- KKK-Dressed, Nazi-Saluting Protester Beaten Up By Black Trump Supporter At Arizona Rally
Violence at a Trump rally? Hardly unexpected. However, make that violence between by a black Trump supporter who unloaded on an abusive, KKK-dressed, Hitler-saluting white protester who was being escorted out of the building, and the absurd shock value suddenly evolves to such surreal proportions one would expect a Salvador Dali portrait of Trump in the oval cabinet to emerge any day now.
The protestor was wearing a hood while saluting, presumably referring to KKK/Hitler, before he was punched & kicked https://t.co/BfioarhaBR
— Noah Gray CNN (@NoahGrayCNN) March 19, 2016
As the Hill first reported, a Trump protester was punched and kicked several times while being escorted out of a rally in Tucson, Ariz., by police. Videos show a protester in an American flag shirt holding up a picture of Trump before being punched. Another protester walking right behind him is seen wearing a white KKK-style hood. Police immediately handcuffed the attacker, a black man.
Trump called out the hooded protesters early on in the rally. “He’s a disgusting guy,” Trump said. “That is a disgusting guy, really disgusting.”
This is a clip of what happened:
VIOLENCE at another Donald Trump rally, this time in Tucson, AZ. Man hits and kicks protester: pic.twitter.com/7FWuSeE0Jt
— Frank Thorp V (@frankthorpNBC) March 19, 2016
And now we wait for the “impartial” media (whose CTR and CPM is through the roof in the past few months thanks to the Trump phenomenon) to accuse Trump of racial violence and somehow blame him for this latest embarrassing incident.
- Why Trump Triumphs
Submitted by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com’s Pater Tenebrarum),
Dow up again yesterday! According to Wall Street analysts, investors were front running a non-event. The Fed is in a credit “tightening cycle”, but without the tightening. On Wednesday, it announced it was leaving short-term rates unchanged at 0.5%.
(One was already too much…we simply cannot have too many of these sad scenes. Cartoon by Richard Cline)
Since not tightening is what investors are counting on, stocks rise… at least a little… in anticipation. But investors should watch out… We may be in a tightening cycle that goes way beyond the Fed’s control.
(The Dow Jones Industrial Average, daily – still creeping higher after concerted cooing by assorted central bankers)
“Germany is a disaster right now,” says Donald J. Trump A lot of Europeans would agree with him. Chancellor Angela Merkel’s open-door refugee policy is leading to widespread discontent. Her political position is “becoming weaker,” says the Financial Times. Why?
Because she represents the spirit of a different age. Once the most popular leader in Europe, if not the world, Ms. Merkel is now the Lady for Whom Time Stopped. She is an anachronism from a more optimistic era, when people believed in free trade, democratic government, and ever-rising prosperity.
(Angela Merkel: out of touch, out of style… Photo credit: Markus Schreiber / AP)
Now, the zeitgeist has changed. Ms. Merkel is out of style and out of step. In Britain, France, the Netherlands, Slovakia, Hungary, and the U.S., the candidates getting the most enthusiastic support are those who urge closing borders, restricting trade, and looking to protect themselves from all that is threatening, different, or new.
Forget free trade! Forget freedom of travel! Stop immigration… especially of the Muslims and Mexicans! Build a wall! Torture your enemies! Stop trying to expand the empire!
Empire’s Destiny
Gone is the brave optimism of the 1980s (remember “Morning in America”?)… and the bumptious corruption of the 1990s (remember Monica Lewinsky?). Now, we are old, tired, fearful, cowardly, and cranky. We want a strong leader to protect us – one who promises to take us back… to make us strong again… to make us young again.
Here at the Diary, we do not believe the “Great Man” theory of history. Look closely at the great men of history… and they don’t look so great. They are just as flawed as the rest of us – bumbling along from victory to disaster, with little real insight into what they are really doing or what role in history they are playing.
But a democracy must find a leader to express its soul. Unwittingly, he moves the country in the direction it was going anyway. Then, unaware of his limits, he goes too far. Marcus Licinius Crassus (the richest man in Roman history) attacked the Parthians… and died at Carrhae. Napoleon had Europe at his feet… and invaded Russia. Japan rolled over Southeast Asia… and bombed Pearl Harbor.
The battle of Carrhae (53 BC) cost Rome seven legions plus one Marcus Licinius Crassus, member of the first triumvirate and the richest man in Rome.
We all breathe in and breathe out. Economies. Markets. Societies and human beings. Now, after at least a generation of globalism, imperial expansion, and EZ money, the world is ready to exhale.
Trump may be fulfilling the empire’s destiny… helping us retreat from promises that can’t be kept, delusions that can’t be financed, and commitments that never should have been made.
Butterfly on a Wall
It has taken us a long time to understand The Donald. We have been studying him, reading his books, listening to him talk… He is not a conservative… but he is the conservatives’ choice. He is not a religious man… but he is getting the born-again Christian vote.
He is a Republican in name only… but the Republicans have him as their standard bearer. Go figure. We think we have figured him out… and now we have him… like a butterfly pinned to the wall.
In France, Britain, Japan… and to a lesser extent the U.S… populations are getting older. They no longer want more; they just want to hold onto the privileges and benefits that they feel they have earned.
Some of those benefits are purely monetary, and some are not. Pensions need to be protected. Drugs need to be affordable. Borders need to be stiffened. Tomorrow needs to be kept in its place – in the future.
(There is actually a Trump caterpillar, here seen ambling about in the rainforest in Peru)
Selling Out
Tuesday brought news that “U.S. drug prices doubled in five years.” How could that happen? No voter is going to think too hard about it… or connect it to the real cause: the insiders’ control of the pharmaceutical and medical service industries.
Instead, he is going to look for someone to blame… and someone strong enough to fix the situation. Ms. Clinton was quick to jump on the case. Calling aggressive pricing by drug-maker Valeant “predatory”… adding: “I’m going after them.”
But voters know Hillary will cozy up to anyone – Wall Street, the NSA, the military, Big Pharma – if it gains her money or power; they know she will sell them out.
Donald Trump, on the other hand, appears to be a man who can’t be bought. He’s got enough money already. And his “straight-talking” style suggests he might shoot straight, too. When he talks, voters believe he means business.
(Valeant no longer needs Hillary Clinton to “go after it”…it has somehow managed to go after itself)
The End of Growth
The typical voter has no way of knowing what is going on. He is a ball ricocheting off the bumpers. When hit by a contraction… he shrinks, too. We all come to think what we must think when we must think it. And when it is time to sink, we are ready to drown.
In the U.S., median incomes are lower today than they were 10 years ago. In his book, The Rise and Fall of American Growth, economist Robert Gordon argues that it’s over. The growth spurt that began in 1870 has ended. It can’t be repeated.
But it is not just a matter of money. The temper of the times has changed. The credit system is just part of it. We want what we have lost: a growing economy, growing wages… growing hair! Give up our liberty… and our dignity… to get it?
It seems a small price to pay! Says The Donald: “Make America Great Again.” Yeah… just like it was before.
One has to hand it to Trump…it is simple, and yet, it is the most effective election slogan of any of the candidates. Can you remember any of the others?
Charts by: StockCharts
Chart and image captions by PT
- A Strange Pattern Emerges When Trading The US Dollar In 2016
One of the more surprising market developments of 2016 has been the violent obliteration of those who had taken part in the biggest consensus trade of 2015, namely long the USD. As the Fed finally admitted earlier this week, the US economy is sputtering and is woefully incapable of handling 4 rate hikes, or 3 for that matter. In fact, the Fed will be lucky to push through even one more rate hike without the Chinese Yuan collapsing and unleashing even more capital outflows (which precipitated the major market swoons in the summer of 2015 and early 2016) arguably the main topic during the alleged Shanghai G-20 “central bank accord.” The result: this week saw the biggest two-day USD collapse against a basked of foreign currencies in years, and currently the DXY is trading at a lower level than a year ago.
