New CME Bitcoin Futures And The Goldman Sachs Connection

Embedded into Bincoin’s genesis block by Satoshi Nakamoto on January 3, 2009, the day Bitcoin went live, was a message which is now well-known throughout the Bitcoin community. This message, taken from The Times newspaper of that day, read “Chancellor on brink of second bailout for banks”.

While there is ongoing debate as to its significance, the message was arguably a commentary on Satoshi’s less than favorable regard for the parasitic, unstable and inflationary nature of the contemporary banking system, as well as a statement on Bitcoin being able to provide a more equitable transfer system by cutting financial institutions out of the equation.

Elsewhere, Satoshi had elaborated on banks, again is a less than flattering way:

“Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”

We can therefore conclude that the Bitcoin creator does not have a high opinion of banks in general, which probably also explains why Satoshi created Bitcoin in the first place, and why Satoshi’s white paper about Bitcoin was first published on a cypherpunks mailing list, and not, for example, within the pages of a Bank for International Settlements (BIS) research report.

Which is why it would be intriguing at this time to know what Satoshi thinks of the imminent launch of (US dollar cash-settled) Bitcoin futures by the CME Group. But even more interestingly, it would be intriguing to know what Satoshi would think of the fact that the settlement prices of these new CME Bitcoin futures are based on calculations by a private London-based company whose founder and sole director is from Goldman Sachs.

As a reminder, this is the same Goldman Sachs which Matt Taibbi described as follows, coincidentally also in 2009:

"The first thing you need to know about Goldman Sachs is that it"s everywhere. The world"s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."  

This is also the same Goldman Sachs, whose alumni currently occupy positions in the most powerful financial positions in the world, positions such as US Secretary of the Treasury (Steven Mnuchin), President of the European Central Bank (Mario Draghi), Governor of the Bank of England (Mark Carney), and President of the Federal Reserve Bank of New York (Bill Dudley).

The Fix is In: CME Bitcoin Futures

One key feature that stands out when glancing at the contract specs of these soon to be launched CME Bitcoin futures contracts is that they will be cash-settled based on a “CME CF Bitcoin Reference Rate (BRR)”

A recent CME press release elaborates:

“CME Group"s Bitcoin futures will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin.  

 

Since November 2016, CME Group and Crypto Facilities Ltd. have calculated and published the BRR, which aggregates the trade flow of major bitcoin spot exchanges during a calculation window into the U.S. Dollar price of one bitcoin as of 4:00 p.m. London time.

 

The BRR is designed around the IOSCO Principles for Financial Benchmarks.

 

Bitstamp, GDAX, itBit and Kraken are the constituent exchanges that currently contribute the pricing data for calculating the BRR.”

A reference rate / benchmark calculated in the City of London that is used as a basis for the settlement of multi-billion dollar financial contracts. Wait, where have we heard that before?

The CME web site also helpfully hosts a methodology document for this Bitcoin Reference Rate (BRR), but which strangely has very little mention of CME, and a lot of citations to Crypto Facilities Ltd.

The document is even titled "Crypto Facilities - Digital Assets Unleashed" (dated March 6, 2017) and also copyrighted by Crypto Facilities Ltd. “© 2015 - 2017 CRYPTO FACILITIES LTD. ALL RIGHTS RESERVED. PATENT PENDING.”

In this methodology document, both the Administrator and Calculation Agent of the BRR are exclusively listed as "Crypto Facilities Ltd", based at an address in the City of London:

Contact Details: Crypto Facilities Ltd 4th Floor 25 Copthall Avenue London EC2R 7BP

 

Web: https://www.cryptofacilities.com Phone: +44 20 7655 6085 Email: contact@cryptofacilities.com

So who or what is “Crypto facilities Ltd”?  Looking at the UK Companies registration web site (Companies House), reveals that "Crypto Facilities Ltd" was incorporated on 12 August 2014 as a private limited company in the UK.

According to Companies House, "Crypto Facilities Ltd" only has one director, a certain Timo Schlaefer.

Who is this Timo Schlaefer? According to LinkedIn, Timo Schlaefer was with the Vampire Squid Goldman Sachs between 2011 to 2015. Strangely though, the header of Schlaefer"s LinkedIn profile still says “Goldman Sachs”.

LinkedIn screenshot https://uk.linkedin.com/in/timoschlaefer/en

Then there is a Bitcoin Magazine article about Schlaefer dated February 2015 which describes him as “Executive Director in Credit Quantitative Modelling at Goldman Sachs.”

In summary, here we have a new Bitcoin futures contract, a derivative on the global phenomenon that is Bitcoin, whose settlement price is based on a reference rate calculated in London by an unknown company whose sole director is from Goldman Sachs.

But there is nothing to worry about, because CME also confirms that there is an Oversight Committee for this Bitcoin Reference Rate calculation. This committee has the impressive title of the “Bitcoin Pricing Products Oversight Committee”, and the Committee:

“has been established jointly by Crypto Facilities Ltd. (“CF”) and Chicago Mercantile Exchange Inc. (“CME”).

 

The initial members of the Oversight Committee and its Chairman shall be appointed jointly by CF and CME”

While we will leave you to ponder what all of this means, its difficult to imagine that US dollar cash-settled CME Bitcoin Futures were on Satoshi’s radar when he typed “Chancellor on brink of second bailout for banks” into his computer on January 3, 2009, hitting the enter key and kicking off Bitcoin’s genesis block and the creation of a new global system for disintermediating banks and sparking the emergence of an entire new universe of crypto currencies and blockchain platforms.

US Household Debt Is Rising 60% Faster Than Wages, And One Rating Agency Is Worried

In a report released today by DBRS titled "Consumer debt and debt burden", the rating agency which is best known for keep Italian debt eligible for ECB monetization at the peak of the European banking crisis, looks at the latest Quarterly Report on Household Debt and Credit issued by the NY Fed (discussed here previously) which showed that consumer debt for the third quarter of 2017 was approximately $12.96 trillion, representing an increase of $116 billion over the second quarter of 2017. The debt level for the first three quarters of 2017 has continued to increase above the previous record debt level which was established in the third quarter of 2008 as shown in Exhibit 1 below.

DBRS also highlights that not only did total debt levels increase, but their composition changed as highlighted in Exhibit 2 below.

The good news: total mortgage debt has decreased since 2008, to $8.743 trillion from $9.29 trillion, but as of the third quarter of 2017, still accounts for 67.5% of overall consumer debt.

The bad news: since 2008, the growth in total debt has been attributable to the auto loan and student loan sectors. Auto loan debt has increased by 50% since 2008, to slightly over $1.2 trillion from approximately $800 billion. The most dramatic growth rate, as Zero Hedge readers know well, has been in student loan debt which has grown by 122% since 2008, to $1.357 trillion from $611 billion.

But a bigger concern flagged by DBRS is that the growth in consumer debt is raising concerns when viewed in the context of the existing wage stagnation hampering the current economic environment. The rating agency cites a paper published in October 2017 by the Harvard Business Review which stated that the inflation-adjusted hourly wage has grown by only 0.2% per year since the mid-1970s and labor’s share of income has decreased to its current level of 57% from 65%.

Meanwhile, in the second quarter of 2017, wages were only 5.7% higher than they were a decade earlier. In comparison, the Federal Reserve Bank of New York/Equifax data shows that consumer debt growth over the same period was 9.3%.

In other words, the purchasing power of US households has been largely a function of rapidly rising debt, which over the past decade has risen 60% faster than wages.

There is another concern: while overall delinquency rates have stabilized in recent years, the one stubborn outlier remains student debt, where 90+ day delinquencies have risen to more than 10%.

This is a problem because as Bloomberg"s Lisa Abramowicz writes, considering that GOP tax overhaul may eliminate tax deductions on interest on student loans, this debt load could become even more onerous.

It"s not all bad news, however: as DBRS concedes, stabilizing delinquency trends imply that a tipping point has not yet been reached. There is also the suggestion that since there have been significant economic booms since the 1970s, during periods of persistent wage stagnation, the tolerance level for gaps in debt and earning power is quite large.

On the other hand, the rating agency also concedes that with consumer debt at all-time highs, and rising, as the debt/wage relationship seems to be entering a previously unobserved phase, "it seems prudent to closely monitor both components."  This is a "red flag" for the economy because as Abramowicz concludes, "should unemployment rates rise at some point, this balance could fall out of whack, exacerbating any economic downturn."

Of course, a variant perception on this threat is that once the economic fundamentals catch up with reality, and the US consumer is tapped out in a rising rate environment and crushed by the weight of $1.4 trillion in student loans, the Fed will promptly halt the current monetary tightening regime, and revert back to preserving the "wealth effect" with more ZIRP, QE and eventually NIRP. One look at the S&P confirms just how "worried" the market is about the current state of the economy...

On The West"s Demise To The Sidelines Of History...

