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Frontrunning: May 25

  • Oil nudges $50 a barrel as investors bet on shrinking overhang (Reuters)
  • From hinterland to wonderland: China's 'teapot' refinery boomtowns (Reuters)
  • Peter Thiel Has Been Secretly Funding Hulk Hogan's Lawsuits Against Gawker (Forbes)
  • China Wants to Set Prices for the World's Commodities (BBG)
  • Big Banks Ladle On the Risk (WSJ)
  • China Said to Plan Asking U.S. on Timing of Fed Rate Hike (BBG)
  • ECB credit buying to start small, betting on issue boom (Reuters)
  • HP Enterprise to Spin Off, Merge Services Business (WSJ)
  • Swedish court upholds Assange arrest warrant (Reuters)
  • Trump Unveils Stable of Republican Donors (BBG)
  • Ryan Said to Tell Confidants He’s Ready to End Trump Standoff (BBG)
  • Clinton blasts Trump for cheering housing bubble burst (Reuters)
  • Goldman Sachs Sees Malaysian Deals Evaporate Amid 1MDB Concerns (BBG)
  • Trump on the defense over Clinton's housing market digs (CNN)
  • Nerves of Steel Pay Off as Metals Bonds Jump on Materials Rally (BBG)
  • Deutsche Bank Trading Woes Exposed in Slide Down Currency League (BBG)
  • Jailed Ukraine pilot heads home under prisoner swap with Russia (Reuters)
  • Polish minister says looking for solutions to constitutional row (Reuters)
  • Shell Cuts 2,200 More Jobs to Withstand Lower-For-Longer Oil (BBG)
  • Microsoft May Cut 1,850 Jobs as Nadella Pares Phone Ambitions (BBG)
  • Sanofi to unveil challenge to Medivation's board (Reuters)


Overnight Media Digest


- Hewlett Packard Enterprise Co plans to spin off most of its technology services operations and merge them with those of Computer Sciences Corp., in an $8.5-billion transaction that marks HP Enterprise's latest adjustment to a shifting landscape that is roiling the market for corporate technology. (

- Eurozone finance ministers and the International Monetary Fund patched together a deal in the early hours of Wednesday that clears the way for fresh loans for Greece and sets out how the country could get debt relief in the future. (

- A real estate firm that has been a favored investment of Tennessee Republican Senator Bob Corker is under investigation by federal law enforcement officials for alleged accounting fraud, according to people familiar with the matter. (

- Attorney General Loretta Lynch said Tuesday she has decided to seek the death penalty for Dylann Roof, a white man charged with killing nine parishioners at a black church in Charleston, S.C., last year. (



* Greg Tufnell, ex-managing director of Mothercare is leading a bid to acquire BHS.

* Monsanto Co, the world's largest seed company, turned down Bayer AG's $62 billion acquisition bid as "incomplete and financially inadequate" on Tuesday, but said it was open to engage further in negotiations.

* Dozens of French police raided Google's Paris headquarters on Tuesday, escalating an investigation into the digital giant on suspicion of tax evasion.



- Toyota Motor Corp and Volkswagen AG, two of the world's largest automakers, said they were stepping up to invest in technology start-ups that are working to change the way people travel by car. Toyota said it had formed a partnership with and invested an undisclosed amount in Uber, the biggest ride-hailing company. Gett, the app popular in Europe, said it was working with Volkswagen, and the automaker was investing $300 million in the start-up. (

- Monsanto Co rejected Bayer AG's $62 billion takeover offer on Tuesday, calling the takeover approach by the German giant too low. (

- Months after Hewlett-Packard split itself into two publicly traded companies, one of those new smaller businesses plans to become even smaller. Hewlett Packard Enterprise Co will sell its enterprise services business, whose offerings include call centers and network maintenance, to the Computer Sciences Corp in an all-stock deal, the companies announced on Tuesday. (

- Media mogul Sumner Redstone confirmed on Tuesday the appointment of two new members to his irrevocable trust, which will control the future of his companies, as well as new directors to National Amusements, the private theater chain company through which he controls his $40 billion media empire. (




** The Canadian government is preparing to reject the permanent residence applications of three Chinese people who work for China's telecom giant Huawei, citing concerns of spying, terrorism or government subversion. The cases come after Huawei, which started operating in Canada in 2008, faced spying concerns in recent years. (

** Broadcast regulator Canadian Radio-television and Telecommunications Commission wants to know how pick-and-pay television is working out so far, and is calling Canada's largest cable and satellite distributors to account for the way they've rolled out new choices to viewers. (


** After some rocky years of revitalizing the business at Indigo Books and Music Inc, Heather Reisman is in growth mode again as she unveiled the company's latest store concept in west Toronto on Tuesday, the closest realization yet of her long-held vision to create a so-called "cultural department store." (

** About four in 10 Canadian homeowners says they were "caught short" in the past year without enough money to meet their expenses, according to a survey out on Tuesday. Manulife Bank paints a dim picture of Canadians with rising debt who could be sitting on a potential land mine if interest rates start rising. (



The Times

The pressure on Deutsche Bank's British chief executive grew yesterday after one of the top ratings agencies cut the German lender's credit standing and warned that his chances of delivering an ambitious turnaround plan were becoming more remote. (

The Guardian

Britain's leading tax and spending think tank, the Institute for Fiscal Studies, has warned that leaving the European Union would force ministers to extend austerity measures by up to two years to achieve a budget surplus. (

French investigators have raided Google's Paris headquarters, saying the company is now under investigation for aggravated financial fraud and organised money laundering. (

The Telegraph

U.S. agricultural business Monsanto rejected a $62 billion takeover offer from German drugs and crops giant Bayer yesterday as it believes the current proposal is "incomplete and financially inadequate", but said it is willing to engage in further negotiations. (

A Portuguese-backed consortium is in pole position to save BHS after Matalan founder John Hargreaves and Select Fashions Cafer Mahiroglu retreated from the bid battle. (

Sky News

Twitter has confirmed rumours it is going to stop counting attachments in its 140-character limit, giving users leeway to be more wordy. (

Bank of England Governor Mark Carney came under fire at a grilling by MPs today when he was accused of rehashing "propaganda" on the economic consequences of Brexit. (

The Independent

Google could face a claim for billions of euros in back taxes after 100 police and tax investigators raided the company's offices in Paris as part of an investigation into alleged systematic fraud. (

The chief executive of French energy giant EDF said the company "can't afford to keep the UK waiting" and hinted a decision regarding the Hinkley Point C nuclear project in Britain could be reached before the summer. (



Gundlach Feels Like We Are Back In December, Says "Stocks Are Dead Money" After A Short Squeeze

In his latest contrarian comments to Reuters, Jeff Gundlach focused on the recent flipflopping by the Fed and its various speakers who are now positioning the market for an imminent rate hike despite the US economy still treading water, and said that while many Fed officials are "dying to raise rates," but all that matters is Janet Yellen's opinion, a glimpse of which we will get as soon as this Friday when she speaks at Harvard. "All that matters is Yellen. She is still there." 

Last week, New York Federal Reserve President William Dudley said the U.S. economy could be strong enough to warrant an interest rate increase in June or July, reinforcing the drum beat from within the Fed in recent days that rate increases are coming soon. A range of policymakers with normally varying views on monetary policy are now stating a rate increase is possible at the next policy meeting in June.

Further, he noted something many have suggested, namely that sentiment from late 2015 has returned, when the market was optimistic that just because the Fed is hiking that some surprising surge in the US economy is on deck: both the Fed and the market were wrong: "I feel like we are back in December again, where everyone thinks that there is a super secret that some Fed officials have this knowledge that the economy is really good."

There was no super secret and in fact, the Fed was proven very wrong when the market tumbled shortly after the hike.

As a result, he said on Tuesday that the rally in U.S. stocks, which began on Monday, feels like a short squeeze and characterized U.S. stocks as "dead money."

His sentiment echos that of not only Goldman, which recently unveiled a surprising warning hinting a drop back to 1850 is in the cards, but also that of Bank of America which last night said that "we are seeing the same decoupling between US and EM stocks that that turned out a leading indicator in Aug and again in Jan."

Gundlach has been generally bearish on stocks in recent months as the market has gone largely nowhere. It remains to be seen if central banks will allow him to be right, and when.

Global Stocks, Futures Rally, Ignore Sharp Yuan Devaluation On Hopes Fed Is Right This Time

The single biggest event overnight was the PBOC's devaluation of the Yuan to the lowest since March 2011, setting the fixing at 6.5693, the highest in over 5 years and in direct response to a stronger dollar, which however if one looks at the DXY remains well below the recent highs in the 100 range, suggesting for China this is only just beginning.


However, the fact that there was not more volatility in onshore and offshore overnight FX also comforted the market that at the same time as its was devaluing the PBOC was also intervening in the FX market, thus providing some assurance it would not allow runaway "risk off" sentiment prevail, nor would it promote another blitz round of capital outflows, leading to another gradual levitation in overnight risk.

Whether the PBOC is successful this time happens remains to be seen, but for now algos and traders decided to ignore the loud warning signal by China, and focused on oil instead which after yesterday's sharp API inventory drop has pushed to fresh 7 month highs, higher by another 1% as the likely resumption of production by domestic producers is widely ignored. Instead, the market also focused on yesterday's new home sales, a data point with a 15% interval of confidence, as confirmation that the US economy is back on the mend, and thus any imminent rate hike by the Fed would be justified... just like in December.

Trader sentiment confirmed as much: "Strong U.S. new home sales have added credence to the Fed’s claims that the U.S. economy may be strong enough for another rate hike in June or July,” said Angus Nicholson, a Melbourne-based market analyst at IG Ltd. “Japanese equities in particular are relishing the strong U.S. dollar."

As a result, global equities rose to a two-week high amid increasing investor optimism that the world economy can withstand higher U.S. interest rates. Oil advanced and gold fell amid a retreat in the dollar. The MSCI All Country World Index climbed for a second day, European equities jumped, and futures signaled a higher opening for U.S. shares. Emerging-market stocks rose the most in six weeks, while South Korea’s won led currencies higher even as China set the yuan’s reference rate at the weakest level since 2011. Crude rallied above $49 a barrel as gold slid for a sixth day. Greek bonds increased, pushing the 10-year yield below 7 percent for the first time since November, after its creditors agreed to release bailout funds. The cost of insuring corporate debt against default fell to the lowest in almost a month.


Traders are now pricing in a one-in-three chance of higher borrowing costs in June. That’s up from 4 percent last Monday. July is the first month with more than even odds for a rate hike. Fed Chair Janet Yellen is scheduled to speak on Friday after European markets close.

While recently the market was spooked by the prospect of an imminent rate hike, as Bloomberg adds "improving confidence in financial markets is tempering anxiety over the Federal Reserve’s plans to raise U.S. interest rates, potentially as soon as next month." Adding to the confidence, recent polls show growing support for the U.K. to remain in the European Union, the rally in commodities is damping the risk of deflation, and a measure of economic surprises in the world’s largest economies hit its highest level this year. Still, faith in global growth prospects has been easily shaken, with global equities failing to make any gains in 2016.

"U.S. data is supporting the view that if we don’t see stellar growth, at least we don’t see a recession, and that’s a good thing," said Michael Woischneck, who oversees about 300 million euros at Lampe Asset Management in Dusseldorf, Germany. "If the Fed has the chance to hike again then it should take this opportunity as the market is very prepared. We also have a deal for Greece that has helped perceptions change in the European market."

