China And Gold: As The Yuan Goes, So Goes Gold (Trade War Effect?)

Over the past year, Gold has been looking quite similar to China’s currency, the Yuan. Eerily so.

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Bloomberg had this story back in July of this year:  “China’s Gold Mystery: Is Nation Slowly Increasing Reserves?”

The case for China raising its gold holdings seems compelling.

A potential trade war with the U.S. that threatens growth, simmering tensions on the Korean peninsula and this year’s slump in gold prices are reasons to buy. But People’s Bank of China data show the country’s gold reserves haven’t risen since Donald Trump was elected President in 2016. Still, this wouldn’t be the first time the central bank has kept silent while adding to its stash.

I guess the answer is yes, but not since Trump was elected President. But I have the sneaking suspicion that China is adding to its gold stash.

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I simply must buy one of those natty Mao suits to wear to George Mason University faculty functions.

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2.2 Million Homes Still In Negative Equity As Of Q2 2018 (Ten Years After)

The housing crash and financial crisis from The Big Short and Margin Call occured in Q4 2007 and throughout 2008 and the first half of 2009. Yet, according to CoreLogic, 2.2 million homes remain in negative equity territory.

Where are the biggest shares of negative equity for homeowners? Try Louisiana, Connecticut, Illinois and Florida.

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Ten years after the multiple government refinancing programs like HAMP and HARP .

And 2.2 million homeowners are STILL underwater. Particularly in Louisiana.

Gold Flash Crash With $1.2 Billion Of Futures Contract Trading (Silver Flash Crashes Too)

Strange days! First, the lovable losers from the “mistake on the lake” (aka, the Cleveland Browns) beat the New York Jets for their first victory in several seasons. Then, gold flash crashes and partially recovers.

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At 08:45 ET, more than 10,000 December gold futures contracts, each representing 100 ounces, changed hands on the Comex in New York. That amounts to approximately $1.2 billion notional of the precious metal. That was about 30 times the 100-day average for that time of day.

While most eyes are on gold, silver had the same flash crash but with a stronger rebound. The flash crash was less than 1%.

Did the New York Jets flash crash against the Browns?

GTY 1036935776 S FBN SPO USA OH

 

 

May Doubles Down, Demands Respect From EU as Talks Hit Impasse (Sterling Gets Pounded, FTSE Spikes)

Brexit, the ridiculous constrainted trade association of Europe (sold as a free-trade association), should be halted as soon as possible for the UK’s sake.

(Bloomberg) — Theresa May hit back at the EU for flatly rejecting her Brexit plans, accusing the bloc of failing to treat the UK with respect, as the stalemate in negotiations deepened.

The prime minister revived a warning that no deal is better than a bad deal, a day after EU leaders bluntly told her that her blueprint for the divorce won’t work. In a statement in London, a day after European Union leaders used a key summit in Salzburg, Austria to tell her that her approach won’t work (for who?), May told them it was “not acceptable to simply reject” her plan.

On Wednesday, May was left looking isolated after leaders told her to re-work her plans, and set her a deadline of next month to come back with new ideas. British officials had been hoping for warmer words from European leaders at the Austrian event — to bolster May as she prepares for her party’s conference in a fortnight.

“Throughout this process I have treated the EU with nothing but respect. The U.K. expects the same. A good relationship at the end of this process depends on it” and “at this late stage in the negotiations it’s not acceptable to simply reject the other side’s proposals without a detailed explanation and counter proposals,” she said at her Number 10 Downing Street residence Friday.

The prime minister said in March that she wouldn’t be “buffeted” by calls to walk away from talks, but as the tone of negotiations deteriorated on Thursday, she hinted that she might have changed her mind. She said the U.K. would continue to prepare for a no deal exit.

The pound dropped as much as 1.4 percent against the dollar as May spoke, the most on a closing basis since November. It was trading 1.3 percent lower at 1.3095 as of 2:16 p.m. in London.

Britain is due to leave the bloc in March next year, with or without a deal. If there’s no divorce agreement, there will be no transition — a two-year grace period designed to prevent the country and its businesses tumbling into a legal limbo.

The reaction in the UK Pound Sterling?

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The FTSE rose 2% on the May defiance.

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Here is a comparison of the UK and Germany sovereign yield curves, demonstrating that the UK and Germany are actually different economies.

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US Swap Spreads Widening And Curve Downward Sloping And INVERTED Beyond 20 Years

While the US Treasury yield curve has yet to invert (slope < 0), the US Dollars Swaps curve has inverted with spreads greater than 20 years going negative.

(Bloomberg) — Dollar swap spreads curve steepens as buyers of long-end Treasuries emerge, pushing 5s30s to fresh session lows; move has extended widening in long-end spreads, which initially started during early Treasuries selloff.

