21 March 2020 — Saturday
YESTERDAY in GOLD, SILVER, PLATINUM and PALLADIUM
The gold price got hammered a bunch of dollars lower the moment that trading began at 6:00 p.m. EDT in New York on Thursday evening. It began to recover immediately — and the rally was on in earnest from that juncture. ‘Da boyz’ stepped in shortly after the 8 a.m. open in London on their Friday morning — and it was sold quietly and unevenly lower until the 1:30 p.m. COMEX close in New York. After trading sideways for a while, the gold price began to head briskly higher until the market closed at 5:00 p.m. EDT.
The low and high ticks in gold were reported by the CME Group as $1,457.50 and $1,519.40 in the April contract.
Gold finished the Friday session in New York at $1,498.80 spot, up $27.40 from Thursday’s close, but around 20 bucks off its Kitco-recorded high tick of the day. Net volume was pretty quiet at a bit under 206,500 contracts — and there was just under 64,000 contracts worth of roll-over/switch volume out of April and into future months.
Silver’s price path was pretty much identical as it was for gold, except its low tick was printed around 2:45 p.m. in after-hours trading in New York. From that point it took off higher into the 5:00 p.m. EDT close.
The high and low ticks in silver were recorded as $13.095 and $12.005 in the May contract.
Silver was closed in New York yesterday afternoon at $12.59 spot, up 48.5 cents from Thursday, but a chunky 65 cents off its Kitco recorded high tick of the day. Net volume was reasonably decent at a bit over 70,500 contracts — and there was a bit over 12,000 contracts worth of roll-over/switch volume in this precious metal.
In all respects that mattered, ‘da boyz’ guided platinum on a similar price path as both silver and gold. However, there was no post-COMEX close rally in this precious metal. It was closed at $608 spot, up 20 bucks from Thursday — and 35 dollars off its Kitco-recorded high tick of the day.
Palladium was sold down over twenty dollars the moment that trading commenced at 6:00 p.m. EDT in New York on Thursday evening. It crept steadily higher until shortly before 2 p.m. China Standard Time on their Friday afternoon — and took off higher from there. It ran into ‘something’ at the same time as the other three precious metals…about ten minutes or so after the London/Zurich opens. It struggled sideways-to-lower until minutes after the COMEX open — and then it was hammered down another bunch. It traded very unevenly sideways from that juncture until trading ended at 5:00 p.m. in New York. Palladium was closed at $1,522 spot down 81 bucks on the day — and over 300 dollars off its Kitco-recorded high tick.
And based on Friday’s closing prices, the gold/silver ratio now sits at 119 to 1.
The dollar index closed very late on Thursday afternoon in New York at 102.76 — and opened up about 17 basis points once trading commenced around 7:45 p.m. EDT on Thursday evening, which was 7:45 a.m. China Standard Time on their Friday morning. It was unevenly down hill from there until 3:56 p.m. CST — and it certainly appeared that the usual ‘gentle hands’ showed up at that point. The ensuing ‘rally’ topped out at 3:32 p.m. in afternoon trading in New York — and it sold off a bunch from there going into the 5:30 p.m. EDT close.
The dollar index finished the Friday session at 102.82…up 6 basis points from its close on Thursday.
I guess one could say that there was some correlation between the gold price and the currencies on Friday. But ‘da boyz’ didn’t step into the precious metal market until about fifteen minutes after the rally in the dollar index began.
Here’s the DXY chart for Friday, courtesy of Bloomberg as always. Click to enlarge.
And here’s the 5-year U.S. dollar index chart, courtesy of the folks over at the stockcharts.com Internet site. The delta between its close…103.50…and the close on the DXY chart above, was 68 basis point higher than the spot close on the DXY chart above on Friday. Click to enlarge as well.
During the last eleven trading days, the dollar index has risen almost 900 basis points, which is unprecedented…just like a lot of other things that are happening these days. I know that Doug Noland will have something to say about this in his weekly commentary in the Critical Reads section.
The gold shares jumped up a bunch at the open, but ran into immediate selling pressure — and they were sold unevenly lower right until the market closed in New York at 4:00 p.m. EDT. There were bouts of buying during the day, but every time they ended, the selling pressure continued. The HUI got clocked for another 5.87 percent — and that’s despite the fact that the gold price was in positive territory during the entire trading session. Even the gold price rally going into the 4:00 p.m. New York close didn’t make any difference.
The silver equities traded in an identical manner…almost to the tick, except Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed lower by ‘only’ 4.29 percent. Click to enlarge if necessary.
And here’s Nick’s 1-year Silver Sentiment/Silver 7 Index chart, updated with Friday’s doji. Click to enlarge as well.
After being the big dog on Thursday, Wheaton Precious Metals was the ‘star’ on Friday…up 1.68 percent. And after being the big star on Thursday, SSR Mining was the pooch on Friday, down 9.65 percent…followed hard on its heels by Pan American Silver, down 9.32 percent.
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 for the second week in a row, I’ll dispense with the play-by-play on any of them. 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, the DoJ… and our ‘beloved’ mining companies have stood there with their hands in their pockets, watching these criminal acts unfold. Not a peep out of any of them. Click to enlarge.
The devastation was caused by a number of factors which I’ve already pointed out over the last few weeks…margin call selling, panic selling, mutual fund redemptions and, without doubt, there was some short selling going on as well.
But in a very perverse sense…looking at these charts, the silver equities aren’t down all that much considering how far the silver price has been beaten lower — and are really ‘outperforming’ gold and its equities on a relative basis. Year-to-date gold is down only 1.19%…but the equities are down 31.27 percent…a 26 to 1 ratio. Whereas in silver, although the price is down 29.35 percent, the equities are ‘only’ down 48.03 percent…a ratio of only 1.64 to 1. That ratio is similar on the weekly and month-to-date charts as well.