The Stoxx Europe 600 Index added 1.1% in early trading, with almost all industry groups climbing. Carmakers, insurers and banks posted the biggest gains. The equity measure closed above its 50-day moving average on Tuesday for the first time after slipping below it earlier this month. That sends a short-term bullish signal in technical analysis, according to Saxo Bank A/S trader Pierre Martin.

The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong surged 2.8 percent, the most in more than a month. Benchmark gauges in South Korea, Taiwan, the Philippines, Russia and Dubai increased at least 1 percent.

Futures on the S&P 500 added 0.5 percent, indicating U.S. equities will extend gains after rising 1.4 percent on Tuesday. Investors will look to data on services output and house prices due Wednesday for signs of the health of the world’s biggest economy amid increasing bets that the Fed is confident enough to raise rates.

The yield on 10-year U.S. Treasuries increased by one basis point to 1.87 percent, matching its average level for 2016. The U.S. is selling $34 billion of five-year securities on Wednesday after investors snapped up a $26 billion auction of two-year notes on Tuesday, leaving primary dealers with the lowest award at a sale of the debt in data going back to 2003.

“The Treasury yield could end up a little bit above 2 percent” as the Fed raises rates, said Stephen Roberts, an economist at Laminar Group Pty, a Melbourne-based fixed-income adviser. “The U.S., of developed economies, has had the best of the economic recovery we’ve had since the global financial crisis.”

Markets snapshot

  • S&P 500 futures up 0.4% to 2083
  • Stoxx 600 up 0.9% to 347
  • FTSE 100 up 0.5% to 6168
  • DAX up 0.6% to 9899
  • S&P GSCI Index down 0.4% to 363.5
  • MSCI Asia Pacific up 1.5% to 127
  • Nikkei 225 up 1.6% to 16757
  • Hang Seng up 2.7% to 20368
  • Shanghai Composite down 0.2% to 2815
  • S&P/ASX 200 up 1.5% to 5373
  • US 10-yr yield up less than 1bp to 1.87%
  • German 10Yr yield down 1bp to 0.17%
  • Italian 10Yr yield down 3bps to 1.45%
  • Spanish 10Yr yield down 2bps to 1.56%
  • Dollar Index up 0.02% to 95.59
  • WTI Crude futures up 1% to $49.13
  • Brent Futures up 1% to $49.11
  • Gold spot down 0.5% to $1,222
  • Silver spot up 0.2% to $16.25

Top Global News

  • Microsoft May Cut 1,850 Jobs as Nadella Pares Phone Ambitions: Company will incur about $950 million in new charges. Last week Microsoft sold its feature phone business to FIH
  • Goldman Sachs Sees Malaysian Deals Evaporate Amid 1MDB Concerns: Once among top banks, Goldman was 18th in 2015 M&A rankings. U.S. authorities said to subpoena ex-Goldman banker in probe
  • CYBG Soars in London Trading as CEO Pledges to Eliminate Jobs: Clydesdale and Yorkshire bank owner to reduce expenses. Lender has gained more than 40% since its February IPO
  • Exxon, Chevron Oppose Environmental Drive to Cut Big Oil’s Reach: Shareholders will vote on limiting oil and gas exploration. Money saved would be paid to investors in dividends, buybacks
  • US Foods Seeks to Shake Off Failed Merger With $1 Billion IPO: Food distributor 1 of 2 national players in fragmented field. Owners KKR, CD&R don’t plan to sell shares in offering
  • China Said to Plan Asking U.S. on Timing of Fed Rate Increase: U.S.-China Strategic & Economic Dialogue set for June 6-7. China said to be preparing for potential market, yuan impact
  • U.S. Said to Investigate InBev Distribution Incentiv: Investigation over new incentives that encourage independent distributors to sell more of its own beer brands at expense of competing craft brews, Reuters reports, citing 2 unidentified people with knowledge.

Looking at regional markets, we start as usual in Asia where equities tracked the firm gains from Wall Street where strong New Home Sales data and advances in oil bolstered sentiment. Nikkei 225 (+1.6%) benefited from renewed press reports that Japanese PM Abe will delay the sales tax hike, while ASX 200 (+1.5%) was led higher by the uptick in energy in which WTI futures rose above USD 49/bbl to hit YTD highs. Chinese bourses conformed to the upbeat tone in the region with the Hang Seng (+2.8%) and Shanghai Comp (-0.2%) bolstered following another inter-bank liquidity injection and reports CSRC plans to open the futures market to investors abroad. 10yr JGBs traded higher
despite the risk-on sentiment in the region, as the BoJ were in the market to purchase over JPY 1.2trl in government debt. BoJ Governor Kuroda stated the BoJ is to be mindful of the balance sheet and later added they will ease further if FX impacts price goal. Kuroda further stated that there is currently not a big risk of JGB yield volatility.

Asia Top News

  • China Weakens Yuan Fixing to Lowest Since 2011 as Dollar Climbs: Reference rate was lowered by 0.3% to 6.5693/dollar
  • Singapore Economy Gets Temporary Boost From Manufacturing: 1Q GDP +0.2% q/q vs est. +0.6%
  • Mitsubishi Motors Corrects Last Year’s Earnings on Data Scandal: Charge reflects costs to compensate owners, Japan govt
  • Toyota to Invest in Uber to Explore Ride-Share Partnership: Cos. enter into MOU

European equity markets have also carried through the overnight risk on sentiment to trade firmly in the green this morning (Euro Stoxx: +1.6%). Financials are among the best performers in Europe, particularly from the periphery given the overnight Greek deal. Elsewhere Marks & Spencer are the worst performers in Europe today after their pre-market earnings and trade lower by around 9%. Fixed income markets have seen Bunds initially fall in tandem with the surge higher in equities, with the German benchmark trading firmly below 163.50 before staging a recovery heading into the North American open . Meanwhile, in the wake of the aforementioned Greek deal, Eurozone periphery yields have declined, with the Greek 10Y below 7% for the first time since November'15.

Top European News

  • UniCredit CEO Departure Puts Focus on Bank’s Capital Strategy: Chairman Giuseppe Vita to lead search for new CEO, bank says. Marco Morelli was approached for the role, person says
  • Deutsche Bank Trading Woes Exposed in Slide Down Currency League: After topping Euromoney ranking for 9 years, lender slips to 4. Bank’s market share shrinks to 7.9%, from 14.5% a year earlier
  • Bayer Says It’s Confident It Can Meet Monsanto Deal Demands: German company says it will address finance, regulatory issues. Monsanto rejected $62 billion offer, which it said was too low
  • BASF Feels No Pressure as Rivals Plan $170 Billion of Deals: Chemical maker focused on operations, Asia chief Gandhi says. BASF’s strategy under CEO Bock has been consistent, he says
  • Apollo Said to Seek $3.5 Billion to Scoop Up Bad European Debt: No better time for credit investors as banks hampered: Black. Strategy to target bad loans held by institutions under stress
  • Greece Wins Pledge for Debt Relief as IMF Bows to Euro Proposal: MF makes ‘major concession’ in Eurogroup negotiations. First aid payment to be made in June to cover debt servicing
  • Brexit Vote Could Extend U.K. Austerity by Two Years, IFS Says: IFS says quitting EU might add 40 billion pounds to borrowing. Economic damage would dwarf savings on payments to EU budget
  • ECB Officials Say Euro Area Needs Coordinated Economic Policies: France’s Villeroy, Spain’s Linde comment at Madrid conference. Extraordinary monetary stimulus hasn’t yet restored inflation

In currencies, the biggest FX news overnight was China’s central bank weakened its currency fixing by 0.3 percent to 6.5693 per dollar, the lowest since March 2011. However, since the yuan in Hong Kong was little changed at 6.5650 and the onshore rate was down 0.05 percent to 6.5620, many have speculated that despite the sharp easing, the PBOC continues to intervene and will not the currency lead to a resumption in capital outflows. The Bloomberg Dollar Spot Index declined 0.1 percent, trimming this month’s advance to 3.4 percent. The yen was little changed near 110 versus the greenback after Goldman Sachs Group Inc. predicted the Japanese currency would slide 12 percent by this time next year.  The MSCI Emerging Markets Currency Index climbed 0.2 percent. The won rose 0.9 percent, boosted by optimism that strength in the U.S. economy will shore up demand for South Korean exports. Malaysia’s ringgit strengthened 0.6 percent and Russia’s ruble gained for a second day to a one-week high.  Forwards on the Nigerian naira soared as traders increased bets on Nigeria’s currency weakening, with rates on three-month contracts jumping 16 percent to 288 per dollar. The central bank voted to allow “greater flexibility” in the foreign-exchange market on Tuesday, signaling policy makers may abandon a currency peg they’ve held for 15 months.

In commodities, oil extended gains in New York from the highest closing price in seven months after U.S. industry data showed crude stockpiles declined, easing a glut. Inventories dropped by 5.14 million barrels last week, the American Petroleum Institute was said to report. Data from the Energy Information Administration Wednesday is forecast to show supplies fell. West Texas Intermediate rose 1.1 percent to $49.15 a barrel and Brent added 1.1 percent to $49.16. WTI closed at a premium to Brent Tuesday for the first time in almost two weeks. Gold dropped to the lowest level in almost seven weeks. Bullion for immediate delivery fell 0.5 percent to $1,220.81 an ounce. Most industrial metals declined, with nickel dropping 0.2 percent and aluminum losing 0.3 percent. Copper rose 0.6 percent to $4,630 a metric ton.

On today's US event calendar the early focus is on the April advance goods trade balance reading where some further widening of the deficit is expected mostly due to an expected recovery in imports. Away from that there will be further housing market data in the form of the FHFA house price index for March, while later this afternoon the flash May services (53.0 expected) and composite PMI’s are due out. Fedspeak wise we’ll hear from Harker again while Kashkari and Kaplan are also scheduled for talks.

