14 March 2020 — Saturday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
The gold price crawled higher by a few dollars once trading began at 6:00 p.m. EDT in New York on Thursday evening. But ‘da boyz’ appeared at 9 a.m. China Standard Time on their Friday morning — and sold it down a whole bunch of dollars by 10 a.m. CST. It then traded pretty flat until around 12:30 p.m. CST — and then jumped up a bunch. From there it traded sideways-to-a-bit-higher until 9 a.m. in New York. JPMorgan et al. reappeared — and set a new low for this move down at 12:45 p.m. EST in COMEX trading. From that juncture it chopped quietly and very unevenly higher until trading ended at 5:00 p.m. EDT.
The high and low ticks in gold were recorded by the CME Group as $1,597.90 and $1,504.00 in the April contract…an intraday move of around 94 dollars.
Gold was closed in New York on Friday afternoon at $1,529.90 spot, down another $45.50 from its close on Thursday — and miles off its Kitco-recorded $1,504.10 spot low tick of the day. Net volume was gargantuan once again at a bit under 466,500 contracts — and there was a bit over 84,500 contracts worth of roll-over/switch volume out of April and into future months.
‘Da boyz’ guided silver’s price in the exact same manner as they did for the gold price — and the Kitco charts are almost identical to the tick…except for the fact that most of the price damage in silver was done by the 1:30 p.m. COMEX close in New York. It then crept sideways until 3:00 p.m. in after-hours trading — and edged a bit higher into the 5:00 p.m. EDT close.
The high and low price ticks in silver were reported as $15.89 and $14.425 in the May contract.
Silver was closed in New York on Friday at $14.685 spot, down $1.11 from Thursday, but a long way off its Kitco-recorded $14.33 spot low tick. Net volume was incredible for the second day in a row at a bit over 152,500 contracts — and there was a bit under 12,500 contracts worth of roll-over/switch volume in this precious metal.
The platinum price traded flat to a bit higher until around 12:15 p.m. CST on their Friday afternoon — and it began to head higher from there. The price was capped and turned a bit lower at the 9 a.m. CET open in Zurich — and from that point it traded quietly sideways until the 10 a.m. EDT in New York. It was sold lower until a few minutes before the COMEX close — and then rallied a bit until trading ended at 5:00 p.m. EDT. Platinum finished the day at $965 spot, up 1 whole dollar from Thursday.
Palladium traded in a similar fashion as platinum up until 1 p.m. in Zurich/8 a.m. in New York. ‘Da Boyz’ showed up at that point — and the low price tick of the day was set at 1 p.m. EDT. It rallied a whole bunch from there — and finished the Friday session at $1,698 spot, down 45 bucks on the day, but light years off its Kitco-recorded $1,450 spot low tick.
The dollar index closed very late on Thursday afternoon in New York at 97.47 — and then opened down a couple of basis points once trading commenced around 7:45 p.m. EDT on Thursday evening. It traded quietly and unevenly sideways until about 8:52 a.m. in London. At that juncture a ‘rally’ began — and most of the gains that mattered were in by around 12:42 p.m. in New York. From there it chopped unevenly sideways until 3:45 p.m. EDT. The 98.81 high tick was set in there someplace. Then it gave up a bunch of that gain between 3:45 p.m. and the 5:30 p.m. close of trading.
The dollar index was marked-to-close on Friday at 98.75…up 128 basis points from its close on Thursday — and up a whopping 44 basis points from its reported close on the DXY chart below.
Like the engineered price declines in the precious metals, it’s my opinion that this ‘rally’ in the dollar index was equally managed as well…but there are different opinions on that if you read some of today’s Critical Reads.
Here’s the DXY chart for Friday, courtesy of Bloomberg. Click to enlarge.
And here’s the 5-year U.S. dollar index chart, courtesy of the stockcharts.com Internet site. The delta between its close…98.90…and the close on the DXY chart above, was 15 basis points on Friday — and the second day in a row where the futures price of the dollar was higher than the Bloomberg spot close. Click to enlarge as well.
It was another bad day for the gold stocks, as the mutual funds and ETF redemptions continue…along with the obvious panic selling by those who wanted out no matter what the losses were. They jumped up a bit a the open for some strange reason, but were overwhelmed by a wave of selling — and the HUI closed down another eye-watering 10.11 percent.
The price path for the silver equities during the Friday trading session in New York was very similar to the gold stocks, with the exception that Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed down ‘only’ 7.47 percent. Click to enlarge.
Peñoles didn’t trade yesterday — and the star was Hecla Mining, closing unchanged on the day, believe it or not. The rest were dogs, with the ugliest pooch of Friday’s litter being Pan American Silver, down an eye-popping 16.63 percent.
And since Peñoles didn’t trade yesterday, the true decline in Nick’s Intraday Silver Sentiment Index was actually 8.83 percent…but what does it matter.
And here’s Nick’s 1-year Silver Sentiment/Silver 7 Index chart, updated with Friday’s doji. Click to enlarge as well.
As you can tell, all the wonderful gains that we accumulated since the third week of May last year have vanished under the boots of JPMorgan et al.