Yes, that’s cold comfort, but it’s proof positive that there is massive and stealth accumulation going on in the silver equities — and those that already hold them, aren’t selling.
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 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. They covered their unrealized losses OK on that Mother of all engineered price declines, but are still mega short in both gold and silver in the COMEX futures market. They are stuck there, but with the core short positions that they’ve always had — and with no way out except to buy their way out. It’s the only way — and sooner or later that’s what they’ll be forced to do….unless the COMEX gets closed at some point.
The CME Daily Delivery Report showed that 260 gold and 55 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.
In gold, the only short/issuer that mattered was HSBC USA, with 259 contracts out of its own account. There were six long/stoppers in total — and the three largest were Scotia Capital/Scotiabank, JPMorgan and ADM, with 105, 56 and 47 contracts respectively. The contracts for Scotia Capital/Scotiabank were for its in-house/proprietary trading account — and all the other contracts stopped were for their respective client accounts.
In silver, the sole short/issuer was Scotia Capital/Scotiabank — and the three long/stoppers were the CME Group, Morgan Stanley — and ADM…with 35, 14 and 6 contracts. The 35 stopped by the CME Group was for its own account, which they immediately reissued at 35×5=175 one-thousand ounce Micro Silver Futures contracts. The three long/stoppers for those were Morgan Stanley, Advantage and ADM, with 119, 30 and 26 contracts — and all for their respective client accounts.
The link to yesterday’s Issuers and Stoppers Report is here.
Month-to-date there have been 2,126 gold contracts issued/reissued and stopped, which is a lot considering the fact that March his not a regular delivery month for gold — and that number in silver is 4,217 contracts.
The CME Preliminary Report for the Friday trading session showed that gold open interest in March dropped by 14 contracts, leaving 261 still open, minus the 260 gold contracts mentioned a few paragraphs ago. Thursday’s Daily Delivery Report showed that 16 gold contracts were actually posted for delivery today, so that means that 16-14=2 more gold contracts were just added to March. Silver o.i. in March declined by 17 contracts, leaving 187 still around, minus the 55 contracts mentioned a few paragraphs ago. Thursday’s Daily Delivery Report showed that 21 silver contracts were actually posted for delivery today, so that means that 21-17=4 more silver contracts were just added to the March delivery month.
Total gold open interest in March rose by only 1,413 contracts, but total silver open interest in March fell by 1,392 contracts.
There was a huge withdrawal from GLD on Friday, as an authorized participant took out 451,568 troy ounces. But equally surprising in the opposite direction, there was another monster deposit into SLV, as a net 3,638,060 troy ounces of silver was added.
In the last four business days there has been a net 20.24 million troy ounces of silver added to SLV — and 696,172 troy ounces of gold withdrawn from GLD. I’m sure that Ted will have a word or two on this in his weekend review later today.
In other gold and silver ETFs on Planet Earth on Friday, net of any COMEX or GLD & SLV activity, there was a net 11,005 troy ounces of gold withdrawn…but in silver, there was a net 1,333,089 troy ounces added.
There was no sales report from the U.S. Mint on Friday.
Month-to-date the mint has sold 83,500 troy ounces of gold eagles — 45,500 one-ounce 24K gold buffaloes — and 3,182,500 silver eagles. So far, gold sales in March have blown the doors off what was sold in January — and they’re rapidly approaching January’s silver eagle sales as well.
For the second day in a row there was no in/out activity in gold over at the COMEX-approved depositories on the U.S. east coast. But there was a paper transfer, as 25,981 troy ounces was transferred from the Eligible category and into Registered. Without doubt that will be going on the door for delivery in March. I won’t bother linking this.
There was a very decent amount of activity in silver, as 1,215,152 troy ounces…two truckloads…were received — and all of that went into Canada’s Scotiabank. There was also 751,210 troy ounces shipped out — and of that amount, one truck load…600,423 troy ounces…departed Scotiabank — and the remaining 150,786 troy ounces was shipped out of CNT. The link to all this is here.
There was some movement over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday. They reported receiving 416 of them — and shipped out 479. Except for 10 kilobars that were shipped out of Loomis International, the remaining in/out activity was at Brink’s, Inc. The link to all this, in troy ounces, is here.
Since the 20th of March fell on a weekday, the good folks over at The Central Bank of the Russian Federation updated their Internet site with February’s data. It showed that they added 400,000 troy ounces/12.44 metric tonnes of gold to their gold reserves during that month. That brings their total gold holdings up to 73.6 million troy ounces/2,289.2 metric tonnes. Here’s Nick’s most excellent chart showing that change. Click to enlarge.
The Commitment of Traders Report, for positions held at the close of COMEX trading on Tuesday, was a surprise to say the least. Yes, there were improvements in the commercial net short positions in both gold and silver, but not nearly as much as I was expecting.
In silver, the Commercial net short position in the Legacy COT Report only decreased by 5,689 contracts, or 28.4 million troy ounces — and I must admit that I was expecting at least five or six times that much.
They arrived at that number by reducing their long position by 5,346 contracts, but they also reduced their short position by 11,035 contracts — and it’s the difference between those two numbers that represents their change for the reporting week.
Under the hood in the Disaggregated COT Report, the Managed Money traders made up most, but not all of the change in the Commercial net short position…only 4,808 contracts worth. They did this by selling 15,549 long contracts, but instead of increasing their short position, they actually reduced it by a whopping 10,741 contracts…leaving them with the smallest short position that I can remember, only 15,471 contracts.