Bulletin Headline Summary From RanSquawk and Bloomberg

  • European equities followed suit from their US and Asian counterparts to trade higher across the board with news of a Greek deal and energy markets also guiding price action
  • GBP has once again been a key source of focus for FX markets with GBP/USD briefly breaking above 1.4650 before paring gains in recent trade
  • Looking ahead, highlights include BoC Rate Decision, US Trade Balance, Services PM! and DOE U.S. Inventories, Fed's Harker, Kashkari and Kaplan
  • Treasuries little changed in overnight trading as global equities rally along with oil; Treasury auctions continue with sale of $34b 5Y notes, WI 1.41%; last sold at 1.41% in April, first tail by a 5Y auction since January.
  • Chinese officials plan to ask their American counterparts in annual talks next month about the chance of a Federal Reserve interest-rate increase in June, according to people familiar with the matter
  • The ECB expanded the size of its debt-buying program in April by a third to €80 billion ($89 billion) a month and appears to be running out of securities eligible under its own rules
  • ECB will aim to buy €5b-€10b worth of corporate bonds per month after it starts “small” in June, Reuters reports, citing several unidentified central bank people with knowledge of matter
  • Brazil bond investors are dialing back their optimism after newly appointed Finance Minister Henrique Meirelles acknowledged that the country’s fiscal problems are much worse than anyone had imagined
  • A meeting of euro-area finance ministers in Brussels paved the way for a €10.3 billion ($11.5 billion) aid payout to Greece but left important details to be hammered out after Germany’s federal election next year
  • Greece’s bonds advanced, pushing 10-year yield below 7% for the first time since November, was as high as 19% last July
  • Sovereign 10Y yields mixed; European, Asian equities higher; U.S. equity-index futures rise; WTI crude oil higher, precious metals mixed

US Event Calendar

  • 7:00am: MBA Mortgage Applications, May 20 (prior -1.6%)
  • 8:30am: Advance Goods Trade Balance, April, est. -$60b (prior -$56.9b)
  • 9:00am: House Price Purchase Index q/q, 1Q (prior 1.4%)
  • 9:00am: FHFA House Price Index m/m, March, est. 0.5% (prior 0.4%)
  • 9:45am: Markit US Services PMI, May P, est. 53.0 (prior 52.8)
    • Markit US Composite PMI, May P (prior 52.4)

Central Banks

  • 9:00am: Fed’s Harker speaks in Philadelphia
  • 11:40am: Fed’s Kashkari speaks in Bismarck, N.D.
  • 1:30pm: Fed’s Kaplan speaks in Houston

DB's Jim Reid concludes the overnight wrap

Although credit spreads are generally wider in May on the back of very strong issuance, a number of major equity bourses returned back to positive territory for the month yesterday. Indeed the S&P 500 (+1.37% yesterday, +0.52% MTD) and DAX (+2.18% yesterday, +0.18% MTD) were last positive for May on the 16th and the 10th respectively. The Stoxx 600 (+2.21%) actually went into positive territory (+0.77%) for first time this month following the biggest one day gain yesterday since April 13th. It was hard to pinpoint one particular trigger for yesterday’s rally but one theme which was constant on both sides of the pond was the strong performance for Banks. Indeed a contributor to this may have been some of the comments coming from ECB Supervisory Chief Daniele Nouy. Speaking at a conference in Madrid, Nouy made mention of the ECB still having a lot of work to do on addressing legacy assets and particularly non-performing loans but that the Bank ‘will fast come with certain proposals’. She also highlighted that she is comfortable with the current minimum capital requirements for banks in Europe. Indeed it was the peripheral bourses that outperformed yesterday with the FTSE MIB in particular rallying to the tune of +3.34% with the likes of Monte de Paschi, Banco Popolare, Intesa Sanpaolo and UBI up between 5% and 10%.

Some of the commentary also pointed towards the latest bumper housing data in the US as helping to nudge rate expectations and yields a little higher and so in turn lending a helping hand in the rally for financials. In fairness much of the rally had already occurred prior to the data but in any case it helped to consolidate gains and was perhaps just evidence that investors are becoming a little more comfortable with the prospect of a possible rate move this summer. New home sales rose an impressive +16.6% mom in April which compared to expectations of just +2.4%. As a result the annualized rate rose to 619k from 531k which is the highest since January 2008 while the monthly surge was actually the biggest since 1992. That helped the US Dollar to strengthen +0.70% relative to the Euro while 10y Treasury yields edged up just shy of 3bps (2y yields were up a less impressive 1bp). By the end of play the odds of a move in June are now 34% (from 32%) with July consolidating around 54%.

Meanwhile rising Oil prices did little to spoil the mood yesterday as WTI (+1.12%) ignored yesterday’s stronger Dollar and has in fact crept back above $49/bbl this morning (and testing the YTD highs) in Asia following a similar magnitude gain ahead of today’s US stockpile data. Elsewhere Gold (-1.75%) tumbled yesterday and is now down over 5% this month.

Before we look at how markets have followed up in Asia, there’s been some positive news to come out of the Eurogroup meeting overnight following 11 hours of talks with the announcement that Greece’s creditors have come to an agreement on allowing for the release of €10.3bn of aid as well as committing to debt relief in later years. It appears that it is the IMF which has backed down somewhat from its previous harder stance with the agreement that the Fund will continue to participate in the nation’s rescue package too. Greek press Ekathimerini is reporting that conditional debt relief is to be granted from 2018 while a statement from the Chair of the meeting, Eurogroup President Dijsselbloem, said that ‘we achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme’. The finer details should get debated today but so far it looks like there are valid grounds for optimism that this is a big positive step in the right direction.

Refreshing our screens this morning, the positive lead from the US and Europe yesterday has continued this morning in Asia where we’ve seen a decent rebound across the majority of bourses. The Hang Seng (+2.56%) is leading the way, while the Nikkei (+1.80%) is not far behind. In China the Shanghai Comp (+0.41%) and CSI 300 (+0.50%) are both higher while elsewhere the Kospi (+1.15%) and ASX (+1.73%) are also stronger. Credit markets are rallying too with the iTraxx Aus, Asia and Japan indices 3-5bps tighter. There’s also been some activity in FX markets this morning with the main news being that the PBoC has set the CNY fix at its weakest level since March 2011. Indeed the fix was set 0.34% weaker although the current spot rate this morning (around 6.562) is still below the levels reached in the volatile month of January when there was arguably alot more focus on where the PBoC was setting the reference rate for the currency.

Back to yesterday, there was actually a reasonable amount of focus on some of the other chatter coming from the ECB yesterday. Vice-President Constancio said that in his view it is still too early to start discussing further stimulus from the ECB as a response to more challenging financial conditions. Constancio said instead that he prefers to hold tight to wait and see what the effects are of the latest round of measures from the Bank. Meanwhile the ECB’s latest edition of its semi-annual Financial Stability Review showed that a rise in political risk ‘poses a challenge to fiscal and structural reform implementation and, by extension, public debt sustainability’. The review went on to show that this in turn could put renewed pressure on vulnerable sovereigns while potentially contributing to contagion and re-fragmentation in the Euro area.

Meanwhile, over in the UK a fresh EU UK referendum poll released late last night for the Times newspaper and run by YouGov showed an even running between the Remain and Leave camps at 41% each. The Bloomberg headline suggests that the poll covered the May 23rd and 24th period. The last YouGov/Times poll had been split at 44% to 40% in favour of Remain.

Rounding off the other economic data that was released yesterday, in the US the only other release of note was the Richmond Fed manufacturing index for May which provided for further evidence of softness in the sector after dropping 15pts this month to -1 (vs. +8 expected). New orders were also down a significant 18pts. Prior to this in Europe, Germany had reported no change in its final Q1 GDP revision of +0.7% qoq. Meanwhile the May ZEW survey was released which revealed a 5.4pt increase in the current situation component to 53.1 (vs. 49.0 expected). The expectations survey however was down a disappointing 4.8pts to 6.4 (vs. 12.0 expected). It’s worth noting that our German Economists have now revised down their Q2 GDP forecast from 0.3% to 0.1% as they expect material payback for the Q1 strength. While they remain optimistic with regards to the labour market, they think that the impetus from low oil prices to real income is fading. In addition, the mild winter has allowed construction work to be pulled forward, albeit the payback might be limited by the strength of underlying construction demand.

Looking at today’s calendar, this morning we’re kicking things off in Germany where shortly after this hits your emails the latest German consumer confidence data is out. We’re staying in Germany shortly after that when we’ll get the IFO survey for May where a modest increase in the business climate reading is expected. This afternoon in the US the early focus is on the April advance goods trade balance reading where some further widening of the deficit is expected mostly due to an expected recovery in imports. Away from that there will be further housing market data in the form of the FHFA house price index for March, while later this afternoon the flash May services (53.0 expected) and composite PMI’s are due out. Fedspeak wise we’ll hear from Harker again at 2.00pm BST while Kashkari (4.40pm BST) and Kaplan (6.30pm BST) are also scheduled for talks. It’s a busy day for ECB speak meanwhile with Villeroy, Schulz, Knot, Constancio and Praet all due to talk this morning. The EU finance ministers meeting also continues in Brussels today while Central Bank wise the only scheduled monetary policy meeting of note is the Bank of Canada this afternoon (no change expected).

Precious Metals: Fake-Rally Ends, Hostage Markets Return


Precious Metals: Fake-Rally Ends, Hostage Markets Return

Written by Jeff Nielson



Back at the beginning of 2009, we had a real rally in the precious metals sector. The price of gold increased by roughly 2 ½ times. Silver led the way, rising more than double that amount. And the precious metals miners soared much higher, leveraging the gains in metals prices – as they must do, in any legitimate rally.

The rally occurred immediately after the Crash of ’08, the manufactured crash at the end of the Big Banks’ previous bubble-and-crash cycle. It occurred after a sharp, ruthless take-down of precious metals prices had established a clear “bottom” in those markets. That rally was terminated in 2011, by the Big Banks, in one of the most-obvious price-capping operations in the history of markets.

What has followed is 5+ years of what has previously been referred to as “Hostage Markets”: markets which were kept in a permanent choke-hold since that date, with prices grinding steadily lower and lower. This brings us to the beginning of 2016.

At the beginning of this year; the price of gold did something which we had not seen for several years: it went up. At the beginning of this year; the mainstream media did something which we had not seen for several years: it began praising gold as an asset class – and announced that “a new rally” had begun. The talking heads proclaimed that the “fundamentals” for gold were now bullish, and thus the price should start to steadily rise.

There was never any reason to consider this to be a real, spontaneous rally, and several strong arguments to conclude that this was an upward price-fixing operation of precious metals prices, to set the stage for a larger, general crash, at the end of the current eight-year, bubble-and-crash cycle from the Big Bank crime syndicate.

1) Nothing at all has changed in precious metals markets (except the rhetoric of the mainstream media) versus the last 5+ years.

2) Silver has failed to “lead the way”, as it must in any/all legitimate rallies.

3) The Big Banks remain in complete control of all markets.

Taking these reasons in order, mainstream propagandists have proclaimed that precious metals markets are now supported by bullish fundamentals. However, the “fundamentals” for gold and silver have remained equally bullish throughout the 5+ years where we were forced to endure Hostage Markets. In other words, any “reason” that could be made for gold and silver prices to rise now was equally valid, at all times over the past 5+ years.

“Technical analysis” (a pseudo-science with little statistical validity) would argue that the reason we are supposedly seeing a rally in 2016 is because gold and silver have “built a base” over the past 5+ years, and thus are now “ready” for the next leg higher, in their long-term bull market. However, this argument only applies to asset classes which have already risen to fair-market value.

In 2011, even after the large 2+ year rally in these sectors, neither gold nor silver was even close to any fair-market price . As “monetary metals” the primary fundamental of gold and silver is that their prices mustreflect any/all increases in the supply of money (i.e. “inflation”).

When B.S. Bernanke perpetrated his infamous “helicopter drop”, printing U.S. funny-money at an astronomical rate, never before seen in any large economy in modern history, he ultimately quintupled the U.S. monetary base. The price of gold would have had to duplicate this quintupling, as a starting point, before one could even begin to consider this a fair-market price.

At the beginning of the Bernanke helicopter-drop, gold was priced at roughly $800/oz. This meant that the price of gold would have had to rise to at least $4,000/oz (at a minimum) before it would/could be necessary for the market to “build a base” (to support even higher prices).

While the price of silver did rise roughly proportionately in comparison to Federal Reserve funny-money creation, this was only because silver started the rally priced at roughly $8/oz – at a 100:1 price ratio versus gold. As educated readers are aware, the legitimate, long-term price ratio for gold and silver is 15:1, reflecting the natural occurrence of these metals in the Earth's crust. Thus the price of silver would have had to rise to over $50/oz (higher than its 2011 peak) just to be priced rationally versus gold at the start of 2009.

In other words, in order for silver to (rationally) reflect Federal Reserve money-printing and the long-term price ratio versus gold, first the price of silver would have had to rise by a factor of roughly seven (just to be rationally aligned versus the price of gold), and then it would have had to increase by an additional factor of five – to mirror the Federal Reserve's monetary insanity .

