Why Isn't Gold Acting Like a Safe Haven—Yet? Part III: Is This Gold's Next Leg Up?

 

First of all there is need to remember that the gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion—policemen, customs guards, penal courts, prisons, in some countries even executioners—had to be put into action in order to destroy the gold standard. Solemn pledges were broken, retroactive laws were promulgated, provisions of constitutions and bills of rights were openly defied. And hosts of servile writers praised what the governments had done and hailed the dawn of the fiat-money millennium.—Ludwig von Mises 

In this issue: 

Why Isn't Gold Acting Like a Safe Haven—Yet? Part III: Is This Gold's Next Leg Up?

I. Introduction: From Finding the Bottom to Explaining the Reversal

II. The Gold Cycle: Cyclical bear, Secular bull

III. The New Plaza Accord: Intervention and Its Shrinking Half-Life

IV. Deepening Interventions Becomes Gold's Catalyst

V. When Former Headwinds Become Tailwinds

VII. Central Banks as Dip Buyers, and the Fund-Flow Tailwind

VI. Risk-Off, Inflationary, and Fiscal Signals Converge

VII. Central Banks as Dip Buyers, and the Fund-Flow Tailwind

VIII. Bottom line: Gold Is Pricing the Limits of Intervention 

Why Isn't Gold Acting Like a Safe Haven—Yet? Part III: Is This Gold's Next Leg Up? 

Intervention was supposed to stabilize currencies and bonds. Instead, each attempt is exposing the imbalance underneath—and gold is beginning to price it.

I. Introduction: From Finding the Bottom to Explaining the Reversal 

Figure 1 

This piece started as an attempt to answer whether gold had found a bottom. Events overtook the question. In the space of a week, gold cleared its 200-day moving average at $4,501, broke above $4,600, surpassed the 38.2% retracement of its decline from March's record, and confirmed the rounding-bottom pattern that had been forming since June. It was gold's third straight weekly gain—and its third strongest week of the year. 

The question of the bottom is no longer the interesting one. 

What's worth asking now is whether this is the start of gold's next leg toward its late January record near $5,400-$5,600, and — more importantly for this series — why it's happening.

Part I and Part II of this series argued gold's early-2026 weakness was a liquidity-stress phenomenon, not a failure of its safe-haven role — the gold-oil ratio compressing as energy-importing economies scrambled for dollars, gold sold because it remained liquid enough to fund margin calls, not because confidence in it had broken. Gold peaked above $5,500 intraday in late January, fell in a rounding top that hardened into a roughly 28% decline into late June, then based and turned. That much was covered in the earlier articles. 

What has changed is the pace and the trend—and, as the following analysis shows, the trigger. 

II. The Gold Cycle: Cyclical bear, Secular bull 

Gold's advance since the Nixon shock of August 15, 1971, has never moved in a straight line. It has progressed through a series of secular cycles, with cyclical bear markets occurring within the larger structural trend. Those corrections have varied considerably in both depth and duration.

Figure 2

The shortest cyclical bear market under a secular bullmarket was the 2008 decline, at roughly 26%, which resolved within about eight months. The deepest was the 2011–2015 decline, at roughly 48%, which lasted four years and marked the hiatus before the current cycle. February–June's roughly 28% decline over four months therefore looks much closer, in depth and duration, to the 2008 cyclical correction than to the 2011–2015 secular break. (Figure 2, topmost pane) 

Importantly, the structural forces behind the current advance have not disappeared. Central-bank de-dollarization, fiscal dominance, a geopolitical order drifting toward blocs, a deepening war economy, asset bubbles, and persistent inflation remain part of the monetary and institutional environment supporting gold. 

A liquidity-driven correction can therefore interrupt a secular advance without terminating the forces that produced it. If the current reversal holds, the February–June decline may prove to have been another cyclical bear market nested within the larger secular bull—not the end of the cycle itself. 

And if that interpretation is correct, the current advance would represent the third major leg of gold's post-Bretton Woods secular bull, following the 1970s advance and the 2001–2011 bull market. (Figure 2, middle graph) 

III. The New Plaza Accord: Intervention and Its Shrinking Half-Life 

On July 31, Japan's Ministry of Finance confirmed a coordinated yen-buying intervention with the US—the first joint action since 2011—after the yen slid toward 40-year lows near 163 to the dollar. 