[Note: The remaining long position in the Managed Money category…37,409 contracts…now consists only of those traders that are Managed Money value-type investors, because the technically-oriented Managed Money traders wouldn’t own a single long contract this far below silver’s big moving averages.]
It was the traders in the other two categories that made up the difference. The ‘Other Reportables’ actually increased their net long position by 1,829 contracts, but the ‘Nonreportable’/small traders reduced their net long position by 2,710 contracts.
Doing the math: 4,808 minus 1,829 plus 2,710 equals 5,689 contracts…the change in the Commercial net short position…which it must be.
The Commercial net short position in silver is now down to 54,647 contracts, or 273.2 million troy ounces of paper silver, or about 117 days of world silver production…which is still very much in bearish territory.
JPMorgan only reduced their net short position by around 1,000 contracts according to Ted…and he feels that they are still short around 5,000 COMEX contracts, or maybe a bit less. Why they weren’t able to completely eliminate their entire short position in silver and be long the COMEX silver market is a complete mystery to me — and I must admit that I’m looking forward to his weekly review later today to get his thoughts, now that he’s had a change to “sleep on it“.
Here’s Nick’s 3-year COT chart for silver — and the smallish change should be noted. Click to enlarge.
Although the Big 8 traders were able to eliminate their unrealized margin call loses during this engineered price decline, they’re still short 178 days of world silver production, which is larger than the 117 days of world silver production that the Commercial traders are short. This is insane and obscene…something that I’ve been pointing out for years now. And if this is the best they could do on an engineered price decline of this magnitude, they’re completely stuck on the short side with no way out except by buying long positions and driving the price to the moon and the stars in the process.
In gold, the commercial net short position in the Legacy COT Report only fell by 26,595 contracts, or 2.66 million troy ounces — and I was expecting a number at least three times that mount. But the commercial traders can’t buy anything, unless the non-commercials are prepared to sell to them — and they weren’t.
The big surprise was in the Disaggregated COT Report. Yes, the Managed Money traders were the big sellers, dumping 55,663 long contracts, but they only added a piddling 443 short contracts, for a total net change of 56,106 contracts. But the shocker was that the traders in the ‘Other Reportables’ category because, like in silver, they stepped in front of the commercial traders and increased their net long position by a stunning 38,491 contracts…contracts that the commercial traders weren’t able to buy and cover short positions with. This was the stand-out feature of yesterday’s COT Report according to Ted — and I agree totally. The traders in the ‘Nonreportable’/small trader category did the opposite, reducing their net short position by 8,980 contracts.
Doing the math: 56,106 minus 38,491 plus 8,980 equals the 26,595 contract change in the commercial net short position, which it must do.
The commercial net short position in gold is now down to 301,709 COMEX contracts, or 30.17 million troy ounces…but still wildly bearish on an historical basis.
Ted figures that JPMorgan reduced their net short position in gold by around 7,000 contracts during the reporting week — and are now down to about 25,000 contracts net short, or maybe a bit less.
From the COT Report it’s easy to calculate the short position of the Big 8 traders — and it works out to 277,800 contracts. Subtracting out the 25,000 contracts of that amount that Ted says JPMorgan is short, that leaves the Big 7 commercial shorts still on the hook for a bit over 250,000 COMEX contracts. Like in silver, their margin call losses from last June are all gone, but Ted says that they’re still looking down the barrel of this liability. And with the Mother of all engineered price declines now in the rear-view mirror — and not having covered these short positions, it’s a reasonable assumption that they aren’t going to be able to, except in some future short-covering panic.
Here’s Nick’s 3-year COT chart for gold — and the change should be noted. Click to enlarge as well.
As I just mentioned, the engineered price declines for the ages in gold and silver are pretty much done — and the Big 7 traders, although out from under the $7.2 billion unrealized margin call loses, are still on the short side in both silver and gold by preposterous amounts. JPMorgan is still short as well, but they have 25 million troy ounce of gold and 900 million ounces of silver as a cushion. The other Big 7 traders are short orders of magnitude more than that — and don’t have an ounce of precious metals to their names. That’s why Ted says that JPMorgan could double cross these other commercial traders in a New York minute, but up to this point, haven’t done so.
In the other metals, the Manged Money traders in palladium decreased their net long position by a very hefty 2,169 COMEX contracts during the reporting week — and are now net long the palladium market by only 1,406 contracts…a bit under 15 percent of the total open interest…down from 29 percent last week. Total open interest in palladium fell for the fourth week in a row…from 12,210 COMEX contracts, down to only 9,556 contracts. This is no longer a market at all. In platinum, the Managed Money traders didn’t do much, despite the horrendous price decline…reducing their net long position by a scant 353 contracts. They’re still net long the platinum market by 15,310 COMEX contracts…a bit over 23 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 by considerable amounts during the reporting week. In copper during the reporting week, the Managed Money traders didn’t do much for the second week in a row, decreasing their net short position in that metal by an immaterial 106 COMEX contracts. They are net short copper by 42,685 COMEX contracts…a hair under 20 percent of total open interest. This works out to around 1.07 billion pounds of the stuff.
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 17. 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 126 days of world silver production…down 15 days from last week’s COT Report — and the ‘5 through 8’ large traders are short an additional 52 days of world silver production…down 8 days from last week’s COT Report — for a total of 178 days that the Big 8 are short…down 23 days from last week’s report. This represents 6 months of world silver production, or about 415 million troy ounces of paper silver held short by the Big 8. [In the prior reporting week, the Big 8 were short 201 days of world silver production.] And it should also be noted that the main reason for these big declines in days held short in silver is that total open interest in silver dropped precipitously during this past reporting week.