And in the interest of full disclosure, I bought a small position in SilverCrest Metals Inc. yesterday. It was on sale at half price from a week ago — and I just couldn’t resist.
Here are the usual three charts from Nick that show what’s been happening for the week, month — and year-to-date. The first one shows the changes in gold, silver, platinum and palladium for the past trading week, in both percent and dollar and cents terms, as of their Friday closes in New York — along with the changes in the HUI and the Silver 7 Index.
Here they are…weekly, month-to-date and year-to-date — and you don’t need me to do the play-by-play on any of them. Besides which, it’s too depressing for me to write about them — and just as equally depressing for you to read it. But this is what ‘da boyz’ have done as the CFTC, the CME Group, plus the DoJ stood there with their hands in their pockets, watching these criminal acts unfold. Click to enlarge.
As Ted has been pointing out for a long time now, how precious metal prices unfolded over the longer term, depended on whether or not the Big 7/8 commercial traders that were holding huge but unrealized loses on the short side, were able to snooker the Managed Money traders [and others] out of their historic and unprecedented net long positions. Well, now we have our answer…engineered price declines of Biblical proportions, never to be seen again.
The CME Daily Delivery Report showed that 43 gold and 303 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.
In gold, there were four short/issuers in total — and the three largest were Citigroup, Advantage and Marex Spectron, with 19, 14 and 9 contracts. There were four long/stoppers as well — and the three biggest there were Morgan Stanley, Advantage and ADM, with 14, 13 and 10 contracts. All contracts, both issued and stopped, involved their respective client accounts.
In silver, the only short/issuer that mattered was Canada’s Scotia Capital/Scotiabank with 302 contracts out of its in-house/proprietary trading account — and as I’ve stated before, the don’t have a client account. There were eleven long/stoppers in total — and the three largest were ADM with 123…JPMorgan with 82 — and BofA Securities with 31 contracts. All contracts stopped involved their respective client accounts.
The link to yesterday’s Issuers and Stoppers Report is here.
So far in March there have been 1,725 gold contracts issued/reissued and stopped — and that number in silver is now up to 3,971 contracts.
The CME Preliminary Report for the Friday trading session showed that gold open interest in March dropped by 73 contracts, leaving just 51 still around, minus the 43 mentioned several paragraphs ago. Thursday’s Daily Delivery Report showed that 114 gold contracts were actually posted for delivery on Monday, so that means that 114-73=41 more gold contracts just got added to the March delivery month. Silver o.i. in March rose by a hefty 122 contracts, leaving 660 still open, minus the 303 contracts mentioned a few paragraphs ago. Thursday’s Daily Delivery Report showed that only 4 silver contracts were posted for delivery on Monday, so that means that 122+4=126 more silver contracts were added to March.
Total open interest in both gold and silver took big drops on Friday. Total open interest in gold fell by 10,451 contracts — and that number in silver was 8,173 contracts. These would be net numbers…the difference between longs liquidated — and new short positions put on. So it’s a reasonable assumption that the commercial net short positions in both precious metals declined by much bigger amounts that these numbers indicate.
There was another big withdrawal from GLD on Friday, as an authorized participant removed 404,766 troy ounces — and in SLV, there was a very hefty 2,892,312 troy ounces taken out. All this gold and silver is now owned by someone else — and if you could see the Post-It notes on each pallet, I suspect that JPMorgan is the new proud owner, although I’ll wait for the final word on that from Ted.
In other gold and silver ETFs on Planet Earth on Friday…net of any changes in COMEX, GLD & SLV stocks…there was a net 59,377 troy ounces of gold added, but there was a net 1,980,634 troy ounces of silver removed. All of that silver, plus a bunch more, was withdrawn from SIVR.
There was no sales report from the U.S. Mint — and as I mentioned yesterday, the mint has halted silver eagle sales because they’re temporarily out of stock.
Month-to-date the mint has sold 6,500 troy ounces of gold eagles — 5,000 one-ounce 24K gold buffaloes — and 2,320,000 silver eagles. This is a huge improvement from February when only 2,500 troy ounce of gold eagles — 3,000 one-ounce 24K gold buffaloes — and 750,000 silver eagles were sold during the entire month.
And still no Q4/2019 or 2019 Annual Report from the Royal Canadian Mint.
There have been several stories on the Internet over the last few days from bullion dealers reporting that business is up substantially recently — and getting busier with each passing day.
There was a bit of activity in gold over at the COMEX-approved depositories on the U.S. east coast on Thursday — and all of this activity, both physical and paper, occurred at Delaware. They reported receiving 6,944.616 troy ounces/216 kilobars [SGE kilobar weight] — and there was also a paper transfer of 192 troy ounces from the Registered category and back into Eligible. I won’t bother linking this.
The only activity in silver was one truckload…597,932 troy ounces…that departed Canada’s Scotiabank. I won’t bother linking this, either.
There was a decent amount of activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday. They reported receiving 81 of them — and shipped out 800. Except for the 500 kilobars shipped out of Loomis International, all of the remainder of the in/out activity was at Brink’s, Inc. The link to that, in troy ounces, is here.