Authored by Seth Lievense via Limpidus.org,

The world is changing, but the west is clinging on to a unipolar vision of the world that has passed. It’s attempts to discard this changing reality in exchange for a western worldview expressed in their politics and media are so ungrounded, it’s comical as it is dangerous. This western bubble of reality laid down before the wests general public seems to hold up for now, although fragile and less and less by the day. Really, Russia again? Outside this western bubble however, credibility is lost daily as the west places itself on the sidelines of history.

The fundamental building blocs in western hard power and soft power are not under attack as the mediapolitical landscape could make us feel they are, it is more that they are revealed for what they are without the sugarcoating. As the multipolar world creates the political and economic power to pursuit alternatives and show new perspectives and interpretations, they now have the power to reflect the actions of the west mirrored back upon themselves as apposed to ‘just the way things are’ in the world.

Suddenly we are presented with another version of reality that also begs for a different version of history for the past decades. Our economic system seems to benefit the few as those few have a well managed grip on politics. Local business and craftsmanship, the real economy, have given way to the privileged multinationals and the financial world, the world of tax breaks and tax havens.

Whilst the real economy is breaking down, the central banks were printing money like never before to keep the banks and the familiar names afloat -so long as the Apple’s and Facebook’s and other household names keep the indices up, all is good. At the root of this infinite printing of money lies of course the petrodollar. The 1973 deal with Saudi-Arabia where the US would support the house of Saud so long as OPEC would sell all oil in US dollars only and buy US bonds, creating an immense need for dollars in the world and preventing inflation as the Federal Reserves printing presses make way for the economic, political and military US might since. Since, the whole international trade system has been dollar based. If Bolivia wants to sell logs to Venezuela, it will still use dollars. And by US law, every dollar has to be cleared by the bank of New York, thus making this transaction subject to US law. And don’t you dare circumvent it. Blocking Iran from the dollar-trade for not selling oil in dollars, and thus blocking it from the swift-system, and thus from world trade, was therefore the nuclear bomb in economics. Their currency devalued 50%. The earlier threats to the petrodollar –Libia selling oil for gold, Iraq for euro’s- have been met with heavy resistance. Now, in Syria, it seems the world has changed. The predominantly Saudi-US creation of ISIS to destabilize the nations of Iraq and Syria into chaos has now failed. Could we again see Syria, Iraq and Iran work together to create the Friendship Pipeline (a.k.a. the Islamic Pipeline in the west), exporting oil from Iran to Europe? Or will it be more of the same political-economic-monetary-military export of the west, with freedom, democracy and human rights as it’s sugarcoating?

The guardians of a new geopolitics: Iran-Russia-China

The demise of military hegemony
The success-story of the liberation of Syria by ISIS is a result of the Astana peace talks between Russia, Syria, Turkey and Iran, not the Geneva talks where the US made promises it broke within days on the ground. It is the cooperation of Hezbollah, Iran, Iraq and Russia (as tides changed, Turkey) that in spite of US-Saudi aid to ISIS managed to liberate the countries of Syria and Iraq. The military power of Russia, with for example it’s S-400 anti-missile all over the middle east is a game-changer. It’s a defensive system that leaves air-intervention in a padlock. Turkey as well as Saudi Arabia buying these demonstrates once more the break down of this unipolar world. Where NATO’s version is unable to attack ‘friendly’ aircraft -friendly as defined by NATO-, the S-400 is neutral in this aspect and respects the autonomy of a country.

As for within Syria, where Iran and Russia are invited by Syria and are legal in respect of international law, the United States is seen as an invader by Syria. Also, but most importantly, Assad is popular in Syria itself and self-determination is being undermined. It must sound as alienating to a west man’s ears as Assad stressing education and health services in the rebuilding of Syria or the gas attack being from ‘moderate rebels’, not Assad’s government. At the moment 95% of Syria has been freed from ISIS (sometimes known as moderate rebels in the west), yet the United States is still making a last-minute effort to control the border of Iraq and Syria to prevent regional integration -or a pipeline. They will fail.

The demise of economic hegemony
For the past decades the west has been producing less and less, as cheap labour was found in the east. It seemed to make the average western person rich as purchasing power (pp) rose. These riches are however the fruits of the rise of technology, oil and the currency devaluation of e.g. China. This cheap produce from the east could be branded to sell for many times it’s cost as this gave way to multinationals and the service and retail industry in the west. Likewise, cheap money from the printing presses allowed for financial industry to blossom. And on the other side of the petrodollarcoin, the OPEC-countries maintained whatever powers that were via the high oil prices the world paid them and US protection.

As the west and OPEC-countries profited of cheap labour, China saw a boom in exports that developed their country. China then used these profits to buy US obligations to keep their currency low as it blew up the dollars value even more. You could say a whole generation of Chinese has had to sacrifice/work their way out of a dollar-dominated trade.

Over the past decade Chinese growth has allowed for the rise of wages, “China is no longer the cheap labor haven it once was. Monthly manufacturing wages reached 4,126 yuan at the end of 2015, equal to those in Brazil but much higher than Mexico, Thailand, Malaysia, Vietnam, and India.” –Bloomberg. Chinese per capita income rose from $200 in 1990 to $5000 in 2010. The Chinese middle class has grown significantly and according to the World Bank, more than 500 million people were lifted out of extreme poverty as China’s poverty rate fell from 88 percent in 1981 to 6.5 percent in 2012. “Between 1990 and 2005, China’s progress accounted for more than three-quarters of global poverty reduction and a big factor in why the world reached the UN millennium development goal of halving extreme poverty.” –Wikipedia. Extreme poverty has now almost completely disappeared from China and by 2020 it aims to have eradicated poverty at all. These great stories don’t form part of the wests reality. It clings on to past views of the world to explain its place in this world. The east looks forward, the west still only sees $1/hour sweatshops and environmental pollution.

Besides the rise of purchasing power (PP) in the east soon meeting the demise of PP in the west and besides the oil price having plummeted with fewer petrodollars to recycle into the US economy, there is also the factor of technology that undermines the unipolar world, the western favoured world.

Multinationals of the west used to be able to buy up cheap products, market them and sell them off highly priced, supporting whole industries in advertising and the service and retail sector. The internet however has now made it possible to bypass these western cooperations and to buy directly from small and medium enterprises (SME’s) in China.

Alibaba processed 812 million orders within 24 hours and its payment service Alipay handled 1.5 billion transactions during the day, peaking at an incredible 256,000 transactions per second.

Chinese export subsidies make it very affordable to ship these products all over the world, where for example a European import tax on goods over €30 from China seeks to limit this. As Alibaba allows western SME’s to buy directly from Chinese SME’s, bypassing import and export companies and western branding, so does AliExpress make these products available for the consumer. As this will temporarily save western purchasing power, it will in the long run also favour the real economy over the one pushed upon us by the wests hegemonic structuring of political-economic power. Less and less money will flow through this hierarchical organizing of society. And, “By 2020, China will account for about 60% of global e-commerce.” – Forbes

China seeks to be at the forefront of the third industrial revolution by heavily investing in automation and renewable energy. “Somewhere around 80GW of solar manufacturing capacity exists in China, of 130GW global – using 50 of those 80 gigawatts is clear evidence that China is no longer focusing on exports.” –Electrec. China knows it will have to invest in automation and renewables, as the rise of wages is already putting pressure on economic growth. The Chinese are pricing themselves out of the market. This concept of economic interconnectivity of the real economy by connecting SME’s and customers is part of China’s ‘win-win‘-strategy of diplomacy abroad. This is where the Belt and Road Initiative (BRI), fits in too. Both seek to facilitate and steer, rather than dominate. Like a parent would a child, a very Chinese view of government. The BRI is the largest infrastructural realization the world has seen to day and seeks to connect China via large infrastructure projects, or so called ‘new silk roads‘, with the rest of the Eurasian continent, guarenteeing export for the foreseeable future as the Chinese economy is changing away from a production-oriented economy.

Belt and Road Initiative (BRI)

BRI connects the economies by annihilating time and space and creates interdependence, ideally preventing regional instabilities or wars. The ‘win-win’ presents a clear business alternative against the hegemonic ways the west organizes the world to the advantage of those that have the advantage already.

One of these new silk roads will connect China via high speed rail and road to Europe via Russia, drastically reducing traveling time of goods and people. China and Russia have also found each other in bypassing the US dollar in bilateral trade. “In 2016, the share of national currencies in payments for exports of Russian goods and services was 13 percent, imports 16 percent. In the first quarter of 2017, these figures rose to 16 percent and 18 percent, respectively,” said Russian Deputy Prime Minister Sergey Prikhodko. Jack Ma’s Alibabi/Aliexpress has also been invited to stimulate, diversify and localize Russia’s economy by creating a Russian arm of the company. Russia already diversified the economy over the past years dropping oil and gas state revenues from over 50% in 2014 to 39% now and less than 1/3^rd expected in 2020. When sanctions from the west came for (people in) the oil, banking and military industry, Russia chose to reply with sanctions that affected the real economy, promoting the growth and diversifacation of local industry, creating an immense growth and maturation of their agricultural sector. The russian economy is remarkably self-relient in agriculture. “Russia is one of the world’s leaders in exports of grain, vegetable oils, fish, and a number of other foods. We expect to become the leading supplier of ecologically clean food to our neighbors in the Asia-Pacific region.”, published by Russia ahead of the APEC meeting of last november.