In the COT Report above, the Commercial net short position in silver was reported by the CME Group as 273 million troy ounces. As mentioned in the previous paragraph, the short position of the Big 8 traders is 415 million troy ounces. So the short position of the Big 8 traders is larger than the total Commercial net short position by around 415-273=142 million troy ounces…which is outrageous.
The reason for the difference in those numbers…as it always is…is that Ted’s raptors, the 33-odd small commercial traders other than the Big 8, are net long that amount.
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 5,000 contracts, down from the 6,000 he said they were short in the prior week’s COT Report. That’s about 25 million troy ounces, or around 11 days of world silver production held short by JPM — and why they weren’t able to cover it all during last week’s engineered price declines is one of the great mysteries of life. Something just doesn’t smell right about all this.
As per the paragraph below, I suspect that JPMorgan is now back in the ‘5 through 8’ category…as they were most likely the smallest of the Big 4 in last week’s COT Report.
As per the first paragraph above, the Big 4 traders in silver are short around 126 days of world silver production in total. That’s about 31.5 days of world silver production each, on average…down from the 35.25 days in last week’s report. The four traders in the ‘5 through 8’ category are short around 52 days of world silver production in total, which is around 13 days of world silver production each, on average…down 2 days from last week.
The Big 8 commercial traders are short 49.8 percent of the entire open interest in silver in the COMEX futures market, which is down a hair from the 50.2 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 48.4 percent of the total COMEX open interest that the Big 8 are short, which is also up a bit from the 46.6 percent they were short in last week’s report — and a bit over 50 percent, once the market-neutral spread trades are subtracted out.
In gold, the Big 4 are short 68 days of world gold production, down 1 day from last week’s COT Report. The ‘5 through 8’ are short another 28 days of world production, down 6 days from last week’s report…for a total of 96 days of world gold production held short by the Big 8…down 7 days from last week’s COT Report. Based on these numbers, the Big 4 in gold hold about 71 percent of the total short position held by the Big 8…up about 4 percentage points 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 71, 74 and 82 percent respectively of the short positions held by the Big 8…the red and green bars on the above chart. Silver is up about a percentage point from last week’s COT Report…platinum is down about 3 percentage points from a week ago — and palladium is up around 6 percentage points 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. It’s not positioned on the chart where it should be, but if it was, its short position would be located between cotton and soybean meal.
And as Ted has been pointing out for years now — and as I mentioned in my COT discussion on gold above, 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 ever stronger during the last several 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 have a very decent number of articles, stories and videos for you today.
When coronavirus panic kicked off unprecedented turmoil in Treasuries last week, hedge fund leverage was lurking.
The firms use borrowed money from the repurchase market for the popular basis trade, which exploits price differences between cash Treasuries and futures. Though individual firms’ borrowing is a closely guarded metric, people familiar with the transactions said some of them levered up as much as 50 times their own wagers. Leveraged funds’ exposure to the basis strategy could be as much as $650 billion, JPMorgan Chase & Co. strategists said.
Investors seeking safety rushed into Treasury futures on March 12, and hedge funds got hammered. A difficulty in completing trades ensued, and was a contributing factor to the Federal Reserve’s decision to pledge $5 trillion to keep markets running smoothly.
High leverage amplifies profits and losses and can be responsible for forced liquidations — and market fluctuations. This week, a sell-off in Treasury futures tied to margin calls pushed outstanding contracts to their lowest level since 2018. Many firms also get funding from money markets, whose problems have prompted the Fed to provide emergency funding.
Hedge funds’ excessive leverage has contributed in the past to congestion in the typically smooth Treasury market, according to a December report from the Bank of International Settlements, and bank traders have blamed hedge funds in the basis trade for continued issues in repo markets, especially after lending rates spiked in September to 10% from about 2%.
“Too big to fail is back, and this time it’s not the banks, it’s levered financial institutions,” said Mark Yusko, the chief executive officer of Morgan Creek Capital. Yusko said he supported the Fed’s stepping in, but added that hedge fund firms have gotten too big by borrowing too much. “It’s a bailout,” Yusko said of the Fed’s actions.
This Bloomberg story is one I extracts from a Zero Hedge commentary that immediately follows. It was posted on the Bloomberg website at 9:19 a.m. PDT on Thursday — and was updated about five hours and change later. Another link to it is here. The Zero Hedge spin on this is headlined “Confirmed: Fed Bailed Out Hedge Funds Facing Basis Trade Disaster” — and it’s definitely worth reading.
Historic Day: Fed to Buy a Record $107 Billion in Securities Today Alone as Fed Balance Sheet Explodes
Back in December we predicted that at the rate “Not QE” (RIP) was going, the Fed balance sheet would surpass it all time high by late April. It turns out that we were overly optimistic: with the Fed relaunching QE over the weekend as part of what is now global helicopter money, it announced plans to purchase $700BN in Treasury securities and expanding it to MBS earlier this week. However, that was not enough, and in the past week the Fed scrambled to stabilize the Treasury market buying TSYs feverishly hands over fist in addition to soaking up as much securities as Dealers had in its repo facilities, and as of this moment the Fed’s balance sheet has soared to a new all time high of $4.668 trillion. Click to enlarge.
As a reminder, the Fed balance sheet was $3.7 trillion in September, just ahead of the repo crisis, meaning that in the last 6 months it has grown at a 50%+ pace.
Putting the recent surge of purchases in context, here is what the Fed’s “Not QE” looked like in purchase terms since it was restarted in October, and what March will look like…Click to enlarge.
Drilling down further on just the past week, starting with last Friday when the Fed announced several emergency POMOs, which were followed by Sunday’s QE5 announcement, one can see how the crisis escalated in the Fed’s eyes, and peaked today, when the Fed is expected to purchase a record $75 billion in Treasurys and a record $32 billion in MBS, for a total of $107 billion in security purchases just on Friday!