The September 1985 Plaza Accord is the obvious comparison, but the history deserves care. Gold began rising in February 1985, before the Accord, and rallied roughly 50% from the Accord through November 1987—so gold did respond. (Figure 2, lowest image) 

What the Accord did not do was deliver gold's secular low. The dollar devaluation it engineered helped inflate Japan's property and stock bubble, which peaked in 1990 and produced the “lost decades,” with aftershocks plausibly extending through the 1994 Tequila crisis, the 1994 bond crisis (Great Bond Massacre), and the 1997 Asian financial crisis. 

Gold's actual secular bottom wasn't etched until the post-Asian-crisis, post-dot-com years around 1999–2001, symbolically marked by Gordon Brown's UK gold sales near the trough. 

The 1980–1999 gold secular bear was, in effect, the salad days of the dollar standard. 

A Plaza-style intervention can produce a real, tradeable cyclical gold rally without stabilizing the underlying system. Plaza's deeper legacy was several years of instability surfacing elsewhere, not durable currency-regime repair.

Figure 3

The yen's own history since 2022 makes the point more directly. Japanese authorities have repeatedly intervened to support the yen, yet each intervention has ultimately been followed by renewed downward pressure. (Figure 3, topmost pane) 

The pattern has been remarkably consistent: intervention produces an abrupt reversal, but the underlying trend eventually reasserts itself. 

That is the shrinking half-life in practice. The more fundamental forces driving the currency remain in place, so each intervention has to work harder to produce the same effect—and the market increasingly treats the intervention itself as evidence of the underlying imbalance. 

That caution has aged well. It took the bond market almost two weeks to fully erase the initial effect of the Fed-BoJ intervention. Then, on August 19, with 30-year Treasury yields pushing above 5.30%—the highest since 2007—the Treasury unexpectedly doubled its long-end buyback capacity, from a $2 billion to at least a $4 billion cap per operation, effective September 9. Yields fell instantly, equity futures jumped, and gold spiked. 

The Treasury's buyback program had already been operating since May 2024. The August move therefore wasn't the introduction of a new tool, but an expansion of an existing one. The important point is what happened despite that intervention: long-term yields had continued rising, suggesting diminishing returns from efforts to absorb duration and stabilize the long end. (Figure 3, middle image) 

This time the effect lasted one day! By Friday, the 30-year yield had regained the entire drop and then some, closing at 5.27%, while the 10-year sat at 4.74%—a single basis point from its pre-intervention high. 

Wolf Richter's account of the episode is worth noting for its diagnosis: the rise in long-term yields wasn't market dysfunction requiring correction, but the consequence of the government having to sell roughly $1 trillion in new debt over three months to fund the deficit, with buyers demanding compensation for inflation risk, the fiscal trajectory, and the sheer volume of paper that must clear the market every few months. Those pressures cannot be resolved by a signaling exercise from the Treasury secretary. 

Treasury Secretary Bessent himself all but conceded the point on CNBC the following morning, repeatedly describing the move as "signaling." 

Nor is Treasury the only official-sector actor absorbing government debt. The Federal Reserve's balance-sheet reduction ended in December 2025, after which it began purchasing Treasury bills and other short-term Treasuries to maintain an ample supply of reserves. Its outright Treasury holdings have subsequently been rising, reaching roughly $4.54 trillion by August 19, 2026. FRED (Figure 3, lowest visual) 

This may not be technically classified as quantitative easing (QE), but economically it represents renewed official-sector absorption of Treasury securities. And the more revealing point is what has happened alongside it: long-term Treasury yields have continued to rise. 

The implication is straightforward: despite the labeling, official-sector absorption of Treasury debt is increasing, yet it is not preventing the market from demanding higher yields on longer maturities. That is evidence of diminishing intervention effectiveness, not evidence that the underlying pressure has been resolved.

Figure 4 

And the underlying pressure is not static. The US national debt has now crossed $40 trillion, while interest costs have continued to accelerate. According to the figures cited by ZeroHedge, interest expense had already reached roughly $1.37 trillion in 2026, about 20% above the comparable period a year earlier. (Figure 4, topmost and middle images) 

This is where intervention encounters a structural problem. Deficit spending creates the borrowing requirement; rising yields increase the cost of servicing that borrowing; and higher interest costs, in turn, enlarge the deficit and require still more borrowing. The market is therefore confronting a moving target: official-sector intervention may temporarily absorb Treasury supply or suppress yields, but the fiscal requirement generating that supply continues to expand. 