It would be interesting for people in the west to listen to a Valdai speech of Vladimir Putin, the speech of Xi Jinping at the 18^th Central Committee of the Communist Party of China or to the balanced words of Hasán Rouhaní when confronted with polarizing western rhetoric. For most in the west however, the mind has constructed views of these countries that are hard to break, based on allegations circulating within the western bubble of reality that seek to polarize and justify the unipolar hegemony. Russia’s RT has successfully been able to show different understandings of the world and has become the object of discussion itself. It’s usually a disturbing allegation brought forward by a politician, backed up by institutions and amplified by media. It either consequently lacks any proof of the allegation and usually ends in self-reference to the wests mediapolitical show and might even be corrected when the attention of the media has shifted to a new hype or is either so blown out of proportion that it fails to make the argument. This includes the election-hacking I’ve written (Dutch) about before, as well as the whole Crimea-unification, as I’ve written about before as well. There is a world of views to discover for which I hope we may find ourselves mature enough to decide over ourselves. Geopolitical analyst Pepe Escobar put it wonderfully when visiting Iran, “So once again, in Tehran, provoked by the meeting of minds around the conference – the absolute opposite of “clash of civilizations” – it was possible to discuss how Iran (resistance against injustice), China (remixed Confucianism) and Russia (Eurasianism) are offering post-Enlightenment alternatives that transcend Western liberal democracy – a concept that has been completely co-opted and shattered by the hegemony of neoliberalism.”

The longer the mediapolitical west keeps up the false narratives around Russia, Iran and China for maintaining their unipolar worldview, the more it will distance itself from the socioeconomic integration in the world around them. It will happen slowly -China favours stability-, as our growth slows down and tourists will visit our historic scenery. The new Silk Road doesn’t have to stop in Istanbul or Moscow, it can connect through to the harbour of Rotterdam and go via Berlin. The concept of the enemy is the produce of a society that lacks the leap of trust to participate in a lateral way in the challenges of tomorrow.

The west will have to start to understand that the ideas of the enlightenment, the concepts of freedom, democracy and human rights are shattered not by the development of the rest of the world -the exception of ISIS noted-, but by the stratification of a society undermined by monetary and neoliberal concepts that have hollowed out their ideals. As for spreading those ideals of human rights, freedom and democracy abroad, we might do well listening once again to the east. The Chinese do not argue these principles, yet are in no way convinced of the path dictated by the west, nor the moral high ground to preach from. They see these principles arising out of economic development. Out of a rising middle-class and basic needs for citizens -thus free of poverty and free from harsh economic inequality- will arise democracy. These values have to be developed and can not be enforced without economic democracy and basic needs. How can you expect someones human rights to come first, does not your survival do? In the export of Chinese ‘win-win’ diplomacy, it does not seek to impose a way of living, a certain developmental path. It provides stability, a way for both economies to become interdependent, of which cultural exchange and respect may follow.

The west is in debt, immensely. And this time it’s not only consumer debt that resulted in the mortgage crises of 2008, it’s also corporate debt, states, bond markets, you name it.  Whatever credit market the crises will start in, it will spill over resulting in a crash far greater than 2008. The real wealth has moved east. Sure, China has debt, but it also has growth and actual production and it’s debt is small in comparison. Russia and Iran hardly have any debt. Gold is moving from west to east and is in high demand. We can’t see it reflected in the price yet, for the wests money printing presses and their leveraged ‘paper gold’ still manage to hold down the prices, but the direction is clear.

If not for production, resources or gold, what still backs a euro or a dollar? With bitcoin gaining credibility with each passing day, be it for storage or as currency, the euro/dollar demise doesn’t even stop there. Blockchain, the technology behind bitcoin, allows for the whole replacement of most of the financial world that forms one of the last strongholds of western power. Ethereum’s ether does not only allow for new coins (the famous initial coin offerings where lots of money is bound to be lost) on top of their base system, but this also allows for smart contracts. These have the potential to replace any mortgage, loan or other smart contract you could think to need a financial institution for. In time, settings in a program or on a site will make these interpersonally, with the community to verify for the conditions made. Russia, the first state to announce so, has it’s CryptoRuble ready, undoubtedly balancing the perseverance of the state (taxes) with the newfound freedoms and stability of digital money.

China’s Panda Power Plant

With the west to be behind in automation and renewables, without production and resources and no multinationals and financial world to profit of others, what are we but left in dependency? It’s time to find ground in roots of the renaissance and the enlightenment, find strength in local economies connecting laterally to local economies, find autonomy in renewables and find security in cryptocurrencies and gold as we connect ourselves to a future we can pull forward ourselves, away of dependance of institutions and corporations we can not rely on and in spite of their hinderance. As we pull out of globalization as put forward by the west, we will see the world connect globally from a local angle. And, as automation and technology can decentralize, they can provide locally. Think crypto instead of central bank or mortgage, solar instead of OPEC, 3d-printing directly from local resources instead of shipping from afar, the arts and craftsmanship (a design at the local 3D-shop?) instead of the wage-slave, vertical farming instead of poverty and local abundance instead of global scarcity. It’s a way of thinking that puts autonomy and free time back up front. Wasn’t that what freedom once meant? And from that place, we will see each other in shared pursuits of dreams.

Surely, all societies have flaws and have challenges to work on, as I understand this is the case in China, Russia and Iran, however, a western attitude of false moral superiority prevents understanding. How can we adapt to a future we understand less and less? The more the west will put in the full weight of it’s apparatus based on the old industrial revolutions and monetary and mediapolitical hot air, the harder the fall will be. The more the west clings on to this western bubble of reality brought to them by giving ear to their mediapolitical, the more certain it’s demise will be. The multipolar world now holds up a mirror, it’s about time the west dare look into it. It’s time for the west to grow up and join a new world in the making.

Venezuela Officially Declared In Default

Today at 11am, the ISDA Determinations Committee sits down to decide whether an event of default has occurred due to the delayed principal payment on the Petroleos de Venezuela SA, or PDVSA, bond that matured Nov. 2, in the process triggering PDVSA (and perhaps Venezuela) CDS, and officially declaring Venezuela in default.

We won"t have to wait that long: moments ago, Wilmington Trust, the Trustee of the 8.5% bonds due 2018, issued by Corpoelec, Venezuela"s electricity company, declared that the missed interest payment originally due October 10, and whose 30 day grace period expired on November 9, and for which no pament was sent or received, officially constitutes an event of default.

From Bloomberg:

From the statement:

Wilmington Trust, National Association is communicating the following to you in its capacity as successor trustee (the “Trustee”) to The Bank of New York, as trustee, under the Indenture dated as of April 10, 2008 (the “Indenture”) for the $650,000,000 8.50% Senior Notes due 2018 (the “Notes”) of C.A. La Electricidad de Caracas (the “Issuer”). In a letter to the Trustee and various other parties dated November 30, 2012, National Electricity Corporation, S.A. (CORPOELEC) advised that it is the successor by merger to the Issuer. Capitalized terms used herein but not defined herein shall have the respective meanings set forth in the Indenture.

 

Please be advised that the Paying Agent with respect to the Notes has advised the Trustee that the payment of interest on the Notes that was due on October 10, 2017 was not received by the Paying Agent. The Issuer’s failure to pay interest on the Notes when due on October 10, 2017 constitutes a Default under the Indenture. The Paying Agent has further notified the Trustee that the interest payment was not received by November 9, 2017.

 

The Issuer’s failure to pay the overdue interest on the Notes on or before November 9, 2017 constitutes an Event of Default under Section 5.1(ii) of the Indenture. Pursuant to Section 5.1(b) of the Indenture, if an Event of Default shall occur and be continuing and has not been waived, the Holders of at least 25% in principal amount of Outstanding Notes may declare the principal of, and premium, if any, accrued interest and Additional Amounts, if any, on all the Notes to be due and payable by notice in writing to the Issuer and the Trustee specifying the Event of Default and that such notice is a “notice of acceleration”, and the same shall become immediately due and payable.

It is unclear if this formal default declaration makes today"s ISDA determinations committee decision moot, however it now looks quite certain that Monday"s meeting between creditors and the country"s vice president and chief debt negotiatior, who also happens to be a US-sanctioned drug kingpin, will no longer be necessary.

Today"s news will not come as a surprise to CDS holders, who had already priced in a 99.99% probability of default in 5 years.