This means that the price of silver would have had to rise somewhere above $200/oz (in 2011), before there could be any rational argument that it was priced at fair-market value at that time. Thus, in 2011, when the prices of gold and silver were first capped, and then taken down, there was never any reason for that rally to have ended. The 5+ years of Hostage Markets which we saw with precious metals should have never occurred.

Similarly, at the start of this fake rally, the gold/silver price ratio was at an ultra-absurd level of roughly 80:1, with silver priced at roughly $13/oz (USD). Even if already priced at a correct price ratio, the price of silver would have to lead the price of gold in any legitimate rally because the silver market is much, much smaller. However, at the ultra-compressed price ratio which existed at the beginning of 2016, if a legitimate rally had begun in precious metals markets, the price of silver would have exploded out of the starting blocks – leaving gold well behind in its wake.

Instead, we saw the price of gold “rally” for the first two months of this year, while the price of silver lagged. Understand the arithmetic here. At an 80:1 price ratio, if only 1.5% of the money entering this sector went into silver, the price of silver would have had to rise at a faster rate than gold .

In the real world, the quantity of investment dollars going into silver is roughly parallel to the quantity of dollars going into gold. Had a similar ratio of investor dollars entered the bankers “paper bullion” markets the price of silver would have had to rise roughly 20 times faster/higher than the price of gold during this supposed rally.

The notion, in this “precious metals rally”, that no one was buying silver is patently absurd. The price of silver during most of this fake-rally wasn't merely improbable, it was impossible.

Lastly, the Big Bank crime syndicate remains totally in control of what we call our “markets” (for lack of a better word). Currency prices remain fixed (rigged). Equity market prices remain fixed (rigged). Bond market prices remain fixed (rigged). Are we to believe that the banksters simply 'forgot' to continue their precious metals price-fixing – even as the mainstream media was shouting the word “rally” at the top of its lungs?

Simply, the rise in the price of gold (and muted rise in silver) which has taken place this year could have only occurred with the tacit support – if not overt assistance – of the Big Bank crime syndicate. At the same time, it is common knowledge that the banksters are firmly committed to suppressing precious metals prices, at all times.

...central banks stand ready to lease gold in increasing quantities should the price rise. 

– Testimony of Federal Reserve Chairman Alan Greenspan, July 24th 1998

The bankers “stand ready” to suppress the price of gold. Always. Eternally. Thus when we saw precious metals prices start to rise steadily/modestly at the beginning of this year, while the bankers remain in complete control of our markets, it could only have been because they wanted prices to rise.

Why? This question has already been answered . The current eight-year, bubble-and-crash cycle manufactured by the Big Banks is nearing its end. When this Next Crash is detonated, this crime syndicate obviously doesn't want precious metals to stand out as “safe havens” -- as all of their corrupt, paper assets are plunging in value.

The problem: with gold and silver already at rock-bottom prices at the beginning of 2016, it would have been very difficult to crash those markets (along with everything else). Thus the banksters need to march gold and silver prices higher, to some modest level, before they were set up to be crashed along with all other asset classes.

Now, the fake-rally appears to be at its end. This headline has been repeated again and again and again and again in the mainstream media over the past several days.

Gold in Longest Slump since November as Fed Signals Higher Rates

 Translation: a Fed-head talked about raising interest rates, and the price of gold fell. It is a headline which could have been copied-and-pasted out of any mainstream publication, any week, during the 5+ years of Hostage Markets.

Now here is the important point. When precious metals began their real rally at the beginning of 2009, the Fed-heads were already promising to raise interest rates then, as well. In fact they were promising much more. The Federal Reserve solemnly promised to fully “normalize” interest rates – quickly and immediately – at the beginning of 2009. Not some token, 0.25% rate increase. Fully normalized interest rates: meaning a benchmark rate of at least 2 – 3%.

Precious metals markets ignored that talk. All through 2009; the Fed-heads “promised” to raise interest rates, and gold and silver prices rose. All through 2010; the Fed-heads “promised” to raise interest rates, and gold and silver prices rose. All through the first 4 months of 2011; the Fed-heads “promised” to raise interest rates, and gold and silver prices rose.

Then, suddenly, after 28 months of the Fed-heads “promising” to raise interest rates, never keeping their promises , and precious metals prices continuing to rise, we had this paradigm suddenly reverse, for no reason. After 28 months of consecutively telling the same lie; suddenly precious metals prices began falling steadily, via nothing more than the same Compulsive Liars telling the same lie – which had previously been completely ignored.

The precedent, over the past eight years, is unequivocal. In a real rally, precious metals prices are not deterred from rising via Compulsive Liars simply repeating the same lie, over and over and over. It is only in the realm of Hostage Markets where (supposedly) these markets “react” to the same lie (and same Liars) which they had previously ignored, for several years.

A Fed-head talks, and precious metals markets fall. Readers are invited to call this paradigm of fraud anything that they want. But the one thing they can't call this is “a rally”.



Please email with any questions about this article or precious metals HERE



Precious Metals: Fake-Rally Ends, Hostage Markets Return

Written by Jeff Nielson



US Spy Plane Disrupts Civilian Flights While Spying On Russia

By now we are accustomed to hearing about US spy planes flying recon missions that are either infringing or extremely close to infringing on the borders of other countries - especially Russian borders.

A US defense attache has been summoned by Russia's Defense Ministry to explain why a US spy plane was not only flying close to Russia's border on Sunday, but dangerously close to civilian aircraft as well. The US crew had not provided any information regarding its flight to air traffic controllers in the region, despite flying at the same altitude as scheduled civil aviation flights, and at least two passenger jets belonging to major European airlines were endangered by the then unknown aircraft according to Interfax. Planes headed to Switzerland from Japan even even reported visual contact with the US plane.

It's also important to note that the spy plane had its transponders turned off, something that Russia explicitly said not to do if the US is going to be sniffing around Russia's borders.

As RT reports

“As the result of the unprofessional actions of the American plane crew, the hazard of a collision with civil aviation planes was created," Russia's Defense Ministry said, adding that it asked the US official to take measures to prevent such incidents from happening near Russia's borders in the future.


At least two passenger jets belonging to major European airlines were endangered by the then-unknown aircraft over the neutral waters of the Sea of Japan on Sunday, Interfax reported.


The "unknown aircraft" was flying at the altitude of some 11,000 meters (36,000 feet) and did not respond to air traffic control, the agency said citing its source. Russian air controllers had to immediately change the flight path of a KLM Boeing-777, which was in the same region en route from Japan to Holland.


Pilots from another airplane, operated by Swiss airlines, heading to Switzerland from Japan, even reported "visual contact with a large four-engine aircraft, which was in direct proximity to their plane" and sent no recognition signals, the source said. The flying altitude for the Swiss jet also had to be changed by the air traffic control.

* * *

Clearly the US needs to stop with these missions before someone gets hurt and an international incident is triggered, however knowing that will never happen, might we suggest that the US at least get to the point where its spying isn't detected every single time.

CNN Lashes Out At Trump Over Vince Foster "Conspiracy", Rushes To Hillary's Defense

Following Trump's bombardment of Bill and Hillary Clinton over the past 24 hours, first with a video clip featuring Bill rape accusers Kathleen Willey and Juanita Broaddrick, and shortly thereafter by digging up the most sensitive skeleton in the Clintons' closet, that of Vince Foster, whose death Trump said he found "very fishy", we wondered briefly if and how Hillary would respond.

We got our answer moments ago when the response came, only not from Hillary, but from one of her favorite TV outlets, CNN whose Jake Tapper valiantly stepped up to the Clintons' defense."

"Once again, journalists are in the unhappy predicament of trying to decide whether and how to cover false allegations raised by a candidate for president of the United States," Tapper said at the start his show, "The Lead." He continued: "The notion that this was a murder is a fiction born of delusion and untethered to reality and contradicted by evidence reviewed in at least six investigations, one of them by Ken Starr, hardly a Bill Clinton defender. To say otherwise is ridiculous, and, frankly, shameful."

Tapper claims reiterating that his scrutiny of Trump's comments wasn't "pro-Clinton" or "anti-Trump" but a "pro-truth position." Some would beg to differ.

Tapper continued: "Trump called the circumstances surrounding Foster's death "very fishy" in an interview with The Washington Post, saying the aide had "intimate knowledge" of events surrounding the Clintons. Trump has recently launched personal attacks at Hillary Clinton, the Democratic presidential front-runner.

"I don’t bring [Foster] up because I don’t know enough to really discuss it,” Trump told the newspaper. “I will say there are people who continue to bring it up because they think it was absolutely a murder. I don’t do that because I don’t think it’s fair."

Tapper's meltdown at Trump continued for having "lent credence to a bizarre and unfounded conspiracy theory," saying Trump was "right to say it wasn't fair to bring up the conspiracies. You're right, it's not fair that you did that, certainly not to Mr. Foster's widow or their three children."

His conclusion: "The notion that this was a murder is a fiction borne of delusion and untethered to reality and contradicted by evidence in at least six investigations. To say otherwise is ridiculous and frankly shameful. This is not a pro-Clinton position or an anti-Trump position, it is a pro-truth position."

Which, of course, anyone rushing to Hillary's defense would conclude with.

* * *

We doubt Tapper has brought this, or any other issue to a close, in this most remarkable presidential race in history.

In fact, judging by the speed and severity of his response, the CNN anchor, one of many who still hasn't grasped how Trump operates, has merely assured that Trump will not only continue to irritate the Tappers of the world by bringing up Foster, but will also push deeper until he penetrates through the thick shield of media defenders surrounding Hillary and forces her to confront demons she was confident has been buried decades ago.

Full clip below.

Shootings In Chicago Are Up An Astonishing 50% From This Time Last Year

This past weekend in Chicago saw another five killed and 40 wounded in shootings, slightly down from Mother's day weekend when eight people were killed and 42 wounded. The two weekends are indicative of what's taking place in the homicide riddled city, in which the number of people shot so far this year is running an astonishing 50% above this time last year - what's worse, summer is not even here yet, which is traditionally the city's most violent period.

Recall that 2016 homicides have already been projected to be at the highest levels since 2011, and at this pace, prior projections from just two months ago will prove to be stunningly low. Which is quite a feat for a city which ranks as one of the most regulated cities in the nation for gun control.

So far in 2016, 1,382 people have been shot and 244 have died from the wounds, up from 904 shot and 157 killed over the same period in 2015. Chicago's police superintendent Eddie Johnson proclaimed "as we look toward the summer months, violence will not be tolerated"... as opposed to all of the violence leading up to this summer which apparently was.

Johnson gave no further detail as to just how he planned to back up his claims to stop the violence other than the department is asking for volunteers to work overtime during Memorial Day weekend.

As we noted before, "It's the struggling economy." One way Johnson could perhaps get some relief would be if the economy were to pick up and some of those that have turned to a life of violence and crime would at least have a viable option as a way out of that life.

As a recent Pew survey showed, by 2014 median income had fallen 13 percent from 2004 levels, while expenditures increased by nearly 14 percent, and the change in expenditure-to-income ratio in the years following the financial crisis show households that are increasingly financially strained.


In the meantime, history has proven that all of the algorithms and "strategic subject lists" in the world won't be able to stem the violence for those that have no choice but to take to the streets to help make ends meet for their families.