The effectiveness of intervention consequently diminishes as the underlying imbalance grows. What might once have been sufficient to stabilize the market becomes progressively less effective when the volume of debt, the interest burden, and the compensation demanded by investors are all rising together. 

Two interventions in three weeks have produced only temporary relief, while the fiscal, currency, and bond-market pressures behind them have quickly reasserted themselves. That is the more important signal for gold. Yields of 10 and 30 year treasuries were at milestone highs (Figure 4, lowest diagram)

Figure 5 

Japanese Government Bons (JGB) yields tell a similar story. 

They remain below their immediate pre-intervention spike, but have begun climbing again, touching a fresh three-decade high near 2.94% on August 18 before easing only slightly. Figure 5, topmost image) 

The same pattern is emerging in Japan: intervention can alter market prices temporarily, but it does not remove the underlying pressure on the currency and sovereign bond market. 

IV. Deepening Interventions Becomes Gold's Catalyst 

For gold, however, the significance is different. 

Gold had already been trading around and holding the $4,000 level from late June through early August. 

First, the Fed-BoJ intervention provided the catalyst for the first lift-off from that base, reinforcing $4,000 as the floor. 

Then, Bessent's Treasury backstop came afterward, adding fuel to an advance that was already underway. 

The initial decline in long-term yields quickly disappeared, but gold retained its momentum. 

The result was the sequence described at the beginning of this piece: gold broke its 200-day moving average at $4,501, moved above $4,600, surpassed the 38.2% retracement of its March decline, and confirmed the rounding-bottom pattern that had been forming since June. 

The significance therefore goes beyond the failure of either intervention to suppress yields. The interventions themselves are becoming part of the mechanism driving gold higher. Attempts to contain currency and bond-market pressures are adding to the monetary and financial imbalances that gold is increasingly pricing. 

This is where the comparison with the Plaza Accord becomes more interesting. The 1985 agreement did not simply weaken the dollar; it set in motion adjustments that eventually surfaced elsewhere in the financial system. 

Today's bilateral intervention comes against a far more leveraged fiscal and monetary backdrop, with sovereign debt, currency instability, and official-sector intervention increasingly interacting with one another. 

If history rhymes, the contemporary bilateral Plaza Accord may mean more than a break of the recent high—it may mark the beginning of sharply higher gold prices. 

V. When Former Headwinds Become Tailwinds 

WTI crude was up roughly 5% this week, back above $86, as the US-Iran standoff over the Strait of Hormuz shows no sign of resolving and Washington prepares tighter sanctions. (Figure 5, middle graph) 

That is worth pausing on because oil-driven dollar demand was the mechanism Part I and Part II identified as suppressing gold earlier this year: energy importers scrambled for dollars, and gold was sold for liquidity even as the safe-haven case strengthened. 

The same forces are now coinciding with gold's advance rather than working against it. 

That is not a contradiction. It means the liquidity-stress channel has been overtaken by the larger fiscal-currency-risk channel this piece has been tracking. The same energy shock that once forced gold sales for dollar liquidity is now compounding, rather than competing with, the debt and currency concerns driving the bid for gold. 

There is another important change in the relationship between gold and Treasury yields. Earlier in the year, rising 30-year Treasury yields appeared to place a ceiling on gold's advance. Now the relationship appears to be changing: gold is rising even as the 30-year yield pushes above the level at which the Treasury's intervention sought to stabilize it. 

The market is therefore no longer responding to higher yields simply as an opportunity cost for holding gold. It is increasingly interpreting those yields as evidence of the fiscal and currency pressures that make gold more attractive in the first place. 

It is also worth noting that rising gold prices and rising 10-year Treasury yields have historically coexisted during the stagflationary periods of the 1970s. (Figure 5, lowest chart) 

The parallel with today is not exact—the degree of systemic leverage is vastly different—but the coexistence of rising nominal yields and rising gold is not unprecedented when inflation, fiscal pressure, and confidence in the monetary regime become dominant forces. 

VI. Risk-Off, Inflationary, and Fiscal Signals Converge 

Gold's rise also came as risk appetite weakened. The S&P 500 fell about 1.4% on the week, its first weekly decline in a month, dragged by a rough five days for technology; the Nasdaq lost roughly 2%. That gives this week's move a stronger risk-off component: equities fell while gold rose. 