The full statement is below:

Fire Breaks Out On The Roof Of The New York Fed

Dozens of firefighters are fighting a blaze which broke out on the top of the Federal Reserve Bank of New York, NBC New York reports. The fire broke out sometime before 8:40 p.m. on the roof of the 14-story building at 33 Liberty St. in Lower Manhattan, the location of the world"s biggest gold vault as Simon Gruber knows too well.

Manhattan: *2 Alarm Fire* Box 061 at 33 Liberty St, heavy fire of a federal reserve bank. Fire on the roof.

— NYC Scanner (@NYScanner) October 8, 2017

Several videos show numerous fire trucks at the scene around 9 p.m. 

Uh the Federal Reserve is kinda on fire. pic.twitter.com/fK5ndqnzPd

— the ghost of jay (@jaydestro) October 8, 2017

Contrary to recurring rumors that the fire was created from excess money creation, the FDNY said that a generator on the roof of the building caused the fire in a chimney, although the severity of the damage to the building is not known.

Just a fire atop the Federal Reserve @nytimes @wsj @nypost anyone know what"s going on pic.twitter.com/mgODXKtlAB

— Daniel Feldstein (@feldstein) October 8, 2017

No injuries have been reported.

Must be a fire going on at the Federal Reserve... Never seen so many fire trucks in my life at least 15 pic.twitter.com/CByRumxRWN

— Michael Rothman (@TheRealRothman) October 8, 2017

NYC News Fire Erupts on Roof of Federal Reserve Bank https://t.co/1E1GB65iVc pic.twitter.com/QVwfDEDZ9i

— NYC NewsChannel (@NYC_NC) October 8, 2017

The Federal Reserve Bank of New York is the most important of the 12 regional Reserve Banks that are part of the Federal Reserve system, the central banking system of the United States. As previously reported, the world"s most important trading desk, also known as the "Plunge Protection Team", is located on the 9th floor of the New York Fed.

Here are some snapshots.

Blake Gwinn, left, and James White in the operations room at the Federal Reserve Bank of New York (source)

A Trader Monitors Four Computer Screens on the Open Market Trading Desk at the Federal Reserve Bank of New York (source)

Open Market Trading Floor at the Federal Reserve Bank of New York (source)

And just because...

 

Venezuela Headed For "Messiest Debt-Restructuring In History" Thanks To US Sanctions

After being effectively shut out from global financial markets – a situation that was made more precarious by US sanctions prohibiting purchases of Venezuelan debt (unless you’re buying them off Goldman Sachs, should the bank’s asset-management arm desire to liquidate its $3 billion “hunger bond” position) – Venezuela is drawing ever-nearer to what the Financial Times describes as potentially the “messiest debt restructuring in history.”

So far, Venezuela has managed to forestall a default by stripping assets from its state-owned oil company, Petroleos de Venezuela, commonly referred to as PVDSA, and shaking down local institutions of spare dollars – not to mention the explicit financial support of China and Russia. Recently, Rosneft, the largest Russian oil company, helped support its troubled ally, which enjoys the largest crude reserves in the world, by offering billions of dollars in advance payments for future crude supplies. Thanks to a deal brokered by deceased former President Hugo Chavez, Venezuela has for years been Rosneft’s largest foreign supplier of crude. Last year, the oil giant accepted a 49.9% stake in PVDSA’s US-based subsidiary, Citgo, as collateral for a $1.5 billion loan.

Venezuelan President Nicolas Maduro

However, thanks to the US sanctions, which prohibit purchases of newly issued debt and existing bonds that have so far not been sold outside of Caracas, the country will once again need to innovate or risk sliding into bankruptcy. Making matters all the more urgent, the country recently suffered a loss in US courts after a judge ruled that Canadian miner Crystallex can seize Venezuelan money held in a custody account at Bank of New York Mellon to cover a $1.4 billion judgment awarded by a World Bank tribunal.

Crystallex’s victory could further embolden the country’s creditors, who collectively may be owed as much as $3.7 billion.

“Venezuela has been taken to the World Bank’s ICSID tribunal 43 times. Only Argentina has been subjected to more claims. Of these 24 are still pending, including claims from Anglo American, ConocoPhillips, Air Canada and Vestey. The Eurasia Group estimates that Venezuela owes a total of $3.7bn as a result of ICSID rulings, and Crystallex’s progress is likely to embolden other creditors.”

Adding to the country’s troubles, a major US clearing house has said it will stop settling some Venezuelan bonds, and Cantor Fitzgerald has stopped trading them altogether.

After months of rhetoric, the US – which for years maintained an uneasy business relationship with Venezuela, formerly South America’s wealthiest economy – has severed the country’s last tenuous ties to the global financial system…

“The message is that the US doesn’t want its financial system enabling the Venezuelan government in any way,” says Charles Blitzer, of Blitzer Consulting, who is a former International Monetary Fund official.  

…And with the Crystallex ruling compounding the country’s troubles, its government is being set up for a “slow burn” leading ultimately to financial insolvency as creditors root out and seize whatever foreign assets they can find.

“Crystallex is the camel’s toe under the tent,” says Mark Weidemaier, a law professor at the University of North Carolina. “It will be a slow burn, but I wouldn’t be surprised to see people use the courts to ferret out where Venezuela’s assets are . . . and break down the barriers between the government, PDVSA and other entities.”

Typically, in a sovereign bankruptcy, creditors negotiate some kind of debt relief and trade their old, defaulted bonds for less valuable new ones. However, US sanctions may preclude this as an option for Venezuela, as the FT explains.

“…such a debt exchange would fall foul of the US sanctions regime, precluding any US banks from arranging one and any US bondholders from tendering their debts. In practice, it would mean indefinite financial purgatory for Venezuela until the US administration decides to lift the prohibition.

“If these sanctions stay in place, then Venezuela cannot restructure and it goes into limbo,” says Edward Al-Hussainy, a senior analyst at Columbia Threadneedle."

Since Venezuela’s economic crisis began four years ago, imports have fallen precipitously, leading to dire shortages of essentials like medicine and foodstuffs as the country"s currency depreciated to the point of worthlessness. Unless the country can find some way to circumvent the sanctions, it will be forced to decide between countenancing further import declines, or a disorderly default.

According to Torino Capital, a Latin American-focused investment bank, Venezuela could choose the latter.

“Torino Capital…argued that this might counter-intuitively make a restructuring less likely. ‘It is possible that, faced with this choice, Venezuelan authorities end up deciding that the negative effects of a disorderly default on PDVSA’s capacity to generate export revenue are worse than the contractionary effects of further import cuts,’ the bank wrote in a note to clients.”

To be sure, a default could still be years away. And investors, for one, aren’t worried. The country’s debt has been largely unperturbed by the recent developments: PDVSA bonds have largely traded sideways, despite the recent developments.

“In the near term the impact will probably be minimal. Given Venezuela’s messy finances, the country is in practice already shut out of the international bond market. And while Crystallex won a legal skirmish, it is far from winning the war. It is unclear how much money Venezuela holds at BNYM and it may still be protected by sovereign immunity. Underscoring the investor view that little has changed, Venezuela and PDVA’s bonds have largely traded sideways.”

Still, a default, whenever it arrives, could signal the last gasp of the country’s embattled government. The country"s foreign reserves have already fallen below $10 billion (though they received a boost following the Goldman deal...).

“If they default, they will be out of government within three months,” says Federico Kaune, head of emerging market debt at UBS Asset Management. “The calculation is that they’re either in government, in exile or jail.”

With the fate of the Maduro regime hanging in the balance, we imagine Washington will do everything in its power to force Venezuela into bankruptcy, allowing the US to claim victory over yet another foreign adversary.
 

Weird Things Are Happening With Gold

Authored by James Rickards

Last week featured two unusual stories on gold - one strange and the other truly weird. These stories explain why gold is not just money but is the most politicized form of money.

They show that while politicians publicly disparage gold, they quietly pay close attention to it.

The first strange gold story involves Germany…

The Deutsche Bundesbank, the central bank of Germany, announced that it had completed the repatriation of gold to Frankfurt from foreign vaults.

The German story is the completion of a process that began in 2013. That’s when the Deutsche Bundesbank first requested a return of some of the German gold from vaults in Paris, in London and at the Federal Reserve Bank of New York.

Those gold transfers have now been completed.

This is a topic I first raised in the introduction to Currency Wars in 2011. I suggested that in extremis, the U.S. might freeze or confiscate foreign gold stored on U.S. soil using powers under the International Emergency Economic Powers Act, the Trading With the Enemy Act or the USA Patriot Act.

This then became a political issue in Europe with agitation for repatriation in the Netherlands, Germany and Austria. Europeans wanted to get gold out of the U.S. and safely back to their own national vaults. The German transfer was completed ahead of schedule; the original completion date was 2020.

But the German central bank does not actually want the gold back because there is no well-developed gold-leasing market in Frankfurt and no experience leasing gold under German law.