The scariest thought: the Fed just injected in one week almost the entire amount of liquidity it did in all of QE2 and it is barely enough to keep stocks from plunging.
This very worthwhile article was posted on the Zero Hedge website at 10:22 a.m. EDT — and it’s the first offering of the day from Brad Robertson. Another link to it is here. In a related ZH story from yesterday morning is this headline that reads “Fed Expands Bailout Facility to Muni Bonds After Market Meltdown“. That’s from Brad as well.
Second Great Depression Begins? Goldman Now Expects a Record 24% Crash in Q2 GDP; Sees 9% Unemployment
On Wednesday we mused that a race had emerged between Goldman and JPMorgan over who can downgrade the US GDP growth rate the most. Up until that point, Goldman held the lead, with its recently announced -5% cut to Q2 GDP. But then JPM’s chief economist Michael Feroli, admitting he really has no idea what he is doing but deciding to do it nonetheless, announced that he now expects Q2 GDP to crater by an unprecedented -14%, a drop the kinds of which have never before been seen.
But Goldman, which just three months ago said the U.S. economy is “nearly recession-proof” (but apparently not depression proof), and instantly lost all credibility — and decided that if it can’t impress its clients with its predictive skills, the least it can do is make them laugh by outshining, or rather out-dulling, JPM’s forecast and it did just that moments ago when it slashed its previous GDP estimate published less than two weeks ago, and now sees Q2 GDP crashing at a ridiculous -24% rate, and up from -5% just days ago, which means the U.S. is basically entering a second Great Depression. The trade off, as with JPM, Goldman sees a V-shaped recovery in Q3 but we can likely ignore that: there is no way the country will recover from this kind of “once in a generation” supply and demand shock in 3 months. No way.
This longish chart-filled commentary put in an appearance on the Zero Hedge website at 11:51 a.m. EDT on Friday morning — and it’s another offering from Brad Robertson. Another link to it is here.
Last week, in the aftermath of the historic oil price collapse, we warned that the long-awaited “fallen angel” day has arrived, as $140 billion in oil producer (and up to $360 if one includes the mid-stream companies) investment grade debt was on the verge of being downgraded to junk and throwing the entire high yield market in turmoil.
Fast forward to today when Bloomberg calculates that since we published out article, the amount of distressed debt – a term that describes borrowings likely to default – in the U.S. alone has doubled to a half-trillion dollars as the collapse of oil prices and the fallout from the coronavirus shutters entire industries.
While rating agencies have been slow to respond to the total collapse in cash flow generation across most U.S. industries as long as the U.S. economy remains paralyzed due to the spreading lock downs across the nation, markets have been far faster, and the result has been a plunge in the price of countless bonds. As a result, corporate bonds – which according to BofA are no longer properly functioning – that yield at least 10% points above Treasuries, as well as loans that trade for less than 80 cents on the dollar, have swelled to $533 billion. This is more than double from the March 6 total of only $214 billion. And, according to UBS, if one adds across all company debt globally, including loans to small- and mid-sized companies that rarely if ever trade, the distressed pile could top $1 trillion. And yes, that number is only going to surge.
An analysis via Trace shows that the amount of distressed bonds has surged to the highest level since the financial crisis, surpassing the oil/manufacturing recession of 2016. Click to enlarge.
“We could see this be worse than 2008,” said Bloomberg Intelligence analyst Philip Brendel, in what may be the understatement of the day.
While currently most of the distressed debt comes from U.S. shale companies that have been pummeled by the all-out price war between Saudi Arabia and Russia as most companies are now cash flow negative and unable to service their debt obligations, analysts expect this solvency (and liquidity) crisis to spread to all industries the longer the U.S. economy remains in a state of shutdown.
Energy is just the harbinger however, and the amount of distressed debt in the retail, entertainment and lodging industries, among others, has also surged as economic activity comes to the virtual standstill because of the coronavirus.
This is just the thin edge of the wedge — and it’s going to get thicker in a real hurry. This Zero Hedge story showed up on their website at 12:20 p.m. on Friday afternoon EDT — and I thank Brad Robertson for sending it along. Another link to it is here.
There is just one word to describe fund flows over the past week: sheer, unadulterated panic, and this time instead of dumping equities investors are also puking fixed income left and right.
Summarizing the latest weekly EPFR data, BofA’s Michael Hartnett puts it thus:
- Record $108.9BN out of bonds (Monday = largest daily outflow ever at $30.2bn
- Record $55.3BN out of investment grade bonds, Monday was largest daily outflows ever ($17.8bn). Click to enlarge.
- Record one day outflow from equities on Friday, at $20.2bn
- Record $18.8bn out of EM debt, Monday was largest daily outflows ever at $4.7bn.
- Record $5.2bn out of MBS this week.
- Record $11.1bn out of municipal bonds this week
Guess cash is not trash after all.
Despite the historic turmoil, Bloomberg reports that some investment-grade companies including Walt Disney and PepsiCo managed to find windows of opportunity to issue new debt. In fact, as reported previously, many firms selling bonds and drawing down on their revolver this week were doing so to reduce their reliance on the commercial paper market, where prices have risen rapidly amid a broad market seize-up.
Not everything was being liquidated: total assets in government money-market funds rose by $249 billion to an all-time high of $3.09 trillion in the week ended March 18, as investors plowed money into the safety of cash and cash equivalents. The previous weekly inflow record? $176 billion set in September 2008 just after Lehman Brothers filed.
This article appeared on the Zero Hedge website at 1:57 p.m. on Friday afternoon EDT — and another link to it is here. Gregory Mannarino‘s post market close rant for Friday is linked here — and I haven’t had a chance to give it a rating yet. He had another video later in the evening — and that’s linked here — and in this video he starts off with an apology for what he went on a rant about in this first video…so be prepared! I thank Roy Stephens for that one.