However, to say that the dollar selloff is a development would be incorrect: as Bank of America points out, Dollar selling has been going on for the past three months.
But what is more curious is when during the day this selling has taken place.
As Bank of America’s FX quant strategist, Vadim Iaralov writes, “ahead of the Fed, the USD was already trending lower against 8 out of 9 G10 currency pairs with GBP being the only exception. The surprisingly-dovish Fed has only further accelerated the decline in the US dollar. The decline started in late January and has occurred during the critical local New York trading hours. The US hours downtrend looks likely to continue in the near future.”
What becomes immediately visible when one looks at the chart below is that all of the USD selling in 2016 has taken place during US hours.
This, according to BofA chief FX strategist, Athanasios Vamvakidis means that “the market moves would be consistent with EM central bank interventions.“
Perhaps: if true it would suggest that some very notable “EM” central banks (a polite euphemism for the PBOC) have been dumping the USD during US hours, which in turn would explain the coordinated attack against the USD – now with Fed participation – ever since the Shanghai G-20 meeting (although it would not explain why Japan or Europe would be willing to piggyback on this trade as while China wants a weaker dollar, Europe and Japan want the USD as strong as possible).
Whatever the reason, and whoever may be causing this odd temporal divergence, thanks to BofA’s observation an interesting arb emerges: buy the USD during Asia and UK hours, and sell during the US day, sit back and collect the profit.
Then again, now that this trade has been exposed and every FX trader sure to jump on it, we would expect precisely the opposite to take place: dollar strength during US hours offset by weakness during the rest of the trading day. We will update readers when the temporal regime changes, which we are confident it will in the not too distant future.
- Another False Oil Price Rally: Crossing A Boundary
Authored by Art Berman
Another False Oil Price Rally: Crossing A Boundary
The oil-price rally that began in mid-February will almost certainly collapse.
It is similar to the false March-June 2015 rally. In both cases, prices increased largely because of sentiment. As in the earlier rally, current storage volumes are too large and demand is too weak to sustain higher prices for long.
WTI prices have increased 47% over the past 20 days from $26.21 in mid-February to $38.50 last week (Figure 1).
Figure 1. NYMEX WTI futures prices & OVX oil-price volatility, 2015-2016. Source: EIA, CBOE, Bloomberg and Labyrinth Consulting Services, Inc. (click image to enlarge).A year ago, WTI rose 41% in 35 days from $43 to almost $61 per barrel. Like today, analysts then believed that a bottom had been reached. Prices stayed around $60 for 37 days before falling to a new bottom of $38 per barrel in late August. Much lower bottoms would be found after that all the way down to almost $26 per barrel at the beginning of the present rally.
Higher prices were unsustainable a year ago partly because crude oil inventories were more than 100 mmb (million barrels) above the 5-year average (Figure 2). Current inventory levels are 50 mmb higher than during the false rally of 2015 and are they still increasing.
Figure 2. U.S. crude oil stocks. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge).International stocks reflect a similar picture. OECD inventories are at 3.1 billion barrels of liquids, 431 mmb more than the 2010-2014 average and 359 mmb above the 2015 level. Approximately one-third of OECD stocks are U.S. (1.35 billion barrels of liquids).
For 2015, U.S. liquids consumption shows a negative correlation with crude oil storage volumes (Figure 3). During the 2015 false price rally, consumption began to increase in April and May following the lowest WTI oil prices since March 2009–response lags cause often by several months. First quarter 2015 prices averaged $47.54 compared to an average price of more than $99 per barrel from November 2010 through September 2014 (44 months).
Figure 3. U.S. liquids consumption, crude oil stocks and WTI price. Source: EIA, Bloomberg and Labyrinth Consulting Services, Inc. (click image to enlarge).This coincided with the onset of declining U.S. crude oil production after April 2015 (Figure 4).
Figure 4. U.S. crude oil production and forecast. Source: EIA March 2016 STEO and Labyrinth Consulting Services, Inc. (click image to enlarge).Net withdrawals from storage continued until consumption fell in July in response to higher oil prices that climbed to $60 per barrel in June. Production increased because of higher prices from July through November before resuming its decline after prices fell again, this time, far below previous lows. This complex sequence of market responses shows how sensitive the current market is to relatively small changes in price, production and consumption.
Most importantly, it suggests that a price variation of only $15 per barrel was enough to depress consumption a year ago. That has profound implications for the present price rally that is now $12 per barrel above its baseline and has already increased by a greater percentage than the 2015 rally.
Why Storage Matters
Although most analysts pay attention to storage volumes, market balance is generally thought of as a simple balance between supply and demand. But U.S. production is difficult to measure with confidence until several months after-the-fact and the EIA reports crude oil production but not supply. Likewise, EIA reports consumption but not demand.
That’s because supply and demand can only be determined by evaluating stock changes and how storage modulates production and consumption. Production plus available storage equals supply. In today’s over-supplied market, consumption plus withdrawals from storage equals demand.
Since April, U.S. production has declined 583,000 barrels of crude oil per day. With 163 mmb of crude oil in storage, that net production decline could be eliminated and April levels of production maintained by storage withdrawals for more than 9 months. That is why storage volumes must fall probably into the 2011-2014 range before a meaningful price rally can be maintained. That assumes that demand can tolerate those higher prices.
Oil is accumulating in storage because of low demand and low prices. It makes more sense to pay the monthly storage cost (~0.65 per barrel) and sell the oil forward with ongoing futures contracts until the spot price increases and, hopefully, demand also increases.
Many people think that the strip of futures contract prices are a reasonable guide to future prices. They are not. Futures prices mostly reflect the supply and demand of futures contracts.(1)
That in no way discounts the profound effect that futures trading has on oil prices. The WTI futures market is one of the biggest gambling casinos in the world. Bets are often made on sentiment that in turn is related to world events. Price fluctuations that are based primarily on sentiment, however, have little chance of lasting longer than the sentiment or related events that produced them.
Crossing A Boundary
The current oil-price rally is based partly on a weaker U.S. dollar but mostly on hope that OPEC and Russia will cut production. For now, that is not even on the table. Rather, a somewhat meaningless production freeze is possible. Some rightfully believe that a dialogue about a production freeze may lead to a production cut some time in the relatively near future. I agree with that but it is a rather empty reason for oil prices to increase by almost 50%.
Traders are “following the tape,” meaning they have covered previous short bets and are following the momentum testing increasingly higher price thresholds as long as someone is willing to take the other side of the bet. That’s the way the market works.
It would not surprise me if this price rally lasts awhile like the 2015 rally. I am interested in the requisite conditions that would allow a meaningful and sustainable price rebound. Early in the 2014 oil-price collapse, I thought it was a relatively straight-forward matter of reducing production so that the market could balance.
As low prices persisted, I recognized that a boundary had been crossed and that somehow, the principles that seemed to govern oil markets before September 2014 no longer applied in the same ways. I now believe that the world economy has been substantially weakened and injured by debt following the 2008 Financial Collapse and the easy-credit monetary policies that followed.
At some time in the not-too-distant future, the relentless depletion of legacy production and underinvestment in current exploration and production will result in much higher oil prices. The global economy will have to be much stronger to adjust to that.