German gold in New York or London was available for leasing under New York or U.K. law as part of global price-manipulation schemes. Moving gold to Frankfurt reduces the floating supply available for leasing, making it more difficult to keep the manipulation going.

Why did Germany do it?

The driving force both in 2013 (date of announcement) and 2017 (date of completion) is that both years are election years in Germany. Angela Merkel’s position as chancellor of Germany is up for a vote on Sept. 24, 2017. She may need a coalition to stay in power, and there’s a small nationalist party in Germany that agitates for gold repatriation.

Merkel stage-managed this gold repatriation with the Deutsche Bundesbank both in 2013 and this week to appease that small nationalist party and keep them in the coalition. That’s why the repatriation was completed three years early. She needs the votes now.

The truly weird gold story comes from the United States…

Secretary of the Treasury Steve Mnuchin and Senate Majority Leader Mitch McConnell just paid a visit to Fort Knox to see the U.S. gold supply. Mnuchin is only the third Treasury secretary in history ever to visit Fort Knox and this was the first official visit from Washington, D.C., since 1974.

The U.S. government likes to ignore gold and not draw attention to it. Official visits to Fort Knox give gold some monetary credence that central banks would prefer it does not have.

Why an impromptu visit by Mnuchin and McConnell? Why now?

The answer may lie in the fact that the Treasury is running out of cash and could be broke by Sept. 29 if Congress does not increase the debt ceiling by then.

But the Treasury could get $355 billion in cash from thin air without increasing the debt simply by revaluing U.S. gold to a market price. (U.S. gold is currently officially valued at $42.22 per ounce on the Treasury’s books versus a market price of $1,285 per ounce.)

Once the Treasury revalues the gold, the Treasury can issue new “gold certificates” to the Fed and demand newly printed money in the Treasury’s account under the Gold Reserve Act of 1934. Since this money comes from gold revaluation, it does not increase the national debt and no debt ceiling legislation is required.

This would be a way around the debt ceiling if Congress cannot increase it in a timely way. This weird gold trick was actually done by the Eisenhower administration in 1953.

Maybe Mnuchin and McConnell just wanted to make sure the gold was there before they revalue it and issue new certificates.

Whatever the reason, this much official attention to gold is just one more psychological lift to the price along with Fed ease, scarce supply and continued voracious buying by Russia and China.

Is the COMEX Rigged?

Submitted by Ronan Manly, BullionStar.com

The COMEX gold futures market and the London OTC gold market have a joint monopoly on setting the international gold price. This is because these two markets generate the largest ‘gold’ trading volumes and have the highest ‘liquidity’. However, this price setting dominance is despite either of these two markets actually trading physical gold bars. Both markets merely trade different forms of derivatives of gold bars.

Overall, the COMEX (which is owned by the CME Group) is even more dominant that the London market in setting the international price of gold. This is a feat which financial academics ascribe to COMEX being a centralized electronic platform offering low transaction costs, ease of leverage, and “the ability to avoid dealing with the underlying asset” (i.e. COMEX allows its participants to avoid dealing with gold bars). Because of these traits, say the academics, COMEX has a ‘disproportionately large role in [gold] price discovery”.

Over 95% of COMEX gold futures trading is now conducted on CME’s electronic trading platform Globex, with most of the remainder done on CME’s electronic Clearport, where futures trades executed in the OTC market can be settled by CME. Next to nothing in gold futures is traded any more via pit-based open outcry.

Open Outcry: A distant memory for gold futures trading on COMEX

The existence of gold price manipulation in the London and COMEX gold markets is well documented, it is hard to refute, and it has presented itself in many forms over the recent past. Examples include:

• Bullion bank gold traders in the late 2000s colluding in chat rooms to manipulate the gold price as documented in current consolidated class action law suits going through New York courts

• Barclays Bank manipulating the London Gold Fixing price in 2012 so as to prevent triggering option related pay-outs to Barclays clients

• Recent CFTC (US Commodities regulator) prosecutions of futures traders on the CME for ‘spoofing’ gold futures orders

• Flash crashes in gold futures prices which have no underlying explanation to, or connection to, events and developments in any physical gold markets

This last point, ‘flash crashes’ in gold futures prices, is particularly relevant for COMEX. Many readers will recall reading about one or more of these COMEX gold futures price ‘flash crashes‘ during which large quantities of gold futures are shorted in a concentrated interval of time (e.g. within 10 or 20 seconds) which causes the gold price to completely collapse in free fall fashion over that very short period of time.

For example, on 26 June this year, the COMEX gold price free fell by nearly 1.5% within a 15 second interval, amid a huge spike in trading volume to more than 18,000 August gold futures (56 tonnes of gold) during the 1-minute period around the crash event.

On January 6, 2014, the COMEX gold price fell by over $30 in a few seconds, from $1245 to $1215 on huge volume, forcing the CME to introduce a temporary trading halt.

On April 12, 2013, aggressive selling of gold futures contracts representing over 13.4 million ounces (more than 400 tonnes of gold) hit COMEX gold futures in two waves during the London morning trading session sending the gold futures price down by more than 5%. The following Monday, April 15, 2013 the COMEX gold price rapidly fell by another 10%.

Whether these flash crashes are the result of trading errors, futures market illiquidity, computerized trading patterns or deliberately engineered moves is open to debate. Engineered price takedowns, where an entity initiates an order with the intention of moving the futures gold price in a downward direction, are distinctly possible.

However, concentrated gold futures shorting over tiny time intervals doesn’t have to be in the form of one large trade or a series of relatively large trades. All a shorting tactic of this type has to do is to either trigger the price to move down through certain thresholds which then triggers stop-loss orders, or to trigger and induce trading reactions from trading algorithms that monitor gold futures prices. Once sentiment is damaged through rapid downward price movements, the result can affect gold futures trading sentiment for the rest of the day and indeed over subsequent days.

But beyond the possible or probable individual acts of price manipulation on the COMEX, it is important to realize that the very structure and mechanics of the COMEX create a system in which gold futures trades can be executed in large volumes in a virtual vacuum which has no connection to the physical gold bullion market, no connection to gold bar and gold coin wholesalers and retailers, and which doesn’t even have any connection to the vaulted gold residing within the COMEX approved vaulting  facilities (aka COMEX warehouses aka COMEX vaults).

These underlying mechanics of COMEX, which are discussed below, allow the generation of massive gold futures trading volumes and open interest, huge leverage and large non-spot month position limits, a high concentration of speculative trading by a small number of banks, and a lack of transparency into the gold ‘delivery’ process. And at the foundation of the system, there are very small physical gold holdings in the COMEX approved vaults.

COMEX 100 oz gold futures, USD Price, Volume, and Open Interest: 8 months-to-date. Source: www.GoldChartsRUs.com

The Mechanics

COMEX gold futures contracts are derivatives on gold. Importantly, a COMEX gold futures contract comes into existence any time two parties agree to create that contract. This means that COMEX gold futures contracts can continue to be created as long for as there are interested buyers (longs) and sellers (shorts) willing to bring these gold futures contracts into existence.

Therefore, there is no hard upper bound or supply limit on the amount of gold futures contracts that can be created on COMEX. This is very similar to the unit of trading of gold in the London market, i.e. unallocated gold, which is also a derivative that can be created in unlimited quantities. In both cases there is no direct connection to real physical allocated and segregated gold bars.

Technically, the value of any futures contract is derived from the value of its underlying asset, and in this case the underlying asset, nominally anyway, is physical gold. But perversely in the global gold market, the value of the gold futures is not being derived from the value of the underlying asset (physical gold). Instead, the value of the world’s physical gold is now being consistently and continually derived via this out-of-control and unhinged gold futures trading.

Contractually, COMEX 100 ounce gold futures contracts (COMEX code GC) are futures contracts that offer a physically deliverable option, i.e. to deliver/receive 100 ounces of minimum 995 fine gold (in either 100-ounce gold bars or 1 kilo gold bars format) on a specific future date.

However, the vast majority of COMEX 100 ounce gold futures are never delivered, they are offset (closed out) and cash-settled, or else they are rolled over. Only a tiny fraction of these gold futures contracts are ever ‘delivered’. Again, this is similar to unallocated gold in the London market, which is a cash-settled gold derivative.

COMEX is also a speculative market, where leverage (due to the use of trading margin) is used to create outsized trading volumes, and where initial position limits for individual traders are far larger than the quantity of underlying gold being stored in the COMEX approved vaults.

These factors combine to create what is in effect a Las Vegas type casino. This casino encourages vast speculative trading of futures which will never be delivered, and vast shorting (selling) claims on large quantities of gold which a) the shorter does not possess, b) are not even stored in the COMEX system, and c) are many multiples of annual gold supply). Conversely, the buyers are going long on claims on gold which will a) will never be delivered and b) which nearly none of the trading counterparties even wants to have delivered. The players in this casino have no interest in secure gold storage or allocated gold bars or bar brands or bar serial numbers. After all, as the academics put it, the COMEX provides “the ability to avoid dealing with the underlying asset”.

