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The End Draws Near For Syria's Assad As Putin's Patience "Wears Thin"

Early last month in, "The Noose Around Syria’s Assad Tightens" we outlined the latest developments in the country’s prolonged civil war. Here’s what we said then: 

The US-led alliance realizes very well that as long as Assad has to fight three fronts: i.e., the Nusra Front in the northwestern province of Idlib and ever closer proximity to Syria's main infrastructure hub of Latakia, ISIS in the central part of the nation where militants recently took over the historic town of Palmyra, and the official "rebel" force in close proximity to Damascus, Assad's army will either eventually be obliterated or, more likely, mutiny and overthrow the president, putting the Ukraine scenario in play.

In short, the US and its Middle Eastern allies are simply playing the waiting game; watching for the opportune time to charge in and "liberate" Syria from whatever army manages to take Damascus first, at which point a puppet government will be promptly installed. 

And make no mistake, the new, U.S.-backed regime will present itself as fiercely anti-militant and will be trotted out as Washington’s newest "partner" in the global war on terror. Of course behind the scenes the situation will likely resemble what happened in Yemen (Obama’s "model of success") where, according to one account, Abdullah Saleh and his lieutenants not only turned a blind eye to AQAP operations, but in fact played a direct role in facilitating al-Qaeda attacks even as the government accepted anti-terrorism financing from the US government. 

Of course no one in Washington will care to know the details, as long as the new regime in Syria is receptive to things like piping Qatari natural gas to Europe via a long-stalled pipeline, a project which will do wonders for breaking Gazprom’s energy stranglehold and robbing Vladimir Putin of quite a bit of leverage in what is becoming an increasingly tense standoff with the EU over Ukraine.

On Sunday, Assad gave a speech in which he attempted to address concerns about the recent setbacks his army has suffered at the hands of the various groups fighting for control of the country. Here’s more from the LA Times’ Special correspondent Nabih Bulos reporting from Beirut

Syrian President Bashar Assad delivered a sober assessment of the state of his forces on Sunday, acknowledging a manpower shortage and conceding troop withdrawals from some areas, but asserting that the military was not facing collapse.


"Are we giving up areas?" Assad asked as he posed a series of questions about the government's strategy. "Why do we lose other areas? ... And where is the army in some of the areas?"


The Syrian president endeavored to provide answers. But it was an open question whether his responses would reassure loyalists worried that the government could be losing its hold on the embattled country.


The president also thanked his allies — notably Iran — while taking the West to task for supporting “terrorists," the Syrian government's standard term for the armed opposition fighting to wrest control of the country.


The core areas under government control include the capital, Damascus, and the strategic corridor north to the cities of Homs and Hama and west to the Mediterranean coast, a pro-government stronghold.


Syrian authorities have been actively seeking to increase military recruitment in recent months, a sign of the shortage of fighters across a sprawling battlefield that stretches from the country’s northern fringes to its southern tip, and from its western borders to its eastern frontier.


In Damascus and other cities, prominent recruiting billboards depict stern-looking young men and women in full military gear exhorting others to enlist.


"Our army means all of us," declares one billboard.


Other signs posted prominently depict soldiers providing vital security for children and families.


Another billboard takes a more confrontational approach, asking a man who is watching a computer screen: "Sitting there and looking? What are you waiting for?"


The presidential speech comes as the thinly stretched Syrian army has suffered a string of setbacks in the last few months, squeezing government forces into defensive positions in Syria’s northwest and in the south.


Assad blamed the retreats on a lack of manpower, asserting that steps would need to be taken "to raise the [capacity] of the armed forces... primarily through calling the reserves in addition to recruits and volunteers."


One such step, Assad said, was the granting of an amnesty on Saturday to soldiers who had defected, so long as they had not joined armed opposition groups. The amnesty was also extended to draft dodgers, many of whom have left Syria to escape military service.


Despite conceding setbacks, Assad maintained a confident tone, insisting that Army recruitment numbers had increased in the last few months and that "there is no collapse... and we will be steadfast and will achieve the missions."


"Defeat ... does not exist in the dictionaries of the Syrian Arab army," he insisted.

Maybe not yet, but that could change quickly, especially if Assad were to lose the support of his most important ally, Vladimir Putin.

As we noted last month, the key outstanding question is this: what is the maximum pain level for Russia, which has the greatest vested interest in preserving the Assad regime?

We could have an answer to that very soon, as slumping commodities prices, falling demand from China (which was recently cited as the reason for "indefinite" delays to the Altai pipeline joint venture which would have delivered 30 bcm/y of Siberian gas to China), and economic sanctions from the West are squeezing Moscow and may ultimately prompt Putin to "consider the acceptability of other candidates" for the Syrian Presidency. Here’s WSJ with more:

And with Russia’s economy battered by a plunge in oil prices and Western sanctions, the government may be considering both the strategic and economic benefits of changing its stance on Mr. Assad.


But Fyodor Lukyanov, chairman of a Kremlin foreign-policy advisory council, said Russian policy makers are likely considering possible alternatives to the Syrian president.


"They are looking at the acceptability of other candidates at this point," he said, adding that he had not heard any names.


If Moscow does provide an opening to broker a negotiated exit for Mr. Assad, it would be a dramatic turn in the conflict.


Mr. Assad’s other major international backer, Iran, shows no signs of wavering in its crucial military and financial support for the Syrian regime. But the long-sought nuclear deal between Iran and six world powers reached earlier this month has also opened up the possibility of broader political cooperation between Tehran and the West on other regional issues such as the war in Syria.


Hadi al-Bahra, a senior member of the Turkey-based opposition umbrella group the Syrian National Coalition, said his alliance discussed Mr. Assad’s political fate with Russian officials for the first time in a meeting last month led by Russia’s Deputy Foreign Minister Mikhail Bogdanov. Ahmed Ramadan, another senior coalition member, also attended that meeting in the Turkish capital Ankara.


“We have been speaking with the Russians from the very beginning and we have not heard one word of criticism of Assad," Mr. Ramadan said. "But now, the Russians are discussing the alternatives with us."


In addition to the Syrian opposition, Mr. Assad’s regional adversaries such as Saudi Arabia and Turkey have argued his ouster is essential to resolve the Syrian conflict and halt the spread of Islamic State militants.


The Obama administration recently has pursued Russian cooperation on its goal of ousting the Assad regime based on intelligence assessments that the Syrian president is weakening. President Barack Obama spoke with Russian President Vladimir Putin on June 25 and July 15 on an array of issues including Syria.


An exchange in a meeting last month between Mr. Putin and Syrian Foreign MinisterWalid al-Moallem suggested Moscow’s patience with Damascus might be running thin.


According to an official Russian transcript carried on the Kremlin’s website, Mr. Putin pointed out the regime’s recent military setbacks and suggested Mr. Assad join forces with regional rivals Saudi Arabia and Turkey. Mr. Moallem said the idea was farfetched.


Russia has financial and political incentives to change course on backing Mr. Assad. The country has been politically isolated by Western sanctions. Lower oil prices and sanctions have taken a toll on the economy.

So, as the Assad regime weakens in the face of dwindling manpower and is forced to resort to a military recrutiment drive complete with billboards designed to shame men into taking up arms against the various armies competing to conquer Damascus, Russia has not only seen the writing on the wall, but may be prepared to finally cut Assad loose. As for what happens next, see here

*  *  *

Full Assad speech from Sunday

There May Be Hope For The U.S. Yet: Caitlyn Jenner's Reality Show "No Ratings Bonanza"

While (hopefully) not high on the agenda of readers more interested in what Janet Yellen will say tomorrow (and thus leak today) one of the more anticipated media events of recent days was Caitlyn Jenner's new reality TV show "I am Cait" which premiered last night on E! and which supposedly chronicles former Bruce Jenner's adjustment to life as a woman and transgender spokesperson.

And while many were expecting blowout numbers from an America addicted to brain candy and passive-aggressive exhibitionism, the results were enough to inspire confidence that there may be some hope yet left for the United States.

On one hand, TVline reports that "I Am Cait" topped Sunday cable rating with 2.7 million total viewers and a 1.2 demo rating - on par with Keeping Up With the Kardashians‘ most recent season premiere and leading the night in the demo (tying Adult Swim’s 11 pm Family Guy rerun).

On the other, according to Reuters, despite its impressive Sunday-night cable topping viewership, the number of people who tuned in was a vast drop from the 17 million people who watched the former Olympic champion come out as a transgender woman in an April TV interview.

It adds that "the first episode was no ratings bonanza. According to Nielsen data, almost three times as many Americans watched "Celebrity Family Feud" on ABC that night. The audience for "I am Cait" also suffered a marked drop from the almost 8 million people who watched the ESPY awards show on television two weeks ago on which Jenner, 65, was presented the Arthur Ashe courage award."

Not surprisingly, according to Nielsen Talent Analytics, which surveys about 1,000 Americans on a weekly basis, Jenner's transition has not been universally welcomed, especially among older Americans. Then again using shock value to further a (well paid) personal agenda is nothing new: Donald Trump is currently using it with great effect and crushing the presidential primary field where nobody is quite sure how to respond to what some have said is the biggest trolling of the country by a presidential candidate in history. Which considering how broken the left-right political model is, may have come just on time to force America to re-evaluate just how applicable a "representative" political model that mainly panders to corporations and bankers actually is.