The investigation I have presented here about the possible similarities between the present increase in oil prices and the false price rally of March-June 2015 reinforces my sense that a return to higher oil prices is not at all straight-forward. Oil markets are a leading indicator for the broader economy because the economy runs mostly on energy and not so much on money. (2)
It seems that price and demand may be range-limited. Small changes in demand move prices up and down until those price changes feed back to changes in demand. Production has been like a machine working tirelessly in the background as easy money has kept it moving regardless of low prices and the absence of profit. That is how distorted the market has become.
World production now appears to be falling and that is certainly a necessary step in the right direction toward market balance. I anticipate an OPEC plus Russia production cut in 2016 and that will unquestionably move the market to some kind of balance. I suspect, however, that the new balance may be one in which prices and demand both remain lower than on the other side of the price-collapse boundary that was crossed in 2014.
_______________________________________________________________________
(1) J.M. Bodell (personal communication). Mike has taught me most of what I know about storage and comparative inventories.
(2) Nate Hagens (personal communication). Nate has taught me most of what I know about the relationship between energy and the economy.
- Latest Thoughts on the Campaign
Back at the start of the year, when the market was plunging every day and I had the time and mental energy to devote myself to topics besides charts, I wrote this post called My Presidential Election Prediction. The core thesis was, “Status Quo means Hillary. Financial Mayhem means Bernie. Fear means Trump.”
So far, it seems Status Quo is winning. The status-y quo-ish stuff that’s happening is:
+ No terrorist activity or threats;
+ Ridiculous amounts of calm and optimism in the financial markets;
+ Yellen is large and in charge of the stock market
+ Absolutely nothing going on with the whole Hillary/FBI/Email scandal thing;
+ The establishment mounting a divisive campaign against Trump
I know there’s a certain bloc of folks, particularly large on the likes of ZH and Slope, which feels that it doesn’t matter, it’s all rigged, and so on and so forth. I’ll be the first to admit that the occupant of the oval office doesn’t really affect my personal life much at all. Whether the past 8 years had been Obama, Mitt Romney, or Yosemite Sam, the stuff that matters in my life (my family, my home, Slope, my dawgs, etc.) would have been pretty much the same.
The unfortunate thing is that if the status quo does more-or-less persist, the person who’s going to be sworn into office in January is going to be
canklesHillary, in spite of the fact that pretty much everyone, including her supporters, hates her guts, and that she makes Nixon look like an innocent choirboy. It’s stunning that someone so obviously venal and corrupt would be screeching her way into office relatively effortlessly.The one truly moral man, Bernie Sanders, is still fighting tooth and nail, and part of me hopes that by some miracle
canklesHillary will be perp-walked off the national stage, her enormous rear end completely engulfing television screens across this once-great land of ours.There is one and only one good thing about the near-inevitable Trump/Clinton match-up. It’s going to be endlessly entertaining. Seeing her fume, squirm, and hiss for months on end as Trump brings a whole new meaning to ad hominem attacks will almost make up for the fact that we’ll soon have to endure 4 years of the most instantaneously-despised president in the history of the United States.
- "Nobody Is Making Money" – Hedge Fund "VIP Basket" Obliterated, Plunges To Record Low
Exactly one month ago, when we learned that Goldman was looking to package its Hedge Fund VIP basket of stocks into an ETF we said, half jokingly, that we have discovered a “guaranteed way to make money: Short Goldman’s “Hedge Fund VIP” ETF“, adding that “with 5 of their Top 6 trades for 2016 already stopped out, and their recent heavy losses from swing-trading Gold, one might question the demand for an ETF that tracks Goldman Sachs’ hedge fund research tips, but, as Bloomberg reports, David Kostin’s “Hedge Fund Trend Monitor” report – tracking the 50 companies that matter most to hedge funds – is about to be launched.”
But more importantly we said that given the dismal performance, “one can only imagine that creating this ETF enables Goldman Sachs’ clients to offload huge blocks of their positions into a muppet-friendly investment vehicle that every Tom, Dick, and Day-Trader will scoop up. For now the ETF has not been assigned a ticker symbol – may we suggest ‘LOSE’ or ‘MUPT’ or ‘FUKT’?”
And then, just for good measure, we added that “this being Goldman – the company which brought you the Made for Shorting Abacus CDO – the guaranteed way to make money with this ETF would be to short it.“
It wasn’t a joke.
While already a month ago this Hedge Fund VIP basket was imploding as we showed at the time…
… since then things have gone from terrible to absolutely abysmal, and as of this moment the GSTHHVIP index which tracks the performance of these “most popular” among hedge fund stocks, has never been lower despite the dramatic rebound in the broad market!
So yes, anyone who shorted this index one month ago as we suggested, has made money. Unfortunately for Goldman’s hedge fund clients, the “basket” is still not available in ETF format, which means hedge funds are forced to pass these hot potato stocks among each other.
It also explains why while the most popular hedge fund stock basket has never done worse, its alternative, the least concentrated basket of stocks has never done better.
In other words, and as we also said last time around, the only winning trade is to do precisely the opposite of what the hedge funds are doing, none of whom have any clue as to what is going in this market anymore.
For those curious which stocks make up Goldman’s “hedge fund VIP basket”, so they can avoid them of course, here they are again.
Unfortunately for hedge funds it is too late to unwind exposure at this point, which is why despite the market rebounding to just modestly green on the year, most hedge funds remain deep in the red, because as Kostin puts it “the violent factor reversals have offset most efforts to generate alpha.” More:
Mutual funds and hedge funds have faced a difficult start to the year. High return dispersion is typically associated with increased stock-picking opportunities but the violent factor reversals have offset most efforts to generate alpha. Large-cap core mutual funds and hedge funds have lagged the S&P 500 YTD by 90 bp and 280 bp, respectively. 32% of large core funds has outpaced the S&P 500 YTD, close to the 10-year average of 33%. Large-cap growth funds have fared the worst with only 9% of funds beating the Russell 1000 Growth index so far in 2016.
Unfavorable stock selection has also hurt fund performance. Our basket the most popular hedge fund positions (GSTHHVIP) has lagged our very important short position basket (GSTHVISP) by 700 bp YTD (-5% vs. 2%). Similarly, our mutual fund overweights basket (GSTHMFOW) has trailed mutual fund underweights (GSTHMFUW) by 820 bp (-5% vs. 4%).
Mutual funds and hedge funds favor high growth, consumer-facing technology stocks such as Facebook (FB) and Alphabet (GOOGL). Eleven stocks appear in both our mutual fund overweights and popular hedge fund positions baskets. The median return of the 11 stocks was 19% during 2015 compared with -10% YTD. The median stock has higher expected 2016 sales growth (16% vs. 3%) and EPS growth (17% vs. 6%) vs. the market but a higher valuation (forward P/E of 19x vs. 17x for S&P 500).
Visually:
Said simply, what the above means is that in their scramble to save the stock market, central banks who succeeded in generated the latest artificial rebound across global stock markets, have once again crushed hedge funds, whose hedges were only just starting to generate alpha before they were all eviscerated in the latest unprecedented short squeeze/stock buyback ramp.
All of this goes back to a point we made back in 2011: why pay hedge funds 2 and 20 for the “privilege” of underperforming the market? After all, the “market” is so manipulated now, it can’t withstand even a modest 10% correction before global, coordinated central bank intervention is unleashed as has been the case over the past month. In this environment, why hedge? Yes, short hedges may work for a while, but then it is these most shorted stocks that will soar and crush the most hedge funds in the process.