Even when COMEX gold futures for used for hedging purposes, much of this hedging is by bullion bank traders so as to hedge unallocated London gold using COMEX futures, i.e. hedging cash-settled paper bets with cash-settled paper bets. And both sets of instruments structurally have nothing to do with the real physical gold market.

Even back in December 1974, when COMEX gold futures were about to be launched (and which coincided with a lifting of the ban on US private ownership of gold), a group of major gold dealers in London including 3 of the 5 primary London gold dealers, i.e. Samuel Montagu & Co, Mocatta & Goldsmid, and Sharps Pixley & Co, told the US State department that they believed that this new gold COMEX futures market would dwarf the physical gold market i.e. “would be of significant proportion, and physical trading would be miniscule by comparison“.

These dealers expected that “large volume futures dealing would create …. a highly volatile market” whose “volatile price movements would diminish the initial demand for physical gold” that the US Government feared from the lifting of the gold ownership ban.

In hindsight, it was perceptive and prophetic that these major participants of the then fully allocated gold market in London in 1974 saw that the introduction of gold futures would create what we are seeing now, i.e. huge trading volumes, high price volatility, and a market (COMEX) which has an adverse effect on pricing in the physical gold market.

Trading Volume Metrics

Two revealing trading metrics for COMEX gold futures are trading volumes and the “Open Interest” on gold futures contracts. “Open Interest” simply means the number of gold futures contracts that are outstanding at any given time that have not been closed or delivered.

For 2016, COMEX gold futures trading generated a trading volume of 57.5 million contracts, representing 178,850 tonnesof gold. This is nearly as much gold as has ever been mined in the history of the world, i.e. which is estimated to be 190,000 tonnes. This COMEX trading volume in 2016 was also a whopping 37% higher than in 2015. In 2016, while 57.5 million gold futures contracts traded, only 71,380 COMEX gold contracts were ‘delivered’. This means that only 0.12% of COMEX gold contracts that traded in 2016 were ‘delivered’.

Delivered in this context means that the delivery option on the contract was exercised and a warrant representing 100 oz of gold on that contract changed hands, i.e. title documents to gold were shunted around a COMEX/vault recording system, mostly between bank holders. Delivered does not mean gold was withdrawn from a COMEX approved vault and delivered to an external location. The concept of gold vault withdrawal numbers, which is a bread and butter metric for the physical Shanghai Gold Exchange (SGE), is totally alien to the COMEX and its trading participants.

Number of gold ounces delivered on COMEX in 2017: 1.23 million ounces = 38 tonnes. Source: www.GoldChartsRUs.com

For the first six months of 2017, trading volumes in the main COMEX gold futures contract (GC) reached 32.7 million contracts, representing 101,710 tonnes of gold. This was 12% up on the same period in 2016. When annualized, this suggests than in 2017, COMEX is on course to trade more than 200,000 tonnes of gold, which will be more than all the gold ever mined throughout history.

In the first half of 2017, only 12,320 gold futures contracts (representing 38 tonnes) were delivered on COMEX. This means that from January to June 2017, only 0.037% of the COMEX gold contracts traded in that six month period were ‘delivered’, or just 1 in every 2650 contracts traded.

Open Interest

Beyond the trends and snapshots that trading volumes provide, COMEX Open Interest shows how much real physical gold would be needed if all longs who hold gold futures contracts decided to exercise every contract into the 100 ounces of physical gold that each contract supposedly allows for.

For example, currently there are 480,000 GC gold futures contracts outstanding on the COMEX, each of which represents 100 ounces of gold. This means that buyers of the contracts are long 480,000 contracts, and sellers of those same contracts are short 480,000 contracts. With each contract worth 100 ounces of gold, this is an open interest of 48 million ounces (1500 tonnes) of gold, which is about half a year’s global gold mining output.

Currently 46% of this open interest is in the front-month August 2017 contract (nearly 750 tonnes), with another 40% in the December 2017 contract. Together the August and December contracts represent over 85% of the current open interest. During 2017, open interest has fluctuated roughly between 400,000 and 500,000 contracts at any given time.

Registered Gold Inventory and Eligible

However, there are only currently 22 tonnes of ‘Registered gold’ in the COMEX approved vaults in New York, which is equivalent to about 700,000 ounces. What this means is that there are only 22 tonnes of gold currently in the vaults that the vault operators previously attached warrants to as part of the COMEX futures delivery process. This 22 tonnes of gold, if it was held in Good Delivery gold bar format, would only occupy one small corner of one of the COMEX’s 8 approved gold vaults when stacked 6 pallets high across 3 stacks, and another 4 pallets in an additional stack. That’s how small the COMEX registered gold inventories are.

The amount of Registered gold backing COMEX futures gold trading is also at a 1-year low. For example, in August 2016 there were 75 tonnes of Registered gold in the COMEX vaults. Now there’s only 30% of that amount.

COMEX Registered gold inventories: 700,000 ounces = 22 tonnes. Source www.GoldChartsRUs.com

There is also no independent auditing of the gold that the COMEX reports on its registered and eligible gold inventory reports. So there is no way of knowing if the COMEX report is accurate. For example, HSBC claims to have 165 tonnes of eligible gold and a measly 1.5 tonnes of registered gold stored at its COMEX approved vault. This vault is located in the lower levels of 1 West 39th Street in Manhattan (the old Republic National Bank of New York vault). However, I heard from a former New York Fed senior executive that HSBC don’t keep a lot of gold in this Manhattan vault since they moved a lot of it to Delaware after 9/11 for security reasons. If this is true, then the question becomes, on the COMEX report, does the total for HSBC represent the amount they have in the midtown Manhattan location, or the total in midtown and Delaware (assuming they have gold stored in Delaware).

COMEX approved vaults also report another category of gold known as ‘Eligible’ gold. This ‘Eligible’ gold is unrelated to COMEX gold futures trading and could be owned by anyone, for example owned by mints, refineries, jewellery companies, investment funds, banks or individuals, who would just happen to be storing this gold in the New York vaults that the COMEX also uses, such as the Brinks vaults.

In other words, this ‘eligible’ gold is merely innocent bystander gold that just happens to be stored in the COMEX approved vaults in the form of 100-ounce gold bars or 1 kilo gold bars. At the moment, there are 243 tonnes of this eligible gold in the vaults. But this gold is not involved in COMEX gold futures trading. Some of this gold is probably owned by banks that engage in COMEX gold futures trading because there are sometimes movements of gold from the eligible category to the registered category, but still, as long as it’s in the eligible category, this gold does not have any COMEX related warrants attached to it.

With an Open Interest of 1500 tonnes of gold on COMEX, and with registered gold in the New York vaults totalling only 22 tonnes, this means that there are currently 68 “Owners per Ounce” of registered gold. The holders of allocated gold bars stored in a secure vault, such as BullionStar’s secure vault in Singapore no not face this 68 owners per ounce problem, as each gold bar is owned by one person and one person only.

Since the beginning of 2017, this COMEX “owners per ounce of registered gold” metric has risen sharply, more than doubling from under 30 owners per ounce to the current ratio of 68 owners per ounce. This is because registered gold inventories have fallen sharply over this time.

Even adding into the equation all the eligible gold in the New York vaults, which is a calculation that doesn’t really mean much given the independent nature of eligible gold, there are still 5.7 “owners per ounce” of the combined COMEX “eligible and registered gold” total.

The physical gold foundations to the entire COMEX gold futures trading process are therefore very tiny in comparison to COMEX trading volumes and open interest. And all the while, gold futures trading volumes continue to rise, owners per registered ounce of gold continues to rise, and the amount of physical gold backing these contracts on COMEX continues to shrink.

The Dominant Players

The latest Commitment of Traders (COT) report produced by the US Commodity Futures Trading Commission (CFTC), for 11 July, includes market concentration data for the percentage of contracts held by the largest holders. This COT report currently shows that “4 or Less Traders” are short 35% of the COMEX GC gold futures open interest, while “8 or Less Traders” are short a combined 51% of the open interest. Note that the “4 or Less Traders” are a subset of the “8 or Less Traders”.

The CFTC also publishes a Bank Participation Report (BPR) showing metrics for banks involved in gold futures trading. The latest BPR for 11 July shows that 5 US banks are short 78063 contracts (16.4% of the total open interest), and 29 non-US banks are short another 67,373 contracts (14.2% of open interest). In total, these 34 banks were short 145,000 contracts or 30% of the open interest. The same banks were long 40,688 contracts, so were net short 105,000 contracts.

CFTC Bank Participation Report (BPR) of COMEX (and ICE) gold futures positions. Source www.GoldChartsRUs.com

Neither the COT report nor the BPR report reveal the identity of the ‘traders’ or the ‘banks’ that hold these concentrated large positions because the bank friendly CFTC choses not to do so, but even without their identities being revealed, it’s clear that a small number of entities are dominating trading of the COMEX gold futures contracts.