And back to Bruce, pardon Cait, her "offensiveness" rating has gone from 16 percent to 26 percent since the initial coming-out interview in April, according to Nielsen, although those under 34 years old were more likely to consider Jenner successful (38 percent to 42 percent) and a role model (13 percent to 19 percent) now than a year ago.

So maybe not hope for all, but some hope still.

But don't cry for Bruce: his show is sure to eventually become a monetary goldmine rivaling that other exercise in celebrity trolling, "Keeping Up With the Kardashians." According to Business Insider, a 30 second ad spot in the premiere cost between $90,000 and $200,000, approaching the $344,000 which category killer "Big Bang Theory" charges for 30 seconds of its ad time.

This means that Caitlyn's take home from each episode is certainly in the hundreds of thousands of dollars, if not higher.

3-Year-Old London Child Deemed "Extremist"; Placed In Government Reeducation Program

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

The United Kingdom has gone batshit crazy. There’s simply no other way to put it. I warned about Britain’s “war on toddler terrorists” earlier this year in the post: The War on Toddler Terrorists – Britain Wants to Force Nursery School Teachers to Identify “Extremist” Children. Here’s an excerpt:

Nursery school staff and registered childminders must report toddlers at risk of becoming terrorists, under counter-terrorism measures proposed by the Government.


The directive is contained in a 39-page consultation document issued by the Home Office in a bid to bolster its Prevent anti-terrorism plan.


The document accompanies the Counter-Terrorism and Security Bill, currently before parliament. It identifies nurseries and early years childcare providers, along with schools and universities, as having a duty “to prevent people being drawn into terrorism”.

Never fear good citizens of Great Britain. While your government actively does everything in its power to protect criminal financial oligarchs and powerful pedophiles, her majesty draws the line at toddler thought crime. We learn from the Independent:

A three-year-old child from London is one of hundreds of young people in the capital who have been tipped as potential future radicals and extremists.


As reported by the Evening Standard, 1,069 people have been put in the government’s anti-extremism ‘Channel’ process, the de-radicalization program at the heart of the Government’s ‘Prevent’ strategy.


The three-year-old in the program is from the borough of Tower Hamlets, and was a member of a family group that had been showing suspect behavior.


Since September 2014, 400 under 18s, including teenagers and children, have been referred to the scheme.

The fact that this story broke on the same day that chairman of the UK’s Lords Privileges and Conduct Committee, Lord John Sewel, was caught on video snorting cocaine off the breast of a prostitute with a £5 note, is simply priceless. You just can’t make this stuff up.

From the BBC:

Lord Sewel is facing a police inquiry after quitting as House of Lords deputy speaker over a video allegedly showing him taking drugs with prostitutes.

The footage showed him snorting powder from a woman’s breasts with a £5 note.


In the footage, Lord Sewel, who is married, also discusses the Lords’ allowances system.


As chairman of committees, the crossbench peer also chaired the privileges and conduct committee, and was responsible for enforcing standards in the Lords.


Lord Sewel served as a minister in the Scotland office under Tony Blair’s Labour government.

Tony Blair, why am I not surprised:

He has been a member of the Lords since 1996, and is a former senior vice principal of the University of Aberdeen.

Here’s a clip, in the event you’re interested:


The UK government is so far gone that it insists on protecting the public from toddlers, rather than protecting toddlers from powerful sexual predators. In case you need a reminder:

In Great Britain, Powerful Pedophiles are Seemingly Everywhere and Totally Above the Law

In Great Britain, Protecting Pedophile Politicians is a Matter of “National Security”

Former BBC Host “Sir” Jimmy Savile Exposed as Major Player in Massive Pedophile Ring

Could Trump Win?

Submitted by Patrick Buchanan via,

The American political class has failed the country, and should be fired. That is the clearest message from the summer surge of Bernie Sanders and the remarkable rise of Donald Trump.

Sanders’ candidacy can trace it roots back to the 19th-century populist party of Mary Elizabeth Lease who declaimed:

“Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master.”


“Raise less corn and more hell!” Mary admonished the farmers of Kansas.

William Jennings Bryan captured the Democratic nomination in 1896 by denouncing the gold standard beloved of the hard money men of his day: “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”

Sanders is in that tradition, if not in that league as an orator. His followers, largely white, $50,000-a-year folks with college degrees, call to mind more the followers of George McGovern than Jennings Bryan.

Yet the stagnation of workers’ wages as the billionaire boys club admits new members, and the hemorrhaging of U.S. jobs under trade deals done for the Davos-Doha crowd, has created a blazing issue of economic inequality that propels the Sanders campaign.

Between his issues and Trump’s there is overlap. Both denounce the trade deals that deindustrialized America and shipped millions of jobs off to Mexico, Asia and China. But Trump has connected to an even more powerful current.

That is the issue of uncontrolled and illegal immigration, the sense America’s borders are undefended, that untold millions of lawbreakers are in our country, and more are coming. While most come to work, they are taking American jobs and consuming tax dollars, and too many come to rob, rape, murder and make a living selling drugs.

Moreover, the politicians who have talked about this for decades are a pack of phonies who have done little to secure the border.

Trump boasts that he will get the job done, as he gets done all other jobs he has undertaken. And his poll ratings are one measure of how far out of touch the Republican establishment is with the Republican heartland.

When Trump ridicules his rivals as Lilliputians and mocks the celebrity media, the Republican base cheers and laughs with him.

He is boastful, brash, defiant, unapologetic, loves campaigning, and is putting on a great show with his Trump planes and 100-foot-long stretch limos. “Every man a king but no man wears a crown,” said Huey Long. “I’m gonna make America great again,” says Donald.

Compared to Trump, all the other candidates, including Hillary Clinton and Jeb Bush, are boring. He makes politics entertaining, fun.

Trump also benefits from the perception that his rivals and the press want him out of the race and are desperately seizing upon any gaffe to drive him out. The piling on, the abandonment of Trump by the corporate elite, may have cost him a lot of money. But it also brought him support he would not otherwise have had.

For no group of Americans has been called more names than the base of the GOP. The attacks that caused the establishment to wash its hands of Trump as an embarrassment brought the base to his defense.

But can Trump win?

If his poll numbers hold, Trump will be there six months from now when the Sweet 16 is cut to the Final Four, and he will likely be in the finals. For if Trump is running at 18 or 20 percent nationally then, among Republicans, it is hard to see how two rivals beat him.

For Trump not to be in the hunt as the New Hampshire primary opens, his campaign will have to implode, as Gary Hart’s did in 1987, and Bill Clinton’s almost did in 1992.

Thus, in the next six months, Trump will have to commit some truly egregious blunder that costs him his present following. Or the dirt divers of the media and “oppo research” arms of the other campaigns will have to come up with some high-yield IEDs.

Presidential primaries are minefields for the incautious, and Trump is not a cautious man. And it is difficult to see how, in a two-man race against the favorite of the Republican establishment, he could win enough primaries, caucuses and delegates to capture 50 percent of the convention votes.

For almost all of the candidates who will have dropped out by then will have endorsed the last man standing against Trump. And should Trump be nominated, his candidacy would make Barry Goldwater look like the great uniter of the GOP.

Still, who expected Donald Trump to be in the catbird seat in the GOP nomination run before the first presidential debate? And even his TV antagonists cannot deny he has been great for ratings.

Twitter Surges, Then Fades After Hours On User Growth Confusion: The Full Quarter In 6 Charts



With many expecting Twitter to disappoint yet again after several quarters in which the company's stock had a step-down reaction to earnings, moments ago TWTR beat virtually all-non-GAAP estimates, from revenue, to EPS, to EBITDA:

  • TWITTER 2Q REV. $502.4M, EST. $481.9M
  • TWITTER 2Q ADJ. EBITDA $120M, EST. $103.3M

More importantly, everyone was focusing on user growth which on a headline basis was not bad...


However, just like on previous quarters, TWTR decided to use a gimmick when counting users, to wit:

"Average Monthly Active Users (MAUs) were 316 million for the second quarter, up 15% year-over-year, and compared to 308 million in the previous quarter. The vast majority of MAUs added in the quarter on a sequential basis came from SMS Fast Followers. Excluding SMS Fast Followers, MAUs were 304 million for the second quarter, up 12% year-over-year, and compared to 302 million in the previous quarter."


It took algos a few minutes to digest this fact, and as a result what was initially a solid 10% spike after hours, fizzled almost entirely, and as of this moment the stock had cut its after hours gains notably.



Going back to the quarter, the non-GAAP numbers were generally not bad as follows.



But are they good enough to justify a $25 billion market cap, especially when one remembers that virtually all the "profit" is in solidly in the non-GAAP arena.

'Investors' Panic-Buy Stocks After Confidence Collapse Sparks Biggest Short-Squeeze In 6 Months

China closes weak... Europe weak... US Consumer Confidence collapses... Energy credit risk increases dramatically... and stocks rip led by Energy in yet another epic short squeeze...


We can't help but think this happens...


It seems some think China was up last night... sure it was up off the lows... but is this really the backbone of a face-ripping rally in US Stocks...?


And Japanese stocks hit a 2-week low...