Finally, if hedging the loss of central bank credibility, one can not possibly do that using stocks as an unwind of the “central-bank model” by implication means the total obliteration of every form of existing capital markets; in fact any asset that has counterparty risk would be annihilated. As such, the only assets worth holding on to would be those with zero counterparty risk… such as silly pet rocks, which for some odd reason have preserved their value for over 5,000 years…
- Mystery Of New York Fed Robbery Has Central Banks Asking Who's Next
Bangladesh has learned a valuable lesson over the past two months: Do. Not. Trust. The. New. York. Fed.
On a quiet Friday morning in early February, a series of instructions using authenticated SWIFT codes was sent to 33 Liberty allegedly from the Bangladesh central bank requesting the transfer of nearly $1 billion from the country’s FX reserves.
Now, the first thing that should jump out at you there is that Friday is a weekend in Bangladesh, a fact which probably should have set off alarm bells. But alas, it didn’t and by the time the hackers who sent the transfer instructions screwed the pooch by spelling “foundation” wrong in one of the requests, more than $80 million was sent to the Philippines where it landed in four accounts and eventually ended up transferred to at least two casinos and one unidentified man “of Chinese origin” who has since been named as a Weikang Xu. For those who might have missed the story, here are our three previous accounts of what is truly a Hollywood-esque plot line:
- Plot Thickens In New York Fed Heist As $30 Million In Cash Said Delivered To Mystery Chinese Man
- The Incredible Story Of How Hackers Stole $100 Million From The New York Fed
- Chinese Hackers Break Into NY Fed, Steal $100 Million From Bangladesh Central Bank
You’re reminded that the stolen funds ended up in the Jupiter Street, Makati City, branch of Rizal Commercial Banking Corp where the branch manager is one Maia Santos Deguito. Here she is:
According to testimony from a Rizal executive heard at a Senate hearing in the Philippines late last week, some $427,000 in cash was withdrawn from one of four accounts that received the illicit funds. That money was promptly deposited – into the back of Deguito’s car.
“On February 5 – the day when RCBC said $22 million was put into [the accounts] – Deguito’s assistant, Angela Torres, requested P20 million from the bank’s cash center, which was delivered by armored car,” PhilStar reports. “The teller then put the money in a box, which was brought to Deguito’s office. The branch messenger, a certain Jovy Morales, then looked for a paper bag to put the money in and then brought it to the branch manager’s car.”
Deguito then ignored a direct order from the Bangladesh central bank and the Rizal head office to freeze the accounts. “Instead, she moved the money to a foreign-currency account opened Feb. 5 under the name of Centurytex Trading, a local brokerage firm owned by businessman William Go,” WSJ writes. “$15 million of the stolen money on Feb. 5 was remitted from the account to a local money-transfer company called Philrem [and] then, about another $66 million was transferred to Philrem on Feb. 9.” From there, it found its way to the casinos and to Weikang. Here’s a diagram from FT:
Mr. Go is apparently innocent according to a private investigation conducted by Truth Verifier Systems Inc who says the accounts were forged. However, Torres (Deguito’s assisstant) insists that Go picked up cash in a “Lexus SUV” and that he signed the withdrawal slip personally.
Go is now suing both Torres and Deguito.
Apparently, the hackers used malware to infiltrate the central bank’s computers and monitor daily activity. “They were counting on the likelihood that there wouldn’t be any direct communication between the banks over the weekend,” an official who spoke to WSJ said. And they were correct. As we documented earlier this week, Bangladesh was unable to contact the New York Fed on Saturday and Sunday.
Bangladesh hired FireEye to investigate the incident. According to what Bloomberg describes as an “interim report,” the hackers “sought to cover their tracks by deleting computer logs as they went [and] before making transfers they sneaked through the network, inserting software that would allow re-entry.”
The report allegedly describes the operation as something that would normally be the purview of nation-state hackers. “Malware was specifically designed for a targeted attack on Bangladesh Bank to operate on SWIFT Alliance Access servers,” Bloomberg quotes the report as saying. “The security breach of the SWIFT environment is part of a much larger breach that is currently under investigation.”
Suspect log-ins at Bangladesh central bank began on January 24 and ran through at least February 6, two days after the illicit transfers. “The report,” Bloomberg says, indicates that the “hackers have already hit other FireEye clients, though it’s unclear if those include other central banks.”
Meanwhile, Bangladesh’s finance minister AMA Muhith told the Bengali-language daily Prothom Alo that this was 100% an inside job involving officials at the central bank. He later claimed the daily published off the record comments without his permission. “It has come to light through this interview that I cannot always remain alert because of my age,” he said. Muhith has called the central bank “very incompetent” for their handling of the incident.
“Bangladesh, including its government institutions and its banking system, is notoriously corrupt and prone to bank frauds, and neither the Bangladeshis nor the Fed have ruled out the possibility the hackers were assisted by someone on the inside,” FT wrote this week. “But there is so far no evidence of an insider, nor do cyber security experts think such a person would have been essential for a crime that could have been committed from outside by sophisticated criminal hackers from eastern Europe or elsewhere.”
Bangladesh at least in part blames the Fed. “Since they have asked for your opinion, they should have waited for that,” one official told FT, referencing the fact that the Fed asked for clarification on some of the transactions but ok’d them before getting a response. “They could have been patient,” the same official said.
“[The Fed] cannot avoid their responsibility in any way,” Muhith says.
We imagine the well meaning FinMin may be surprised what the NY Fed can and can’t do.
As indicated by the diagram shown above, there’s no telling where the money went after the casinos. “It was Chinese new year,” Bloomberry’s Silverio Benny Tan said. “So the expectation was for more play, so it was not unusual.” As we mentioned on Wednesday, casinos are not subject to the Philippines anti-money laundering laws (because who would think of laundering money through a casino).
But don’t worry, the culprits will soon be ferreted out. How do we know? Because Bangladesh has enlisted the help of the FBI. “We sought the FBI’s assistance when a group of FBI met with me for investigating the central bank heist last month,” Interior Minister Asaduzzaman Khan told Reuters.
What seems likely here is that this is part of something far larger and it could very well be that none of the people along the paper trail (Deguito, Go, whoever was or wasn’t involved at the Bangladesh Bank, etc.) actually knows who is ultimately pulling the strings. The fact that the total request was for nearly $1 billion suggests that whoever is at the end of the rabbit hole here either, i) has their sights set far higher than $80 million, or ii) swung for the fences to ensure they at least got to first base. If it’s the former, then we may see more inadvertent experiments with helicopter money in the very near future – and on a much larger scale.
Now if only physical cash were banned, then the “culprits” wouldn’t be able to launder their illicit proceeds. Hey, wait a minute…
- Another Major Index At A Crossroads
By Dana Lyons of J. Lyons Fund Management
As with many indices we’ve mentioned recently, the NYSE Composite has rallied up to a potentially significant convergence of resistance.
Continuing with the weekly theme yet again, another major index – the NYSE Composite – has seen its rally reach a potentially consequential area of resistance. It’s actually been 2 weeks now that we’ve been on this series highlighting various indices reaching a potential stalling point in their post-February rally. Of course, this is based strictly on chart-based analyses, which now appear poised to do battle with the still positive forces that we’ve noted in breadth, momentum and sentiment.
This resistance theme that we’ve focused on seems to have been validated as, for the most part, the indices which we’ve highlighted have struggled to make much headway since hitting the identified areas on their charts. This includes some broader and small-cap indices that we noted 2 weeks ago which, despite the large-cap indices continuing to make rally highs this week, have themselves been unable to make much progress. Next in line in this battle appears to be the NYSE Composite. Similar to prior indices covered this week, the NYSE is just now reaching the convergence of its broken post-2009 Up trendline and the post-May Down trendline.