When is a Delivery not a Delivery?

The COMEX delivery report is known as the “Issues and Stops Report”. This report ostensibly shows the number of contracts that were ‘delivered’ on the COMEX each month, but in reality just shows a series of numbers representing the quantity of title warrants (to gold bars) that were shunted around each month between a small handful of players.

The COMEX does not publish any gold bar weight lists of registered or eligible gold inventories held in the COMEX approved vaults. It is therefore impossible to check to what extent the same gold bars or some of the same gold bars are moving back and forth between a few parties over time. On an annual basis, each COMEX approved vault must conduct a precious metal inventory audit on behalf of the COMEX and file this audit with the COMEX within 30 days of completing it. However again, the CME Group does not publish these inventory audits, which only adds to the existing opacity of the system. Is the registered gold in the COMEX vaults even specifically insured? Who knows, because the COMEX does not divulge such details.

Some of the bank institutions which are prominent on the COMEX gold delivery reports are also some of the same institutions which operate the COMEX approved vaults, e.g. HSBC, JP Morgan and Scotia, and these same names are undoubtedly some of the names underlying the CFTC’s Bank Participation Report given that they are always prominent on the COMEX delivery reports. By the way, these same banks essentially run the LBMA in London and run the unallocated gold clearing system, LPMCL, in the London Gold Market.

As regards, the COMEX’s assignment of delivery for gold futures contracts, this is also out of the hands of a contract holder looking for delivery. When a contract is presented for delivery, it is the Exchange (COMEX) which assigns the delivery to a specific warehouse. Not the contract holder. The contract holder (long) has no say in choosing which New York warehouse that contract will be assigned to, no choice of which bar brand he/she will receive, and no choice even of whether the assigned gold will be in the form of a 10 ounce bar of three 1 kilogram gold bars. But even to the long holder seeking delivery, delivery just means gaining an electronic warehouse warrant issued in the long holder’s name or broker’s name (title to the warrant).

To take real delivery of gold bars (withdrawing gold from one of the New York vaults) that would arise from a COMEX ‘delivery’ is a laborious and discouraging extra step. Armed with a copy of an electronic receipt, the procedure involves the receipt holder directly contacting the warehouse in question and telling them you want physical delivery. How they would react to such as phone call is not clear. My guess is that it would be like visiting the mailroom in a large company, the reaction being ‘Who are you? No one ever comes down here‘.

After navigating the withdrawal negotiations with the vault in question,  the pickup and transport of the gold bars is then organized using one of the list of secure transport alternatives that approved warehouse will allow.

COMEX – Not Designed for Physical Bullion

The COMmodity EXchange (COMEX) is a derivatives exchange that is not designed for buying physical gold, storing or delivering that gold, or even selling physical gold. The COMEX primarily facilitates speculation and hedging, with the delivery option just existing as a little -used side option.

Flash crashes continue to occur but neither the CME nor the CFTC ever publishes explanations for the causes of these flash crashes.

It looks certain that in 2017, COMEX will again smash its gold futures trade gold futures representing more gold than has ever been mined in human history, i.e. more than 200,000 tonnes equivalent.

So far in 2017, only 1 in every 2650 gold futures contracts traded on the COMEX has resulted in delivery i.e. less than 0.038% of the contracts go to delivery. The rest, 99.962% of contracts are cash-settled and closed-out / rolled.

The open interest in COMEX gold futures is currently 1500 tonnes, yet there are only 22 tonnes of Registered gold in the COMEX vault inventories. This means that there are 68 owners per ounce of registered gold.

There is continually a high concentration of short futures positions held by a small number of banks on COMEX. The CFTC doesn’t name these banks. When contract deliveries occur on COMEX, it is not a delivery in the sense of a gold bar movement but is merely a transfer in title of a warrant attached to a bar.

Withdrawal of a gold bar or bars out of the COMEX vaulting network to be really delivered to another location is not straightforward.

Physical Bullion

With the London Gold Market trading unlimited quantities of unallocated gold which the bullion banks create out of thin air, and with COMEX trading gold futures which are also created out of thin air, the disconnect between the world of unlimited paper gold and the world of limited physical gold is becoming ever more stark.

On one side lies paper claims on gold which come into and out of existence through cash-settled market mechanisms. On the other is real physical gold that is segregated, allocated and unencumbered, with full title held by the gold holder. Paper gold ownership is fleeting, speculative and prone to counterparty and conversion risks. Real gold is tangible, has inherent value, has no counterparty risk, and can be securely stored.

When real gold is ‘delivered’ to a gold buyer, it actually is delivered to the buyer to wherever they want it delivered, unlike COMEX deliveries where an electronic warrant is merely updated. When real gold is held in a secure vault, such as BullionStar’s vault in Singapore, the gold is fully-insured and the gold holder has full audit and control.

Unlike the COMEX and the London OTC gold market, the traditional gold buying markets of Asia and the Middle East are markets know the real value of physical gold as a form of money and a form of saving. In the physical gold market, especially in Asia, gold buyers demand high purity gold (9999s purity) in convenient bar sizes such as 1 kilogram and 100 grams, and not the 100 ounce bar size traditionally made for COMEX delivery.

Physical gold buyers want gold bars from trusted and well-known sources, and also want choice and variety for example a cast bar from the German Heraeus refinery, or a highly designed minted bar from the Swiss refinery PAMP. Kilobars and 100 gram gold bars also have the lowest premiums of any bars on the retail market since many refineries compete to supply this segment and the demand is widespread and international. Most kilobars and 100 gram bars have their own unique serial numbers which facilitates tracking and auditing.

As COMEX pursues its record-breaking attempt  in 2017 to trade gold futures representing more than 200,000 tonnes of gold, the disconnect between COMEX and the real world is becoming all too clear. COMEX flash crashes will continue as long as the CME and CFTC let them continue. And many people will continue to believe that these flash crashes were deliberately orchestrated. But at the heart of the contradiction between paper gold and real gold is not whether such and such a flash crash was deliberate. The heart of the contradiction is that the very structure of the COMEX system is detached from the reality of physical gold and such a structure can easily allow flash crashes to happen, some or all of which may be deliberate attempts to rig the gold price.

BullionStar will be exhibiting at the FreedomFest event in Las Vegas, which this year runs from July 19 to 22 at the Paris resort in Las Vegas. For those attending FreedomFest please drop by our stand and say hello (Booth number 321). BullionStar CEO Torgny Persson will also be speaking at FreedomFest at 2:30pm on Friday July 21, on why today’s gold price is not reflecting what’s happening in the world and not reflecting what’s happening in the physical gold market. 

This article originally appeared on the BullionStar website under the same title "Is the COMEX Rigged?" 

Retired Green Beret Warns: "There Could Be A Nuclear Strike Against The US Coming Soon"

Authored by Jeremiah Johnson (nom de plume of a retired Green Beret of the United States Army Special Forces) via SHTFplan.com,

For approximately the past five years, the Mainstream Media (MSM) and the Obama-administration supported research “think-tanks” for monitoring the North Korean situation have had a field day.  They consistently (along with the brain-dead public’s crowds of naysayers) and intentionally understated the capabilities of North Korea.  The experts in the field (such as Dr. Peter V. Pry, Admiral Bill Gortney, General Curtis Scapparotti) have not been able to be denied; however, they have been marginalized and made to seem to be “in conflict” with the prevailing, majority “view.”  The “tyranny of the majority,” in this case, was needed to accomplish the objectives of the Obama administration: appear to be “strong” on sanctions, and “aloof” with diplomacy, i.e., Barack Hussein Obama II’s not “lowering” himself to deal with North Korea diplomatically.

The true objective of Obama regarding North Korea was to pursue a laissez-faire policy and allow North Korea to progress, becoming a viable threat, as it is today.

All of this was deliberately planned by Obama and his handlers.  As far back as April 7, 2015, Admiral Bill Gortney (the former commander of North American Aerospace Defense, a.k.a. NORAD) gave a press conference in which he warned of North Korea’s capabilities with an ICBM, an Intercontinental Ballistic Missile…warned that North Korea could strike the United States with a nuclear warhead on an ICBM…he stated this in 2015.  Six months prior, in October of 2014 Admiral Gortney stated that North Korea had nuclear weapons, had miniaturization capabilities, and could place them on missiles that could reach the continental United States.

Fast-forward to this year.  There was a joint article that was penned by Dr. Peter V. Pry, America’s foremost expert on EMP (Electromagnetic Pulse) threats posed to the United States by foreign nations and the head of every committee to brief Congress on those issues.  A former analyst with the Central Intelligence Agency, Dr. Pry is currently the Executive Director of the EMP Task Force on National and Homeland Security.  The article was co-authored by R. James Woolsey, former Director of the Central Intelligence Agency.  Here are excerpts from that article, released on March 29, 2017 by The Hill:

“The mainstream media, and some officials who should know better, continue to allege North Korea does not yet have capability to deliver on its repeated threats to strike the U.S. with nuclear weapons.  False reassurance is given to the American people that North Korea has not “demonstrated” that it can miniaturize a nuclear warhead small enough for missile delivery, or build a reentry vehicle for an intercontinental ballistic missile (ICBM) capable of penetrating the atmosphere to blast a U.S. city.