US Stocks traded weaker into the open... but once Consumer Confidence collapsed, Energy stocks went into full short squeeze mode and exploded everything higher...


With cash indices all soaring...


Getting everything back to green from Friday briefly... before Nasdaq and Small Caps faded back...and then a final ramp to get Nasdaq green on the week!


As the big triple short squeeze hit...


This was the biggest short squeeze in 6 months


Much was made of the ramp in Energy stocks...  best day for Energy sector since Dec 2014...


Well we've seen this before... BTFD once, shame on me... Energy Credit ain't buying it...


And neither is WTI Crude!!!


Yet another breadth indicator flashes red...


Treasury yields rose on the day but rallied after the weak confidence data...


The USDollar closed higher but once again flipped its regime at the EU close...


Commodities all rose on the day with Copper and Crude popping most...


WTI Crude tested a $46 handle overnight before its mini melt-up ahead of API tonight...



Charts: Bloomberg

Bonus Chart: No Corrections Allowed...

Here are all the pullbacks in the $SPX since 1928. Been awhile without a 10% correction, but it can go longer. $SPY

— Ryan Detrick, CMT (@RyanDetrick) July 28, 2015


Bonus Bonus Chart: The Collapse in Confidence Is Not Good News...


Bonus Bonus Bonus Chart: You Are Here...

China and Greece Signal a New Round of Deflation

Stocks rallied today because the Fed meets today and tomorrow and traders are conditioned to play for a rally into Fed meetings. Also, stocks had fallen for four days straight prior to this and so we were oversold in the near-term.

The larger picture concerns the bursting of China’s stock bubble as well as the ongoing 3rd Greek bailout drama.

Regarding China, anyone who actually bothered performing real analysis could have seen that the economic data coming out of that country was totally bogus. Indeed, back in 2007, current First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.”

With that in mind, China’s rail volumes had been collapsing at a pace not seen since the Asia Financial Crisis!


Despite this, 99% of analysts believed China’s GDP was growing at 7%+. Those people piled into Chinese stocks and commodities… and they’ve since been eviscerated as the Chinese stock bubble burst and commodity prices plunged to 13-year lows.


China has been the largest driver of global economic growth since 2009. With that country flirting with outright deflation, it's only a matter of time before global GDP tanks.

As for Greece… the negotiations regarding a third bailout have officially begun. However, things have grown more complicated as former Greek Finance Minister Yanis Varoufakis revealed that Greece had a “Plan B” in place that would allow it to switch from the Euro to the Drachma “at the flip of a switch.”

Germany was already fed up with Greece’s debt problems before this. Now that it’s clear Greece is ready to pull the nuclear option and leave the Euro, Germany’s economic council has backed a plan to kick out “uncooperative” Eurozone members.

When both sides in a negotiation begin to believe that not agreeing is the best solution, it’s only a matter of time before things break down in a serious fashion. This is why for many investment banks, a Grexit remains the “base case” scenario for this situation.

At the end of the day, both China and Greece are signaling that a new round of deflation has begun in the markets. Stocks are bouncing today, but a tectonic shift has begun.

It is now clear that Central Banks have lost control of some markets… and this loss of control will be spreading in the coming months, culminating in a market Crash that will make 2008 look like a picnic.

If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

We are making 1,000 copies available for FREE the general public.

We are currently down to the last 15.

To pick up yours, swing by….

Best Regards

Phoenix Capital Research



Stuck In Market Purgatory: How China's Citizens Lash Out At The Broken Market, In Their Own Words

What a difference a month makes: back in June, Chinese farmers could barely wait long enough to open one (or more) brokerage accounts and leave the pig herd for good, filled with dreams of getting filthy rich and early retirement happy endings; farmers who said on the record that "it's a lot easier to make money from stocks than farmwork."

Alas, like with every rigged market (which in the New Normal is every market), dreams always turn into nightmares for the participants, and as we documented earlier, the same farmers who were giddy with delight a month ago realized that there is no such thing as a guaranteed "get rich quick" scheme, and the full extent of their naive stupidity:

"I have lost everything. I don't know what to do... I trusted the government too much..." he exclaims, adding "I won't touch stocks again, I have ruined everyone in my family."

Even sadder, like the Greeks, these poor (and now even poorer) representative of China's lower/middle class only have themselves to blame. Call it Natural Selection with a margin call...

However, not everyone was stupid enough to gamble (with 5x leverage), and get wiped out. Some are stuck in stock market purgatory, or as Reuters puts it "trapped in the market" and now they are hoping, praying and "plotting their escape with government money."

Some, like Mrs Zhu who is the "type of investor the Chinese government should worry about as it tries to engineer a turnaround in the country's stock markets, whose massive swings have heightened fears for the country's financial health." Mrs. Zhu is one of millions of retail investors who bought at what they thought was a low price with hope of selling to a greater fool higher, however the greater fools ran out and sho is now "trapped by the market crash in June who prefer to hold losing positions rather than take a loss" - in short, Zhu is just waiting for indexes to rise so she can sell.

She could be waiting for a long time. In the meantime, this is how millions of hopeful underwater investors pray their purgatory ends:

"I will sell all my shares tomorrow if there is a chance," said the government clerk, who almost hit the sell button last week after markets had recovered somewhat from June's slump. But because she was still set to take a loss, she held on.

"I am pretty sure that if the government does not come to rescue us, the situation will get much worse," she said.

As Reuters highlights, Zhu's way of thinking is so common there a Chinese phrase for it: "Tao lao" once meant being captured by a lasso, but is now most commonly used to mean "trapped in the stock market", which implies an investor cannot sell out of a losing position.

Which reveals Beijing's paradox: the more funds it deploys to prop up the burst stock bubble, the bigger the selling deluge it faces as "released" investors eagerly cash out breakeven, and move on, having had their fill with the excitement that only China's rigged market can deliver.

This highlights the risk Beijing faces in sustaining a market turnaround. Every time the government succeeds in pushing up share prices, an army of retail investors jump in to sell at their break even point, immediately knocking back market confidence. And "given that retail investors conduct an estimated 80 percent of trades, that means the government could face a long, hard grind before it can stabilize markets."

Which assumes that China will continue its unprecedented market bailout: "Monday's plunge showed the Chinese authorities that even governmental measures have their limits. It's anybody's guess what else they can do to shore up market sentiment," said Bernard Aw, a market strategist at financial spreadbetting company IG.

To be sure not everyone needs rescuing: those who bought and held stocks before mid-March are still in the black as many commentators are quick to point out. The problem is everyone else who is still deeply underwater, which according to Reuters may be as many as 10 million investors.

While investors who bought before mid March are still in the black thanks to previous gains, a Reuters analysis of public data shows that another 10 million investors opened new accounts since April, helping push up China's market capitalization by a net $4.5 trillion - until the bottom fell out in mid June.

This also excludes investors who god greedy:

Those figures do not include existing investors who added to their positions during this period, nor the famously stubborn holdouts who are sticking to loss-making positions that are years old.


Mrs Xu is one of them. She said she has been holding shares in China Life Insurance (601628.SS) since 2007, when it traded for around 75 yuan ($12.08) per share.


The stock gained a bit during the recent rally, at one point crossing over 42 yuan per share but then fell back to around 28, and Xu is still holding on.

"I thought I might be able to taking the losses back riding on this round of bull market, but it is still losing money so far," she said, adding she is also holding onto loss-making positions she took earlier this year and plans to sell as soon as they break even. "Maybe I am too greedy," she said.

But while China, which already has 300% in total government, financial, corporate and household debt, more than the US, Germany, Canada and Australia...

... can probably afford adding another 50% in debt/GDP to fully bail out the stock market - after all it isn't as if the credit bubble will ever shrink at this point now that all dreams of a "beautiful deleveraging" in China have been crushed - the biggest concern for Beijing is time, and specifically how long before investor patience runs out with carrying deep losses.

One upside for Chinese regulators is the "tao lao" mentality can slow selling in a falling market, explaining why there was so little popular outcry in June when nearly 40 percent of listed companies halted trading in their shares so they could ride out the crash. It could also explain why the government set a semi-official recovery target of 4,500 points for the Shanghai Composite Exchange, which would encourage investors who think this way to wait. The index closed on Tuesday at 3,662.81 points.

For Beijing, the biggest worry is that investors who were once patient are now so rattled by the big market swings that they are ready to accept losses just for peace of mind.

"Yesterday all my stocks hit limit down and I lost 20 percent of my money. Today all my stocks fell limit down again!" said student Liu Fangrui.

"I managed to sell them all at a loss today, and so I lost 320,000 yuan in two days. I don't have confidence on the market any more. I don't want to get into the market again."

But while losing patience in a rigged market and selling is one thing, a worse outcome would be when millions of Chinese lower-middle class citizens, deep in margin debt, suddenly realize they have nothing more to lose and lash out against the system which failed them, and the government which was so quick to promise stock market riches only to admit it has no control over the stock market let alone the economy.

To be sure, China has already announced it may arrested "malicious sellers" - how long before it preemptively arrests anyone who has suffered losses?

Perhaps it is concerns about this final crackdown which explains the following line from the Reuters piece: "Both Mrs Zhu and Mrs Xu declined to provide their full names."