Japan's Broken Economy - 25 Years Of Failed "Stimulus" & "Temporary Illusions"

Submitted by Jeffrey Snider via Alhambra Investment Partners,

So thoroughly destroyed is Japan’s economy that some of the numbers it produces are beyond comprehension, just staggering in any meaningful context. For example, Japan’s real GDP (SAAR) for Q1 2016 was ¥530 trillion (chained 2005). That compared to ¥447 trillion in Q1 1994. Over two decades and two additional years the Japanese economy has grown by a grand total of 18.5%. On straight arithmetic alone it doesn’t work out to 1% per year let alone on a compounded basis.

Since the first quarter of 2001, meaning fifteen years, real GDP “advanced” 10.4% total. Clearly the Japanese economy as bad as it was has slowed from even that revolting baseline. We don’t have to venture far or try too hard to guess when this new “slowing” occurred: since the first quarter of 2008, Japanese GDP thanks to Q1’s positive number is now the slightest amount more than eight years ago (¥530.01 trillion now vs. ¥529.63 trillion, or +0.1%). As everywhere else around the world, the Great Recession was not only a global event, it “somehow” broke the global economy in chillingly uniform fashion.

There is something quite sinister contained within this review, particularly since I haven’t presented the Japanese economy much of any baseline at all. It is fashionable especially of late to believe this is all some trick of slowing demographics and therefore all “stimulus” is to some degree helpless in the face of Japan’s determined self-extinction. There is some truth to the charge, which is the same of any good lie, but it doesn’t amount to a 1% baseline. Capitalism is not strictly population; in fact, that is the true hidden genius and value of capitalism as it creates productive, sustained societal gain well above any demographic shifts. At 1% and less over nearly a quarter century we can safely assume there has been no capitalism practiced in Japan during that time.

For sake of further (and more damning) argument, let’s just assume that the aging population is actually to blame for Japan’s 1% unevenness. That still leaves the final slowing, the right hand side of the chart above where even 1% is now a dream and a seemingly unattainable goal. Retirement and aging didn’t suddenly amplify in 2008 and 2009.

Given the history of intervention and “stimulus”, and more so when it occurs and really re-occurs, any impartial observer would be forgiven if they believed that QE’s were actually constant impediments to growth (a negative multiplier in the parlance of the orthodoxy). The proliferation of “stimulus” after the GR correlates only with this downshift in the Japanese economy that cannot be due to demographics. At best, QE’s have accomplished nothing at all positive, leaving no trace of something actually being stimulated for all the sustained “stimulus”; at worst, QE is the cause of Japan’s further nightmarish descent.

There is an easy case to be made against quantitative easing – starting with the distinct inability of the Bank of Japan (or any central bank inflicting it upon whatever economic system) to get the quantity “right.” If it is supposed to be a precisely-determined amount of precisely-measured “stimulus” then having to do it over and over and over invalidates at least the “Q” if not the “E” too. In Japan, the damage from QE is a little easier to observe than in other places, but as anywhere else it is households/consumers that bear the brunt of these unfortunate distortions that amount to little other than PR stunts (no matter how poorly QE’s perform, the media dutifully and reflexively continues to call it all “stimulus”).

Household spending in Japan has underperformed even overall GDP during these lost decades – not even managing steady 1%. After the rift in 2008 and 2009, HH’s further underperformed like overall GDP though had managed to get close to the pre-crisis trajectory. That was before QQE devastated even that likeness of recovery. Monetarists have claimed that somebody has to lose in these kinds of redistribution schemes, and the elevated quantity of QQE makes clear who that was.

These losers are only supposed to be on the short end for a short while until the stimulated recovery brings the economy roaring back so that they are paid in full for their forced “contributions.” Yet, as is clear of overall GDP, QQE, as the numerous QE’s before it, has been all cost with no recovery at all; in fact, as noted above, the Japanese economy is worse off now than it was before. The massive scale of QQE intrusion and the violent, negative reaction to it in household spending shows the true nature of all QE no longer entangled in other economic factors; the purest distillation of cause and effect. 

What we find, then, of Japan is the combination of factors that are evident almost everywhere else around the world post-Great Recession. Monetary “stimulus” is asking consumers and households to bear the burdens of that “stimulus” in order that the full recovery will take place – except as we find elsewhere, the post-GR environment has already proven that the recovery will never take place. Central banks are thus placing greater burdens upon their people for an outcome that simply can’t happen. I think that easily amounts to “stimulus” that adds only more negative factors to a global economy with already a huge burden.  

The reason for it is straight forward owing to a fallacy about the GR itself. It was never a cyclical event, nor was it the cause of this split in the economy – all economies for that matter. The Great Recession was instead a revelation of the true global economic state that existed for a long time before it. Growth and prosperity, even in Japan where GDP actually accelerated for the briefest of moments near to the 1.25% “upper bound” (a very sad commentary on Japan where just 0.25% more in GDP compounding amounts to a different world entirely) was never more than a temporary illusion.

All the world’s “stimulus” has not been able to budge it since the paper economy of the precrisis evaporated into the credit default swaps of AIG, and the collateral shortage that never has replaced the uniformity of MBS repo; like Humpty Dumpty, all Bernanke’s horses and all Kuroda’s men haven’t been able to put together the one unifying factor from Japan to the United States, from Europe to China. It’s as if there was something else all along that took every monetarism that every central bank offered anywhere it was offered and swallowed it whole without leaving the slightest economic trace, only further and further slowing. What can possibly be bigger than all the world’s QE’s and “stimulus” combined?

With The Lowest Volume Since Q1 2014, The Global M&A Boom May Be Over

Global M&A fell off a cliff in Q1, with volume levels not seen since Q1 2014. Dollar volume was down 49.2 percent sequentially, and 13.8 percent on a YoY basis.


According to Goldman Sachs, economic uncertainty, higher levels of volatility, and uncertainty around global central bank activity all played a role in the slowdown.

From Goldman's 10-Q

During the first quarter of 2016, our business activities were negatively impacted by a challenging operating environment characterized by economic uncertainty, higher levels of volatility and significant price pressure across both equity and fixed income markets, particularly during the first half of the quarter. These factors, as well as uncertainty around global central bank activity, impacted investor conviction and risk appetite for market-making activities, and industry-wide equity underwriting and mergers and acquisitions activity for investment banking activities.

The question is whether or not the slowdown is indicative of the M&A boom being over, or is it just a temporary hiccup. Using Goldman's rationale, the boom may just be over.

Economic uncertainty abounds after the US posted a Q1 GDP of dismal .5%, and central bankers are as confused as they ever were, with planners unable to come to a consensus on who can intervene in the markets, or when, and whether or not it's ok for the US to raise rates.

If the M&A boom is over, here are the banks that will be hardest hit by the slowdown

As the WSJ points out, banks such as Goldman Sachs and JP Morgan have diversified enough businesses where they can absorb some of the slowdown in M&A, but the smaller boutique firms such as Lazard, Evercore Partners, Greenhill, Moelis, and Houlihan Lokey don't have that luxury, and may see shares hit the hardest over the coming months because of it.

As the very same conditions persist throughout the second quarter that drove such a severe slowdown in the first quarter, it's reasonable to expect that the M&A boom may have just hit the wall.

Northwest Territorial Mint Scandal: Investors Had Fair Warning On This Blowup As Well

Submitted by Clint Siegner of Money Metals Exchange

Northwest Territorial Mint Scandal: Investors Had Fair Warning On This Blowup As Well

The news unfortunately just keeps getting worse for customers and
creditors of Northwest Territorial Mint. The prominent bullion dealer
located near Seattle, Washington filed for bankruptcy court protection
at the end of March. The losses of customers who never received delivery
of orders plus the losses of other creditors could be as high as $50
million, according to news reports.

The U.S. Trustee in charge, Mark Calvert, recently estimated
the firm has $56 million in liabilities and only $6.4 million in
assets. He figures the recovery for unsecured creditors will be less
than 10%.

Northwest Territorial’s former owner, Ross Hansen, seems to be
blaming the bankruptcy on a defamation lawsuit that he and his firm
recently lost.

The judgment was $38.3 million in total and the court ordered Hansen
to pay $12.5 million promptly. He filed for bankruptcy protection

The libel damages stem from a website Hansen created apparently to
wage a campaign comparing a former landlord to infamous Ponzi scheme
operator Bernie Madoff.  He and the former landlord apparently had some

Ironically, it appears Hansen is the one who may have something in common with Madoff. At a creditor’s meeting last week, trustee Calvert said, “Based on our analysis to date, the bullion sale of operations have attributes of a Ponzi scheme."

The libel judgment may have been the final straw, but it wasn’t the
only problem. Customers who ordered from this mint often experienced
extraordinarily long delivery delays – 8 to 10 weeks, and even as long as 6 months.

Calvert believes the funds received for new orders were used to buy
metal needed to deliver orders placed long before. If that's the case,
the mint was effectively borrowing money from its hapless customers to
finance its business. And this practice may have been going on for as
long as a decade. Yet, remarkably, customers continued to do business
with the mint even as most other precious metals dealers across America
make immediate delivery.

The bankruptcy, the potential fraud now under investigation, and the
millions in likely losses represent another black eye for the industry.
It comes on the heels of other high profile failures including a
“low-price” dealer known as Tulving Company and Bullion Direct.

Regulation Won’t Help: There Is NO SUBSTITUTE for Doing YOUR OWN Due Diligence

No one should be surprised if bureaucrats in state and federal
government take up the issue and “ride to the rescue” with new
regulations claiming to protect customers.

The problem is that do-gooder politicians have a miserable track
record when it comes to defending consumers generally – and metals
investors in particular. In the Northwest Territorial Mint case, the Washington State Attorney General’s Office had received hundreds of complaints,
but didn’t take any actions which prevented the blowup. History shows
that regulations will definitely increase costs to customers and
probably not have any positive effect on reducing corruption.

The Northwest Territorial Mint debacle may cost people $50 million.
The only thing worse would be to bring in the regulators to inflict
further harm on all dealers and all customers nationwide.

The CFTC spent 5 years investigating
the bullion banks for price rigging the silver futures market.
Ultimately they declared there was “no viable basis to bring an
enforcement action.” That’s embarrassing, given that Deutsche Bank just admitted
to price rigging in the gold markets during the period when the CFTC
was investigating. In mid April, they agreed to pay a settlement and
provide evidence to assist plaintiffs in their suit against the
remaining banks.

But the CFTC isn’t the only bureaucracy to fail in protecting
investors. The Federal Reserve, which has been charged with regulating
banks despite being privately owned by the largest among them, and the
SEC complete a triumvirate of incompetence.

Banks have paid more the $200 billion in fines and penalties
associated with fraud, rigging markets, and cheating customers since the
2007 financial crisis. Not a single high-ranking executive at any major
bank has been prosecuted or sent to prison. It looks like these fines
are simply a cost of doing business. The ill-gotten profits and bonuses
run far in excess of what was paid.

SEC staffers may have been too busy watching porn
to prosecute anyone. Or maybe regulators are worried about damaging
their prospects for a great paying job on Wall Street. The most
competent people responsible for regulating the banks wind up working for them instead. And many of those who remain would like to do so as well.

While they are substantial to the 3,500 poor souls who are impacted,
the losses at Northwest Territorial don’t amount to much in comparison
to these larger swindles. Investors should pray politicians and
government bureaucrats don’t try to “help.”