Will these trendlines prove to be the resistance that potentially puts a pause – or end – to the post-February rally? Only time will tell. We will note that over the past 24 hours, we have begun to see some indices make an attempt at breaking out above their aforementioned lines of resistance. So bulls can argue that the scales may be tipping toward the side of positive breadth, momentum and sentiment winning out over price resistance. However, it’s too early to definitively make that call.
Furthermore, if these breakouts do occur, it will be crucial to monitor the indices to see if they can maintain their breakout levels for more than a day or two. Should they fail to hold for more than that, it will be just as damning, or more so, than had they failed at resistance in the first place.
Either way, next week promises to be another interesting one in the market.
- Trump "Would Be Impeached" Over China, Mexico Tariffs, Chamber Of Commerce CEO Says
Donald Trump is going to make America great again. But you already knew that.
The question many voters have, is how exactly he plans to do it. The frontrunner has thrown some rather vague ideas out there, some of which focus on trade. Everyone has by now heard the “Trump stump”: “We don’t win anymore. We’re getting killed on trade. We make terrible deals. We’re losing to China.”
Trump’s solution – at least as it relates to China and Mexico – is to impose tariffs. Specifically, he’s suggested he would slap a 35% import tax on goods from Mexico and a 45% tax on goods from China.
As The New York Times noted earlier this month, Trump’s trade policy is a throwback to the mercantilism of a bygone era. It’s a simplistic way of looking at trade wherein running a deficit is equivalent to running a money losing company.
Of course to call it simplistic isn’t necessarily to call it misguided or completely wrong. The US manufacturing sector has been gutted. It’s one thing to build a services-driven economy wherein consumer spending accounts for the majority of economic output. It’s another entirely to create a kind of feudal society wherein the labor market becomes a waiter and bartender creation machine that exists to serve the 1% and in which breadwinner jobs all but vanish along with the country’s capacity to actually produce anything tangible.
“I will call the head of Carrier and I will say, ‘I hope you enjoy your new building,’ ” Trump said in February, referring to Carrier’s decision to eliminate 1,400 jobs in Indianapolis (see here). “‘I hope you enjoy Mexico. Here’s the story, folks: Every single air-conditioning unit that you build and send across our border — you’re going to pay a 35 percent tax on that unit.’”
“Critiques like Mr. Trump’s resonate in part because economists have oversold their case. Trade has a downside, and while the benefits of trade are broadly distributed, the costs are often concentrated,” The Times writes. “Everyone can buy a cheaper air-conditioner when Carrier debarks for a lower-cost country, but a few hundred people will lose their livelihoods.”
Right. But the problem is that when you look out across US manufacturing, it’s more than “a few hundred.” US manufacturing has simply vanished, leaving behind nothing but rust, poverty, and despair in America’s once thriving industrial centers. And therein lies part of Trump’s appeal (and Sanders’ appeal by the way).
But a return to a kind of draconian protectionism probably isn’t the answer and if you ask Tom Donohue, CEO of the U.S. Chamber of Commerce, Trump’s tariffs would get him impeached. Here’s the clip from Bloomberg:
- Obama Administration Sets Record In Lack Of Transparency: Denies Information In 77% Of FOIA Requests
Submitted by Michael Krieger of Liberty Blitzkrieg
Least transparent administration ever. The Associated Press reports:
WASHINGTON (AP) — The Obama administration set a record for the number of times its federal employees told disappointed citizens, journalists and others that despite searching they couldn’t find a single page requested under the Freedom of Information Act, according to a new Associated Press analysis of government data.
In more than one in six cases, or 129,825 times, government searchers said they came up empty-handed last year.Such cases contributed to an alarming measurement: People who asked for records under the law received censored files or nothing in 77 percent of requests, also a record. In the first full year after President Barack Obama’s election, that figure was only 65 percent of cases.
The new data represents the final figures on the subject that will be released during Obama’s presidency. Obama has said his administration is the most transparent ever.
What a joke.
“It seems like they’re doing the minimal amount of work they need to do,” said Jason Leopold, an investigative reporter at Vice News and a leading expert on the records law. “I just don’t believe them. I really question the integrity of their search.”
Mr. Leopold should know a thing or two about the topic. In case you missed it, read his blockbuster article published by Vice News last week: It Took a FOIA Lawsuit to Uncover How the Obama Administration Killed FOIA Reform.
In some high-profile instances, usually after news organizations filed expensive federal lawsuits, the Obama administration found tens of thousands of pages after it previously said it couldn’t find any. The website Gawker sued the State Department last year after it said it couldn’t find any emails that Philippe Reines, an aide to Hillary Clinton and former deputy assistant secretary of state, had sent to journalists. After the lawsuit, the agency said it found 90,000 documents about correspondence between Reines and reporters. In one email, Reines wrote to a reporter, “I want to avoid FOIA,” although Reines’ lawyer later said he was joking.
What the AP fails to mention is what was discovered in the eventual release of those emails. Here’s a hint: America’s Corrupt Media – How Reporters Took Direct Orders from Hillary Clinton’s Staff.
Now wonder they “couldn’t find anything.”
The AP’s annual review covered all requests to 100 federal agencies during fiscal 2015. The administration released its figures ahead of Sunshine Week, which ends Sunday, when news organizations promote open government and freedom of information.
Overall, the Obama administration censored materials it turned over or fully denied access to them in a record 596,095 cases, or 77 percent of all requests. That includes 250,024 times when the government said it couldn’t find records, a person refused to pay for copies or the government determined the request to be unreasonable or improper. The White House routinely excludes those cases from its own assessment. Under that calculation, the administration said it released all or parts of records in 93 percent of requests.
Gotta love that government math.
For additional articles on the “most transparent administration ever,” see:
- Putin Looks For "Someone To Hang" In Case Road To Crimea Bridge Isn't Finished On Time
Friday was the second anniversary of Russia’s annexation of Crimea from Ukraine.
To mark the event, Vladimir Putin paid a visit to the island of Tuzla, where he checked in on a construction project aimed at bridging the Black Sea peninsula with the Russian mainland. The bridge, which is expected to cost somewhere in the neighborhood of €3 billion, will be the first direct link between Crimea and Russia and will span about 12 miles across the Kerch Strait.
Putin called the effort “a historical mission,” that will boost Crimea’s economic growth. It’s expected to be completed by December of 2018. Also in the works is an undersea power cable meant to help prevent the types of blackouts that have beset Crimea due to its dependence on Kiev for power.
“State-sponsored concerts and public festivities took place across Russia to commemorate the March 2014 takeover that Moscow insists followed a referendum in which Crimea residents voted overwhelmingly to swap countries,” AFP writes, adding that “in Moscow, thousands gathered just off Red Square for a concert featuring pro-Kremlin pop stars including 78-year-old crooner Joseph Kobzon, who was blacklisted by the EU last year after he performed for rebels in eastern Ukraine.” Here are a few images from the (freezing cold) festivities:
“[The bridge] will be yet another symbol of our unity,” Putin said in a televised address, after congratulating the country on the annexation. “We will confidently move forward together, and only forward,” he promised.
Yes, “forward and only forward.” That is of course unless someone forgets to build the road that will link the bridge to Crimea’s capital, Simferopol. “Officials keep passing responsibility for the work to colleagues in different ministries,” Bloomberg writes. And Putin isn’t happy about it. In fact, if winter of 2018 rolls around and the road isn’t built, he’s going to “hang” someone – he just needs to know who it’s going to be.
“There should be a specific person who can be hanged if it’s not done,” he said on Friday. “A specific entity, a specific person responsible for the whole project is needed, so I wouldn’t have to call all government phones or regions.”