Does "Creative Destruction" Include The State?

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

When do we get to exercise democracy and fire every factotum, apparatchik, toady and lackey in the state who has abused his/her authority?

Everyone lauds "creative destruction" when it shreds monopolies and disrupts private enterprise "business as usual." If thousands lose their middle-class livelihoods-- hey, that's the price of progress.

Improvements in productivity and efficiency can't be stopped, and those employed making buggy whips and collecting horse manure from fetid streets will have to move on to other employment.

This raises an obvious question few dare ask: does this inevitable process of creative destruction include the state? If not, why not? Aren't the state and the central bank the ultimate monopolies begging to be disrupted for the benefit of all? If government is inefficient and unproductive, shouldn't it be "creatively destroyed" in the same fashion as private enterprise?

The obvious answer is yes. Why should a monopoly (government) remain untouched by new knowledge and competition as it skims the cream from society to fund its own monopolies and grants one monopoly/cartel privilege after another to its private-sector cronies?

Under the tender care of the state, we now have uncompetitive, inefficient parastic cartels dominating higher education, national defense, healthcare insurance, pharmaceuticals and hospitals-- to name but a few of the major industries that are now state-enforced cartels thanks to the heavy hand of the state (i.e. regulatory capture).

Under the tender mercies of the state, prosecutors have a 90% conviction rate thanks to rigged forensic evidence, threats of life imprisonment (better to plea-bargain than risk years in America's gulag) and other strong-arm tactics that presume guilt, not innocence. We have the best judicial system that money can buy, meaning you're jail-bait if you can't put your hands on a couple hundred thousand for legal defense and the all-important media campaign.

No wonder "we're number one" in false convictions, innocent people rotting away in the drug gulag and overcrowded prisons. The citizenry are fish in a barrel for overzealous prosecutors and "get tough on drugs" politicos.

And for goodness sake, don't get caught with cash--you must be a drug lord! Only drug lords have more than $200 cash on them at any one time. Once again, the state monopoly on force reckons you're guilty until proven innocent--and in cases where your cash and car were "legally stolen" (a.k.a. civil forfeiture) by the state, that will cost you months or years and tens of thousands in legal fees to get your property back--unless you're targeted for further investigation.

As I have described here in detail, the state can empty your bank account on the barest suspicion that you might owe more taxes than you paid. Due process and rule of law have been replaced with legalized looting and harassment by government in America.

Orwell and Kafka Do America: How the Government Steals Your Money--"Legally," Of Course (March 24, 2015)

Welcome to the Predatory State of California--Even If You Don't Live There (March 20, 2012)

The Predatory State of California, Part 2 (March 21, 2012)

Criminalizing Poverty For Profit: Local Government's New Debtors Prisons

Pimping the Empire, Conservative-Style

Pimping the Empire, Progressive-Style

When the Savior State Becomes the Enemy of the People (October 30, 2009)

As for using your rights to uncover whatever illegal spying and dirty tricks the state imposed on you in years past--good luck getting a Freedom of Information claim processed. The state's organs of security are busy targeting suspected terrorists with drone strikes, and your trivial concerns about constitutional rights don't count.

In fact, why exactly are you asking? Your inquiry is highly suspicious.

If there is a difference between the U.S. national security state and the Stasi, it is merely technological. We don't have to depend on snitches; we got high-tech tools, pilgrim.

There are two systems under our state: one for insiders and one for the rest of us. Insiders get a free pass, everyone else gets the state's boot on their neck. If you're Hillary Clinton, rules are for the little people who haven't managed to skim tens of millions in bribes ( a.k.a. speaking fees and campaign contributions). There is no financial crime that can't be turned into a heroic expression of America's greatness--if you can afford the bribes.

Here's how bad it is: let's say you're a senior U.S. senator whose husband is the penultimate crony insider worth hundreds of millions of dollars. This is a power couple to be reckoned with, wielding state and private-wealth power.

So what did the national security state say when the senator asked for minimal factual reports on agency activities? Blow chow, honey.

The lady in question is senior U.S. senator Dianne Feinstein, who is married to investment banker/financier Richard Blum. Interestingly, Feinstein had carried the national security state's water for years in the senate, defending our Stasi/KGB from inquiry or even the dimmest light of media exposure.

Hey, America's Stasi: you guys really know how to reward your water carriers.

The full story can be found in the new book Lords of Secrecy: The National Security Elite and America's Stealth Warfare.

Here's my question: when do we get to exercise democracy and fire every factotum, apparatchik, toady and lackey in the state who has abused his/her authority, trampled on our constitutional rights, participated in civil forfeiture, threatened innocent citizens, looted the system for personal gain and committed malfeasance? It's called accountability and rule of law, people.

If you can't fire your Stasi, KGB, corrupt prosecutors, greedy cops and parasitic politicos, then you don't have a real democracy, you just have a phony facsimile of democracy, an empty shell that's up held up as propaganda to a skeptical world.

Austrian Bad Bank "Black Swan" Bail-In Is Unconstitutional, Austria Declares

The subject of bail-ins and bank resolutions is back in the news this month as every eurocrat in Brussels scrambles to determine the best way to recapitalize Greece’s ailing banking sector, which, you’re reminded, is sinking further into insolvency with each passing day thanks to the unyielding upward pressure on NPLs that’s part and parcel the country’s outright economic collapse. 

And while you could be forgiven for focusing squarely on the trainwreck that’s occurring in Athens, it would be a mistake to ignore the fact that just a few months back, a black swan landed in Austria when a €7.6 billion capital hole was "discovered" in Heta Asset Resolution, the vehicle set up to resolve the now defunct lender Hypo Alpe-Adria-Bank. 

In short, the bad bank went bad, and when it became clear that no further state support was forthcoming, Heta Asset Resolution was itself put into resolution and a moratorium on bond payments was declared.

The debacle raised a number of troubling issues not the least of which involves the beautifully picturesque southern Austrian province of Carinthia, which had guaranteed some €10 billion worth of Heta debt despite the rather inconvenient fact that annual provincial revenues only amount to around €2.3 billion.

So here was a bad bank gone bad with billions in outstanding debt that carried public sector guarantees or, as we described it previously, "we now have a waterfall bailout chain whereby the state guaranteeing the debt of the insolvent entity that guaranteed yet another insolvent entity, will itself need to be bailed out by the sovereign."

We went on to note (in what now looks remarkably prescient with regard to Greece) that "while the world waits for Greece to announce capital controls, or a bail-in, it’s none other than one of the Europe's most pristine credits (one which until recently was rated AAA/Aaa) that informed creditors a bail-in is imminent: 'The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta - or bailed in - under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden.'"

Or maybe not, because now, it appears as though the law which would have allowed for the imposition of some €800 million in losses on junior bondholders (i.e. a bail-in) has been ruled unconstitutional, meaning the debt will now be reinstated under the moratorium which is bad news for Carinthia and ultimately, for taxpayers. Here’s FT with more:

An attempt by Austria to slash the cost to taxpayers of Hypo Alpe Adria bank, a high-profile European casualty of the financial crisis, by imposing losses on some bondholders has been thrown out by the country’s top judges.


In a ruling that came as relief for investors who feared a precedent would be set for other European bank failures, Austria’s constitutional court on Tuesday declared illegal a law that would have “bailed in” €890m in subordinated debt.


The act would have breached the constitution by reversing guarantees given to bondholders by the province of Carinthia as well as treating investors unfairly, the court ruled. The law would be “repealed in its entirety”, the judges said in a statement.


Introduced last year by Michael Spindelegger, then finance minister, the law created alarm in Austria and elsewhere in Europe amid fears investors would question the value of guarantees given by other regional governments — for instance in Germany.


The Austrian law highlighted the pressures on European politicians to limit the impact of bank failures on stretched government finances. Mr Spindelegger “needed something to show the electorate he would prevent taxpayers bearing the cost”, said Josef Christl at Macro-Consult, a Vienna-based financial consultancy. “It was a political decision, not economically or legally based.”


Tuesday’s constitutional court reversal was "a good decision for bondholders but it’s embarrassing for the government. This was not a law you would have expected from Austria and a lot of PR damage has been done," added Franz Schellhorn, director of the Agenda Austria think-tank.

Got it. So essentially, the finance ministry passed a law they knew was unconstitutional in order to pay lip service to taxpayer concerns regarding whether the government would ultimately end up on the hook for enormous losses at banks. Meanwhile, private sector creditors were unnerved by the law because they feared it might set a precedent for bail-ins going forward. For now at least, it looks as though the creditors have prevailed.

Here’s a bit more from Bloomberg:

Austria is breaking new ground in Europe with the wind-down of Heta, the bad bank of failed Hypo Alpe-Adria-Bank International AG. Lawmakers in Vienna last year enacted legislation that wiped out Heta’s junior debt and the state guarantees on which creditors had relied. That bill preceded Heta’s own resolution, which kicked off in March when regulators imposed a moratorium on its remaining debts.


The debt moratorium, as well as Austria’s bank restructuring law on which it is based, are expected to become the subject of a separate case at the Constitutional Court, court president Gerhart Holzinge said.


