Chris Powell - Central Banks Suppressing Gold Price to Rig Currencies

Hong Kong - The Battle for Mong Kok

Moody's Downgrades Japan to A1 from Aa3

Press Release from Moodys.com

Release link

Global Credit Research - 01 Dec 2014

Singapore, December 01, 2014 -- Moody's Investors Service today downgraded the Government of Japan's debt rating by one notch to A1 from Aa3. The outlook is stable.

The key drivers for the downgrade are the following:

1. Heightened uncertainty over the achievability of fiscal deficit reduction goals;

2. Uncertainty over the timing and effectiveness of growth enhancing policy measures, against a background of deflationary pressures; and

3. In consequence, increased risk of rising JGB yields and reduced debt affordability over the medium term.

The A1 rating reflects the government's significant credit strengths, including a large, diverse economy with a strong external position, very high institutional strength and a very strong domestic funding base.

The stable outlook reflects the broad balance between upside risks including significant fiscal consolidation and a resumption of economic growth, and downside risks including intensification of deflationary pressures and loss in economic momentum.

The rating action does not affect Japan's Aaa foreign currency, local currency country and bank deposit ceilings. Those ceilings act as a cap on ratings that can be assigned to the obligations of other entities domiciled in the country.

RATINGS RATIONALE

RATIONALE FOR DOWNGRADE

DRIVER 1: HEIGHTENED UNCERTAINTY OVER REACHING FISCAL TARGETS AND CONTAINING DEBT

The first driver for the downgrade of the Japan government's debt rating to A1 is the rising uncertainty over whether the government's medium-term deficit reduction goal is achievable, and whether policy makers can overcome the tensions inherent in promoting growth while simultaneously stabilizing and reversing the rising debt trajectory.

The Bank of Japan remains committed to monetary expansion, with some positive impact on core CPI inflation. However, while monetary expansion has boosted domestic aggregate demand to some extent, the consumption tax increase on April 1 2014 has exerted even more powerful downward pressure. At least in the short term, deficit reduction is undermining the growth revitalization objective of Prime Minister Shinzo Abe's economic policy strategy.

The government's response, to announce a delay in the second step in the consumption tax increase, appears to represent a shift in policy towards stemming re-emerging deflationary pressures on economic growth and away from near-term fiscal deficit reduction. This strategy could have merits. In our view, the government's target of halving the primary deficit balance, excluding budgetary interest payments, by fiscal 2015 from its fiscal 2010 level will be difficult to achieve without more robust nominal GDP growth and hence improved buoyancy in tax revenues. In their absence, reaching the long-term target of a primary balance surplus by 2020 will be even more challenging.

However, the strategy also poses risks to fiscal consolidation and, over the longer-term, to debt affordability and sustainability. Japan's deficits and debt remain very high, and fiscal consolidation will become increasingly difficult to achieve as time passes given rising government spending, particularly for social programs associated with a rapidly ageing population.

The government acknowledges that additional but as yet unidentified economic and fiscal reforms will be needed for Japan to achieve its primary balance target in the second half of this decade. But the postponement of the second stage of the increase in the consumption tax has resulted in the delay of the 2015 budget, and a concrete plan to meet fiscal targets is not likely to emerge until the second half of 2015. The trajectory of government debt, projected at 245% of GDP in 2014 according to the IMF, will only start to decline under the most favorable combination of economic and fiscal reforms, including tax and social security system reforms and total factor productivity improvements, an end to deflation and achievement of annual nominal GDP growth of more than 3.5%. Given current domestic circumstances and lackluster external demand for Japan's exports, achieving these conditions will be challenging.

DRIVER 2: ECONOMIC GROWTH POLICY UNCERTAINTIES AND CHALLENGES IN ENDING DEFLATION

The second driver for the downgrade is the rising uncertainty over the government's ability to enhance medium term growth through structural economic reform -- the third 'arrow' of Abenomics -- success in which will be crucial to achieve fiscal consolidation. While some indicators suggest a pick-up in economic activity over the past year, potential economic growth remains low.

GDP growth sharply contracted in the second quarter of this year following the introduction on 1 April of the first step of the consumption tax increase, to 8% from 5%. Output was also affected by adverse weather in the summer to some extent. And both real and nominal GDP contracted again in the third quarter of the year, putting Japan's economy in recession for the third time since global financial crisis.

Moreover the relapse of the GDP deflator, the broadest measure of price movements, into negative territory in the third quarter of this year highlights the difficult nature of ending more than a decade of deflation. Although the ratcheting up by the Bank of Japan of its quantitative easing policies in October may once again move the deflator back onto positive ground in the fourth quarter of 2014, the task ahead for economic revitalization and price reflation is looking more challenging than envisaged by Prime Minister Abe when he introduced his three-arrow economic policy package in March 2013.