(“Are you him?”)
“The president’s comments were figurative,” the Kremlin later said, dryly.
The US and the West have said that Putin will eventually have to leave Crimea and return the peninsula to Ukraine. Somehow, we think all of the above seems to suggest that Moscow isn’t about to be “returning” anything to anyone anytime soon.
Meanwhile, the fate of Ukraine still “hangs” in the balance, so to speak.
- Profit Margins Tumble To Lowest In Four Years… And It's Not Just Oil's Fault
One week ago, we were surprised to see that none other than data aggregator Factset has joined the “crusade” against fabricated non-GAAP numbers. This is what it said:
For FY 2015, 20 of the 30 companies in the DJIA (or 67%) reported non-GAAP EPS in addition to GAAP EPS for the fiscal year. For 18 of these 20 companies, non-GAAP EPS was higher than GAAP EPS. On average, non-GAAP EPS exceeded GAAP EPS by 30.7% for these 20 companies. For FY 2014, 19 of the 30 companies in the DJIA (or 63%) reported non-GAAP EPS in addition to GAAP EPS for the fiscal year. For 15 these 19 companies, non-GAAP EPS was higher than GAAP EPS. On average, non-GAAP EPS exceeded GAAP EPS by 11.8% for these 19 companies. Thus, there was a wider gap on average between non-GAAP EPS and GAAP EPS in FY 2015 compared to FY 2014 for companies in the DJIA.
Due in part to this wider gap between non-GAAP EPS and GAAP EPS, companies in the DJIA on average reported a much smaller year-over-year decline in year-over-year EPS on a non-GAAP basis than on a GAAP basis for the year. For FY 2015, the 20 companies in the DJIA that reported non-GAAP EPS reported an average year-over-year decline in non-GAAP EPS of -4.8%. These same 20 companies reported an average year-over-year decline in GAAP EPS of -12.3%.
Today, we are just as impressed that in another weekly dose of accurate reporting, Factset takes aim at another just as important aspect of corporate profitability, namely profit margins, which according to its calculations, are set to tumble to just 9.3%, down from 10.0% last quarter, below the 10.2% high reached in Q2 2015, and the lowest since Q2 2012. While much of this is the result of a collapse in energy margins, it appears that this weakness is spilling over and starting to impact many other sectors as well.
From FactSet:
Lowest Net Profit Margin (9.3%) Projected for S&P 500 since Q4 2012 (8.9%)
For Q1 2016, the estimated net profit margin for the S&P 500 is 9.3%. If 9.3% is the actual net profit margin for the quarter, it will mark the lowest net profit margin for the S&P 500 for a quarter since Q4 2012 (8.9%). What is driving the weaker projected profit margin for the index relative to recent quarters?
Five of the ten sectors are projected to see lower net profit margins in Q1 2016 relative to the 3-year average for each sector, led by the Energy sector (0.1% vs. 6.5%). The estimated net profit margin of 0.1% for the Energy sector is based on estimated aggregate earnings of $263 million and estimated aggregate revenues of $182 billion for the quarter.
Excluding the Energy sector, the estimated net profit margin for the S&P 500 would be 10.0%. However, this would also mark the lowest net profit margin for the index excluding the Energy sector since Q1 2014 (9.9%). Thus, other sectors are also contributing to the expected lower than average net profit margin for the index for Q1 2016. After the Energy sector, the other four sectors projected to report net profit margins below the 3-year averages for Q1 2016 are the Industrials (7.9% vs. 9.1%), Information Technology (17.2% vs. 18.0%), Consumer Staples (5.6% vs. 6.1%) and Consumer Discretionary (6.5% vs. 6.6%) sectors.
Based on current earnings and revenues estimates, however, the estimated net profit margin for Q1 2016 will reflect a low for the index. Over the next three quarters (Q2 2016 – Q4 2016), the estimated net profit margins for the S&P 500 are 10.1%, 10.5%, and 10.4%. Eight of the ten sectors are projected to see higher average net profit margins over the next three quarters relative to Q1, led by the Energy, Industrials, and Information Technology sectors.
Needless to say, without the bounce in oil, none of this forecast rebound in margins will take place.
But it’s not just oil. As Goldman pointed out in a report from earlier this week, one surprising source of margin weakness could be a company that is about as far away from oil as possible: AAPL, where the future of iPhone sales could have a dramatic impact on S&P profit margins. To wit:
We expect that Information Technology margins will fall from 17.9% in 2015 to 17.7% in 2016, as both Apple margins and sector margins outside of Apple decline. Technology margins excluding Apple will continue to decline modestly through 2017 in our view, but a rebound in Apple’s margin will more than offset the decline, pushing overall sector margins up by 6 bp to 17.8% in 2017 (see Exhibit 20).
On its own, Apple (AAPL) has contributed more than 25% of the aggregate S&P 500 margin expansion since 2009 (see Exhibit 21). Roughly half of the Information Technology margin expansion may be attributed to AAPL. Looking forward, Goldman Sachs Hardware analyst, Simona Jankowski, expects that AAPL margins will fall by 40 bp to 22.5% in 2016 before rebounding back to 22.9% in 2017. Without margin expansion leadership from AAPL, Information Technology margins and overall S&P 500 margins will come under pressure. Information Technology sector margins are reduced by 140 bp when AAPL is excluded (16.5% vs. 17.9%).
Appropriately enough, the future of S&P fundamentals is in the hands of oil and iPhones. Note we did not say the price of the S&P – that, as everyone knows by now, is entirely in the hands of central bankers.
- New CCTV Footage Shows Moment Of Deadly Istanbul Suicide Attack
Update: Here is the latest CCTV footage of the attack. Caution: graphic.
Earlier:
- Caught On Tape: Turkey Shoots At Kurds Waving White Flag In Cizre
As a string of suicide attacks on Ankara and Istanbul have made abundantly clear, Turkey is in a state of turmoil. In fact, one might fairly say that the country has descended into outright chaos.
Today’s bombing of Istiklal Caddesi was just the latest tragedy to strike one of Turkey’s urban centers. Images from the aftermath of the blast are, much like those that appeared on social media in the wake of last Sunday’s TAK attack on a transit hub in Ankara’s Kizilay, horrific.
It’s important that the world consider why this is happening. Whether these are false flags or actual PKK/TAK attacks is irrelevant. The critical thing to understand is that Turkish President Recep Tayyip Erdogan is allegedly committing genocide against the country’s Kurdish population. Does that excuse suicide attacks staged by Kurdish militants? Obviously not, but what’s happening in the country’s Kurdish southeast is appalling.
“Between August and February, the Turkish army -which has mobilised 10,000 troops to smoke out PKK militants – has imposed 59 curfews in the cities of Diyarbakir, Sirnak, Mardin, Hakkari, Mus, Elazig and Batman, affecting 1.3 million people,” France 24 writes, adding that “in Cizre, where a curfew was lifted earlier this month, 80% of the city has been destroyed.”
We’ve profiled Cizre before (see here). Here’s how Vice put it last summer when hostilities between Ankara and the PKK began anew:
“Cizre has spent years on the fringes of war. The unremarkable-looking town of just over 100,000 lies on the Tigris River, around 30 miles from the tripoint where Turkey meets conflict-ravaged Syria and Iraq, and violence regularly strays over the national boundaries. Now, the cycle of airstrikes and renewed PKK attacks on Turkish troops threaten a return to the three-decade-long struggle between the two sides that claimed more than 40,000 lives. And here, residents feel like they’re at the heart of the fight.”