The Constitutional Court’s decision comes less than a month after Austria agreed to pay 1.23 billion euros to the German state of Bavaria to settle all the pending litigation over Heta between the neighbors. Under the deal, BayernLB will drop its claim concerning 800 million euros it was owed by Heta and that were also reinstated by today’s court decision, according to the Austrian finance ministry.


Austrian lawmakers may be well advised to read the Constitutional Court’s ruling closely and draw their conclusions for the future, Holzinger said. If the cancellation of guarantees is necessary to prevent the collapse of Carinthia, bailing in bondholders of Heta while sparing all other creditors of Carinthia won’t work, he said.

In short, the ruling raises more questions than it answers. If Austria has just declared creditor bail-ins to be unconstitutional, then one certainly wonders what that means in terms of the future scope of government-sponsored bailouts especially in light of the potential for a domino-like collapse, as outlined in our discussion of Pfandbriefbank back in March. Furthermore, as indicated in the excerpts cited above, the case is far from over as the legality of the moratorium as well as the fate of the entire wind down effort still hangs in the balance. Here's FT again:

Investors may not get any answers until they find out the amount of their shortfall in May 2016, when Heta knows how much money it can pay bondholders, so lawsuits could be years away.


"This discussion is not helpful for the market, this is clear," said Karl Sevelda, chief executive of Austria’s Raiffeisen. "The consequences of uncertainty are never good because investors want certainty."

Finally, it's unclear what, if any, impact this will have on how resolutions for failed banks are handled across the eurozone. As one lawyer who spoke to FT back in April put it, "there will be extremely important precedent set" in terms of "how publicly guaranteed debt should be dealt with when banks are wound down." Which raises the rather interesting question of how Greek banks' Pillar II "assets" (some of which may or may not have been pledged for ELA) will ultimately be treated when it comes time to recapitalize the country's banking sector.

Blame The Fed For The Commodities Slump

Submitted by Bill Bonner via Bonner & Partners,

A Pileup in Commodities

Meanwhile, on the commodities highway, there’s a huge pileup.

The crash in the oil market – which has taken the price per barrel of U.S. crude down 53% over the last 12 months – has left a massive slick.

A barrel of U.S. crude oil sold for just $48.14 at Friday’s close – just 42 cents above its 52-week low. Overall, commodities are at a 13-year low.

And the coal miners have slid on the cheap oil and gas.

In the March issue of our monthly publication, The Bill Bonner Letter, we explained why energy was so cheap. The Fed dropped the price of capital so low that it cost almost nothing to borrow.

When the cheap money came to an end, so would the cheap oil, we guessed.

But it hasn’t happened – yet…

So far, the Fed’s cheap credit has exaggerated and prolonged the bear market in oil. Producers who should have shut down months ago are still pumping – kept in business by ultra-cheap financing.

Coal, cheap when we wrote about it back in March, is now even cheaper. Today, the price of coal is down 70% from four years ago.

This is pushing coal producers to the edge of solvency...

For example, Alpha Natural Resources, a big producer of metallurgical coal – or “met” coal, which is used for steelmaking –was delisted from the New York Stock Exchange because its share price was “abnormally low.” Bankruptcy is now in the cards.

And this from on the fate of another big met coal producer, Walter Energy:

Walter Energy, an Alabama coal miner, announced on July 15 that it is filing for bankruptcy. Senior lenders will see their debt turned into equity, and if the company cannot turn the ship around, it will more or less sell off all of its assets.


“In the face of ongoing depressed conditions in the market for met coal, we must do what is necessary to adapt to the new reality in our industry,” Walter Energy’s CEO Walt Scheller said in a press release.

Dr. Copper’s Diagnosis

Dr. Copper, too, says it’s going to be a rough second half of the year for the global economy.

Copper has earned the “Dr.” title; the old-timers say it is “the only metal with a PhD in economics.”

Copper goes into everything – houses, offices, electronics, autos, you name it. Although it’s not a perfect correlation by any means, when the price of copper falls, it indicates that the world economy is going down too.

From Bloomberg:

Goldman said prices will probably drop another 16% by the end of next year and expects Chinese demand to grow at the slowest pace in almost two decades.


Goldman on Wednesday lowered its copper price outlook by as much as 44% through 2018.

*  *  *

Why the big slowdown? Why is the world falling apart?

Because you can’t fake an economic recovery...

Instead of “stimulating” a recovery, the feds have “simulated” one.

They dropped the price of capital to near zero. Commodity producers took the bait. They borrowed money and increased production.

But global demand couldn’t keep up.

You can’t get real demand from empty credit. Real demand comes from Main Street, not Wall Street.

And for that, you need a real recovery, not a phony one.

Compromised Hedge Funder Joins BOE In Revolving Door Roundtrip

Meet Dr. Gertjan Vlieghe, partner and senior economist at hedge fund Brevan Howard Asset Management.  

Vlieghe, a dual British-Belgian national, has a PhD from the London School of Economics where his dissertation centered around monetary policy, asset prices, and credit markets. For reference, here’s a very dry, and very tedious summary of his academic work, courtesy of Barlcays (feel free to skip):

  • In his publicly available academic papers, Mr Vlieghe highlighted the importance of credit channel frictions for the transmission of monetary policy. In his PhD thesis, he investigated the links between house prices, consumption and monetary policy. Among other things, he showed that mortgage market deregulation tends to amplify the response of consumption relative to housing investment following an unanticipated monetary policy shock.
  • In another paper, Mr Vlieghe uses a model with credit constraints to show the implications of a negative productivity shock. In particular, he shows that the initial optimal response of GDP (a big drop) should be considered in relation to the subsequent sub-optimal allocation of capital (away from the most productive agents) translating into sticky, low productivity growth and lower output. The consequence for monetary policy is that the central bank should tolerate an initial and temporary increase in inflation (within certain limits) in order to mitigate future misallocation of capital.

After school, Vlieghe found work at the BOE where he spent seven years, eventually becoming economic assistant and speechwriter to then governor Mervyn King.

After that, Vlieghe moved to Deutsche Bank where he worked as a bond strategist before landing at Brevan Howard. 

Ok, so another former policymaker lands (multiple) lucrative positions in the private sector. What else is new, and more importantly, why should you care?

Because for Vlieghe, the revolving door has now roundtripped - the economist is headed back to the BOE, this time as a member of the monetary policy committee.

Here’s The Guardian with more:

Chancellor George Osborne has announced that Gertjan Vlieghe, a senior economist at hedge fund Brevan Howard, will replace David Miles on the Bank of England’s monetary policy committee.


His appointment to the Bank’s nine-member MPC, starting in September, comes as the debate around interest rates heats up. After more than six years of rockbottom rates at 0.5% ushered in by the financial crisis, some policymakers say the time to raise borrowing costs is nearing. Governor Mark Carney has told borrowers to start preparing for a rise and hinted it could happen around the turn of the year.


Miles has not once voted for a move in either direction in interest rates in more than 70 policy meetings at the Bank, although he has one more vote to go next week. He used his final speech as an MPC member toindicate a rate rise was getting closer and he also rejected the "dove" label ascribed to him given his apparent support for monetary stimulus during his six years there.


Vlieghe, who has a PhD from the London School of Economics, takes over from Miles as an "external member"of the committee, one of four rate-setters appointed by the chancellor to bring in expertise from outside the Bank. He is appointed for an initial three-year term.

And although MNI warns that "pigeon holing him as a hawk or dove would risk committing the fallacy of trying to tag avian labels on to sophisticated, evolving views of policy risks," Barclays isn’t about to 'chicken' out when it comes to guessing where Vlieghe will 'roost' when it comes to policy decisions:

In line with his previous works, Mr Vlieghe may recommend keeping monetary policy accommodative (as long as inflation expectations remain anchored) and focus on fixing the credit distribution channel in order to allow for efficient reallocation of capital. While these recommendations might be the only ones possible within the BoE’s mandate, we believe analysis of the long-term impact of low absolute levels of investment in the private and public sectors are necessary in order to help solve the productivity puzzle. Regarding the pace of rate increase, Mr Vlieghe will most likely agree with keeping the pace as (slow and) gradual as possible, in order to minimise negative wealth effects on households, as he appears to believe that the negative response on consumption may be amplified in a highly deregulated mortgage market such as in the UK and boost the recovery in investment and therefore potential output.


Overall, we believe the replacement of David Miles by Mr Vlieghe will maintain the balance of views within the MPC, although possibly make them slightly more dovish in the near term. Barring the fact that Mr Miles has been relatively hawkish in recent weeks, in the past he has called for more quantitative easing, in a way that appears compatible with some of Mr Vlieghe’s views. Accordingly, we expect Mr Vlieghe to join the ranks of Mark Carney, Ben Broadbent and Sir Jon Cunliffe, in expressing a cautious stance, if not supporting Andy Haldane’s view of a rate cut being as likely as a hike. Also, having worked at the central bank as well as on the market side, Mr Vlieghe's communications should be well measured and won't cause friction, we believe.

So here we have a former BOE employee and speechwriter for a BOE governor who went on to use what he learned at the central bank to help Deutsche Bank, and then Brevan Howard make money, and now, he's going to return to the BOE, this time as a voting member. 

