We noted last night that Iron Ore futures prices were in free-fall as the vicious circle of China's commodity-collateral-backed shadow banking system unwind hits home amid fears of contagion from the Chaori Solar default. The first domestic Chinese corporate bond default has retail investors running scared as surprise spreads that the local government did not come to the rescue. The deleveraging is now spreading to copper prices (remember the massive cash-for-copper schemes of last year) as borrowers are forced to sell to meet cash calls which in turn drops copper prices, reducing collateral values and tightening credit conditions even more. This is the biggest copper price drop since Dec 2011...
Following yesterday's abysmal employment and service data which led to an unchanged close it quite clear that the market has returned to a mode where it ignores all newsflow - at least the bad, which is due to the weather, the good news is due to the recovery - and instead is simply driven by such "fundamental drivers" as the momentum and position of the Yen carry trade. And overnight the USDJPY positively exploded following news that the Japan advisory committee has decided the nation's pension fund, the GPIF, does' t need a domestic bond focus. Implicitly this means that the GPIF will soon be able to purchase stocks like Facebook and Tesla, which is a guaranteed way of generated short-term gains and longer-term total losses for the Japanese pensioners. Of course, when the latter happens, nobody will have been able to foresee it and some scapegoat somewhere will be summarily fired. As for what this means for futures, the drift higher has made SPOOs rise once more and at last check was just below if not at new all time highs on an ongoing barrage of increasingly negative macro news.
The last few weeks have been dismally littered with two things. The virtual losses of virtual wealth from virtual currency speculation and the very real losses of very real humans with very real senior financial services positions. Sadly, as NewsWatch reports, tonight sees the two trends converge as the 28-year-old CEO of Singapore-based Bitcoin exchange First Meta has been found dead. The exact reason that may have led to the suicide is not known, and whether the Police have concluded that the cause of death is suicide is also unofficial.
Jefferies, Deutsche Bank, and now Citi and JPMorgan are all facing a collapse in trading volumes as Bloomberg reports the two banks brace for a fourth straight drop in first-quarter trading revenues - a period of the year when the largest investment banks typically earn the most from that business. “It sounds like more bloodletting on Wall Street,” warns one analyst, as Citi expects trading revenue to drop by a “high mid-teens” percentage.
While the FT promptly retracted an article on precisely the topic of gold manipulation from earlier this week (recorded for posterity here), Bloomberg appears to not have had the same "editorial" concerns and pressures, and today released an article once again slamming the final conspiracy theory that while every other asset class is manipulated, gold is in a pristine class of its own, untouched by close-banging, price fixing traders or central bankers, and reports that "the London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say." And the punchline: "Large price moves during the afternoon call were also overwhelmingly in the same direction: down. On days when the authors identified large price moves during the fix, they were downwards at least two-thirds of the time in six different years between 2004 and 2013. In 2010, large moves during the fix were negative 92 percent of the time, the authors found."
And just like that the Chinese yuan devaluation has shifted away from the merely "orderly." In the past few hours of trading, China, which as we reported two days ago has started intervening aggressively in the Yuan market, has seen its currency crash by nearly 0.9%, which may not seem like much, but is in fact the largest drop since December of 2008, and at last check was trading at around 6.18, even as the PBOC fixed the CNY reference rate 0.02% higher from the last official close to 6.1214, erasing pivot support point at 6.1346 and 6.1408. Naturally this means that the obverse, the CNYUSD, has crashed to as low as 0.1620. Should this move sustain without reverting, this will be the biggest weekly loss ever! The dramatic move is shown on the chart below.
Gold declined from $1,900 in September 2011 to $1,188 on December, 19, 2013. Silver declined from $48.50 to $18.50 over approximately the same time frame. Precious metal equities declined by approximately 70% over this period. This move down played out exactly as was scripted. However, let us review the causes of this decline. We start out with the most important words ever written by a regulator: BaFin, the German equivalent of the SEC, said that precious metals prices were manipulated worse than LIBOR. What are we to read into this, particularly the word “worse”? Obviously, worse than LIBOR could not mean that more money was fraudulently earned since the LIBOR markets are many orders of magnitude larger than the precious metals markets. Then it must mean that the egregiousness of the pricing dysfunction was materially larger in precious metals.
The seemingly incessant strengthening trend of the Chinese Yuan (much as with the seemingly inexorable rise of US equities or home prices) has encouraged huge amounts of structured products to be created over the past few years enabling traders to position for more of the same in increasingly levered ways. That was all going great until the last few weeks which has seen China enter the currency wars (as we explained here). The problem, among many facing China, is that these structured products will face major losses and as Morgan Stanley warns "real pain will come if CNY stays above these levels," leading to further capital withdrawal, illiquidity, and a potential vicious circle as it appears the PBOC is trying to break the virtuous carry trade that has fueled so much of its bubble economy.
Tesla has just announced it intends to issue a $1.6 billion convertible note offering "for the development of a "Gigafactory" and a "Gen III" vehicle." While not that unusual - and of course, why not take advantage of low cost financing and a surging momentum in your stock - what we did find at least intriguing was the underwriters included Morgan Stanley. This is the same firm (though we would be very sure that Chinese walls ensured total lack of knowledge) that doubled their price target (from $153 to $320) for TSLA yesterday (following the analyst's now almost clairvoyant questions during the earnings conference call). Paging Henry Blodgett?
The dismal trail of dead bankers continues. As The Journal Star reports, a successful Lincoln businessman and member of a prominent local family died last week. Former National Bank of Commerce CEO James Stuart Jr. was found dead in Scottsdale, Ariz., the morning of Feb. 19. A family spokesman did not say what caused the death. This brings the total of banker deaths in recent weeks to 9 as Stuart is sadly survived by three sons and four daughters.
- Ukraine Seeks $35 Billion as Yanukovych Warrant Is Issued (BBG)
- Ukraine's fugitive president wanted for mass murder (Reuters)
- Polar Vortex to Bring More Snow on Return to U.S. This Week (BBG)
- China property prices continue to rise (FT)
- Microsoft Said to Cut Windows Price 70% to Counter Rivals (BBG)
- Pentagon to propose shrinking Army, scrapping some jets (Reuters)
- Hedge Funds Turn Bearish on S&P 500 as VIX Advances (BBG)
- Draghi’s Data Jigsaw Takes Shape as ECB Readies Showdown (BBG)
- China, eyeing Japan, seeks WW2 focus for Xi during Germany visit (Reuters)
Global gold prices may have been manipulated on 50% of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy. Pension funds, hedge funds, commodity trading advisers, futures traders and ordinary investors are likely to have suffered losses as a result. Many of these groups were "definitely ready" to file lawsuits.
The answer may surprise you.
What are we to make of this sudden rash of banker suicides? Does this trail of dead bankers lead somewhere? Or could it be just a coincidence that so many bankers have died in such close proximity? We will be perfectly honest and admit that we do not know what is going on. But there are some common themes that seem to link at least some of these deaths together.