Looking further ahead, the most notable structural reform measure to be implemented to date is a reduction in corporate taxation beginning in fiscal 2015. The details have yet to be announced, and the implications for business investment are therefore still unclear. It is not yet clear what further measures the government will choose, or be able, to take to address the deep-rooted structural problems of Japan's economy, including broadening labor force participation, enhancing corporate governance and dealing with the challenges posed by demographic trends.

DRIVER 3: EROSION OF POLICY EFFECTIVENESS AND CREDIBILITY COULD UNDERMINE DEBT AFFORDABILITY

The third driver for the downgrade is the potential implications of the first two drivers for the affordability and sustainability of Japan's huge debt load. Debt sustainability will rest on the continued willingness of domestic investors to provide funding at affordable rates for the government. This looks likely to remain the case as long as investor confidence is not undermined. The JGB market has been characterized by low and stable interest rates despite the exceptional rise in debt since the 1990s. And JGB interest rates have remained low and stable through a number of crisis episodes, including Japan's 1997-1998 financial crisis, the 2008 global financial crisis and the 2011 tsunami and Fukushima nuclear power plant disaster.

Nonetheless, the Bank of Japan's efforts to raise inflation to 2% may eventually put pressure on government bond yields and thereby raise government borrowing costs. Rising interest rates would increase expenditure and offset gains from revenue buoyancy. Rising uncertainty regarding the government's capacity to deliver on its policy objectives could raise yields without any commensurate rise in revenues. Either outcome would further undermine the government's ability to meet its fiscal deficit targets and reduce its debt burden over the medium term, and eventually start to undermine debt sustainability.

RATIONALE FOR A1 RATING AND STABLE OUTLOOK

JAPAN'S CREDIT STRENGTHS SUPPORTED BY A DEEP DOMESTIC BOND MARKET, STRONG INSTITUTIONS, LOW VULNERABILITY TO EXTERNAL SHOCKS

Whatever the challenges facing the government, Japan retains very significant credit strengths. Its A1 rating and stable outlook are supported by its large, diverse economy, which we characterize as having 'High' economic strength. And even with the very significant debt burden, we believe that Japan exhibits only 'Low' susceptibility to event risk. A marked home bias on the part of resident investors provides a strong funding base —domestic investors retain a marked preference for government bonds, which has allowed fiscal deficits to be funded at the lowest nominal rates globally over the past two decades. Private sector fiscal surpluses remain more than adequate to fund government deficits, without the government resorting to external funding. We believe that very high institutional and structural strengths, including a decisive and powerful central bank, currently sustain this funding advantage and are very unlikely to diminish over the rating horizon.

Although Japan's government gross financing requirements are far larger than other advanced country governments', contingent risks which could elevate further such financing needs are low and remote. Japan's banking and corporate sectors have restored their health in recent years in terms of capitalization and deleveraging. Household debt is at a moderate level and has remained stable over the past decade. And despite low economic growth, Japan's labor market is relatively sound in regard to key features, such as low unemployment level, the recent pick-up in employment and nominal wages and a labor force participation rate broadly comparable with other advanced economies.

Related to Japan's home bias is its strong external payments position, which reflects the accumulated system-wide savings. At more than 60% of GDP in 2013, Japan's net international investment position is much larger than any advanced industrial G-20 economy, insulating its economy and capital market from global shocks. Income earned from Japan's sizable external assets has helped to sustain the current account surpluses, although this has diminished owing to a shift into a trade deficit which is in large part driven by the demand for energy imports following the shutdown in the nuclear power industry after the 2011 tsunami and Fukushima nuclear power plant disaster.

WHAT COULD MOVE THE RATING DOWN / UP

While the stable outlook indicates that we believe the rating is well positioned for the next twelve to eighteen months, factors that could prompt a negative rating action include significant divergence from the path toward achieving fiscal targets; an intensification of deflationary pressures; a severe loss in economic momentum; or a shift in the external current account surplus into persistent deficit.

Moody's would consider a positive rating action if Japan were to implement policies that we concluded were likely to restore economic momentum and improve prospects for significant fiscal consolidation and debt reduction.

GDP per capita (PPP basis, US$): 36,654 (2013 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 1.5% (2013 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 1.6% (2013 Actual)

Gen. Gov. Financial Balance/GDP: -8.2% (2013 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: 0.7% (2013 Actual) (also known as External Balance)

External debt/GDP: [not available]

Level of economic development: Very High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 26 November 2014, a rating committee was called to discuss the rating of the Japan, Government of. The main points raised during the discussion were: The issuer's institutional strength/framework, have materially decreased. The issuer's fiscal or financial strength, including its debt profile, has materially decreased. An analysis of this issuer, relative to its peers, indicates that a repositioning of its rating would be appropriate.