Besides marking a hilarious new chapter in the public/private revolving door saga that pervades financial markets, this particular appointment comes with a particularly amusing punchline. Vlieghe will "retain his rights to a share of future earnings" in Brevan Howard, which is the very same hedge fund that hosted the event at which the ECB's Benoit Coeure famously told a non-public audience of hedge funds that "the central bank would moderately front-load" its QE purchases, earlier this year.

The takeaway: expect more "Chatham House rule" meetings in the very near future.

*  *  *

Full statement from HM Treasury

The Chancellor today (Tuesday 28 July) announced that Dr Gertjan Vlieghe has been appointed as external member of the Monetary Policy Committee (MPC).

Dr Vlieghe will be appointed for an initial three year term which will take effect from 1st September 2015. As an external member of the MPC, Dr Vlieghe will hold one of nine votes to decide the future path of UK monetary policy. The MPC meets monthly to set monetary policy it judges will enable the inflation target to be met.

The Chancellor of the Exchequer, George Osborne, said:

  • "Monetary policy plays a critical role in our long term economic plan, delivering economic security to working people."
  • "Dr Vlieghe is an economist of outstanding ability who brings experience from his time at both the Bank of England and the financial services industry to the role and will be a strong addition to the MPC."

Dr Vlieghe replaces Professor David Miles who comes to the end of his extended second term at the end of August. Professor Miles was first appointed to the MPC on 1 June 2009 and has made a significant contribution to monetary policy making and analysis during his six years on the committee.

In announcing the recruitment process for Professor Miles’ successor in May, the Chancellor said:

  • "I also want to put on record my thanks to David Miles for his service to the MPC, which has benefited enormously from both his expertise and insightful contributions during his time in office."

About Dr Gertjan Vlieghe

Dr Gertjan Vlieghe is Partner and Senior Economist at Brevan Howard Asset Management having previously been a Director at Deutsche Bank.

Prior to his move to the financial services industry, he worked at the Bank of England for seven years where he became economic assistant to the Governor, Lord Mervyn King.

Dr Vlieghe received his PhD from the London School of Economics where his dissertation focused on monetary policy, asset prices and credit market imperfections.

Nervous Nasdaq - Too Many Highs & Lows

Via Dana Lyons' Tumblr,

A couple weeks ago, we posted a piece titled “The Junkie Market”. The focus of the post was on the number of New Highs and New Lows being registered on the New York Stock Exchange, specifically, the elevated level of each series. The point was that, historically, the occasions of large numbers of NYSE New Highs AND New Lows at the same time did not bode well for the stock market. This condition is the main tenet of the Hindenburg Omen and, while often ridiculed, there does appear to be validity to its warning. Today, we look at the same criteria applied to the Nasdaq. And we find similar potential reason for caution.

Specifically, due to the occurrence on July 20, we looked at all instances where the Nasdaq Composite closed at a 52-week high with at least 100 stocks hitting New Highs AND 100 hitting New Lows. Since 1986, July 20 marked the 29th day meeting such criteria. (We understand that 100 is a static number and seemingly not as relevant as New Highs and Lows as a % of total issues. However, the number of issues on the Nasdaq is currently at the low end for the entire period covering our NH/NL database (since 1986). Thus, if anything, it makes current signals more relevant, as shown below).


These were the months marking the occurrences:

  • October-December 1996
  • June-July 1997
  • April 1999
  • December 1999
  • February-March 2000
  • July 2007
  • October 2007
  • July 2015

As you can see, this is another example of the growing emergence of data points that echo the previous 2 cyclical tops. The 1996 occurrences essentially saw the Nasdaq move sideways for a couple of months before resuming its uptrend. The 1997 instances were followed by even less struggle as the index plowed higher. The 9 occurrences during those years took place as the Nasdaq was setting a record in the number of issues trading on its exchange at more than 5000. Thus, the “100″ marker represented less than 2% of all shares at that time. Additionally, the number of New Highs on those 9 dates during 1996-1997 averaged 219 while New Lows averaged 111. So, despite the large number of New Lows, they were still roughly just half of the New Highs.

The 1999-2000 dates took place with roughly 4700 stocks trading on the Nasdaq so 100 equated to more than 2%. The April 1999 occurrence led to an immediate 10% decline the following week. And of course, the December 1999-March 2000 occurrences took place during the final blow-off stage of the Nasdaq bubble. So while the Nasdaq was able to tack on gains following the earlier of those dates, they were eventually given back in spectacular fashion.

The 2007 occurrences happened at a time when just over 3000 stocks were trading on the exchange, in comparison with today’s number at just under 3000. Thus, 100 New Highs or Lows would account for over 3% of all issues traded. The July 2007 instance marked the only one of the 28 prior dates that saw more New Lows than on the recent July 20, 2015 occurrence (155 vs. 154). That occurrence saw the Nasdaq hang up for about a week before dropping roughly 10% over the following month. The October occurrences marked the top of the Nasdaq cyclical bull market. 

In fact, following the last 5 times the Nasdaq closed at a 52-week high with at least 100 Nasdaq New Highs and 100 New Lows, the market was unable to make much, if any, further headway for a long time.

  • March 10, 2000 (*cyclical top-0 higher closes over next 15 years)
  • July 12, 2007 (35 higher closes over next 4 years)
  • October 29, 2007 (2 higher closes over next 4 years)
  • October 31, 2007 (*cyclical top-0 higher closes over next 4 years)
  • July 20, 2015 (TBD…0 higher closes so far)

Of note, this recent July 20 occurrence was also the only one that saw more New Lows than New Highs. In fact, as we stated in last week’s post on “July 20: The Thinnest New High In Stock Market History”, other than 3 days in April 1999, it was the only Nasdaq 52-week high period going back to 1986 that saw more New Lows than New Highs.

So why should the occurrence of significant numbers of New Highs and New Lows at the same time be a bearish sign? Like we said in the July 16 post on the NYSE version, we’re not sure why but perhaps it is that “there are a number of stocks below the surface that are breaking down – yet enough that are still performing well to mask that weakness and prevent market participants from getting too bearish.” That dynamic that keeps participants from worrying too much about the deteriorating internals – and keeps them in the market – is just the thing that can set them up for significant losses.

We’re not going to suggest that July 20 necessarily marked a cyclical market peak, not to be surpassed for the next 4 years. However whatever the dynamic is that produces these 52-week market highs with an abundance of New Highs AND New Lows, its timing has been extremely dubious to say the least. Therefore, you might say that one would have to be high to ignore its track record.

Dow Spikes 170 Points "Off The Lows"

Because, why not...


No news...


Spot the odd one out...


As The S&P pushes back to its 50 & 100DMAs...


Charts: Bloomberg

Toys'R'Us Bonds Crash As Suppliers Set To Tighten Credit Lines

Just two years after Toy'R'Us attempted (and failed) to IPO, Bloomberg reports that insurance companies are cutting back on their coverage of the firm's suppliers. Without this 'insurance', which protects suppliers in case a retailer fails to pay them for merchandise - as in the event of a bankruptcy - the risks of shipping to the retail chain soar.

The company’s $450 million 10.375 percent of senior unsecured bonds maturing August 2017 fell 11.5 cents to 71.1 cents on the dollar...


As Bloomberg reports,

Insurance companies are cutting back on their coverage of Toys “R” Us Inc. suppliers, bringing another headache to a retailer that has suffered more than two years of losses, people familiar with the matter said.


Coface SA and Euler Hermes Group, which sell credit insurance to vendors, are removing Toys “R” Us from some policies and declining to renew coverage in other cases, said the people, who asked not to be identified because the process isn’t public. The carriers may still negotiate with some vendors to keep providing some protection, one of the people said.


Losing coverage could raise concerns for toy suppliers as they weigh the risks of shipping to the retail chain, which scrapped plans for an initial public offering in 2013. Credit insurance protects suppliers in case a retailer fails to pay them for merchandise, as in the event of a bankruptcy.


Toys “R” Us also has been seeking additional restructuring advisers, who would look for ways to cut costs and explore the company’s next steps, said one of the people. The moves signal mounting troubles at the toy-store chain, which was taken private by Bain Capital Partners, KKR & Co. and Vornado Realty Trust in a $6.6 billion deal in 2005. Though it’s working on a comeback, Toys “R” Us has struggled to compete against online sellers and mass merchants like Wal-Mart Stores Inc.


The retailer has already been working with consultants at AlixPartners to cut expenses. It said last year that the firm helped it identify $150 million to $200 million in cost savings that could be achieved by the end of 2016. Toys “R” Us has since updated that target to $325 million.

*  *  *

Toys'R'Us bonds have collapsed to lows as investors recognize that credit insurers sometimes cancel existing policies if a company’s performance declines precipitously enough to place its ability to keep operating in doubt.

That occurred in the months before bankruptcy filings at RadioShack, Borders, and Circuit City.

Charts: Bloomberg

Futures Soar On Hope Central Planners Are Back In Control, China Rollercoaster Ends In The Red

For the first half an hour after China opened, things looked bleak: after opening down 5%, the Shanghai Composite staged a quick relief rally, then tumbled again. And then, just around 10pm Eastern, we saw a coordinated central bank intervention stepping in to give the flailing PBOC a helping hand, driven by the BOJ but also involving NY Fed members, that sent the USDJPY soaring which in turn dragged ES and most risk assets up with it. And while Shanghai did end up closing down -1.7%, with Shenzhen 2.2% lower at the close, the final outcome was far better than what could have been, with the result being that S&P futures have gone back to doing their thing, and have wiped out all of yesterday's losses in the zero volume, overnight session.