While we have certainly had our share of dismal fund returns in the past two weeks, in the aftermath of a market crash that is now worse than the Great Depression, so far one thing was missing: a big blow up, where a fund is margined out and forced to liquidate Friday morning. Think “Duke & Duke.”
Well, no more: according to CNBC‘s Scott Wapner, one of the CME’s direct clearing firms was unable to meet its capital requirements on Friday, forcing the exchange to step in and invoke its “emergency protocols” to auction off the firm’s portfolios.
The firm in question: Ronin Capital, which on its website says “seeks the best and brightest people who embrace our Firm’s culture, and can thrive in a dynamic, entrepreneurial trading environment.” Apparently, that also meant being unable to quantify your risk exposure.
Terry Duffy, CME Group’s Chairman and CEO, told CNBC the auction process was completed Friday morning, but said the group doesn’t disclose who assumed the portfolios in the auction.
The good news is that unlike that other CME disaster, MF Global, when Ronin – which is responsible for trades made on the exchange – no customers were harmed…
“Duffy also said that under its clearing agreement, Ronin isn’t allowed to have outside clients so there were no customers harmed in the process.”
I expect there will be many more casualties like this before this bear market breaths its last. This Zero Hedge story was posted on their Internet site at 6:32 p.m. EDT on Friday evening — and I thank George Whyte for pointing it out. Another link to it is here.
So here is the executive summary… our best guess about what lies ahead:
The world of getting and spending is shutting down. Without revenue, neither businesses, households, nor the government will be able to pay their bills.
Stocks will rise (“a dead cat bounce”, the old timers call it) on all the “bailout” news, and then give up another 50% of their value.
Business will default on its $16-trillion-debt pile. Millions of people will lose their jobs. The Secretary of the Treasury, Steven Mnuchin, says that upwards of 20% of the workforce could be unemployed.
The feds will print money by the trillions to rescue the situation. Spending will rise. But lower output… and more currency in circulation… will raise prices.
In the summer, the virus will slow down. Then, the economy will begin to recover. But people all over the world will begin to mistrust the dollar (and other “paper” currencies). Prices will rise as real growth is suppressed by inflation fears.
Most likely, the virus will return in the autumn, though there’s no way to know how bad it will be.
But at some point, there won’t be enough “cash” to keep up with the rising contempt for it.
ATMs will run out. The economy – still fragile, with interest rates below inflation – will need more bailouts and more helicopter money to keep going.
Then, the feds will face a terrible choice. Printing more money may bring a hyperinflation, like Weimar Germany, Zimbabwe, or Venezuela.
But not printing will risk a deep depression… a “throw out all the bums” shock in the next election… or even a revolution.
What Paul Volcker will stand up and bring a halt to the money-printing? What Ronald Reagan will back him up? What Horatio will stand at the bridge and say “enough?”
This rather grim but probably realistic vision of things to come from Bill, appeared on the bonnerandpartners.com Internet site on Friday sometime — and another link to it is here.
I’ve been dreading this. In the midst of all the policy responses to the collapse of the mortgage finance Bubble, I recall writing something to the effect: “I understand we can’t allow the system to collapse, but please don’t inflate another Bubble.” It was obvious early on that policymakers had every intention to reflate Bubbles.
There was a failure to grasp the most critical lessons from that terrible boom and bust episode: Aggressive monetary stimulus foments market distortions, while promoting risk-taking, leveraged speculation and latent risk intermediation dysfunction. Years of deranged finance ensured unprecedented economic imbalances and deep structural impairment. There was no predicting a global pandemic. Yet today’s acute financial and economic fragility – and the risk of financial collapse – are directly traceable to years of negligent monetary management.
I understand we can’t allow the system to collapse, but Please Don’t Completely Destroy the Soundness of Central Bank Credit and Government Debt. Does anyone realize what’s at stake?
I don’t see another Bubble on the horizon. Each reflationary Bubble must be greater in scope than the last. Mortgage finance was used for post-“tech” Bubble reflation. Policymakers unleashed the “global government finance Bubble” during post-mortgage finance Bubble reflation. Massive international inflation of central bank Credit and sovereign debt went to the heart of global finance – the very foundation of “money” and Credit.
There is no greater Bubble waiting in the wings to reflate the collapsing one. We are instead left with desperate measures to expand central bank “money” and government borrowings that will surely appear absolutely reckless in hindsight.
Confidence has been shattered. Faith that central banks have everything well under control has been broken. Myriad fallacies have been exposed. Central banks can’t guarantee liquid markets, especially in a Bubble-induced highly levered speculative environment. The entire derivatives universe has been operating on the specious assumption of liquid and continuous markets. History is unambiguous: markets experience bouts of illiquidity, dislocation and panicked crashes. The fantasy that contemporary central bank monetary management abrogates illiquidity and market discontinuity risks is being debunked. The mania in finance has, finally, run its course.
Doug’s weekly commentary showed up on his Internet site in the very wee hours of Saturday morning EDT — and it’s definitely a must read. Another link to it is here.
Wayne Gordon, executive director for commodities and foreign exchange at UBS Global Wealth Management, talks about gold, the dollar and oil. He speaks with David Ingles and Yvonne Man on “Bloomberg Markets.”
This 7:43 minute video interview put in an appearance on the youtube.com Internet site on Friday — and I thank Swedish reader Patrik Ekdahl for sending it along. Another link to it is here.
- The government of Argentina has declared a state of emergency and imposed a nationwide mandatory quarantine starting today to reduce the spread of COVID-19. As a result, our 49%-owned San José mine has temporarily halted operations effective today, through at least March 31, 2020. The mine site will continue to be staffed by a reduced workforce to ensure appropriate safety, security, and environmental systems are maintained.