Last month, allegations emerged that Turkish soldiers had encircled a burning apartment building in the city. Hundreds of people were trapped inside. According to some reports (see here and here to suggest a few) they were burned alive. Below, find footage from January which appears to show the Turkish military firing on a group of Kurds in Cizre who look to be crossing the street waving a white flag.
Warning: Graphic
Two days ago, the Obama administration accused ISIS of committing genocide. Where, one might ask, is the accountability for Washington’s NATO ally Erdogan?
- Trump Video From 25 Years Ago Will Shock You: "I’m Tired of Seeing This Country Ripped Off"
Submitted by Mac Slavo of SHTFplan
Trump Video From 25 Years Ago Will Shock You: “I’m Tired of Seeing This Country Ripped Off”
The Donald has completely taken over the news cycle.
His path of victory after victory in GOP primary states has the establishment freaking out, and every major media outlet scrambling for a way to stop Trump, or at least to damage his reputation.
But why is he being compared to Hitler and inducing aneurysms among the political elite?
Obviously it isn’t the name-calling or fiery rhetoric that has the system’s minions losing sleep and openly-plotting his demise.
No. It is for one basic reason: his rhetoric and campaign promises have centered around restoring American sovereignty.
Economically, he has talked about undoing globalism and free trade, bringing back good American jobs, protecting the border (and yes, building the 10+ foot high wall) and saying no to a culture of exploiting illegal immigrant workers at the expense of American employment.
Never mind if he can keep any of those promises, because just hyping them up has been enough to cause mass panic and hysteria in the corporate halls of Washington, Wall Street and the lapdog media.
But what might surprise you, even shock you, is that he has been talking this way for decades.
Just listen to what he told Oprah and her audience more than 25 years ago (circa 1987):
“I’d make our allies pay their fair share” “I’m tired of seeing what’s happening with this country.” “I’m tired of seeing this country ripped off.”
And there’s much more than that. The Daily Caller rounded up several examples of his consistent appeals for a “strong negotiator” on trade and foreign affairs.
Promising to balance trade and fight for American workers is NOT what the prevailing elite – who are losing control of the political establishment – want to happen.
Their plan, as voiced at exclusive think tanks and confabs like Davos, Bilderberg, the Council on Foreign Relations and many others, has been to level the prosperous American middle class and force workers in the United States to whittle their way down to complete serfdom – and absolute dependence upon government handouts and a meager place in the grand pecking order of world domination.
Trump won’t be a savior, but things now are looking like they might bump him off just for even reminding the American people of how far things have fallen and little anyone else on the political stage has done to stop the free fall of the American Dream.
To the contrary, most of the political tools on stage have been only too willing to play a hand in the destruction of this once strong and vibrant country in exchange for favors and kickbacks.
2016 is about one thing: how fed up and angry people are at the system which has operated on behalf of the interests of a handful of insiders and the expense of everyone else.
- Buyback Blackout Period Starts Monday: Is This The Catalyst That Ends The S&P Rally?
Last week, one day before the Fed unleashed a statement that stunned Wall Street by its dovishness and admission that the Fed had been far too optimistic on the state of the US (and global) economy, when it slashed its forecast on the number of rate hikes from 4 to 2, we said that “while everyone’s attention is on the Fed, the biggest danger to the S&P500 has little to do with what Janet Yellen may say tomorrow, and everything to do with the marginal buyer of stocks being put into a state of forced hibernation”, namely the start of the stock buyback blackout period during Q1 earnings session.
As a reminder, even Bloomberg recently acknowledged the unprecedented role corporate stock repurchases play in the current market when it penned “There’s Only One Buyer Keeping S&P 500’s Bull Market Alive.” Of course, our readers have known the identity of the “mystery, indescriminate buyer” for two years.
Today, it is Deutsche Bank’s turn to warn about the imminent end of buybacks for the next 6 weeks. From Parag Thatte’s latest Asset Allocation and Flows report:
Buyback blackout period starts Monday. An increasing number of S&P 500 companies will enter into their blackout period starting next week, about a month before the earnings season kicks into high gear in the third week of April
Deutsche Bank tries to spin it as not necessarily a source of downside:
The blackout period means a slowing in the pace of buybacks which leaves equities vulnerable to negative catalysts. However it does not automatically imply downside and as we have emphasized before it is the total demand-supply gap that is key. So flows are critical and data surprises suggest the recent flow rotation into US equities can go further
There are two problems with this assessment.
First. as DB’s own chart below shows, traditionally US equity flows have seen substantial and sharp declines during the buyback blackout period during the past three calendar years. It is unclear why this time will be any different.
Second, and more important, is that as Bank of America reported earlier this week, in the latest week “during which the S&P 500 climbed 1.1%, BofAML clients were net sellers of US stocks for the seventh consecutive week. Net sales of $3.7bn were the largest since September and led by institutional clients (where net sales by this group were the second-largest in our data history). Hedge funds and private clients were also net sellers, as was the case in each of the prior two weeks, but a different group has led the selling each week. Clients sold stocks across all three size segments, and net sales of mid-caps were notably the largest since June ’09.”
BofA’s summary: “clients don’t believe the rally, continue to sell US stocks” and they were selling specifically to corporations whose repurchasing activity is near all time highs: “buybacks by corporate clients accelerated for the third consecutive week to their highest level in six months, which is also above levels at this time last year.“
Next week this “accelerating” buyback activity ends, and the question will be whether the S&P at a high enough level to give institutional investors comfort that without the buyback bid, in fact the only bid for the past seven weeks, they should now buy on their own, or will the selling, which took place as the market has soared from its recent lows in its biggest quarterly comeback ever…
… continue, only this time with a cheap debt-funded, price indiscriminate buyer on the other side to absorb all the selling. We will have the answer in just about one week’s time.
- This Is How Venezuela Exported 12.5 Tonnes Of Gold To Switzerland On March 8, 2016 Via Paris
Submitted by Ronan Manly of Bullionstar Blogs
Following on from last month in which BullionStar’s Koos Jansen broke the news that Venezuela had sent almost 36 tonnes of its gold reserves to Switzerland at the beginning of the year, “Venezuela Exported 36t Of Its Official Gold Reserves To Switzerland In January“, there have now been further interesting developments in this ongoing saga.
It has now come to light that on Tuesday 8 March, the Banco Central de Venezuela (BCV) sent another 12.5 tonnes of gold by air freight to Switzerland (via Paris), and fascinatingly in this instance, the exact details of the transfer are already available, including the cargo manifest, courtesy of Venezuelan newspaper El Cooperante which broke the news on 11 March.
As per the January gold exports to Switzerland, which most likely were part of a gold swap to generate much-needed financing for the crisis-ridden Venezuelan economy, this latest shipment appears likewise.
Air France flight AF 385 and Brinks Switzerland
The BCV’s 12.5 tonne gold shipment was flown out of Caracas International Airport (Maiquetia Simon Bolivar) on Air France flight AF 385 to Paris, leaving at 5:49pm local time on Tuesday 8 March, and arriving into Paris Charles de Gaulle Airport at 7:54am on Wednesday 9 March.
FlightAware screenshot of Air France flight 385 on 8 March 2016 – Source: El Cooperante
The sender of the shipment was Banco Central de Venezuela, and the consignee (initial receiver) was Brinks Switzerland. Given that Brinks Switzerland was listed as the consignee for a flight arriving into Paris Charles de Gaulle at 8am, then there would have been a second flight from Paris to presumably Zurich in Switzerland which is the main destination airport for gold arriving into Switzerland. As giant Swiss refiner Valcambi says under Transportation Services, it provides “Import services and transportation from Zürich airport to Valcambi“.