Here are two charts from Nick’s website that I’ve posted before. These 20-year charts show the physical gold activity in all known depositories, mutual funds and ETFs as of the close of business on Friday March 13. For the week just past, there was a net 522,000 troy ounces of gold added, but in silver, there was a net 3,351,000 troy ounces withdrawn. Click to enlarge for both.
The “yesterday’s news” Commitment of Traders Report for positions held at the close of COMEX trading on Tuesday showed very decent reductions in the commercial net short positions in both gold and silver.
In silver, the Commercial net short position fell by 8,108 contracts, or 40.5 million troy ounces.
They arrived at that number by increasing their long position by 2,234 contracts — and they also reduced their short position by 5,874 contracts — and it’s the sum of those two numbers that represents their change for the reporting week.
Under the hood in the Disaggregated COT Report, the Managed Money traders didn’t account for much of the change, as they only reduced their net long position by a net 2,225 contracts. It was the traders in the ‘Other Reportables’ and ‘Nonreportable’/small trader category that were responsible for most of the change — and mostly the latter category.
The ‘Other Reportables reduced their net long position by only 1,131 contracts, but ‘Nonreportable’/small traders decreased their net long position by a very healthy 4,752 contracts…which Ted would construe as being very bullish.
Doing the math…2,225 plus 1,131 plus 4,752 equals 8,108 contracts…the change in the Commercial net short position, which it must be.
The Commercial net short position is now down to 301.7 million troy ounces — and is obviously massively less than that now.
Ted says that JPMorgan reduced their short position in silver by around 3,000 contracts during the reporting week — and that puts them down to about the 6,000 contract mark. Of course since the Tuesday cut-off, they’ve obviously covered all that — and are most likely net long the COMEX futures market in silver.
Here’s Nick’s 3-year COT chart for silver — and the improvement should be noted. Click to enlarge.
You don’t need me to tell you that there’s been a sea change in the COMEX futures market in silver since the Tuesday cut-off. Not only have the Managed Money traders [plus the other two categories] been blown out of their long positions, they have also gone massively short…which was the object of the exercise of this engineered price decline…especially Friday’s trading action.
In gold, the commercial net short position declined by a very decent 22,704 contracts, or 2.27 million troy ounces of paper gold.
They arrived at this number by adding 4,814 long contracts — and they also reduced their short position by 17,893 contracts. It’s the sum of those two numbers that represents their change for the reporting week.
Under the hood in the Disaggregated COT Report there was, like in silver, surprisingly little change in the Managed Money position, as they reduced their net long position by only 5,176 contracts. Ted was astonished by the fact that these traders reduced their short position by 17,103 contracts, cutting their short position down to a record low 10,457 contracts. They also reduced their long position by 22,279 contracts — and it’s the difference between those two numbers that represents their change for the reporting week.
The traders in the ‘Other Reportables’ were the big movers and shakers, as they reduced their net long position by 15,026 contracts. The ‘Nonreportable’/small traders reduced their net long position by a scant 2,505 contracts.
The commercial net short position in gold is now down to 32.83 million troy ounces.
Ted estimates JPMorgan’s short position in gold at around 32,000 contracts, or a bit less…down from the approximately 40,000 contracts they were short in last Friday’s COT Report. It’s certainly less than that now…much less.
Here is Nick Laird’s 3-year COT chart for gold — and the improvement in that should be noted as well. Click to enlarge.
There certainly has been a massive drop in the commercial net short position in gold since the cut-off on Tuesday. But, unlike silver, JPMorgan et al. have not been able to break its price below its 200-day moving average, although they gave it the old college try on Friday during the New York trading session. Is this the best they can do? I don’t know, but we’ll find out on Monday, as these guys are in a hurry.
Ted’s back-of-the-envelope calculation on the phone yesterday was that the Big 7 commercial shorts had reduced their net unrealized margin call losses down to around the $2 billion dollar mark as of the end of trading on Friday…an improvement of about $5 billion or so during the reporting week. This criminality was all aided and abetted by the CFTC, the CME Groups, the DoJ — and also by the precious metal mining companies in their ongoing conspiracy of silence.
In the other metals, the Manged Money traders in palladium decreased their net long position by a further 442 COMEX contracts during the reporting week — and are now net long the palladium market by only 3,575 contracts…a bit under 29 percent of the total open interest…down from 31 percent last week. Total open interest in palladium fell for the third week in a row…from 13,055 COMEX contracts, down to 12,210 contracts. In platinum, the Managed Money traders decreased their net long position by a further 2,574 contracts. But they’re still net long the platinum market by 15,663 COMEX contracts…a bit under 21 percent of the total open interest. The other two categories [Other Reportables/Nonreportable] are still mega net long against JPMorgan et al…although both reduced their net long positions during the reporting week as well. In copper during the reporting week, the Managed Money traders didn’t do much, decreasing their net short position in that metal by a tiny 1,114 COMEX contracts. They are net short copper by 42,791 COMEX contracts…a hair under 19 percent of total open interest. This works out to 1.07 billion pounds of the stuff.