- Work at the Los Azules copper project in Argentina is also suspended until further notice.
- With the confirmed presence of COVID-19 in the Timmins region, our Black Fox operation is implementing numerous safety measures in addition to very strict site access and employee screening measures already in place: all non-essential staff and second-in-command managers will be working from home, employees who must travel by plane or for more than 4 hours have been asked not to return to the site, payroll will be isolated off site, group meetings have been discontinued, data is being collected on employee family health status, and numerous other measures.
- As a consequence of the suspension of mining at San José and uncertainty related to the potential impact of COVID-19 on our other operations, we are withdrawing all previously announced production and costs guidance for 2020.
I’m sure there will be lots more stories like this in the days and weeks ahead. This news release from McEwen Mining Inc. was posted on their Internet site on Friday sometime — and I thank Roy Stephens for sharing it with us. Another link to it is here.
The physical gold and silver market just became a little tighter in the near-term as one major mint is shutting down operations for the next two weeks.
In a note to clients, the Royal Canadian Mint said that because of the spreading coronavirus, starting Friday it is closing its doors for the next two weeks. That means the mint will not be producing its Gold and Silver Maple Leaf bullion coins.
“While the supply of bullion coins is currently limited, we are fulfilling all the orders we can. We are also continuing to fully secure our facilities, operate the refinery and allow for the receipt and withdrawal of available products,” said Alex Reeves, senior manager, public affairs at the Canadian mint in an e-mail to Kitco News.
“We are still providing liquidity to refinery and pool customers in the way of large cast bar products,” he added.
After the two week period the RCM said that it plans to resume modified production using a divided workforce approach.
“This will allow us to reduce the risk to our staff and maintain critical services,” the mint said.
The shutdown comes as firms are reporting growing demand for physical metal as investors continue to worry about the impact the global pandemic will have on the world’s economy.
This precious metal-related news item appeared on the kitco.com Internet site at 11:30 a.m. EDT on Friday morning — and I thank George Whyte for passing it along. Another link to it is here. The comments directly from the Royal Canadian Mint are headlined “UPDATE ON COVID-19 PANDEMIC” — and linked here. I found that in a GATA dispatch yesterday evening.
Gold’s lacklustre performance this week appeared to diminish the metal’s “safe haven” status, as it declined for the second week in a row amid a global stock market selloff due to coronavirus.
But investors are still flocking to the precious metal in the hope of a rebound and protection against an even worse fall in other assets, from stocks to currencies and bonds.
Gold has erased almost all its gains for the year and fell 3 percent on the week to trade at $1,503 a troy ounce in early trading today.
But on Thursday gold-backed exchange traded funds received inflows of 2.6 million ounces, equivalent to the annual gold production of a mid-tier mining company such as Australia’s Newcrest Mining. Total holdings in gold-backed exchange traded funds were at a record of over 3,000 tonnes in February, according to the World Gold Council.
Online gold exchanges, which sell physical gold directly to customers, said they had seen record buying volumes. BullionVault, which allows investors to buy and store gold and silver bars, said net demand had reached a level not seen since the depths of the financial crisis in March 2009.
The rest of this gold-related news item is hidden behind the subscription wall at the Financial Times — and I found this story on the gata.org Internet site. Another link to it is here.
Swiss exports of gold fell to the lowest since at least 2012 in February as shipments to top consumer China all but halted, customs data showed on Thursday.
The plunge in trade came as China fought to contain an outbreak of coronavirus by shutting down the movement of people and goods. The virus has since spread worldwide.
Switzerland — a major trading, vaulting and refining centre for precious metals — shipped 2 tonnes of gold to China in February, down from 17 tonnes in January. The shipments were the
lowest since May 2014.
Shipments to Hong Kong fell to just 10 kg, the lowest since monthly data became available in 2012, from 23.6 tonnes in January.
In total, Switzerland exported 42.7 tonnes of gold in February, less than half the 87.4 tonnes shipped the previous month.
Exports to India, the second biggest gold consumer after China, held up better at 9.6 tonnes in February, up from 8.5 tonnes in January. India has so far been less affected by coronavirus.
The above five paragraphs are all there is to this brief Reuters article that showed up on their website early on Thursday morning EDT — and I found it posted on the gata.org Internet site. Another link to that hard copy is here.
Perth Mint sales of gold coins and gold bars totaled 22,921 ounces last month, down 52.5% from January but 59.6% higher than in February 2019.
Year to date gold sales at 71,220 ounces are up 40.4% from the 50,713 ounces sold during the first two months of last year.
February sales of the Mint’s silver coins and silver bar combined to 605,634 ounces, down a whopping 58.2% from the previous month but 3.7% higher than in February 2019. As for the disparity when comparing the most recent two months, it is worth noting that January sales at 1,450,317 ounces ranked third highest for a month since CoinNews started tracking the Mint’s data in February 2013.
Lastly, Perth Mint silver sales at 2,055,951 ounces for the year are 45.5% ahead of the 1,413,164 ounces sold during the same period in 2019.
This story was posted on the coinnews.net Internet site on Friday sometime — and I found it on Sharps Pixley. Another link to it is here.
Markets are just beginning to latch on to the economic consequences of the coronavirus. Central banks are slashing interest rates and beginning to throw new money into the mix and governments are increasing deficit spending.
Few analysts have yet to understand the enormous consequences of the coronavirus for missed payments and accumulating current debt, which is and will rapidly drain liquidity from wholesale money markets. It is increasingly certain that the eurozone’s banking system will require rescuing from insolvency with knock-on consequences for the global monetary system. Concern over the consequences for the $640 trillion OTC notional derivative market, particularly for $26 trillion of FX swaps, is so far absent.