Hedge fund demand seen in long end of the Treasuries curve, New York-based trader says; 30-year yields topped during morning session at 3.242% but remained inside Wednesday’s high

Demand in long end has tightened 5s30s curve by ~0.6bp on the day

USD 30-year swap spreads wider by 1.1bp, reversing tightening seen in prior two sessions; spreads started to widen amid early Treasuries selloff, pointing to paying flows extending the move lower, as USZ8 bottomed at 139-24

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Dollar swap spreads curve is downward sloping and INVERTED beyond 20 years.

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Fed Chair Powell’s reaction?

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US Existing Home Sales YoY Fall For Sixth Straight Month As Mortgage Rates Rise

US Existing Home Sales for August rose slightly to 5.37 million units SAAR for a 0.5% gain since July. But on a year-over-year (YoY) basis, existing home sales fell 1.50%. That is the sixth straight month of EHS declines YoY.

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Of course, rising 30-year mortgage rates aren’t helping existing home sales.

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And like magic, The Federal Reserve is making existing home sales growth disappear. It would take an incredible magic act by The Fed NOT to burst the housing bubble by “normalizing” interest rates.

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US Jobless Claims Fall To Lowest Since 1969, But Hourly Earnings Growth Still Below 2009 Levels

Apparatchiks rejoice! Hourly wage growth remain below 2009 levels even though jobless claims in the US have fallen to 1969 levels!

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Stated differently, jobless claims are back to President Richard Nixon levels and hourly earnings growth is only back to the beginning of President Barack Obama’s term as President.

 

 

Movin’ On Up! Interest Rates Keep Rising (100% Prob of Rate Hike At Sept FOMC Meeting!)

They’re a movin’ on up .. to the north side. 

The Fed Funds Target Rate, the 2 year Treasury yield, the 90 day commercial paper rate and effective Fed Funds rate all moved together prior to the first Fed rate hike in late 2015. Since then, we are seeing divergence.

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And the 10-year keeps a goin’ on up!

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And the probability of more Fed rate hikes are forecast for the future.

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And WIRP, the implied probabilty from Fed Funds Futures are pointing to a 100% chance of a rate hike in September AND November.

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And the good ship Folly Pop isn’t sinking. Yet.

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The Scream! Multifamily Housing Starts Skyrocket 27.27%, 1-Unit Starts Meh At 1.86%

The US has never fully recovered from the 1-unit housing boom that started in 1995 and exploded in 2007.  The boom started with Clinton’s National Homeownership Strategy: Partners in the American Dream.  It should have been called The American Scream!

Here are the August housing starts and permit numbers.

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Here is a chart of 1-unit housing starts beginning in 1984.  Note the surge starting in 1995.

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Multifamily? 5+ unit starts have been fairly consistent since 1984. With the exceptions of the 1991 and 2008 recessions.

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Permits are down in August.

This painting by Edvard Munch fully captures the aftermath of a terribly misguided US housing policy.

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The DOJ vs Deutsche Bank Traders In LIBOR Fraud Case (Something Stupid)

The trial has started in New York over whether Deutsche Bank traders, Matthew Connolly and Gavin Black defrauded counterparties in LIBOR trading. Here is the Department of Justice complaint: liborschmibor

United States v. Matthew Connolly and Gavin Black (S.D.N.Y.): On September 17, trial is scheduled to begin against former Deutsche Bank traders Connolly and Black. The indictment alleges that the defendants defrauded counterparties to Deutsche Bank’s derivative trades by manipulating the London Interbank Offered Rate (LIBOR), a critical benchmark to which the profitability of those trades was tied. The evidence at trial will show that LIBOR was the most important benchmark in the financial world, with hundreds of trillions of dollars in derivatives, loans, and credit facilities tied to the interest rate. The case is being tried by Fraud Section Trial Attorneys Carol Sipperly and Alison Anderson and Michael Koenig and Christina Brown from the Antitrust Division.

Yes, the defendants said some pretty stupid things in messages (as many traders do). For example, on or about April l, 2005, BLACK messaged Submitter A asking “COULD WE PLS HAVE A LOW 6MTH FIX TODAY OLD BEAN?”

But is saying something stupid a felony? 

Let’s look at the behavior of the LIBOR 1 month against the Fed Funds Effective rate since 2001. Bear in mind that 2005 and onwards is the peak of the housing bubble in the USA and the UK had their share of subprime mortgage problems too (such as Northern Rock).

LIBOR 1 month tracks The Fed Funds Effective rate until August 9, 2007. August 9, 2007 began with the seizure in the banking system precipitated by BNP Paribas announcing that it was ceasing activity in three hedge funds that specialized in US mortgage debt.

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Most of the distortions in the LIBOR 1 month started with the BNP Paribas pulling the plug on the US mortgage hedge funds. And it was all downhill from there until rates stabilized in 2009-2011.

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So, in a “but for” world, would Deutsche’s trades involving LIBOR have mattered? In other words, did Connolly and Black go fishing and come up empty? Or did they catch a big fish?

Inquiring minds want to know! Or at least juries.