And it’s already a given that all of the above numbers will look radically different in next week’s COT Report…as the Managed Money traders most certainly puked up longs and went short during the reporting week by breathtaking amounts. That’s especially true in platinum and palladium, but not nearly as bad in copper, as the Managed Money traders are already massively short…but not record short.
Here’s Nick Laird’s “Days to Cover” chart, updated with the COT data for positions held at the close of COMEX trading on Tuesday, March 10. It shows the days of world production that it would take to cover the short positions of the Big 4 — and Big ‘5 through 8’ traders in each physically traded commodity on the COMEX. Click to enlarge.
For the current reporting week, the Big 4 traders are short 141 days of world silver production…down 2 days from last week’s COT Report — and the ‘5 through 8’ large traders are short an additional 60 days of world silver production…down 1 day from last week’s COT Report — for a total of 201 days that the Big 8 are short…down only 3 days from last week’s report. This represents just under 7 months of world silver production, or about 469 million troy ounces of paper silver held short by the Big 8. [In the prior reporting week, the Big 8 were short 204 days of world silver production.]
In the COT Report above, the Commercial net short position in silver was reported by the CME Group as 302 million troy ounces. As mentioned in the previous paragraph, the short position of the Big 8 traders is 469 million troy ounces. So the short position of the Big 8 traders is larger than the total Commercial net short position by around 469-302=167 million troy ounces. This is beyond obscene and grotesque.
The reason for the difference in those numbers…as it always is…is that Ted’s raptors, the 30-odd small commercial traders other than the Big 8, are net long that amount. And during the last two weeks they’ve really been piling back onto the long side, adding about 130 million troy ounces over that time period. I’m sure they’re even longer now.
Another way of stating this [as I say every week in this spot] is that if you removed the Big 8 commercial traders from that category, the remaining traders in the commercial category are net long the COMEX silver market. It’s the Big 8 against everyone else…a situation that has existed for about three decades in both silver and gold — and in platinum and palladium as well.
As mentioned in my COT commentary in silver above, Ted estimates JPMorgan’s short position at around 6,000 contracts, down from the 9,000 he said they were short in the prior week’s COT Report. That’s about 30 million troy ounces, or around 13 days of world silver production held short by JPM…but I’m sure it’s zero now, or they could even be long the COMEX futures market as of the close of trading on Friday.
As per the paragraph below, I suspect that JPMorgan is now the smallest of the traders in the Big 4 category…or the largest of the traders in the ‘5 through 8’ category. HSBC USA and Citigroup hold short positions larger than that. Who the fourth player might be, I don’t know…perhaps Goldman or Morgan Stanley. Australia’s Macquarie Futures comes to mind as well.
As per the first paragraph above, the Big 4 traders in silver are short around 141 days of world silver production in total. That’s about 35.25 days of world silver production each, on average…down a tiny fraction from last week’s report. The four traders in the ‘5 through 8’ category are short around 60 days of world silver production in total, which is around 15 days of world silver production each, on average…also down a tiny fraction from last week.
The Big 8 commercial traders are short 50.2 percent of the entire open interest in silver in the COMEX futures market, which is up a decent amount from the 48.3 percent they were short in last week’s COT report. And once whatever market-neutral spread trades are subtracted out, that percentage would be a bit over the 55 percent mark. In gold, it’s now 46.6 percent of the total COMEX open interest that the Big 8 are short, which is also up a decent amount from the 42.3 percent they were short in last week’s report — and also a bit over 50 percent, once the market-neutral spread trades are subtracted out.
In gold, the Big 4 are short 69 days of world gold production, unchanged from last week’s COT Report. The ‘5 through 8’ are short another 34 days of world production, up 1 day from last week’s report…for a total of 103 days of world gold production held short by the Big 8…up 1 day from last week’s COT Report. Based on these numbers, the Big 4 in gold hold about 67 percent of the total short position held by the Big 8…unchanged from last week’s report.
The “concentrated short position within a concentrated short position” in silver, platinum and palladium held by the Big 4 commercial traders are about 70, 77 and 76 percent respectively of the short positions held by the Big 8…the red and green bars on the above chart. Silver is unchanged from last week’s COT Report…platinum is up about 3 percentage points from a week ago — and palladium is up a hair week-over-week.
It should be noted that the short position of the Big 8 traders in palladium has vanished into the background on the above “Days to Cover” chart — and in last week’s Bank Participation Report, they have exited stage left as well. They are totally gone as of Friday’s close — and might even be net long this market now.
And as Ted has been pointing out for years now, JPMorgan is, as always, in a position to double cross the other commercial traders at any time and walk away smelling like that proverbial rose — and that’s because of the massive amounts of physical gold and silver they hold. Nothing about that possible scenario has changed on iota over the last year — and has grown stronger during the last couple of weeks. We’re just awaiting that day — and when it does arrive, you won’t have to ask “is this it?”…as it will be evident in the price.
I don’t have all that many articles, stories or videos for you today.
One certainly can’t blame the Fed for trying: after firing a repo “bazooka” yesterday, which could provide up to $5 trillion in monthly liquidity in exchange for eligible pledged securities, and following that up with an emergency QE operation today when the Fed announced it would buy up to $37 billion in securities across the curve from domestic and foreign banks, risk assets have staged a modest rebound after the biggest selloff since Black Monday, and the relentless selloff of Treasurys, likely prompted by risk parity fund unwinds, has moderated.