As Bloomberg's Richard Breslow comments, the majority of Asian equity indexes finished with losses but on an upbeat note, helping most European markets to start with modest gains that have increased with the morning, thanks to the aforementioned domestic and global mood stabilization. S&P futures have been positive all day other than a brief dip negative at the worst of the day’s China levels. Chinese equities opened quite weak and were down another 5% before the authorities assured the market that speculation they would withdraw from market supportive measures was misguided. This began a rally of over 6% before a mid-afternoon swoon.

There was the usual propaganda out of China, which requested traders rat out any "malicious sellers" and appears to have been inundated with responses...

BREAKING: China's securities regulator has received reports about "massive selloff" yday in stock market, will take actions soon - spokesman

— George Chen (@george_chen) July 28, 2015

... mixed with the facts that China also reported that margin leveraged positions were reported to have been reduced on Monday by the most in two week. Additionally, the PBOC injected CNY 50 billion worth of funds, marking the 10th consecutive injection of liquidity by the central bank.

There was some discussion early over comments by Tom DeMark, popular for predicting the 2013 bottom in the Shanghai Composite, who wrote that "Chinese stocks will decline by an additional 14% over the next three weeks as the market demonstrates a trading pattern that mimics that of the U.S. crash in 1929."

More troubling was the WSJ's assessment that the continuing "losses are casting doubt on Beijing’s ability to contain the slide, and has left investors and analysts wondering what officials might do next to reverse it.

Whether the government’s rescue measures are successful or not hinges on performance through the rest of the week, said Zhou Xu, an analyst at Nanjing Securities. “The market consensus that the bottom line for the government is around the 3400 point. If the market slides further, it will be a real disaster.”


Government measures to step up purchases of stocks, announced late Monday, appeared to reassure some investors shaken earlier by the steep losses the day before, when the Shanghai benchmark fell 8.5%. That marked its worst one-day percentage decline since 2007.


On Tuesday afternoon, China’s securities regulator announced it would launch an investigation into Monday’s selloff.


“Right now the [Chinese] central government is trying to maintain the confidence of the individual investors” that drive China’s stock market, said Castor Pang, head of research for Core Pacific-Yamaichi International. If the government “can maintain their confidence, everything can be solved.”

Good luck China, your dazed and confused central planning overlords need it now more than ever.

Elsewhere, the Nikkei 225 (+0.1%) saw a choppy price action, led by sentiment in China. Finally, JGBs traded higher following spill over buying in USTs and Bunds.

With Macro news fairly light in terms of Europe, price action today has shrugged off the ongoing tensions surround the volatility in Chinese equity markets, to focus on stock specific news and specifically earning season, with indices trading higher (Euro Stoxx: +1.1%) supported by consumer discretionary sector following an encouraging earnings report by Kering (7.0%), with a weaker EUR continuing to provide supportive tailwind. The risk on sentiment ensured that Bunds edged lower, with T-Notes moving in sympathy, while peripheral bond yield spreads narrowed, albeit marginally.

In FX, there was little in terms of macroeconomic data, but the advanced UK GDP report came in line with estimates at 0.7% Q/Q and 2.6% Y/Y and has seen GBP supported despite a stronger USD weighing on other major pairs . The USD-index resides in positive territory (+0.2%) to pare back some of yesterday's losses with price action relatively subdued during the European Morning.

Looking ahead, today sees the release of the latest US services and composite PMIs, consumer confidence report and S&P/Case-Shiller House Price Index. Also of note, Greek negotiations with creditors are set to kick off today after a week long delay due to logistical issues, while the FOMC are also set to begin their 2 day meeting today, with a rate decision scheduled for tomorrow.

Brent and WTI head into the NYMEX pit open trading firmly in negative territory as bearish sentiment continues, with Brent Crude at its lowest level since Feb 2nd , weighed on by firmer USD as well as ongoing concerns surrounding the economic slowdown in China. The latest DOE estimates have stockpiles for Crude, Cushing OK, Gasoline and Distillate all show a build, while participants will be looking out for today's API Crude oil inventories (Prey. +2300K). NatGas has bucked the trend of the as a spate of hotter Weather is about to hit the eastern coast of USA. Gold trades in modest negative territory, however remaining below the USD 1100 handle.

Today's US earnings include 40 S&P500 companies among which Merck, Ford, Reynolds American and Pfizer pre market, with Twitter and Gilead scheduled to report after market. This afternoon the two-day FOMC meeting begins today while data wise we get the flash composite and services PMI’s for July, S&P/Case Shiller house price index, consumer confidence and finally the Richmond Fed manufacturing activity reading.


Bulletin headline summary from Bloomberg and RanSquawk

  • European equities trade in positive territory, taking the lead from earnings specific news.
  • USD is stronger against most major pairs with the exception of GBP, which saw strength after Q2 GDP printed in line with expectations
  • Today's highlights include US services and composite PMIs, consumer confidence report and the latest API crude oil inventories after the closing bell on Wall Street with earnings expected from Pfizer, Gilead Sciences and Merck.
  • Treasuries decline before Fed begins two-day meeting in Washington and week’s auctions begin with $26b 2Y notes; WI 0.695%, highest since Dec., vs 0.692% in June.
  • Economists remain somewhat divided over when Fed will begin to hike rates after this week’s FOMC meeting, though most see Sept. liftoff, based on published research
  • Chinese stocks extended yesterday’s losses, with the Shanghai Composite closing with a 1.7% loss after sinking as much as 5.1%
  • China’s securities regulator is investigating yesterday’s stocks selloff, the latest effort by the government to crack down on reports of market manipulation after a recent equities rout wiped out nearly $4t
  • Greece’s latest cycle of talks with its creditors started     with a quarrel, as officials argued over what upfront commitments the government has yet to implement in order to tap emergency loans next month
  • U.K. GDP increased 0.7% in 2Q, in line with median forecast; growth in services accelerated while manufacturing declined and construction was unchanged
  • Sovereign 10Y bond yields higher. Asian stocks extend yesterday’s losses; European stocks, U.S.equity- index futures rise. Crude oil lower, copper and gold gain

US Event Calendar

  • 9:00am: S&P/CaseShiller 20 City m/m SA, May, est. 0.3% (prior 0.3%)
  • S&P/CS 20 City y/y, May, est. 5.6% (prior 4.91%)
  • S&P/CS 20 City NSA, May, est. 180.34 (prior 177.01)
  • S&P/CS U.S. HPI m/m, May, est. 0.10% (prior -0.02%)
  • S&P/CS U.S. HPI y/y, May, est. 4.5% (prior 4.23%)
  • S&P/CS U.S. HPI NSA, May (prior 170.01)
  • 9:45am: Markit U.S. Composite PMI, July P (prior 54.6)
  • Markit U.S. Services PMI, July P, est. 55 (prior 54.8)
  • 10:00am: Consumer Confidence Index, July, est. 100 (prior 101.4)
  • 10:00am: Richmond Fed Manf. Index, July, est. 7 (prior 6)
  • TBA: FOMC opens two-day meeting

DB's Jim Reid completes the overnight wrap

When we went to press yesterday Chinese equities were down about 1.5% broadly in line with the rest of the region. A couple of hours later at the close the Shanghai Comp was down -8.5% - the 2nd worst day in history. These violent late day movements are something we've highlighted a few times in recent weeks so by the time you're reading this the China's words below could be completely out of date. In total over 60% of the Shanghai and Shenzhen were limit-down at the -10% floor which means the end result could have been even worse. There was no obvious explanation for the timing or magnitude of the slump. It ceased to be a free market a long time ago so analysing it is tough. Does the slump really reflect concerns over weaker economic growth when the dramatic bubble ascent occurred at a time of sharply weaker growth in the first half? It all seems pretty random to me.

Confusion around support from the China Securities Finance Corporation (CSFC) was a talking point yesterday. According to Reuters early chatter in markets suggested that the CSFC had returned ahead of schedule some of the loans it had taken to stabilise the market while other commentaries at the same time highlighted the suspicious absence of any support from the Corporation. Following the market close however the China Securities Regulatory Commission (CSRC) put out a statement denying any such retreat from the CSFC and instead reinforced that the Commission will ‘continue efforts to stabilise market and investor sentiment and prevent systematic risk’. Interestingly yesterday’s selloff comes after the IMF on Friday urged China to eventually unwind its support to the equity market and allow prices to settle through market forces.

This morning we've seen more huge swings in the Chinese equity markets. Having initially plunged some 5% lower at the open, the Shanghai Comp briefly moved about a percent into positive territory only to then decline once again into the midday break to -1.00%. There’s been similar volatile moves for the CSI 300 (-0.21%), Shenzhen (-1.30%) and ChiNext (-2.18%) this morning while the PBoC has announced that it will inject 50bn yuan into money markets, its largest liquidity boost since early July. The volatility this morning has seen a large range of price action across the rest of Asia. In Japan the Nikkei (-0.04%) and Topix (-0.34%) have both declined slightly along with the ASX (-0.21%) in Australia while in Hong Kong the Hang Seng (+1.52%) has completely reversed a weak start to trade firmer. Elsewhere, in Korea the Kospi (-0.03%) is more or less unchanged. Credit markets have reflected the choppy trading this morning with Asia CDS currently unchanged while Japan is 2bps tighter and Australia half a basis point wider. Oil markets have weakened with WTI -0.5% while Treasury yields have moved 2.7bps higher.

