UBS: ‘Gold is Going to Roll Over’

D. Schnider, head of commodities and Asian FOREX in Hong Kong for UBS was talking greasy about gold last night, saying the yellow metal was set to ‘rollover’, due to two Fed hikes to come that aren’t priced into markets.

No word on how two surprise Fed hikes would correlate to stocks soiling themselves. However, Dom did say King Dollars would make a resurgence, which might portend to some deleterious stock price action.

“Definitely, second half of the year, we’re going to get two hikes — that’s not fully priced in, and that’s why most dollar strength’s to come,” Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at the unit in Hong Kong, said in an interview on Bloomberg TV. Gold, which traded at $1,229.79 on Thursday, was last below $1,150 in February.

Gold’s been in retreat this month, paring a gain since January, as U.S. central bank policy makers have stepped up a drumbeat of commentary that the first rate rise of 2016 may come either as soon as next month or possibly in July, buoying the dollar. UBS’s Global Asset Management Head of Asia Pacific Rene Buehlmann said last month that as bullion offers no yield, it doesn’t add value to investors’ portfolios in the long run. Schnider also highlighted poor physical demand for bullion in the interview.

“Some people are going to get caught on the wrong side,” Schnider told Bloomberg’s Angie Lau. “Gold is going to roll over, we’re going to fall back to $1,150, and so be ready for more weakness in the short term.”

You’d be surprised how many people out there think states make their money from selling oranges on the side of the road. Income from wages and investment income are the top sources of revenue for 43 states. Moreover, because the stock market being weak, year over year, income taxes for the month of April fell by almost 10%.

U.S. state personal income taxes tumbled in the key revenue month of April due to lower investment returns from weaker equities and energy prices in 2015, a Reuters analysis of state data found.

This April, personal income tax (PIT) revenue fell by an average of 9.88 percent compared to the same month last year in the 32 U.S. states and Puerto Rico for which Reuters has data.
Taxes on wages and investment income are a top revenue source for the 43 states that collect it. April is the most important revenue month because it contains the tax filing deadline and the tendency of taxpayers who owe money to wait until the last minute to pay.

Personal income taxes make up slightly more than a third of states’ total general fund revenue, and sales taxes comprise roughly another third.

Collections have been volatile in recent years, including 2013’s “April Surprise,” which delivered unexpectedly high revenues to states as taxpayers sold investments to dodge an increase in federal taxes.

Collections plunged in April 2014 then rebounded last year with the help of a robust stock market.

In 2015, the U.S. benchmark S&P 500 stock index lost 0.7 percent compared with a 11.4 percent gain in 2014.

“The kinds of income that are kind of driving this are particularly capital gains related to the stock market. If you had to find a No. 1 culprit, that’s it,” said Don Boyd, Director of Fiscal Studies at the Rockefeller Institute of Government in Albany, New York.

QE for life.

Based on the median returns for over 200 industries analyzed in Exodus, biotechs, solar and semis have the biggest gains over the past week. I don’t have time to delve into individual names and you’re not babies. Enough with the hand holding already.

What’s interesting to me, and of note, is the sell-off in gold. Full disclosure, I loathe gold, always have and always will. But, it is the top performing index this year and has proven to be resilient and defensive in the face of market weakness.

So, do we buy this 5.5% drop in gold stocks? If so, which ones?

The largest by cap is ABX, NEM and GG, all down between 3-5%. That’s not much of a discount.

Here are the biggest 1-week losers in the space, that aren’t penny stocks.

DRD -11%
NG -10.7%
NGD -10.6%
KGC -10%

Over the past decade or so, western countries ceded growth and manufacturing to the east, permitting commodity prices to rise and extravagance to flourish. These nations felt rich. They stocked their harems with the best female slaves islamic money could buy. Now their magic flying, fucking, carpets are being tugged away and they don’t want to stop spending. Essentially, the Iron Bank of JP Morgan and HSBC has them hooked.

As such, their civilizations will now delve into the wondrous world of western finance, owing money to devils of the first magnitude. To be fair, it’s more like a demon owing the devil money, if I am being equitable to the analogous narrative.

Qatar just issued $9 billion in debt, the largest ever for the middle eastern country. Very soon, The House of Saud will whore their state run oil company, Aramco, at which point, shortly thereafter, oil will crest and topple over.