The 3 immediate direct flights from Paris Charles de Gaulle to Zurich after 8:00am are Swiss Air flight LX 655 at 09:55, Air France flight AF 1614 at 12:55, and Swiss Air flight LX 639 at 15:05. Brinks has its operations centre headquarters in Zurich at Zurich Airport (and also a Geneva office at Geneva Airport).
The Cargo Manifest
The Cargo Manifest from Maiquetia Airport (Caracas International Airport) shows that the BCV’s gold shipment was described as ‘GOLDS BARS’, with tracking number 057-91145645, and comprised 12,561 kilos, packed in 318 packets, which are listed somewhat surprisingly as being ‘caja de carton’ (which translates as cardboard box). Super-strong cardboard presumably.
Cargo Manifest for 12.5 tonnes of gold on Air France flight 285 from Caracas to Paris – Source: El Cooperante
If each bar weighed approximately 400 ozs, there would have been about 1,009 or 1,010 bars in the shipment. With 318 packets, and with 12,561 kgs = 403,845.53 troy ounces = 12.56 tonnes, then on average there were 39.5 kgs per packet (12561 / 318 = 39.5), which is a little but more than 3 bars per packet. But since gold bars can’t obviously be divided, then these gold bars may have been slightly larger US Assay Office bars weighing more than 400 ozs. Remember that the London Bullion Market Association (LBMA) Good Delivery specification for gold bars ranges from 350 oz up to 430 oz. Alternatively, most of the packets could have contained 3 bars each and the remaining packets 4 bars each.
Air France has a web-based cargo tracking number website but unfortunately, it does not return any information on tracking number 057-91145645. See screenshot:
However, the Air France website doesn’t return any data on other known gold shipments of Venezuelan gold, for example Air France tracking number 057-53208470 from late 2011, which was actually displayed on Venezuelan TV (see below bar code). Therefore, tracking information on gold shipments may not be publicly available for security reasons.
Some of the repatriated gold (inbound to Venezuela) was flown in on Air France in late 2011, tracking number 057-53208470
Swiss Refineries
It’s important to consider the extent to which this latest BCV gold shipment may be scraping the barrel in terms of the BCV’s remaining unencumbered gold reserves. My theory at this stage is that the gold bars being sent to Switzerland are being sent to Swiss refineries to be refined into modern Good Delivery bars, and not to be refined into 1 kilo gold bars for the Asian market. This would be the case if all of the 160 tonnes of gold (in modern good delivery form) that had been repatriated during late 2011 / early 2012, was already in play (i.e. encumbered, under lien or claim or pledge).
This is assuming that the gold in transit are the gold legs of USD – gold swaps, whereby the gold is then held (and used) by a commercial bank counterpart or via some gold swap arrangement between the BCV and a commercial bank facilitated by the Bank for Settlements (BIS) in Basel. Furthermore, the legal wording of gold swaps would normally stipulate that gold held as part of a gold swap would need to be deposited into the gold vault of an institution such as the Bank of England, FRBNY, or the BIS’ storage facility at the Swiss National Bank etc.
Consider some facts about the BCV’s gold reserves and the gold swap activity and rumoured gold swap activity by the BCV in the recent past, using a reverse timeline:
- The BCV exported 12.56 tonnes of gold to Switzerland on 8 March 2016
- Venezuela (assumed to be the BCV) exported 35.8 tonnes (specifically 35.835 tonnes) of gold to Switzerland in January 2016 (from Swiss Customs Data)
- The BCV agreed a gold swap with Deutsche Bank in late 2015 (Reuters February 2016)
- Venezuela exported 24 tonnes of gold to Switzerland in 2015, nearly 35 tonnes in 2014, and approximately 8 tonnes in 2013, after exporting far smaller amounts in any of the 7 prior years (about 0-4 tonnes per annum over 2006 -2012). See chart from Nick Laird’s www.sharelynx.com below.
- The BCV had carried out gold swaps with the Bank for International Settlements ‘in recent years’, with up to 7 swap transactions (Reuters February 2016). These swaps would have to have used gold held outside of Venezuela, i.e. either at the Bank of England or using gold that was exported from Venezuela to Switzerland in 2013-2015
- The BCV shipped an unspecified quantity of gold out of Caracas airport to an international destination on 2nd, 3rd and 7th July 2015 (re-exported for pledging)
- BCV’s gold reserves fell by 60 tonnes over the period March – April 2015
(For the above 2 points see “Venezuela says Adiós to her gold reserves“)
- The BCV entered into a 4 year gold swap with Citibank (announced in April 2015). This Citibank swap most likely used the 50 tonnes of Venezuelan gold that had been left at the Bank of England in 2011.
- Venezuelan opposition leader, Maria Corina Machado, had information in March 2015 that suggested the BCV was engaging in an even larger gold swap that the Citi bank swap: “¿Es cierto que estarían negociando una segunda operacion de empeño similar a la anterior por un monto aun mayor?“
(For the above points, see “Venezuela’s Gold Reserves – Part 2: From Repatriation to Reactivation“)
- 12,819 good delivery bars (160 tonnes) were repatriated to Venezuela in late 2011 / early 2012
- About 4,089 bars (about 51 tonnes) of Venezuela’s gold was left in London after the 2011/ 2012 repatriation
- There were 12,357 bars (about 154.5 tonnes of gold) held in the BCV vaults in Caracas before the gold repatriation started in late 2011. These bars that were originally in Caracas are mainly if not exclusively US Assay office bars since they were repatriated from the FRB in New York in the late 1980s
- There were 25,176 bars (about 315 tonnes) in the BCV vaults when the repatriation to Caracas completed (in early 2012)
(For the above bar number quotes, see “Venezuela’s Gold Reserves – Part 1: El Oro, El BCV, y Los Bancos de Lingotes“).
Conclusion
Approximately 50 tonnes of BCV gold has been exported from Venezuela to Switzerland within the first 10 weeks of 2016. How much longer can this outflow continue? This gold is being exported by the BCV in order to participate in swaps (or maybe even outright sales) in order to provide external financing to the Venezuelan Government. The fact that the gold is being picked up by Brinks Switzerland suggests it is being brought to a Swiss gold refinery. The main reason gold is sent to Switzerland is so that it can be refined or recast.
At least 3 entities have been associated with this external financing so far, namely Citibank, Deutsche Bank and the Bank for International Settlements. Bullion banks and the BIS hold gold in long-term holdings in the form of Good Delivery Bars, and enter into gold transactions using Good Delivery bars, not kilobars. With 50 tonnes of Venezuela’s gold left behind at the Bank of England in 2011, there were only another 160 tonnes of gold bars at the BCV vaults that were not old US Assay Office bars. The gold now going from the BCV to Switzerland is, in my view, old US Assay Office bars. This would suggest that more than 200 tonnes of Venezuela’s gold is already in play, as well as the 50 tonnes from Q1 2016.
With the BCV being totally opaque about the real state of its gold holdings, and with the IMF / World Gold Council still reporting the fantasy that the BCV / Venezuela holds 361 tonnes of gold in its official reserves, some speculation is in my view acceptable, and the above information should go someway towards illuminating a truer state of Venezuela’s gold holdings, but what that true state of play is, only the BCV, Venezuelan Government and associated insider bullion banks and central banks know.
Note, that it’s also possible that Venezuela exported gold to Switzerland (or elsewhere) in February 2016. Swiss customs data, which shows (non-monetary) gold imports and exports, including de-monetised gold, is available each month but with a lag of 3 weeks. Therefore the February 2016 data is available on Tuesday 22 March, on the Swiss Customs website.
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