China aside, the wider theme in markets at present continues to be the commodities slump and yesterday we saw another decent leg lower for Oil markets in particular with Brent (-2.11%) now joining WTI (-0.68%) in re-entering a bear market having slumped to $53.47/bbl. It has now lost 20% from the June 10th high of $67.00, declining to a four-month low in the process. The turbulence in China certainly isn't helping matters while export data showing Southern Iraq output rising to an all-time high added to the weakness. Meanwhile Gold (-0.47%) did its best to wipe out the bulk of Friday’s gains while Silver (-0.78%) and Platinum (-0.53%) also moved lower. Copper (-1.43%) added to the broad-based weakness, extending its record lows while Aluminum (-0.21%) also declined. All-told that’s seen the Bloomberg commodity index fall further, declining 1.22% overnight for its fourth consecutive down day and 10th in the last 11 sessions and in turn extending its 13-year lows.

The equity selloff stemming from China helped support a decent drop across most global equity markets yesterday. In Europe we saw the Stoxx 600 fall 2.21% while the DAX (-2.56%), CAC (-2.57%), IBEX (-1.45%) and FTSE MIB (-2.97%) also fell. In the US the S&P 500 (-0.58%) completed five-days of declines now for the first time since January (down 2.9% in that time) with nine out of ten sectors closing in negative territory, led unsurprisingly by energy (-3.31%) and materials (-3.29%). The Dow (-0.73%) and NASDAQ (-0.96%) also suffered similar falls. There was little help from the bottom-up earnings releases after a reasonably quiet day. The latest count on our earnings monitor shows EPS beats at 76% (a modest rise from Friday at 75%) while sales beats have ticked down again to 51% now (from 53% on Friday).

Credit markets also suffered with the weakness in risk assets. CDX IG moved +1.5bps wider while in Europe Main and Crossover were +2bps and +9bps wider respectively. Treasury yields on the other hand continue to march lower with the benchmark 10y yield ending 4.5bps lower at 2.218% and just a couple of basis points off the MTD lows while 30y yields (-2.9bps) fell to a near two-month low at 2.933%. That came despite an OK day for data. Durable goods orders for June rose 3.4% mom (vs. +3.2% expected) while the ex transportation print also increased above consensus during the month (+0.8% mom vs. +0.5% expected) although we did see downward revisions to prior months. Core capex orders rose +0.9% mom during June and also above expectations of +0.5% for just the second monthly increase this year, although shipments edged down during the month (-0.1% mom vs. +0.6% expected). Finally there was a 2.4pt improvement in the Dallas Fed manufacturing activity print for July but to a still weak -4.6 (vs. -3.5 expected), the eight consecutive sub-zero reading.

There was reason for optimism out of the European data flow yesterday following a better German IFO survey reading. The 108.0 reading (vs. 107.2 expected) was up 0.5pts from an upwardly revised June print, signaling an easing of concerns around Greece, while both the current assessment (113.9 vs. 112.9 expected) and expectations (102.4 vs. 101.8 expected) surveys also came in above market. That helped support a strong day for the Euro which finished +0.95% against the Dollar while 10y Bunds finished unchanged at 0.691% after a choppy session. Elsewhere, in its annual report published yesterday the IMF warned that developments in Greece still remain a risk and that authorities shouldn’t become too complacent. The fund did however ‘urge policymakers to use all the available instruments, if needed, to manage contagion risks’ while strongly supporting the ECB’s current plans to keep QE running through September 2016.

Taking a look at today’s calendar now, this morning’s dataflow is centered on the UK where we get the Q2 GDP reading while over in Italy consumer and business confidence readings are expected. Over in the US this afternoon the two-day FOMC meeting begins today while data wise we get the flash composite and services PMI’s for July, S&P/Case Shiller house price index, consumer confidence and finally the Richmond Fed manufacturing activity reading. It’s a busier day for earnings with 40 S&P 500 companies due to report including Gilead Sciences, Ford and Pfizer.

Open Letter to Alexis Tsipras

Dear Prime Minister Tsipras,

First, congratulations for mustering the popular support to say “no” to the troika. The euro has long offered Greece a perverse incentive to borrow, and now your country is trapped in debt. By any conventional means, Greece cannot repay (I propose an unconventional way, below). The sooner everyone acknowledges this simple fact the better.

While I don’t claim to know why you agreed to a bailout deal this weekend, I can guess. The troika threatened to maximize the costs of leaving the euro. They can shut off access to further credit; including the Emergency Liquidity Assistance, European Stability Mechanism loans, liability transfers via TARGET2, and bond buying programs. They could do more, such as refuse to clear payments to and from Greece.

That would utterly destroy the Greek banking system. In turn, that will wipe out all Greek savers and employers who haven’t already transferred their bank balances out of the country. Defaults of all euro denominated liabilities will cascade throughout Greece, including insurance, annuities, corporate bonds, business credit lines, personal loans, and mortgages. Every liability is someone else’s asset, and few creditors would survive. The government will collapse when no one can pay taxes. Greece will end, a failed state.

The troika wants you to accept another bailout deal, to service Greek debts a while longer. Since bailouts mean borrowing more, you cannot avoid default in the end. Going deeper into debt is no good for anyone.

Should you choose to default instead, you will not be able to continue using the euro. Even if the troika doesn’t immediately act, the threat is real. No one would lend to the Greek government, or even businesses, with that Sword of Damocles hanging over you. However, you need outside capital to restart production and trade. Otherwise, your industries will be shuttered, even including exports.

Some economists advise you to create a currency board. This is a new monetary authority that maintains a fixed exchange rate, by holding euros and issuing Greek currency. It’s nothing more than using the euro, though indirectly. It has all of the flaws and risks I just described.

Greece has no future, so long as it clings to the euro.

Adopting the dollar might seem less bad. At least, the Federal Reserve isn’t likely to stop you. Greek businesses and banks could even attract some dollar-based credit. Once you leave the euro, Greeks will probably end up using the dollar, with or without legal tender law. What a wasted opportunity.

You could create a new drachma and redenominate all debts in the currency. Lamentably, even Nigel Farage offered you this advice at the European Parliament. It’s tempting to think that Greece can just print its way out of debt, but it’s a trap. Don’t do it.

It’s obvious that the purpose of a new drachma is to fall. No one outside Greece will hold it. Few Greeks will hold it either, so the drachma will not find a bid. It may get you out of debt, but at the cost of the further destruction of businesses and jobs. Greece will become the next Zimbabwe.

You can’t stay with the euro. Switching to the dollar isn’t much of a move forward. Imposing a new drachma will only harm the long-suffering Greek people. By the logic of Aristotle, that leaves one other option. Adopt gold as money.

You have an historic opportunity to create another golden age for Greece.

Begin by allowing the Greek people to use gold, free from legal tender laws and taxes on gold. Your people will begin accumulating savings again, which they desperately need to rebuild businesses. And speaking of building businesses, if you want to attract capital from the rest of the world, gold will do it like nothing else. Dollar denominated bonds will attract tepid investment, at best. With gold bonds, Greece can raise unlimited amounts. At least it can get as much honest credit as it needs. Honest means that the borrower has the means and intent to repay. It means credit is financing productive enterprise that generates income to amortize the debt.

I said that no conventional approach will let Greece get out of debt. Let me briefly outline an approach to use gold to get out of debt without default or hyperinflation (I refer you to my paper, an entry to the 2012 Wolfson Prize, for the full explanation).

Greece should issue gold bonds.

These are not conventional bonds backed or collateralized with gold, but bonds that have the principal and interest denominated and paid in gold. There is one twist. Buyers don’t pay in euros, or any paper currency. Instead, they pay by redeeming outstanding Greek bonds. For example, to buy a 1000oz gold bond, a bidder might be willing to bring you €500,000 worth of existing Greek government bonds.

This is the only mechanism that lets Greece get out of debt cleanly.

Greece will exploit a rising euro to gold exchange rate (i.e. gold price). With each new tranche issued, the price of gold will be higher. It will take less gold to retire more debt. And believe me, the gold price will begin rising once the markets realize that gold is being remonetized. Greece will be the first country, the leader, in using gold bonds to avert financial Armageddon. Many others will follow.

With each new tranche, the paper bond to gold bond exchange rate will also be rising. As buyers realize that the value of gold does not erode, they will prefer a future gold payment to one in a paper currency. Gold bonds will sell for a premium over the gold price, compared to paper bonds. This premium will rise.

You will find that the market will happily buy long term bonds, giving you the opportunity to pay off your debt without having to constantly roll short-term liabilities.

If you can buy the time to let this strategy play out, you will get out of debt completely, avoid default, and end with the best credit rating. You will immediately attract capital, and then industry, and jobs to Greece.

At this point, Mr. Tsipras, you have nothing to lose. Why not win the future?


Keith Weiner, PhD
Chairman, The Gold Standard Institute


This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog