 1.35 level at 1.3557..  The yen is a little weaker this morning trading well above  the 98 cross. It closed in Japan down 7 basis points at 98,26 yen to the dollar  (dollar up). The pound  is now showing major strength as it trades just above the 1.60 level  to 1.6036.  The Canadian dollar is  showing minor strength rising to 1.0368 to the dollar.

USA 10 year bond yield:  2.72%

The NIKKEI this morning: up 25.6 points or 0.18%

Trading from Europe;negative as all bourses in the red.

Gold early morning trading:  $1280.00



Your closing Spanish 10 year government bond: Tuesday night: down 1  basis point in yield from Wednesday  night. The Spanish banks are still very busy buying the sovereign bonds.



4.300.01 0.28%
As of 12:00:00 ET on 10/16/2013.


Tuesday closing Italian 10 year bond yield: a  fall of 0 basis points and trading 5 basis point lower than Spain.

Italy Govt Bonds 10 Year Gross Yield



As of 11:59:00 ET on 10/16/2013.


Closing currency crosses for Wednesday night/USA dollar index/USA 10 yr bond: 

Euro/USA:  1.3533  up .0006
USA/Japan:  98.73  up  .542
Great Britain/USA:  1.5950 down .0041.
USA/Canada:  1.0331 down .0049.

The euro fell slightly  this afternoon  session closing well above the 1.35 level to 1.3533.  The yen  weakened   in the afternoon losing  54 basis points on the day  closing just above the 98 level to 98.73. (dollar up). The British pound fell big time this afternoon to 1.5950. The Canadian dollar rose sharply during  the afternoon to 1.0331.

Your closing USA dollar index:

80.46  up 1  cents on the day.  

Your closing 10 year USA bond yield: a full drop of 6 basis points in yield on the day

US Generic Govt 10 Year Yield


2.670.06 2.09%
As of 15:10:00 ET on 10/16/2013.


Closing bourses figures for Wednesday:

i) England/FTSE  up 22.48 points or 0.34% .

ii) Paris/CAC down  12.30 points or 0.29%
iii) German DAX: up 41.56 points or  0.47%  
iv) Spanish ibex up 73.70  points or 0.75%

v) Italian bourse (MIB) up 275.82  or  1.45%

and the Dow up 206 points  or 1.36% ....


And now the big USA stories:

The Republicans relented and kicked the can 3 months down the road:

(courtesy zero hedge)

What The Three Month Can-Kicking "Deal" Looks Like

Tyler Durden's picture

Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell will soon announce an agreement to reopen the government and avert default on U.S. debt, Politico reports, according to several sources familiar with the talks. Here is what that "stunning reversal for the speaker" deal looks like. In short: the can has been kicked for three months, to early February.
But the fact that House Republicans are now planning to go that route marks a stunning reversal for the speaker who had backed his conservative wing’s drive to gut Obamacare as part of the government shutdown fight, now in its third week.


The bill will barely scathe Obamacare, however, and putting it on the floor will mark a huge concession by the House after sparking a 16-day government shutdown over insistence that the health care law be defunded or delayed as a condition to keep the government open. Dozens of conservatives in the House will be disappointed by the proposal and Boehner will need Minority Leader Nancy Pelosi to deliver a bevy of votes to pass the bill.

Reid (D-Nev.) and McConnell (R-Ky.) are very close to finishing an agreement to reopen the government through Jan. 15, lift the debt ceiling through Feb. 7 and develop a bicameral budget committee that would be required to develop a conference report by Dec. 13.

The plan includes a proposal offered by McConnell in the 2011 debt ceiling crisis that allows Congress to disapprove of the debt ceiling increase, which means lawmakers will formally vote on whether to reject of the debt ceiling increase until Feb. 7. Obama can veto that legislation if it passes. If Congress fails as expected to gather a two-thirds majority to override the veto, the debt ceiling would be raised.

The deal would also deliver back pay to furloughed federal workers, require income verification for people seeking health-insurance subsidies under the Affordable Care Act and also allow the Treasury Department to use extraordinary measures to pay the nation’s bills if Congress doesn’t raise the debt ceiling by Feb. 7.
Senate Republican Leader Mitch McConnell (R-Ky.) presented the deal to his conference Wednesday morning. Republican senators quickly rallied around the proposal, which would fund government through Jan. 15.

McConnell and Senate Majority Leader Harry Reid (D-Nev.) put the finishing touches on the proposal after an effort by House Republicans to advance a competing resolution collapsed Tuesday.

The bipartisan agreement would also raise the $16.7 trillion debt ceiling until February, setting the stage for budget talks between the Senate and House.

Reid and McConnell announced the deal on the Senate floor shortly after noon.


If the legislation passes as expected, it would set up a Senate-House conference to negotiate fiscal reforms, which must be reported to Congress by a certain date.

The bill will allow President Obama to retain his power to use so-called extraordinary measures to preserve the ability of the government to pay its bills once it reaches the debt limit. The Treasury Department informed Congress in May that it had begun to use such measures to manage the debt ceiling.


The tea party blast Boehner:  

Tea Party Blasts Boehner "The Senate Deal Is A Complete Sellout"

Tyler Durden's picture

While the House looks set to vote for the Senate bill and kick the can just a little down the road, the Washington Post reportsthat at least one tea party group is calling for Republicans to hold their ground.
"The Senate deal is a complete sellout.  Speaker Boehner and the House should stand firm and reject this deal to reign in the executive branch’s power before it is too late,”  

-Tea Party Patriots head Jenny Beth Martin said.

“The House ‘leadership’ must stop playing ‘flinch’ with themselves, and instead, play hardball with the White House, the Senate, and the House. Otherwise, hard-working Americans are going to bear the burden of this unaffordable law (Obamacare). The American people will hold those responsible for this mess accountable.”


Boehner responds:

GOP Statement On The "Deal": Boehner Admits Defeat

Tyler Durden's picture

House Speaker Boehner explains in a statement how the GOP will keep fighting the good fight...

“The House has fought with everything it has to convince the president of the United States to engage in bipartisan negotiations aimed at addressing our country's debt and providing fairness for the American people under ObamaCare.  That fight will continue.

But blocking the bipartisan agreement reached today by the members of the Senate will not be a tactic for us

In addition to the risk of default, doing so would open the door for the Democratic majority in Washington to raise taxes again on the American people and undo the spending caps in the 2011 Budget Control Act without replacing them with better spending cuts.

With our nation's economy still struggling under years of the president's policies, raising taxes is not a viable option.

Our drive to stop the train wreck that is the president's health care law will continue.

We will rely on aggressive oversight that highlights the law's massive flaws and smart, targeted strikes that split the legislative coalition the president has relied upon to force his health care law on the American people.”

It seems like they are claiming victory since they saved us from a fate worse than death...


Bill Holter comments on the threat of capital controls:

 Everything is now repriced for a February default risk:

(courtesy zero hedge)

Treasury Bills Reprice For February Default Risk

Tyler Durden's picture

Very short-dated Treasury-Bills have dropped in yield this morning but you can't just get rid of that risk by kicking the can and it would appear that the February Treasury-Bills are already repricing higher in yield in preparation for the next fight...

Creeping Capital Controls At JPMorgan Chase?

We will leave you with this important discussion with John Williams

(courtesy John Williams/Greg Hunter)

Early Stages of Hyperinflation Next Year-John Williams

Related Posts:

1 comment:

Fred said...

It's amazing how this blog has gone from 20-40-60 posts per day to a much more deserved ZERO.

Harvey's postings are misleading and worthless and are hazardous to your wealth.

It's nice to see that the folks are figuring that out.

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