Consider this, if you will. Investment banks stand to make an enormous amount of money underwriting Aramco, as will the Sauds. Isn’t it possible the price of crude is being buoyed for exactly this purpose, to see the successful sale of shares?

Now the process begins of transferring that money back from east to west, with interest!

The country borrowed across three maturities, selling $3.5 billion in five-year notes at 120 basis points over U.S. Treasuries, the same amount in 10-year bonds at 150 basis points over Treasuries and $2 billion of 30-year paper at a 210 basis-point spread, according to a person familiar with the transaction. The amount is almost double the $5 billion that bankers close to the deal said Qatar was targeting.

The deal follows a $5 billion Eurobond from Abu Dhabi last month with Middle Eastern sales this year now amounting to almost $30 billion if Qatar’s is included. Energy-exporting nations are borrowing internationally following a halving of oil prices since 2014 which has forced some governments to raid reserves. Qatar is also in the second year of a $200 billion infrastructure upgrade ahead of hosting the 2022 soccer World Cup.

“It’s quite surprising they printed so much,” said Angelo Rossetto, a trader at GMSA Investments Ltd. in London, who bid for the bonds. “Qatar printed nearly double expectations but left pricing on the generous side.”

Abu Dhabi’s sale included a tranche of five-year debt at a spread of 85 basis points last month. This is the first sale in four years from Qatar, the world’s largest exporter of liquefied natural gas. The nation’s budget deficit will widen to 5.2 percent of national output this year, according to the median forecast of eight analysts surveyed by Bloomberg.

“The Qataris refused to cut their spending, investing and consumption and spent more cash than they generated,” said Lutz Roehmeyer, who helps oversee about $12 billion as director of fund management at Landesbank Berlin Investment, and bought the five-year bonds. “First they touched their reserves, waited for a slightly higher oil price and issued that much to refill the reserves again. So it was pent up demand for cash.”

A banker’s gonna bank.

With a market cap of just $286 million, zero cash and a mountain of debt, this company is going ot have an immense time surviving the coming storm. They’re, essentially, ark-less. Without having to delve into the financials, judging by their issued response to being fucked, the company is using the threat of default to renegotiate with creditors. They’re bleeding out, yet the stock is trading above $6. They need the banks to issue a waiver on the debt conditions, in order to access more debt and screw the banks even more.

Once again, you will be seeing a lot more of this in 2017, unless crude can get back to $75.

Shares are off by 20% in after-hours. Here is their statement.

At March 31, 2016, the company was in compliance with all financial covenants set forth in its debt facilities and note indentures; however, we are forecasting that, as early as the quarter ending June 30, 2016, the company may no longer be in compliance with the 3.0x minimum interest coverage ratio requirement contained in its Revolving Credit and Term Loan Agreement (“Bank Loan Agreement”), the Troms Offshore Debt and the 2013 Senior Note Agreement (the “2013 Note Agreement”). In the event of a covenant violation, which could occur as early as mid-August 2016 (when we are required to certify that the interest coverage ratio has been met for the first fiscal quarter ending June 30, 2016), the lenders and/or the noteholders could declare the company to be in default of the Bank Loan Agreement, the Troms Offshore Debt or the 2013 Note Agreement, as applicable, and accelerate the indebtedness thereunder, the effect of which would be to likewise cause the company’s other Senior Notes, which were issued in 2010 and 2011, to be in default.

Given that we expect that during fiscal 2017 we will not meet the 3.0x minimum interest coverage ratio requirement set forth in the Bank Loan Agreement, the Troms Offshore Debt and the 2013 Note Agreement, which could result in the acceleration of the debt under these agreements and the company’s other Senior Notes, we expect the report of the company’s independent registered public accounting firm that accompanies our audited consolidated financial statements for the fiscal year ended March 31, 2016 (the “audit opinion”) will contain an explanatory paragraph regarding our ability to continue as a going concern. Such going concern explanatory paragraph is required only because our internal forecast indicates that, within fiscal 2017, we may no longer be in compliance with the minimum interest coverage ratio requirement.