Yet any nation that has built nuclear weapons and long-range missiles, as North Korea has done, can easily overcome the relatively much simpler technological challenge of warhead miniaturization and reentry vehicle design.

The notion that North Korea is testing A-Bombs and H-Bomb components, but does not yet have the sophistication to miniaturize warheads and make reentry vehicles for missile delivery is absurd.

…North Korea should be regarded as capable of delivering by satellite a small nuclear warhead, specially designed to make a high-altitude electromagnetic pulse (EMP) attack against the United States.

According to the Congressional EMP Commission, a single warhead delivered by North Korean satellite could blackout the national electric grid and other life-sustaining critical infrastructures for over a year – killing 9 of 10 Americans by starvation and societal collapse.  Two North Korean satellites, the KMS-3 and KMS-4, presently orbit over the U.S. on trajectories consistent with surprise EMP attack.

Why do the press and public officials ignore or under-report these facts?  Perhaps no administration wants to acknowledge that North Korea is an existential threat on their watch.  Whatever the motives for obfuscating the North Korean nuclear threat, the need to protect the American people is immediate and urgent…”

There you have the main points to substantiate what was written earlier: a deliberate obfuscation of the facts by the Obama administration coupled with the complicit MSM to allow North Korea the time to develop the capabilities to strike the continental United States.  Let’s also try not to forget that a “standard” ICBM is not the only focus of North Korea: the SLBM (Submarine-Launched Ballistic Missile) is a threat.  Recall that CNN put this report out on April 24, 2016:

“After previous launch attempts by Pyongyang failed, this one seems to have gone much better, one U.S. official noted.  “North Korea’s sub launch capability has gone from a joke to something very serious,” this official said. “The U.S. is watching this very closely.”  Asked whether the test was successful, another U.S. official told CNN, “essentially yes.”

(CNN, from Don Melvin, Jim Sciutto, and Wil Ripley)

For years, now, the paid think-tank naysayers have decried the capabilities of North Korea and downplayed their programs of missile and nuclear warhead developments.  on September 7, 2016, two days prior to the North Korean nuclear test of September 9th, a DoS (Denial of Service) attack crashed the website of the Project on Crowdsourced Satellite Imagery based in California.  Working on this “project” are two analysts, Melissa Hanrahan, and Jeffrey Lewis.  Both have consistently and repeatedly denied North Korea’s nuclear capabilities and as late as this year, both have stated that North Korea “was years away from perfecting an ICBM.”  Not only have they been proven wrong, but Lewis “backpedaled” and declared that this latest launch from last week was indeed a North Korean-launched ICBM.              

Fast-forward to today: The United States just flew a live-fire “exercise” on the border of North Korea, and the United States is now screwing with North Korea’s money.

Two American B-1 B bombers dropped live bombs on simulated missile battery targets while accompanied by South Korean fighter aircraft targeting simulated underground bunkers.  North Korea responded in their state-run media with such:

“The US, with its dangerous military provocation, is pushing the risk of a nuclear war on the peninsula to a tipping point.”

They labeled the maneuver as “…a dangerous military gambit of warmongers who are trying to ignite the fuse of a nuclear war on the peninsula,” and went on to add this, of great importance for you to focus upon, so much so that I’ve underlined the important part:

“A small misjudgment or error can immediately lead to the beginning of a nuclear war, which will inevitably lead to another world war.”

Do you realize the silent significance of the underlined portion?  The MSM has tried to paint a picture of North Korea as a “rogue” state with an insane leader.  In truth, there are other nations, such as China and Russia that conduct commerce with North Korea as well as having pledged military alliances.

Does anyone really think that China and Russia will sit this one out, and that it will all be just an EMP by North Korea followed by a couple of nukes dropped by the U.S.?

In the meantime, it has just been revealed by Jonathan Stempel of Reuters that the U.S. is going after North Korea’s money.  Here is an excerpt of that article:

“U.S. authorities have tried to seize millions of dollars associated with several companies that deal with North Korea, including the country’s military, from eight large international banks, according to court filings made public on Thursday.  The effort was revealed two days after North Korea tested a long-range missile capable of reaching Alaska, ratcheting up tensions with the United States and adding to worries about North Korea leader Kim Jong Un’s nuclear weapons plans.  Thursday’s filings show that Chief Judge Beryl Howell of the federal court in Washington, D.C. on May 22 granted U.S. prosecutors’ applications for “damming” seizure warrants against Bank of America Corp, Bank of New York Mellon Corp, Citigroup Inc, Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co, Standard Chartered Plc and Wells Fargo & Co.  Prosecutors believe the banks have processed more than $700 million of “prohibited” transactions on behalf of entities tied to North Korea since 2009, including the period after Donald Trump was elected U.S. president, the filings show.”

With measures such as military exercises and money seizures, it can be clearly seen that Un and North Korea are being maneuvered into a situation where the only recourses are capitulation to the U.S./IMF hegemony (which we know will not occur) or to conduct a strike against the United States.  North Korea has that capability right now…to launch a nuclear strike against the continental United States.

The next world war will be initiated by an EMP, and North Korea will either launch it or take the blame for it by a country that did launch it…to include the United States.

Do not be in denial of the threat: be the “10^th Man,” as in the movie “World War Z.”  Think outside of the confines that society places upon your intellect.  It is not “fear porn” to continuously “sound off” about what is going on around us, especially when people are either unaware of it or denying that it can happen.  The MSM is either silent on the subject, or it skews the information.  There are still those who are unaware of the current threats to the U.S. outlined in this article.  There are still many people who will be reading this information for the first time: those who may have heard bits and pieces of it and are not aware of what is going on or the depth and significance of it.

It is primarily for them that I write this piece, and secondly to those who may wish to review some of the previously-released information and reflect upon it…for them to make the right decisions regarding preparations for themselves and their families.

Bottom line: everyone is pretty much on their own…everyone and their families.  The “sink or swim” tenet does apply.  It is stupid to discount information that may help you when the time comes (or before it does) just because of “going along with the crowd,” or skepticism.  Many people would willingly burn to a crisp and stay in a target area just to emphasize their denial and disagreement with someone else’s view.  Throughout history, these people follow a stubborn refusal to admit there is always more than what appears on the surface. To act upon such information and decisively (at the critical point) is paramount.

I implore everyone to study carefully the buildup by the parties involved and weigh the reasons (who, what, when, where, how, and…most importantly, why) there could be a strike against the U.S. coming soon.  Many people believe that it is, and I am one of them.  I’d rather be wrong a thousand times than be “right” once on it, but the situation changes day to day.  It is better to be prepared for it.  If it comes, I’m not going to take any satisfaction at those who constantly deride or detract.  Instead I’m going to thank God that I’m safe and pray that others took steps to keep themselves and their families safe, too, and make it through the times to come.  Perhaps the whole country will come crashing down, but maybe…just maybe, we can survive and make it better than it was before.

I close with the words of Dr. Pry:

“…North Korea is a mortal nuclear threat to the United States – right now.  North Korea has already successfully tested and developed nuclear weapons.  It has also already miniaturized nuclear weapons for ballistic missile delivery and has armed missiles with nuclear warheads.

Any nuclear weapon detonated above an altitude of 30 kilometers will generate an electromagnetic pulse that will destroy electronics and could collapse the electric power grid and other critical infrastructures – communications, transportation, banking and finance, food and water – that sustain modern civilization and the lives of 300 million Americans.  All could be destroyed by a single nuclear weapon making an EMP attack.

A Super-EMP attack on the United States would cause much more and much deeper damage than a primitive nuclear weapon…North Korean nuclear tests look suspiciously like a Super-EMP weapon. A Super-EMP warhead would have a low yield, like the North Korean device, because it is not designed to create a big explosion, but to convert its energy into gamma rays, that generate the EMP effect.

Reportedly South Korean military intelligence concluded, independent of the EMP Commission, that Russian scientists are in North Korea helping develop a Super-EMP warhead. In 2012, a military commentator for the People’s Republic of China stated that North Korea has Super-EMP nuclear warheads.  A Super-EMP warhead would not weigh much, and could probably be delivered by North Korea’s ICBM.  The missile does not have to be accurate, as the EMP field is so large that detonating anywhere over the United States would have catastrophic consequences.

So, as of Dec. 12, North Korea’s successful orbit of a satellite demonstrates its ability to make an EMP attack against the United States – right now.”

Dr. Peter Vincent Pry, December 19, 2012, Washington Times, “PRY: North Korea EMP     attack could destroy U.S. – now.”