But where the Fed has catastrophically failed, is in addressing the most important task facing it this moment: easing the unprecedented dollar shortage which is getting worse by the minute.
Despite the barrage of central bank actions meant, more than anything, to ease bank fears that dollars will not be available when needed to rollover trillions in maturing debt, the dollar has seen a relentless surge higher, with today’s move shocking in its severity and consistency. Click to enlarge.
Yet while one can argue that the dollar is traditionally a flight to safety in times of stress, the fact that the dollar is surging today even as stocks are soaring and the Dow is about to be up 1,000 suggests that something else is going on.
That something else is the relentless move higher in the 1st IMM FRA/OIS, which was supposed to ease after today’s massive term repo operations, yet which spiked when it emerged that there was barely any usage early this morning, arguably due to regulatory limitations and concerns about liquidity coverage ratios.
The first of three heavy-reading chart-filled articles in a row from Zero Hedge. This one put in an appearance on their Internet site at 3:27 p.m. EDT on Friday afternoon — and I thank Brad Robertson for sending it our way. Another link to it is here.
On the first day of this week, which would soon mutate into the worst week for capital markets since the 2008 financial crisis, we warned that markets are about to go full tilt for the simple reason that “there is no liquidity“, something we first highlighted at the start of the month when we pointed out “Two More Problems For The Bulls: Market Liquidity And Short Interest Are At All Time Lows.”
Why our constant focus on liquidity? Because as Goldman explained on Thursday, “liquidity and volatility are interconnected, creating a self-reinforcing loop, and as a result liquidity conditions have been an important contributor to the velocity of recent S&P 500 moves.” Yet while liquidity had dipped in the past on numerous stressed occasions, what we saw in recent days has been borderline biblical as top-of-book depth for SPX E-mini futures, typically the conventional metric of liquidity representing the dollar-amount of SPX E-mini futures available to trade electronically on the typically 25-cent wide market, has – as Goldman put it – “started to lose meaning as fewer and fewer market participants are quoting one-tick-wide markets for the futures at all.”
Indeed, the staggering moves in the bond market itself have been the best indicator of just how illiquid it has become: on Monday, 30-year yields posted the biggest intraday decline since at least October 1998, followed by a bizarre last hour crash even as stocks continued to sell. And while a massive injection of cash from the Federal Reserve, President Donald Trump’s plan to declare a national emergency and hopes for fiscal support lifted stocks Friday, analysts and investors say the U.S. government-debt market is still not functioning properly.
“Liquidity is still atrocious,” said Mark Holman, chief executive officer at TwentyFour Asset Management. Mark here laments something we said earlier: while some traders may have found trades in the insane roller coaster market we observed in the past few days, they were unable to take put the trades on as there simply was not enough – or any – liquidity:
“We were just trying on Monday to trim a long position in the 30-year Treasury because it had moved so far in our favor, and were unable to get bids from several major dealers. We’ve never seen that before.”
“I understand that dealers don’t have the risk appetite and budget they normally have,” said Holman, who unlike most active “traders” today has in fact seen a bear market in his career which stretches back to 1989. “But I’ve never seen that before, the inability to trade a U.S. Treasury.”
Meanwhile, confirming our Friday observations that liquidity is not only cataclysmic but getting worse, Goldman points out that a pair of block trades in Treasury futures printed well below market levels on Friday in a sign that conditions remain volatile. Traders also reported a shortage of prices on screens, while futures on U.S. ultra bonds hit circuit breakers repeatedly during Friday morning trading in Europe.
““We heard there were some issues in off-the-run Treasuries,” Treasury Secretary Steven Mnuchin said on CNBC Friday morning. “We are working on that“… but apparently not enough, and the result was the biggest VaR shock of all time as risk parity funds launched a crushing deleveraging which has crippled conventional correlations, and left traders speechless at the bid or offerless Treasury markets.
This very long and very thick chart-filled commentary appeared on the Zero Hedge website at 7:05 p.m. EDT on Friday evening — and it’s not the parts that you don’t/won’t understand that should scare you. Another link to it is here.
While many postmortems will be written on what, despite Friday’s torrid 9% rebound, has been a historic, unforgettable week which saw the U.S. stock market plunge the most since the worst days of the global financial crisis, one of the more detailed and impactful was that of Nomura’s quant Masanari Takada who put the week’s events in simple, easy to understand context: “In little more than the blink of an eye, the situation has come to look like the 2008 Lehman Brothers crisis all over again.”
Below we re-post some of the key points from his note as we brace for another historic week, especially since something tells us – perhaps the Fed’s failure to normalize the funding situation – that the events from next week will be even more memorable.
“The plunge in U.S. equities yesterday (12 March) pushed weekly returns down to 7.7 standard deviations below the norm. In statistical science, the odds of a greater-than seven-sigma event of this kind are astronomical to the point of being comical (about one such event every 160 billion years).