In addition, the Bank Loan Agreement and the Troms Offshore Debt require that the company receive an unqualified audit opinion from an independent certified public accountant which shall not be subject to a going concern or similar modification. The failure to receive an audit opinion without any modification, in and of itself, is an event of default under these agreements which would allow the lenders to accelerate the indebtedness thereunder, the effect of which would be to likewise cause all of the company’s Senior Notes to be in default. Subsequent to March 31, 2016, the company obtained limited waivers from the necessary lenders which waive the audit opinion requirement (i.e., no modifications) until August 14, 2016.

As a result of the event of default caused by our failure to receive an audit opinion with no modifications from our independent certified public accountants (which has been waived only until August 14, 2016), all of the company’s indebtedness (with the stated maturities as summarized in the notes to our consolidated financial statements) has been reclassified as a current liability in the company’s consolidated balance sheet at March 31, 2016. The explanatory paragraph in the expected audit opinion discussed above also references the audit opinion-related event of default under various borrowing arrangements as an uncertainty that raises substantial doubt about the company’s ability to continue as a going concern.

The company is engaged in discussions with its principal lenders and noteholders to amend and/or waive the company’s 3.0x minimum interest coverage ratio covenant in advance of any such potential default occurring, with the goal of finalizing any amendments and/or waivers prior to the possible covenant breach. Any such amendments and/or waivers would require successful negotiations with our bank group and noteholders, and may require the company to make certain concessions under the existing agreements, such as providing collateral to secure the Bank Loan Agreement, the Troms Offshore Debt and the Senior Notes, repaying all or a portion of the indebtedness outstanding under the revolving portion of the Bank Loan Agreement, accepting a reduction in total borrowing capacity under the revolving credit facility, paying a higher rate of interest, paying down a portion of the Troms Offshore Debt and/or Senior Notes, or some combination of the above. In addition, such amendments and/or waivers will need to address the audit opinion requirement of the Bank Loan Agreement and the Troms Offshore Debt (which, again, has been waived only until August 14, 2016). Obtaining the covenant relief will require the company to reach an agreement that satisfies potentially divergent interests of our lenders and noteholders.

The company’s consolidated financial statements as of and for the year ended March 31, 2016 have been prepared assuming the company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period following the date of these consolidated financial statements. However, for the above described reasons, indebtedness with the stated maturities as summarized in the notes to the consolidated financial statements is classified as a current liability at March 31, 2016.

I just got back from participating in ancient rituals. Immediately, I was entreated to this video, which I consider to be of extreme importance to any and all market players.

BEHOLD

Any questions? You’re all boxed in.

Pardon me for being lax around these halls the past week. I’ve been consumed with events that are beyond my control. When I do not post 15 times per day, I am plagued with a knife-churning guilt that menaces me in my dreams. Often times I am awoken by them, in the deepest of sweats, walking the black dog around with me until my work ethic permits me to lead by example.

As you readily know, my birthdate is observed and celebrated around these fine halls for the entire week. Feel free to inebriate yourselves– and walk around the neighborhood naked. Or, you have my full permission to act out the ancient ancestors of House Fly and run about the green fields with a potato in one hand and an ale in another.

Starting tomorrow, my blogging power will resume full throttle, shaming others in my field to the point of suicide.

One little personal tidbit, my gym activities have plunged to once per week, after years of constant attention to healthy exercise. My dietary concerns have become quite belligerent, in that I’ve adopted an unnecessary habit of eschewing gluten and wheat altogether and have limited restrictions on dairy. The reason for this is the same as the time when I quit drinking coffee back in 2011. If you recall, coffee was the preferred beverage of homeless men and mountebanks, worldwide. I didn’t want to associate myself with that brand of skin and bones. Therefore, I opted to drink Earl Grey for about a year and change until the coast was clear again to partake in coffee beverages. Since then, I’ve become a barista of sorts, learning the trade of proper coffee making, by buying and storing the proper beans, utilizing the correct methods to brew the coffee; and lastly, I’ve taken the time to educate myself as to the ideal temperature by which the coffee should be made. These are all vastly important subjects overlooked by most.

Having a gluten and dairy free diet permits me to have endless entertaining moments while dining out, shaming waiters and eatery owners with questions like “Excuse me (pointing to the food just served), is this gluten free?” In this day and age, people are ashamed to serve gluten to person’s who consider themselves to be restricted to eating it.