Continuing on our theme that the fates of the dollar and U.S. Treasury values are closely bound, the extraordinary overvaluation of the bond market will translate into a collapse for both. This article charts how the collapse of the dollar and financial asset values is likely to progress and concludes that we are witnessing the end of the neo-Keynesian fiat currency fantasy, which will be done and dusted with surprising rapidity.
Only then will sound money, after varying time periods for different nations, return.
This short novel by Alasdair put in an appearance on the goldmoney.com Internet site back on March 12 — and for obvious length reasons, had to wait for Saturday’s column. I thank Richard Saler for pointing it out — and another link to it is here.
The PHOTOS and the FUNNIES
Continuing east down B.C. Highway 16/The Yellowhead on September 1, I stopped to take the first photo as soon as I’d driven out of the rain that had been chasing us for the last several hours. The second and third photos are of Mount Robson and its associated park as we approached it from the west in the fading light, not helped by a gloomy overcast. Click to enlarge.
Today’s pop blast from the past needs no introduction, as the group and the tune are instantly recognizable — and I’ve been fortunate enough to see them live and in concert with the Edmonton Symphony Orchestra on two different occasions. This performance is live with the Danish Symphony Orchestra — and it’s first rate. The tune is 48 years young…Gary’s still got the pipes — and I note that Geoff Whitehorn is still wailing away on lead guitar. The link is here.
In 1882 Tchaikovsky considered creating a concert suite out of numbers from his ballet Swan Lake, which he had composed six years previously. However, he seems not to have made a final decision, and the authorship of the concert suite published after his death as Op. 20a is unknown. All the tunes are very well known — and most have shown up on TV and radio in one iteration or another during our life times. The Korean Symphony Orchestra does the honours — and the link is here.
It was a very light volume day in gold, so JPMorgan et al. and their proxies had little trouble keeping precious metal prices in line on Friday — and kept them in a downward trend right from the start of the London open until around 3:30 p.m. in New York. The dollar index ‘rally’ didn’t hurt their efforts either.
There were certainly dip-buyers in the precious metal equities on a number of occasions during the New York trading session, but there continues to be forced redemption selling by the various ETFs and mutual funds. But every share sold had a buyer — and they now reside in much stronger hands than those that sold them…something that I mentioned further up in this column.
Here are the 6-month charts for the four precious metals, plus copper and WTIC…all courtesy of stockcharts.com — and except for gold, all are in very oversold territory. I’m not sure if that means there’s more down-side price pressure in gold still to come, or was what they did over the last ten days the best the Big 7 commercial traders could do? Copper didn’t do much yesterday, but WTIC gave back all its Thursday gains. Click to enlarge.
In last Saturday’s column I mused that the world’s central banks Wile E. Coyote moment had arrived — and that has certainly turned out to be the case as we watched them flail away this past week.
Jim Grant’s analogy that this was their collective “kitchen sink” moment was equally apropos. But as I also said last week, they’re trying to salvage the unsalvageable…a deflationary collapse of astronomical proportions that is unstoppable — and getting worse by the day.
Doug Noland’s comments on this spells it out equally as well…”Confidence has been shattered. Faith that central banks have everything well under control has been broken. Myriad fallacies have been exposed. Central banks can’t guarantee liquid markets, especially in a Bubble-induced highly levered speculative environment. The entire derivatives universe has been operating on the specious assumption of liquid and continuous markets. History is unambiguous: markets experience bouts of illiquidity, dislocation and panicked crashes. The fantasy that contemporary central bank monetary management abrogates illiquidity and market discontinuity risks is being debunked. The mania in finance has, finally, run its course.”
I’m not going to spend much time waxing philosophically about all this because, as I and others have said before, the coronavirus has turned out to be the pin that burst the Everything Bubble — and there’s absolutely nothing that can stop the great unwind now that it has commenced. The battle is already lost, but the central banks will continue to throw paper at it anyway — and at some point their underlying currencies are going to burn.
Then it will become, as Bill Bonner said on Friday…”The feds will make their choice… the same choice made by von Havenstein in Germany and Gono in Zimbabwe. They will print. Stocks will soar as people “rotate” out of bonds.
The bond market will collapse. Debts will be wiped out by inflation. So will debt-based credits.
Scenes of financial depravity, economic debauchery, and orgies of social degradation, violence and chaos – now unimaginable – will flash across every big screen in America.”
Of course as we already know, dear reader…whether it be Wiemar Germany, Zimbabwe, or lately…Venezuela…the only thing that would have saved their citizen’s purchasing power was gold — and by extension, silver.
And as Jim Grant so coyly pointed out on CNBC the other day before Joe Kernan cut him off…”There are things for sale that you’d want to own.”
If you want to buy some, they’re a very scarce commodity these days on a cash and carry basis — and as the economies of the world slowly go dark, there will come a point where they won’t be available at all. And in most respects that matter, that day has already arrived.
So with the event horizon of this deflationary black hole on their doorstep, there is…as I mentioned last week…still the gold card left to play, if it gets played at all, that is.
As Jim Rickards spelled out in an e-mail exchange that I had with him very late last week…
“[T]here’s a way to beat deflation and get inflation overnight. FDR did it in 1933 (intentionally) and Nixon did it in 1971 (by accident). It’s called gold.
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.”
The COMEX futures market in the Big 6 commodities has never been better set up for just such an event. Whether or not that sort of plan is in the works remains to be seen. But its the only move that the Fed has left…unless they’ve already decided on Wiemar.
So we wait some more.
I’m done for the day — and the week. Stay safe — and I’ll see you here on Tuesday.