Setting aside legitimate quibbles over the statistical significance of this, we can say with confidence that we are witnessing a history-making market disaster in real-time.
Looking back at the performance of the DJIA since 1900, market shocks have exceeded the current rout in magnitude on only three occasions: in 1914 (when a growing financial crisis caused trading in U.S. equities to be halted), in 1929 (the historic market crash that led to the Great Depression), and in 1987 (the Black Monday event).
U.S. stock market sentiment has also seen a jarringly swift collapse, as equity sentiment has now gone beyond the low point marked during the 2015 renminbi shock. In little more than the blink of an eye, the situation has come to look like the 2008 Lehman Brothers crisis all over again.
It may be, then, that the market has only just begun staring into the abyss.”
Wow…and double wow!
This long, chart-filled and worthwhile commentary showed up on the Zero Hedge website at 8:31 p.m. on Friday evening EDT — and another link to it is here. Gregory Mannarino‘s post market rant for Friday is linked here — and it’s definitely worth watching.
Being a fallen angel is not a good thing, whether in the Bible or the bond market. For investors, a fallen angel is a company that has lost its investment-grade debt ratings — a fall that can have costly consequences. The ranks of that category may be about to get far more crowded, as new economic woes push nearly $1 trillion of debt owed by companies that are currently barely above that level closer to the line. The market has already made up its mind on roughly a third of that, trading the bonds as if they’ve slipped into junk status, even if credit raters haven’t made that call.
1. What makes a fallen angel?
Generally speaking, a fallen angel is a bond that is downgraded to BB+ or below (categories considered junk, or, more politely, high yield) by at least two of the three major rating firms — Moody’s Investors Services, S&P Global Ratings and Fitch Ratings — after being formerly rated BBB- or higher (categories that are investment grade). Downgrades can happen when a company isn’t creating enough revenue or generating enough cash to service its debt, or when it takes on so much debt that its financial leverage — usually calculated by debt as a measure of earnings — becomes disproportionate.
2. What happens when bonds lose investment-grade status?
A fall to junk status affects both borrowers and investors. For companies, downgrades make borrowing more expensive. A downgrade that extends all the way to junk could mean a need to tack debt covenants to the formal contracts with bondholders. These covenants protect investors who agree to lend to the now-riskier issuer and, often, prevent the company from benefiting shareholders at the expense of bondholders. Junk status also can force a wave of selling by investment companies and funds whose mandates prevent them from holding credits below investment grade. The prices on the bonds may need to fall to compensate investors for holding a less liquid, or actively-traded security.
This very interesting article appeared on the Bloomberg website at 7:28 a.m. PDT [Pacific Daylight Time] on Friday morning — and I thank Swedish reader Patrik Ekdahl for pointing it out. Another link to it is here.
International Man: What is it exactly that you are looking at that might lead to a collapse?
Jeff Thomas: Well, there’s going to be a major debt collapse. It’s inescapable at this point. You get to a tipping point where, even if it hasn’t occurred yet, it’s too late to fix it.
When you get countries at the point where they’re borrowing so much money that they can’t even pay the interest any longer yet are moving headlong to borrow more and offering their people increased entitlements, the money isn’t going to be there. It simply doesn’t exist. In that regard, it’s really a question of simple arithmetic. Do the numbers add up, or do they not?
We see that in the U.S., where it’s rapidly moving in the direction of far greater entitlements and more Americans who are demanding much more in the way of entitlements. Somebody’s got to pay for this.
Historically, the same thing happens in every empire.
Every empire ends in the same fashion because human nature remains the same in any generation, in any era. The same mistakes end up being made by those in charge. So, you can look at what’s happened elsewhere.
This very worthwhile Q&A session with Jeff Thomas showed up on the internationalman.com Internet site on Friday morning EDT — and another link to it is here.
It was as if global markets pulled elements from the 1994 bond market dislocation, 1997’s Asian Bubble collapses, the 1998 Russian/LTCM fiasco, and the 2008 market crash – and synthesized them for a week of ridiculous market instability and dysfunction.
Thursday was an extraordinary day of global market panic – The “Worst Day Since the 1987 Market Crash” – “Biggest VaR Shock In History.” Add the “worst week for Credit in Decade.” It was the dreadful global de-risking/deleveraging episode – a disturbing case of synchronized liquidation, market illiquidity and dislocation. Global markets – stocks, bonds, Credit, derivatives, currencies and commodities – were all convulsing and “seizing up.”
The Dow sank 2,353 points, or 10.0% Thursday, with the S&P500 sinking 9.50%. Italy’s MIB index collapsed 16.9%, Germany’s DAX 12.2%, Spain’s IBEX 14.1%, and France’s CAC40 12.3%. Major equities indices were down 14.8% in Brazil, 12.7% in Poland, 11.5% in Hungary, 8.3% in Russia, 8.2% in India and 10.8% in Thailand. Japan’s Nikkei traded down as much as 10% in early-Friday trading before ending the session with a 6.1% loss.