Getting Actual, Prompt Delivery of Your Metals Is More Important Than Getting the Lowest Price

Bullion buyers are going to have to help themselves. Customers following a couple simple steps could have avoided most of the losses in recent dealer bankruptcies.

Do an internet search for Better Business Bureau reviews on the
company and look for a pattern of problems, particularly slow
deliveries. There must be a reasonable explanation for delivery delays,
and they should not be persistent and across all products. WARNING: a
company that constantly struggles with making prompt delivery may be
undercapitalized or outright insolvent.

Mounting issues were apparent at both Tulving and Northwest
Territorial Mint going back months or even years. So when purchasing
precious metals from any dealer, get a commitment upfront regarding when
your order will be delivered – and pay close attention to whether that
commitment is kept.

Businesses can and do fail, but it rarely happens suddenly and without warning. They generally start missing commitments first.

Remember that getting a good deal is nice, but getting delivery of
what you paid for is far nicer. Choose your bullion dealer carefully,
and you’re unlikely to get a raw deal.

Why China Is Being Flooded With Oil: Billions In Underwater OPEC Loans Repayable In Crude

When the price of oil was above $100, many of the less developed oil exporting OPEC members decided to capitalize on the high price and cash out by taking loans using the precious liquid as collateral very much the same way corporate CEOs use their inflated stock (thanks to buybacks they authorize) to issue loans against said stock. And why not: even if the price of oil were to drop, they could just pump more until the principal is repaid. However, few oil exporters anticipated such an acute oil plunge in such as short time span, which resulted in the value of the collateral tumbling by 70%, and now find themselves have to repay the original loan by remitting as much as three times more oil! 

According to Reuters, this is precisely what happened in the years preceding the great 2014-2015 oil bust: "poorer oil-producing countries which took out loans to be repaid in oil when the price was higher are having to send three times as much to respect repayment schedules now prices have fallen."

As a result, the finances of countries such as Angola, Venezuela, Nigeria and Iraq have been crippled, in the process creating further division within the Organization of the Petroleum Exporting Countries.

But while these already poor and corrupt OPEC nations were the biggest losers, one country was a huge winner, the country that provided the billions in virtually risk-free, oil-collateralized loans to any country that requested them. China. The same China which has once again proven smart enough to not demand repayment in fiat but in physical commodities, be they oil, copper or gold.

Take Angola for example: Africa's largest oil producer has borrowed as much as $25 billion from China since 2010, including about $5 billion last December, which according to Reuters forced its state oil firm to channel almost its entire oil output toward debt repayments this year. 

Or Venezuela: ever since 2007, China, which has become Venezuela's top financier via an oil-for-loans program, has funneled an amazing $50 billion into the Chavez first and then Maduro regimes, in exchange for repayment in crude and fuel, including a $5 billion deal last September.  While details of the loans have not been made public, analysts from Barclays estimate Caracas owes $7 billion to Beijing this year and needs nearly 800,000 bpd to meet payments, up from 230,000 bpd when oil traded at $100 per barrel.

Oil pumps are seen in Lake Maracaibo, in Venezuela

Ecuador, one of OPEC's smallest member countries, borrowed up to $8 billion from Chinese and Thai firms, repayable with oil, between 2009 and 2015, according to the national oil company

Many other countries have borrowed money from China (and others such as producers Exxon, Shell and Lukoil, as well as traders Vitol and Trafigura) and promised to repay in oil included Nigeria, Iraq, Venezuela and others.

Fast forward to today when Angola, Nigeria, Iraq, Venezuela and Kurdistan are due to repay a total of between $30 billion and $50 billion with oil, Reuters calculates. Repaying $50 billion required only slightly over 1 million barrels per day (bpd) of oil exports when it was trading at $120 per barrel but with prices of around $40, the same repayment would require exports of over 3 million bpd.

This is terrible news for all the indebted exporters because not only do they now have to pump three times as much just to repay the same loan, they have little if anything left over to fund critical budget needs and certainly nothing left over to invest.

"All of those oil nations – Angola, Nigeria, Venezuela – have taken money for survival but haven't got any money left for investments. That is very damaging to their long-term growth prospects," said Amrita Sen from Energy Aspects think-tank. "People tend to look at current production volumes but if you have committed your entire production to China or other buyers under loans – then you cannot invest to keep growing and won't benefit from higher prices in the future."

While the poorer OPEC exporters find themselves pumping unprecedented amount just to stay afloat, the rich OPEC producers have understandably stayed away from debt: according to Reuters, OPEC's Gulf Arab members - Saudi Arabia, the United Arab Emirates, Kuwait and Qatar - have very few joint ventures with oil companies, do not have pre-payment deals with China and do not need to borrow from trading houses.

And so, while Saudi Arabia saw every dollar from its oil sales going to state coffers, the poorer members had a large part of their oil revenue eaten up by debts - read China - leaving no money to invest in infrastructure and field development. As a result, Nigeria and Venezuela are now facing steep production declines at a time when Saudi Arabia is preparing to further ramp up supplies as it invested heavily in new fields.

This curious dynamic explains two things:

  • First, it gives another reason why OPEC is effectively defunct as a result of Saudi Arabia's resistince to reduce output. Quite simply, the lack of debt means it is able to use the money for development and reinforce its dominant position in oil markets. Nigeria and Venezuela, meanwhile, are desperate for a deal that would reduce output and push up prices to help them invest in oil fields and repay fewer barrels to creditors. "It may ultimately be mounting supply disruptions in stressed states, rather than collective cartel action, that causes an accelerated market rebalancing,” RBC Capital's head of commodity strategy Helima Croft said.
  • Second, and maybe even more important, it explains why China suddenly finds itself flooded with so much oil, the country has unleashed its teapot refining army into overdrive. More importantly, it may shift the entire dynamic of China's soaring imports on its head, because according to Reuters, the reason why China is being flooded with oil has little to do with a surge in demand, but because OPEC exporters are forced to ship far greater amounts of crude to China!

In fact, so great is the amount of oil headed to China, that Bloomberg wrote a story today showing how just like in the case of tankers parked off Singapore, China is simply unable to process all the oil. To wit:

In late February, the tanker Jag Lok loaded oil from Equatorial Guinea in western Africa and set sail for the Chinese port of Qingdao, the gateway to the world’s newest buyers of crude, a journey of more than 12,000 nautical miles. After reaching its destination in early April, the ship churned in circles for 20 days before it got a chance to deliver its cargo. That’s because the port in Shandong province was struggling to handle a record number of vessels arriving to supply the privately held refineries called “teapots” that dot the region, ship-tracking data compiled by Bloomberg show.

What is ironic is that Bloomberg, as one would expect before reading the Reuters piece, confuses cause and effect, and attributes the surge in Chinese oil traffic to soaring demand, when in reality much of it is about exporters seeking to repay their debt to Beijing as fast as possible.

The backup illustrates the challenges facing the independent refiners, which have emerged as a bright spot of rising demand amid a global glut. The processors are forecast by ICIS-China to purchase a combined 1 million barrels a day of crude from overseas this year, up from 620,000 barrels in 2015. While small individually, together they account for almost a third of China’s refining capacity. Any curb on imports would threaten oil’s rebound from a 12-year low, according to Nomura Holdings Inc. and Samsung Futures Inc.

What curb on imports? China is getting millions in barrels of oil for free, which is why it is ramping up refining production to unprecedented levels! The Bloomberg punchline:

From being dependent on state-owned energy giants for their feedstock needs as little as a year ago, teapots are now driving Chinese crude purchases after the government allowed them to buy overseas supplies directly. As of end-February, 27 of the companies had received or applied for annual import quotas totaling 89.5 million metric tons, or about 1.8 million barrels a day, according to Zhang Liucheng, chairman of the China Petroleum Purchase Federation of Independent Refinery, a group of 16 processors.



Total purchases from overseas into the world’s second-largest oil user climbed to a near record 7.96 million barrels a day in April, while shipments to Qingdao surged to unprecedented levels in April.

And much of this traffic may have nothing to do with current Chinese purchases, but everything to do with tens of billions in loans China has issued in prior years which are only now being repaid in the form of what is effectively free oil.

The question then, regardless of whether China is buying oil now, or is simply taking delivery for oil as collateral on loans made in prior years, as accurately laid out by Bloomberg is just how much oil can China process. The answer is that China is rapidly reaching its refining capacity, due to both structural bottlenecks as well as prices:

With infrastructure not developing as fast as oil purchases, imports are at risk of slowing because of the ship traffic and lack of storage capacity, according to BMI Research. Concern about the creditworthiness of companies with no prior experience in international trade is also deterring some sellers. Slowing refining profits mean the plants may have to cut processing rates, weakening their appetite for cargoes from overseas, while the implementation of higher fuel quality standards could force some of them to shut.


"Teapot buying could slow due to logistical constraints which are already stretched to their limits,” said Nevyn Nah, a Singapore-based analyst at consultant firm Energy Aspects Ltd.


"Weakening margins are likely to have a stronger impact on independent refineries in China and this will lead to lower crude imports,” said Hong Sung Ki, a senior analyst at Samsung Futures Inc. in Seoul. “That will result in a downward revision for China demand and this will inevitably have a negative impact on oil prices.”

The summary is fascinating: China is being flooded with oil, on one hand due to ongoint purchases, but to a large extent because its oil-exporting counterparts (who need to remain on good terms with lender of last resort China) are scrambling to repay their Chinese loans by shipping out record amount of oil in the direction of China, so much so that even China's infrastructure can no longer handle the inbound traffic. As Bloomberg notes, "ships continue to be held up at Qingdao. At least 16 oil tankers with capacity to carry 21.2 million barrels have stayed near the port for more than 10 days over May 1-23. Half of them were there for more than a month."

How this unprecedented dynamic plays out, is at this point impossible to predict, but with such dramatic pockets of zero-sum inefficiency, where half of OPEC-loss is China's gain, we eagerly look forward to the conclusion and how it will impact the price of oil.

Here's The Full List Of Organizations That Paid Hillary Clinton From 2013-2015

Submitted by Michael Krieger via Liberty Blitzkrieg blog,

In its article titled, How Corporate America Bought Hillary Clinton for $21M, The New York Post details the companies and organizations that paid Hillary in speaking fees from 2013-2015.

The total comes to $21.7 million, which is a remarkable sum for one of the least charismatic and unimaginative orators the world has ever known.

The New York Post reports:

So are you ready?

Clinton Adviser, Nobel Prize Winning Economist Endorsed Venezuelan Socialism

Submitted by Tho Bishop via The Mises Institute,

Venezuela is in a state of complete crisis. The country has been forced to face the horrors of hyperinflation, food shortages, and devastating depression. In spite of having the world’s largest oil reserves, the country has had to resort to rationing electricity. A horrifying article by the New York Times depicts the state of Venezuelan hospitals, with children dying by the day due to a lack of medicine and basic supplies.  

This is the terrifying reality of socialism, the inevitable consequence of the economic policies of the late Hugo Chavez and his successor, Nicolás Maduro.  Since 1999, the two socialist administrations championed price controls, nationalization of industries, and wealth redistribution.

While it is not surprising to see these policies supported by Marxist politicians, what is deeply troubling is the amount of support the Venezuelan model has received from prominent economists over the years. During a visit in 2007, Joseph Stiglitz, who received the 2001 Nobel Prize in economics, praised what he called “positive policies” of the Chavez administration:  

Venezuelan President Hugo Chavez appears to have had success in bringing health and education to the people in the poor neighborhoods of Caracas. ... It is not only important to have sustainable growth, but to ensure the best distribution of economic growth, for the benefit of all citizens.

What should alarm Americans is that Stiglitz, who has been described as an “influential advisor to Hillary Clinton,” appears determined to bring similar policies here.

Last year, as chief economist for the Roosevelt Institute, Stiglitz called for “rewriting the rules of the American economy” in a crusade against income inequality. His policy recommendations include higher taxes, more “smarter” regulation, and having the Federal Reserve focus more on unemployment than keeping inflation low — a call for an even more activist Fed than we’ve had since 2008.

It is ironic that Stiglitz has chosen to brand his policy recommendations as some new innovative concept for the country, when it is simply doubling down on the interventionist policies that the nation has suffered from for over 100 years.

Unfortunately, hearing such drivel come from a Nobel Prize winner isn’t surprising. Karl-Friedrich Israel has recently noted how the Nobel Prize has a history of being used as an endorsement of central planning. Socialist governments have long been able to count on American economists to serve as apologists for their schemes. In the 1960s, Paul Samuelson’s widely read economics textbook infamously described the socialist economy of the Soviet Union as growing faster than America’s.


This explains how Bernie Sanders has been able to receive the endorsement of 170 self-proclaimed “economists and financial experts” during his campaign.

Ludwig von Mises once wrote, "No one can escape the influence of a prevailing ideology.” The images coming from Venezuela should serve as a potent reminder of how dangerous the ideas of men like Joseph Stiglitz are.

Statism and economic interventionism must be rejected, in order for humanity to thrive.

Q1 2016 Canadian Silver Maple Sales Surge To Highest Record Ever

By the SRSrocco Report

The Royal Canadian Mint just published its Q1 2016 Report, and the silver bullion coin sales figures were stunning to say the least.  Not only did sales of Canadian Silver Maple Leafs surpass its previous record during the third quarter last year, it did so by a wide margin.

Why is this such a big deal?  Because Q1 2016 sales of Silver Maples topped the Q3 2015 record, without surging demand and product shortages.  Last year, there was a huge spike in silver retail investment demand due to the supposed "Shemitah" or the collapse of the broader stock markets.  Investors piled into silver in a big way as they perceived a year-end market crash was inevitable.

During last August and September, some websites stated 2 month delivery wait times for certain products such as Silver Eagles and Silver Maples.  With the huge spike in demand, sales of Canadian Silver Maples reached 9.5 million oz (Moz) in Q3 2015.  Although, once investors became more relaxed as the broader markets turned around, demand for physical silver investment cooled down.  Thus, Silver Maple sales declined to 9.1 Moz in the last quarter of 2015.

However, something very interesting took place during the first quarter this year.  Sales of Silver Maples jumped to an all-time record high of 10.6 Moz:

Actually, I was quite stunned by the figures published in the recent Royal Canadian Mint Report.  Sales of Silver Maples jumped 1.1 Moz in Q1 2016 vs Q3 2015, with no real spike in overall retail investment demand.  Which means, investors bought more Silver Maples in Q1 2016 than any other quarter in history.

Furthermore, if Silver Maple sales continue to be this strong, the Royal Canadian Mint is on track to sell over 40 Moz compared to the 34.3 Moz in 2015.  If Silver Eagle sales also continue on their strong trend of 1 Moz per week, the U.S. Mint could sell over 50 Moz of these coins.  Together, these two official mints could sell over 90 Moz of Silver Eagles and Maples in just one year.

This goes to show investors who are frustrated by the short-term price moves of gold and silver, that the market continues to purchase record volumes of these official coins... regardless.

I do believe the value of the precious metals will rise to levels much higher than we can imagine, but it will come when the Greatest Financial Paper Ponzi Scheme finally collapses.  So, it's best to continue focusing on the fundamentals, rather than short-term price predictions.

Check back for new articles and updates at the SRSrocco Report.

More Young Americans Live With Their Parents Than At Any Time Since The Great Depression

As we've reported, while millennials continue to earn less and drown in debt, they have resorted to living at home in order to cut costs and save money.


The trend of millennials returning home to live with their parents has even gotten to the point where one out of six home buyers have or plan to have a grown child at home, and home builders are building to accommodate that fact.

As a matter of fact, the trend of kids living at home with their parents has gotten so strong that home builders are now designing homes with just that in mind. "One out of six buyers have or plan to have a grown child at home" said Richard Bridges, Chicago division sales manager at David Weekly Homes. For a mere $35,000-plus, Richard says the plan can include a bedroom/bathroom suite in a finished basement to accommodate the kids who inevitably will be returning home to live.


Chicago area builder PulteGroup says in their new models, kids can enjoy a bedroom/bathroom suite with a kitchenette and separate living space. "Our NexGen option is the greatest in housing since indoor plumbing." said Jeff Roos, western regional president at Lennar Corp.

Stunningly, according to new Pew Research Center analysis, 32.1% of all millennials are living with their parents now, which is more than any other time since the great depression!


Interestingly, as Pew also points out, it's not just the United States facing this issue. While in the US 32.1% of millennials are living at home, that number spikes to a mind-boggling 48.1%across the European Union's 28 member nations.


Hey millennials, welcome to the recovery.

In Historic First, Singapore Shuts Local Private Bank Due To "Worst Gross Misconduct" Is Has Ever Seen

Following the demise of the thousand year-long tradition of Swiss banking secrecy, crushed virtually overnight by Barack Obama's demands to make the central European nation's banking industry transparent, one of the major consequences was the shift in money laundering from Geneva and Zurich to the latest and greatest "anonymous" banking and tax evasion hub located halfway around the world, namely Singapore. And overnight, we got the first shot across the bow of the city state's "Swiss banking model", when Singapore ordered the closure of Swiss private bank BSI SA’s unit as criminal proceedings were started against the firm as part of global investigations into a the troubled Malaysian 1MDB state fund.

As Bloomberg reports, in an unprecedented until now move, the Monetary Authority of Singapore said it will withdraw BSI Bank's status as a merchant bank for breaches of money laundering rules as the Swiss Attorney General said it was taking legal action based on information from criminal probes into 1Malaysia Development Bhd, or 1MDB. EFG International AG said it received approval on Tuesday from the Swiss authorities to take over BSI and still expects the transaction to be completed, although at a reduced price.

Over one year after the collapse of 1MDB, aided and abetted by none other than Goldman Sachs, officials have finally started to piece together the fund flows, and BSI was the first casualty: "BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector," Ravi Menon, managing director of MAS, said in the statement. “It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously."

But why when the US NAR has an explicit exemption from AML responsibilities courtesy of the US government just to make money laundering in US real estate that much easier. Oh wait, now we get it...

The crackdown is part of the global money laundering and embezzlement investigations surrounding 1MDB. As reported before, a Malaysian parliamentary committee identified at least $4.2 billion of irregular transactions by the state fund, and recommended the advisory board headed by Prime Minister Najib Razak be disbanded. BSI’s Group CEO Stefano Coduri resigned as the Swiss regulator said it will seize 95 million Swiss francs ($96 million) from the firm and start enforcement procedures against two former bank employees.

1MDB didn’t immediately reply to a request for comment on its links to BSI. Both 1MDB and Najib have consistently denied wrongdoing. BSI said Tuesday that it has cooperated fully with the investigations into 1MDB by the Singapore and Swiss authorities. BSI remains well capitalized, it said.

As Bloomberg adds, Singapore’s central bank said it will allow the transfer of the BSI Singapore unit’s assets and liabilities to the Singapore branch of EFG or to the parent entity BSI SA. The MAS will also impose S$13.3 million ($9.6 million) in financial penalties on the BSI unit for 41 breaches, including its failure to conduct due diligence on high-risk accounts and monitor suspicious customer transactions.

What is more troubling, if only to the local bankers, is that someone may actually go to prison over this latest tax evasion: the central bank has referred six senior BSI executives to the public prosecutor, including the Swiss private bank’s former Singapore chief executive officer and his deputy. The prosecutor will assess if there were any criminal offenses. It’s the first time Singapore has withdrawn a license from a merchant bank since 1984.

Meanwhile, the Swiss Attorney General said the criminal proceedings are based on information gathered in the course of its investigation and from Finma, Switzerland’s financial regulator. BSI "ignored clear warning signals," about the risk of some of its transactions as it pursued higher-margin returns, Finma CEO Mark Branson told reporters on a conference call Tuesday. The regulator has investigated other Swiss banks related to 1MDB and started proceedings against some, he said.

Maybe Finma can take a look at some other, more prominent banks who have done all that and much worse in their pursuit of "higher margin returns."  But then again, "developed nations" central bankers may frown upon such an exercise.

Will the historic crackdown on BSI impact local tax evasion? It is doubtful, unless someone actually does go to jail. Others are less pessimistic.

“This will send a chilling effect to banks and financial institutions to make sure that they have robust anti-money laundering and countering the financing of terrorism programs, as their regulatory licenses could be at risk," Nizam Ismail, head of banking regulatory practices in Singapore at law firm RHTLaw TaylorWessing, said by e-mail. “Worse, there is also the real threat of personal criminal liability.”

As regards BSI specific violations, Bloomberg reports that the private bank had introduced 1MDB to a Cayman Islands fund which received a $2.32 billion investment, according to a report from a Malaysian parliamentary hearing. That investment and transactions related to it are the subject of criminal probes, including those conducted in Singapore.

However, one thing is almost certain: someone will go to jail, if only for the bank's heads to avoid prison time: there has to be a scapegoat.

BSI is conducting an internal inquiry into its employees and their dealings related to 1MDB, Bloomberg News reported last week, citing people familiar with the matter. The probe centers on Kevin Swampillai, who’s been suspended as head of wealth-management services and named as one of the six individuals by the MAS. Swampillai was the manager of Yeo Jiawei, the first banker to be charged in global probes into 1MDB. Swampillai’s lawyer Kenneth Pereira declined to comment.

Yeo, who has been held on remand since April 15, is scheduled to return to a Singapore court today. His lawyer has said several BSI employees are in a similar position and can answer queries by the authorities.

That was Singapore. As for Europe, we look at the stock of Deutsche Bank which is modestly up today following headlines such as:

  • DB Downgraded by moodys
  • Reopened SEC investigation
  • Latam CEO leaves
  • Libor lawsuits are back

In other words, all is well in the world, aside from one soon to be corrected glitch.

Google's Paris Office Raided In Tax Evasion Probe

Europe's crackdown on both individual and corporate tax evaders hit a new high this morning when according to French daily Le Parisien, French tax officials raided the Paris offices of Google early Tuesday in a probe into possible tax evasion.

The raids follows a complaint by the French finance ministry, paper says. Acccording to Bloomberg, prosecutors and Al Verney, a spokesman for Google in Brussels, didn’t immediately respond to requests for comment.

Reuters adds that investigators have been probing Google's offices in central Paris since 0500 am (0300 GMT). It notes that France is seeking €1.6 billion ($1.79 billion) in back taxes from the U.S. Internet giant Google, criticized for its use of aggressive tax optimization techniques, another source at the finance ministry had said in February.

Here is the original report, Google translated:

According to our information, a search is underway on Tuesday at Google headquarters in Paris in the ninth district. From five in the morning, following a complaint Bercy suspect that the US giant digital tax evasion, hundreds of tax officials and law enforcement brigade of the great financial crime (BRGDF) are on the premises, with the reinforcement of five judges of the national financial parquet.


"The operation was top secret, says a source. It was conducted without using the financial parquet courier to avoid leaks."