The principal methodology used in this rating was Sovereign Bond Ratings published in September 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this rating action, if applicable.

Press releases of other ratings affected by this action will follow separately.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. 

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Keiser Report: Goodbye, Wealth!

From RT

Published on Nov 27, 2014

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the fact that we are all Jack Johnson now - bankrupted by those we trust or, in the case of the central banks - distrust - all in the name of property speculation and other non-wealth producing speculative pursuits.

In the second half Max interviews the founder of Nanex, Eric Hunsader, about high frequency trading, market making and scalping markets.

Weekend Chillout - The Silver Price Remembers the 80's

I thought we would take a trip back in time to when the USD silver price had a $15 handle, no not last Friday, the Eighties!! - Do you remember the 80's? Well most of it was best forgotten but there were some gems worth rescuing, like this video of a ridiculously self confident 17yo Kate Ceberano. Watch this video and you just know she was destined for bigger things.

From my facebook page, Kate still remembers the 80's, afer all she was there.

Gold Shortage, Worst In 21st Century, Sends 1Y GOFO To Lowest Ever... And India Just Made It Worse

From Zerohedge.com

Article link

While we have covered the aberration that is a negative gold GOFO rate previously and in extensive detail in this post, an abridged version of what negative GOFO means comes courtesy of Deutsche Bank's recent discussion on what a successful Swiss gold referendum. To wit: "It is interesting to note that benchmark gold-dollar swap rates have recently traded negative, meaning investors are paying to borrow gold. This is unusual as gold is traditionally used as a source of collateral for cash financing.... [A] number of factors may play a role, such as excess dollar liquidity or an increased demand for collateral on the back of the global regulatory developments." In short a gold shortage at the institutional, read commercial and central bank, level. And not just a shortage but the biggest shortage in history, judging by today's latest plunge in the 1 Month GOFO which just dropped to -0.5% and , worse, 1 Year GOFO that just hit its lowest print in the 21st century, and is also about to go negative: something that has never happened before further suggesting the gold shortage could go on for a long, long time!
Negative GOFO

To be sure, GOFO has printed negative in the past, although the two most prominent historic plunges were due to acute events which promptly renormalized, and were not the result of what has now become a chronic gold collateral shortage via the swaps market.

The best known example of a complete collapse in the GOFO rate, is the September 1999 Washington Agreement on Gold, which was an imposed "cap" on gold sales (mostly European in the aftermath of Gordon Brown's idiotic sale of UK's gold) to the tune of 400 tons per year. The tangent of the Washington Agreement is quite interesting in its own right. Recall the words of Milling-Stanley from the 12th Nikkei Gold Conference:

"Central bank independence is enshrined in law in many countries, and central bankers tend to be independent thinkers. It is worth asking why such a large group of them decided to associate themselves with this highly unusual agreement...At the same time, through our close contacts with central banks, the Council has been aware that some of the biggest holders have for some time been concerned about the impact on the gold price—and thus on the value of their gold reserves—of unfounded rumours, and about the use of official gold for speculative purposes.

"Several of the central bankers involved had said repeatedly they had no intention of selling any of their gold, but they had been saying that as individuals—and no-one had taken any notice. I think that is what Mr. Duisenberg meant when he said they were making this statement to clarify their intentions."

Of course, this happened in a time long ago, when the primacy of Fractional reserve banking was sacrosanct, when the first Greenspan credit bubble (dot com) was yet to appear, and when barbarous relics were indeed a thing of the past, only to be proven oh so contemporary following not one, not two, but three subsequent cheap-credit bubbles which have vastly undermined the religious faith in fiath and central banking, sending the price of gold to all time highs as recently as 2011.

Another subsequent negative GOFO episode occurred in early 2001, which coincided with what has been rumored to be a speculative attack and reversal of the futures market. However, while pushing 1 month rates negative, 3 month rates remained well positive.

The only other time when both 1M and 3M GOFOs were both negative or almost so (3M touched on 0.05%) was in the aftermath of the AIG bailout following the Lehman collapse in November 2008, which reset the GOFO rate to just barely above 0% where it has traded for most of the time, at least until last summer when in a widely documented episode of negative GOFO rates, GOFO went negative in July of 2013 and remained in negative territory for over a month.

Which brings us to today, when not only is the 1 Month GOFO rate the most negative it has been since 2001, not only is 2 through 6 Month GOFO also negative, and in fact the 6 Month GOFO is now negative for the longest stretch in history clocking in at 11 consecutive days, but, strangest of all, the gold curve backwardation is about to become absolutely historic with 1 Year GOFO just a whisper away from hitting negative territory for the first time ever at 0.02667%.