Equities markets almost appeared orderly compared to Credit market mayhem. An index of U.S. high-yield CDS surged 92 bps to 685 bps, capping off a six-session surge of 317 bps to the highest level since the crisis. For comparison, this index spiked 138 bps in seven weeks to 485 bps during the late-2018 dislocation. An index of investment-grade CDS jumped 21 bps Thursday to 139 bps, with a six-session surge of 73 bps to the highest level since 2011.
It was a week when, to those paying attention, the potential for a crisis much beyond the scope of 2008 became readily apparent. We witnessed more than a glimpse of how global financial collapse could materialize.
Myriad perceived safe and liquid financial instruments/strategies lost their Moneyness this week (fiscal and monetary stimulus notwithstanding, I don’t think it’s coming back). The run was on. With risks illuminated, leverage must come down. The “hot money” is now fleeing countries, markets and instruments – marking a momentous change in the flow of finance and global marketplace liquidity.
I certainly appreciate the seriousness of the unfolding crisis. But I do ponder what the government response will be after the Bubble has deflated and policymakers are confronting a deep recession and financial calamity.
The critical issue is not so much the coronavirus and its economic impacts, as it is the uncertainty associated with the pandemic as a catalyst for the piercing of history’s greatest global Bubble. We’ll get through this, but the world is today poorly prepared for the great challenges it now confronts.
Doug’s very worthwhile commentary, which is definitely worth reading, showed up on his website in the very early hours of Saturday morning EDT — and another link to it is here.
The Venezuelan government removed some six tonnes of gold from the central bank’s vaults between late 2019 and early 2020 to raise more hard currency for President Nicolas Maduro’s cash-strapped administration, according to two government sources familiar with the movement.
Last year Maduro’s government repeatedly withdrew monetary gold to exchange it abroad for euros in cash, sources said at the time, as falling oil production, an economic collapse and U.S.-imposed sanctions hit public income and restricted access to credit. The government has never publicly commented on this.
The new removals of gold bars worth about $350 million lowers the central bank’s reserves to about 90 tonnes, the sources said, down from 129 tonnes at the start of 2019.
Neither the central bank nor the information ministry, which handles media inquiries for the government, responded to requests to comment.
This Reuters article, filed from Caracas, put in an appearance on their website at 1:09 p.m. EDT on Thursday — and I found it embedded in a GATA dispatch. Another link to it is here.
The PHOTOS and the FUNNIES
Continuing along Highway 16/The Yellowhead on September 1…the next two photos were take from the exact same spot along side the highway. The first is a shot with my ‘walk-around’ lens set on 57mm looking east down the highway in the direction of McBride. The second is of the same view, except with the 400mm telephoto lens attached. As you can tell, the telephoto really compresses distance and narrows the field of view considerably. It’s hard to believe that it’s the same scene, but it is. The third shot is just another general photo that I took from the side of the road as we continued along our journey through the inter-mountain country of B.C. This was the last of the sunny weather, as things began to deteriorate from hereon in.
Today’s pop ‘blast from the past’ is one that I’ve featured before, but only once — and it’s time for a revisit. This was a monster hit — and I mean monster in every sense of the word when it appeared on the charts in very late 1999. Although my days of rock and roll had vanished by the early 1980s…this song was such a giant, even I got caught up in the wave. Featured is Carlos Santana and vocalist Rob Thomas. Carlos Santana is a name that’s been around the rock/pop scene for about 55 years…but who’s counting. It’s a goody — and the link is here.
Today’s classical ‘blast from the past’ is not overly long — and one I’ve feature before, but it’s been many years. Composed by Spanish violin virtuoso Pablo de Sarasate back in 1878…it was premiered the same year in Leipzig, Germany. As one of his most popular compositions and a favorite among violin virtuosos, the work has remained a staple on records at least since Sarasate himself recorded it in 1904. It’s entitled Zigeunerweisen…Gypsy Airs…and it’s a tour de force and show piece extraordinaire in every sense of the word, so buckle up. Here’s Sarah Chang doing the honours — and the link is here.
For the second day in a row it was an embarrassment to read and listen to the drivel that passed as market commentary on the precious metal price activity. In one form or another, they were all saying the same thing, but are missing the overall…either deliberately, or through complete ignorance.
The engineered price decline since the Tuesday cut-off had zero to do with anything stock market or currency related — and everything to do with Ted’s ‘Big 7’ traders moving heaven and earth to extract themselves from the financial hole that they’d dug for themselves. At the peak of their unrealized margin call loses, these seven entities were in the red to the tune of around $8.2 billion.
As Ted said on the phone yesterday…”cui bono?“…in English “to whom is it a benefit?”. It’s a Latin phrase about identifying crime suspects. It expresses the view that crimes are oftentimes committed to benefit their perpetrators, especially financially. This is what this week’s bloodbath in the precious metals was all about. It was entirely for the benefit of JPMorgan et al. That’s all there is, there ain’t no more.
As Ted also mentioned, they’ve cut their combined loses down to around the $2 billion mark — and I can say with one hundred percent certainty that their remaining loses are in gold only. They’ll be able to wipe that out only if they can punch gold back below its 200-day moving average for a few days — and after what they’ve been able to pull off since the Tuesday cut-off, I wouldn’t put it past them.