Great and funny stuff.

Also, I’ve begun collecting vinyl records, just for the sake of seeking out some of my old classics, 1940s jazz. I’ve purchased the right phonograph, American made, devoid of Chinese parts. For the moment, it does not bore me. As of right now, I’ve been a little busy gardening and getting my hands stained by black mulch, something I regret doing. Instead of having my landscaper do it this year, I figured I’d give it a shot. WRONG. I had a mountain of black mulch delivered to my driveway and then I was entreated with the task of shoveling it into a wheel barrow and spreading it out into my gardens. After doing it, I am keenly aware of what hell must be like.

Lastly, we are about to release real time streaming quotes for all Exodus baskets and pages. Right now, the streaming quotes are sequestered to individual stock pages. This new speed will open the door to a sundry of possible upgrades to the software, all of which I am eager to start working on.

You can’t make this shit up. You’d think the economists and central over planners would’ve thought this out before embarking on an $89 billion per month bond buying bonanza. But Dgraghi and friends are now running out of things to buy and should be with dick in hand by February of 2017, maybe sooner.

This, of course, is good news for stocks and the riskiest of assets, as the degenerate central bank may be forced to up the risk profile on their purchases to include garbage, maybe even equities, a la Japan.

Monetary policy makers increased purchases of Irish and Portuguese bonds last month by less than it did for German debt, suggesting demand already threatens to outstrip supply from some countries. Banks say it might have to include more bonds or risk diluting the stimulus to the economy the quantitative easing is designed to inject.

“Everything is on the table,” said Richard McGuire, head of rates strategy at Rabobank International. “Whenever they meet resistance, they get around it by adjusting the rules, adjusting the limits or targeting new asset classes.”

Purchases at the moment are based on the size of a country’s economy and there are exclusions linked to debt restructuring. Rabobank estimates 1.13 trillion euros of bonds currently off limits could be eligible should the ECB change the parameters.

The Germans must be stroking out of this, with their so called ‘Austrian economics’ bloodlines. The fact that Germany is the largest economy in Europe means they’re the biggest buyer. Ergo, they will be buying the largest haul of crap assets soon, to further envelope the ECB in Mario Draghi’s madness.

Optimism is in the air. The birds are chirping. Greece got another bailout. And the Fed is lying about hiking rates.

Markets are celebrating the breakout of the charts today, as money managers scramble behind mountains of cocaine to get their market orders filled. Just about everything is up, aside from retail. They cater to a miserly genteel folk of 350 million moribund people. The real economy is doing just fine, dutifully employed and without health insurance.

Oil is on the cusp of breaking $50, copper is moving higher again and gold is in the pits. This is what one would call a ‘risk on’ melt up, one that has been predicted by The Option Addict for a long time. For a moment, it looked like OA might’ve fallen off a mountainside and hit his head. But, alas, he’s come though again with yet another sage call. For those of you attending this quarter’s online boot camp, you’ve certainly gotten your money’s worth.

Where do we go from here? I discussed this in Exodus yesterday. When the algos get overbought, it typically means the rally will continue, at least for another 10 trading days. The stats, quite frankly, are unbelievable, with the market climbing 27 out of the last 29 overbought occasions. It’s simply a byproduct of momentum begetting more momentum.

Jim Chanos has said for a long time that Alibaba is a smoke and mirrors funhouse of accounting comedy. Apparently, the SEC is delving into the great Chinese company, curious as to the accounting of their ‘Singles Day’ nonsense.

For those uninformed, Jack Ma, CEO of Alibaba, created the holiday to celebrate people who eschewed family and marriage, classic Orwellian horseshit of the very first magnitude. As such, the enslaved Chinese are propelled to buy cheap goods in droves that day, mainly through BABA, who grossed $14 billion in sales on that day alone.

The SEC wants to have a peak under the hood.

“The SEC advised us that the initiation of a request for information should not be construed as an indication by the SEC or its staff that any violation of the federal securities laws has occurred,” the company said. “This matter is ongoing, and, as with any regulatory proceeding, we cannot predict when it will be concluded.”

Shares of BABA are off in early trade.