But how is it possible that there is a shortage of gold when gold prices keep tumbling day after day, the skeptics will ask? Simple: the shortage involves gold "available" in the repo market, i.e., gold that already has been rehypothecated one ore more times. Keep in mind that central banks rarely if ever purchase gold outright in the open market, unlike Russia of course (and perhaps China), which has been engaging in an unprecedented gold buying spree over the past year. The rest of the commercial and central banks merely rely on shadow banking conduits and other repo channels to satisfy their gold needs, all of which merely demand the "presence" of synthetic, if not actual physical gold.
It is this synthetic "shadow" gold that is now actively disappearing from the system.Of course, if and when central banks were to tip their hand and reveal the unprecedented synthetic shortage to the physical market, the actual cleared market may well go bid only.

India shocks observers by scrapping gold import rule

One event that may stretch the already ridiculous disconnect between physical and swap-based gold, is the announcement earlier today by India which just scrapped a rule mandating traders to export 20 percent of all gold imported into the country, in a surprise move that could cut smuggling and raise legal shipments into the world's second-biggest consumer of the metal after China.
As Reuters reports, "along with a record duty of 10 percent, India introduced the so-called 80:20 import rule tying imports to exports of jewellery last year to bring down inbound shipments and narrow the current account deficit that had hit a record.

"It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed on import of gold," the Reserve Bank of India (RBI) said on Friday, without giving a reason for the change in the rule.

The reason today's announcement was stunning is that only days ago there were talks between officials of the Mumbai-based central bank and the finance ministry in New Delhi to bring back curbs on some trading houses following a surge in imports over the past few months.

Traders said before the decision on Friday that India's gold imports could climb to around 100 tonnes for a third straight month in November as dealers bought heavily on fears of curbs on overseas purchases, especially as the wedding season picks up.

The government's latest move came as a surprise even to some officials.
A policymaker associated with India's gold import policy said the government instructed the RBI at 1830 local time on Friday to urgently change the rule. A notification was posted on the central bank's website two hours later.
"We were not informed about the reason for scrapping this rule. The restrictions on who all can import who can't are still valid," said the policymaker, declining to be named as he is not authorised to talk to media.
And while those in control are unhappy that India's relentless appetite for gold is about to return, and in the process slam the country's current account deficit, at least one group is happy: "the rule change was a relief to jewellers facing difficulties in sourcing gold during the key festival and wedding season that started in October."

Bachhraj Bamalwa, director of the All India Gems and Jewellery Trade Federation, said the 80:20 rule was not only encouraging smuggling but was also misused by many traders.

From getting human mules to swallow nuggets to hiding gold bars in dead cows, smugglers had raised their activity since the middle of last year after the import curbs.

Following the disbanding of the 80:20 rule, the government may place a monthly or yearly quota for traders, said Sudheesh Nambiath, a senior analyst at consultancy Thomson Reuters GFMS.

"Quota is a more logical and simple way of monitoring and limiting gold imports," Nambiath said.

Bottom line: one can again add India to the list of end-market where hundreds of tons of physical gold will end up, never to be heard from again.
And then there is of course the wildcard of the Swiss gold referendum on Sunday, where a "Yes" vote would lead to the immediate collapse of the gold price suppression mechanism as the swap-based gold shortage breaks through merely shadow conduits and finally makes its way to the real market. Which, of course, is why it will never be allowed to happen.

Black Friday Madness comes to Gold and Silver Markets

Seems the Gold and Silver markets have embraced the Black Friday sales concept and sold off, giving shoppers sale prices on both metals.

Gold was down 2.5% and silver down a massive 6.64% for the day. In Australian dollar terms it meant that gold was off $30/oz and silver off a whopping $50/kg!

Several factors seem to be in play at the moment, the Swiss Gold Referendum is on Sunday (polls indicate a No vote) and the continuing slide in the oil price have both weighed down the gold market and which has been amplified in the much smaller silver market.

charts from goldprice.org

Citi - "Gold: A Six Thousand Year-Old Bubble Revisited"

If Citi a analyst thinks he is smarter than 6,000 years history, and billions of people alive, and dead (many of them dead from mining and fighting over gold) then the chances of him being right are?......

Click here or on the image to access the full report

Axel Merk on Swiss gold referendum

Christie’s Hong Kong Autumn Sales Netted $388M

Just as well there is no inflation.

Nov. 27 (Bloomberg) –- Christie’s Chairman & International Head of Asian Art Jonathan Stone discusses Christie’s Hong Kong Autumn Sale, some of the pieces that were up for sale and the records that were set with Angie Lau on “First Up.”