I suspect that we’ll know for sure what their intentions are beginning at the 6:00 p.m. EDT open on Sunday evening in New York — and if not then, there the 2-day FOMC meeting that starts on Tuesday. That will give them good cover as well…as does this dollar index ‘rally’ we’re in the midst of at the moment.
As it stands right now, we’re literally miles below any moving average that matters in silver, platinum, copper and WTIC. COMEX palladium futures are no longer a market in the true sense of the word, as the short positions of the Big 8 traders has dropped below both coffee and sugar on the ‘Days to Cover’ chart posted further up. And that’s was just as of the close of trading on Tuesday. I expect that the short position by the Big traders in palladium to be around where corn and WTIC are right now…well under ten days of world production. It has become a speck of dust in the precious metals world from a COMEX futures market perspective.
The set-up in five of the Big 6 commodities of which I speak of every day in The Wrap section, is now primed up for a moon shot to the upside, with gold being the sole fly in the ointment currently — and I just stated, ‘da boyz’ could take care of that in a New York minute.
But when the next rally in the precious metals gets underway, will JPMorgan et al…the Big 7…these shorts sellers of both first and last resort reappear? I think not…but if they do, it will be at precious metal prices astronomically higher than they are today.
So we wait some more.
Here are the charts for the four precious metals, plus copper and WTIC…in full colour — and suitable for framing. These are charts for the ages…historic in every way. But as you can see, the jury is still out on gold. They don’t need any embellishment from me, as the dojis from both Thursday and Friday tell all. Click to enlarge.
The world has finally arrived at the proverbial brick wall…its Wile E. Coyote moment…on Friday March 13, 2020. How apropos.
We are done for — and there is no escape. All we can do now is watch the central banks of the world’s attempt to salvage the unsalvageable. They are already far behind the curve — and as we’ve already seen, their attempts…beginning mid-September of last year…have been futile.
The economic, financial and monetary landscape is deteriorating far faster now than even they can ever hope to move. The central banks, along with their associated governments, are now viewed as not only incompetent, but impotent as well — and the more these situations deteriorate, the more draconian their responses will most likely be.
Liquidity in the bond market has vanished — and the trillions injected over the last few days has not helped at all. When the stock market turns south again, there will be no buyers…only sellers — and at some point in the very near future, the bond and currency markets will freeze up. The high-yield bond market will implode.
It would not surprise me, or others, if they were forced to close the banks and even the stock exchanges of the world at some point. That’s how critical things have become in just this past week.
And as Jeff Thomas pointed out in his Q&A session in the Critical Reads “…there’s going to be a major debt collapse. It’s inescapable at this point.”
And as Nomura’s quant Masanari Takada so succinctly put it another story in the Critical Reads section…”In little more than the blink of an eye, the situation has come to look like the 2008 Lehman Brothers crisis all over again“…and…”The Market Has Only Just Begun Staring Into the Abyss“.
He would be right about that, dear reader.
And as one youtube.com comment correctly pointed out…”Would someone tell the central banks and governments that liquidity does not fix a solvency problem.”
Then there this coronavirus pandemic. It has gone from not a big deal a month ago, to a really big deal now. It has swept through the world like a firestorm in the last week or so — and before it’s done with us, the geopolitical and social landscape that we’ve known all our lives, will be no more.
And it’s a certainty that our current economic, financial and monetary system will not survive it, either. As a matter of fact, it will become one of the first casualties. It is a dead men walking right now, but that fact hasn’t drifted down to the average person in the street because the main stream media is keeping them ignorant, although the central banks and the deep state are more than aware of it.
And I can’t shake the feeling that this sudden, unprecedented and historical engineered price declines that we’ve see in the Big 6 commodities, is the precursor for a change in the financial system which will require much higher precious metal price, particularly gold. Will they use the implosion of everything paper, as the fuse to let precious metal prices rip to the upside?
I don’t know, but watch for it.
I’m sure you haven’t forgotten what Jim Rickards had to say in my Thursday column. Here, in part, is what he said…
“If the Fed bought gold at $5,000 per ounce and made a two-way market, gold would be $5,000 per ounce. The point is not to enrich gold holders, but to get widespread inflation. The world of $5,000 gold is also the world of $150 oil and $75 silver. Every other price goes up at the same time.
So gold can solve the benchmark problem and the inflation problem. But that won’t be tried until things get much worse. Authers anticipates a “new” system but he doesn’t know what it is or how to get there. The answer to both questions is gold.”
So, is that the reason for the panic out of the Big 8’s short position in the precious metals? I don’t know, nor does anyone else. There was a meeting with the big New York bankers and the President at the White House on Tuesday — and one wonders what they discussed. The COMEX stage is certainly set, except for gold, for what Jim says is a way out for the central banks.
The gold card, as I’ve spoken of multiple times over the years, is the last card that central banks have in the deck. And although loath to play it, at some point they will…because they won’t have any other option, as we are on the cusp of a deflationary implosion the likes of which the world has never known — and that cannot be allowed to happen.
So, how did it come to this, I wonder…here at the end of all things.
I’m done for the day — and the week — and I’ll see you here on Tuesday.