Since European tax crackdowns are rarely state-specific, we expect imminent such crackdowns in other Google offices across Europe.

More as we get it.

Frontrunning: May 24

  • Asian stocks near 11-week lows, dollar bounces on Fed rate view (Reuters)
  • Poll Finds Lack of Enthusiasm for Clinton and Trump (WSJ)
  • Oil falls for fifth day as focus returns to growing exports (Reuters)
  • The Hedge Fund That Couldn't Stay Open Long Enough for a Big Payday (BBG)
  • French police break up refinery blockade in anti-reform showdown (Reuters)
  • Greece starts moving migrants camped at border to state facilities (Reuters)
  • G7 to examine economic risk, vow policy mix to spur growth (Reuters)
  • Switzerland Opens Criminal Proceedings Against BSI Over 1MDB Dealings (WSJ)
  • Iraq forces shell Falluja for second day; U.N. concerned for civilians (Reuters)
  • Apple Said to Hit Setback in Push to Open Stores in India (BBG)
  • U.S. Military Wants More Leeway to Strike Taliban (WSJ)
  • Brazil’s Temer faces test as minister steps down over leaked tape (FT)
  • Saudi Arabia’s New Oil Plan Shows It’s Just Not That Into OPEC (BBG)
  • Banks Keep Cutting Bond Traders as One-Third Gone Since 2011 (BBG)
  • Fed Shouldn’t Kid Itself on Rate Risk, Says $200 Billion Manager (BBG)
  • Bank of America Penalty Thrown Out in Crisis-Era ‘Hustle’ Case (WSJ)
  • Goldman warned Green lieutenant BHS buyer had been bankrupt (FT)


Overnight Media Digest


- In a setback for some of the world's largest financial institutions, a U.S. appeals court on Monday reinstated the private antitrust lawsuits filed against 16 banks for allegedly rigging Libor interest rates. (

- The power struggle atop Sumner Redstone's $40-billion media empire intensified Monday as two long-time lieutenants ousted last week sued his daughter, accusing her of manipulating the aging mogul to stage a coup. (

- An appeals court dealt the Obama administration a major setback in its efforts to levy tough fines on corporations and executives, overturning a civil mortgage-fraud case against Bank of America Corp tied to the financial crisis. (

- Tribune Publishing Co rejected Gannett Co's latest takeover offer and said a billionaire healthcare entrepreneur would take a $70.5 million stake in the company, adding another hurdle to Gannett's pursuit. (



* Goldman warned Green lieutenant BHS buyer had been bankrupt. (

* Fracking wins first approval in 5 years thanks to North Yorkshire. (

* Battle for control of Viacom heads to court. (


* Retail tycoon Philip Green's Arcadia group was warned by a senior Goldman Sachs banker that a possible suitor of its BHS department store chain had a history of bankruptcy, British lawmakers were told on Monday.

* Officials in northern England approved a shale gas fracking application from Third Energy on Monday in a shift indicating growing support for shale gas that Britain's government hopes can counter the decline in North Sea output.

* The legal battle over control of Sumner Redstone's $40 billion media empire has investors hopeful that change will come to underperforming Viacom Inc.



- Tribune Publishing Co has rejected both of Gannett Co Inc's takeover proposals, the latest valued at nearly double the price of Tribune's stock before news of their potential combination first surfaced in April. The publisher also raised the pressure saying it would issue almost five million shares to an investor, Nant Capital. The investor and a fund run by Tribune's chairman Michael Ferro combine to control nearly one-third of Tribune shares. (

- Viacom Inc Chief Executive Philippe Dauman, who was ousted from media mogul Redstone's powerful trust, called this move an "unlawful corporate takeover" by Sumner's daughter, Shari Redstone.(

- Facebook Inc said on Monday that an internal investigation found no evidence of systemic political bias in the selection of news presented in a section of its app called Trending Topics. (

- A three-judge panel ruled on Monday that federal prosecutors had failed to prove that Bank of America Corp's Countrywide unit had defrauded Federal Home Loan Mortgage Corp and Federal National Mortgage Association, the government-backed mortgage firms, when it sold them troubled loans. (

- Exxon Mobil Corp has been under pressure for over a year to explain its handling of climate change issues in the past. Now the company faces new pressure to explain its future, particularly how it will change in response to a warming world. At the company's planned annual meeting on Wednesday in Dallas, shareholders will vote on a resolution to prod Exxon Mobil to disclose the risks of climate change to its business. (




** Canada's economy is on the ropes again, believed to be contracting in this second quarter of the year, though observers predict a fast, sharp rebound. Toronto-Dominion Bank believes the economy will shrink by a mild 0.2 percent, annualized, this quarter, while BMO Nesbitt Burns forecasts a deeper contraction of 1 percent or more. (

** Eight years after the start of the financial crisis, the Italian bank bloodbath continues unabated even as other European banks are returning to health. The latest indication that the Italian banks are still in trouble is to come on Tuesday, when UniCredit, Italy's biggest bank, is set announce the ouster of its CEO, Federico Ghizzoni. (

** One of Canada's longest-running jury trials involving former Cinar Corp executive Ronald Weinberg is approaching a close, with jury members set to begin their deliberations this week. Weinberg, the co-founder of Canada's largest children's animation company, is accused of fraudulently funnelling $120 million out of Cinar and into offshore accounts. (


** Bank stocks in Canada have been chugging along of late, buoyed in part by signs of improvement in the price of oil, and climbing out of a trough they hit in February. But analysts are warning that the impact of low oil prices will be front and centre when the banks report second-quarter financial results beginning on Wednesday. (

** The Canada Border Services Agency is looking into tracking detainees electronically, rather than keeping them in custody. A government tender posted online this month asks industry for feedback on how to manage alternatives to detention, "including a community supervision program supported with electronic supervision tools," for detained people. (



The Times

The government's plans to sell the Land Registry have been dealt a blow by the competition watchdog, which has warned that privatisation would harm consumers and restrict innovation in the online property market. (

The Guardian

The International Monetary Fund has called for "upfront" and "unconditional" debt relief for Greece as it warned that without immediate action the financial plight of the recession-ravaged country would deteriorate dramatically over the coming decades. (

Insurer AXA plans to divest 1.8 billion euros of tobacco investments and called upon rivals to do the same, citing the industry's "tragic" impact on public health. (

The Telegraph

Double-decker trains could be racing along the HS2 rail line at speeds of 225 mph under ambitious plans due to be revealed by train maker Alstom today. (

Philip Green's retail empire was warned four months before the fatal sale of BHS that Dominic Chappell, the frontman for its buyout last year, had a "history of bankruptcies and a lack of retail expertise". (

Sky News

Excalibur, the management buyout team looking to take over the running of Tata's UK steel operations, will back Liberty House's bid for the company, according to Sky News. (

The Independent

Waterstones, the UK's largest book retailer, has announced it will stop selling digital books after e-books sales failed to take off. (

Furious environmentalists have taken to streets around the world to protest against seed giant Monsanto at the same time as the company is facing a $62 billion takeover by Bayer , the German drugs giant. (


If You're Going To The Rio Olympics, Here's How To Make A 56% Return 'Legally'

Despite warnings that "your life is at risk," the threat of Zika, a collapsing government, and rising social unrest, many will still visit Brazil this summer for the Rio Olympics. As a public service announcement, we believe that making the trip should be worthwhile for those strong-willed travelers treking to South America; and, courtesy of Deutsche Bank, we have found a 'foolproof' way to turn a 56% return... should you wish to.


Simple - Buy an iPhone 6 (or two) in United States (we are sure TSA will be too busy to check bags for anything less than a dozen), and then Sell them when get to Rio...


While the above suggestion is not meant to be taken literally, it is quite shocking how expensive the most ubiquitous electronic device in America is in nations with a fraction of the living standards there, and where Tim Cook's growth is going to be coming from.

And if you can't sell them, then we hear the view alone is worth the price of admission.

Legendary Investor Paul Tudor Jones Cuts Hedge Fund Fees As A Result Of Poor 2016 Performance

One month after news that legendary investor Paul Tudor Jones' $11.6 billion hedge fund Tudor Investment had seen some $1 billion in redemptions as a result of poor performance and the exit of several money managers, some of whom spent decades at the firm, the inevitable next step has followed: Tudor is trimming the fees it charges some clients in its biggest fund amid losses this year.

According to Bloomberg which first reported the fee cuts, an inevitable shift in a world in which most hedge funds have underperformed their benchmarks and the broader stock market for eight years in a row, Tudor will modestly reduce fees for a share class that contains most of the main fund’s money to 2.25% of assets and 25% of profits, according to a letter sent to clients on Monday and obtained by Bloomberg. The fees were 2.75% and 27% Tudor is also introducing a new pool for clients with $50 million investments or more that will charge 2 percent of assets and 25 percent of profits. The changes will take effect July 1.

The cut does not affect everyone: Tudor is keeping fees for the main fund’s oldest share class unchanged at 4% of assets and 23% of profits. Even with the cut, Tudor will continue to charge more than the traditional hedge fee structure of 2% on assets and 20% on performance.

Tudor, which veteran macro-economic trader Jones, 61, started in 1980, is among the many macro hedge funds that have posted lackluster returns since the global financial crisis. Its clients had asked to pull about $1 billion in the first quarter. Tudor’s main BVI Global macro fund, which makes bets on broad economic trends by trading everything from currencies to commodities, has lost 2.6 percent for clients this year through May 13, according to an investor report. The fund’s oldest class has declined 3 percent. Patrick Clifford, a spokesman for Tudor, declined to comment on the cut in fees.

As Bloomberg adds, Tudor is being hit with client withdrawals as the hedge fund industry comes under attack for high fees and lackluster performance. Billionaire Warren Buffett last month described the fees as “a compensation scheme that is unbelievable” and said investors would be better off ditching expensive money managers. As previously reproted, the $187 billion California State Teachers’ Retirement System said the model is “broken,” while the University of California’s $97.1 billion of endowment and pension assets said paying high fees for mediocre performance is “absurd.” Also a month ago, the NYC Pension system said it would pull $1.5 billion from key hedge fund names while AIG joined in the redemption fray pulling billions of its own funds allocated to alternative investments.

The reason for hedge fund underperformance are numerous and have been extensively discussed on these pages previously: among the many factors causing underperformance for managers is the relentless stimulus unleashed by central bank stimulus worldwide, declining trading volumes and markets marked by both narrow and wide swings in prices. As well as Tudor, investors are pulling their money from Alan Howard’s Brevan Howard Asset Management, another macro fund. BlackRock Inc. and Fortress Investment Group LLC are among fund companies that said last year they would be liquidating their macro funds following losses.

Tudor has been spared greater redemptions due to his track record: Jones began his career in 1976 after graduating from University of Virginia with a bachelor’s degree in economics. Through his uncle who was a cotton merchandiser, he got a job as a trader on the floor of the New York Cotton Exchange. From there, Jones became a commodities broker at E.F. Hutton & Co., trading futures on the cotton exchange for clients before starting Tudor.

The impact on Tudor will nonetheless not be negligible: a source estimates that using the cpp allocation table on ask/fees calculation, a cut of 25bp implies the allocators suspect Jones will see a net draw over the next 5 years of -600bp if one uses their historical leverage of 160. As the source notes, if players with 10+ year records can not get fee premiums, it does not bode well for the rest of the old world.

They only have central banks to thank for making "hedging" a market downturn a quaint anachronism of the past.