But it was not a conventional flight to safety. Oil was rising, long-term Treasury yields were rising, and gold was rising with them. Growth concerns and inflation/fiscal concerns were therefore appearing simultaneously: stocks were pricing weaker risk appetite, while oil and bond yields were pricing inflation, supply, and fiscal pressures. 

That combination is arguably more important for gold than a conventional risk-off episode. Gold was not merely benefiting from falling risk assets; it was responding to the same underlying deterioration that was simultaneously pushing up oil and long-term yields. 

Curiously, Bitcoin also surged more than 22% during the week, briefly moving above $77,000, reflecting both renewed risk appetite in the crypto market and, potentially, a safe-haven bid amid concerns over currencies and the monetary system. Short covering amplified the move. 

Taken together, the week's price action looks less like a simple flight to safety than a convergence of risk-off, inflationary, and fiscal signals—and gold is increasingly responding to all three. 

VII. Central Banks as Dip Buyers, and the Fund-Flow Tailwind

Figure 6

Central banks were buying into the selloff. The World Gold Council's Q2 2026 data showed central banks adding 102 tonnes of gold during the quarter, even as gold prices fell roughly 16%. (Figure 6, upper diagram) 

As of the first half of 2026, Poland remained the largest reported buyer at 82 tonnes, followed by Uzbekistan at 41 tonnes, China at 40 tonnes, and Kazakhstan at 27 tonnes. World Gold Council: Central Bank Gold Statistics, June 2026 (Figure 6, lower graph) 

The significance is not the absolute volume, but the direction of demand during the correction. While more price-sensitive and leveraged holders were liquidating, official-sector demand was increasing. Central banks were therefore absorbing part of the supply released by the selloff, providing an important counterweight to the liquidation pressure that drove gold lower. 

The longer-term demand signal remains equally important. The World Gold Council's survey found that 89% of reserve managers expect official gold holdings to increase over the next 12 months. That suggests the buying is not simply a reaction to short-term price movements, but part of a broader shift in reserve preferences.

Figure 7

Fund flows provide a second layer of support. Gold held the $4,000 area for close to two months as renewed ETF inflows emerged, while the two previous stretches of stronger fund flows—roughly August–October 2025 and November–February 2026—preceded significant advances, including the run into January's record. (Figure 7, upper image) 

The pattern does not mean ETF flows mechanically determine prices, but it does show that renewed investment demand has tended to accompany—and at times precede—the next major leg higher.  

Independent ETF data reinforce the change in direction: global gold ETFs returned to inflows in July after May–June redemptions had flushed out leveraged positions, with flows continuing into August. The important development is therefore not simply the amount of money flowing into gold, but the transition from forced liquidation to renewed accumulation. 

India's Dhanteras and Diwali season could provide an additional, though more modest, seasonal catalyst into year-end, alongside whatever short covering remains from a positioning backdrop that has been reduced but does not appear fully washed out. (Figure 7, lower visual) 

The ownership dynamics are therefore changing. Central banks were accumulating while weaker and more leveraged holders were liquidating; as that selling pressure subsided, ETF flows turned positive. The correction consequently did not destroy the underlying demand structure. Instead, it transferred gold from more price-sensitive holders toward buyers with a stronger strategic (non-price sensitive) incentive to own it. 

That matters for the next leg. The same selloff that removed speculative excess also created the conditions for a stronger base: official buyers absorbed supply, leveraged positions were reduced, and investment flows are now returning as gold moves higher. 

VIII. Bottom line: Gold Is Pricing the Limits of Intervention 

The question this piece opened with has effectively been answered by the market: gold has bottomed. What deserves scrutiny now is why, because the explanation is not the conventional one. 

Two interventions in three weeks—one in currencies, one in the bond market—have produced only temporary effects in the markets they were intended to stabilize. Yet their significance for gold has been the opposite. 

The Fed-BoJ intervention provided the catalyst for gold's first lift-off from the $4,000 base; Bessent's Treasury backstop then added fuel to an advance already underway. The interventions did not extinguish the underlying pressures. They exposed them—and, in doing so, reinforced the forces driving gold higher. 

The same energy shock that once forced gold into liquidity sales is now moving with gold rather than against it. This week's equity sell-off adds another layer: stocks fell while gold, oil, and long-term yields rose together. That is not a simple flight-to-safety trade. It is a combination of risk-off, inflationary, and fiscal signals—a more distinctly stagflationary configuration. 

The next leg will not necessarily be linear. $4,600 now needs to establish itself as support rather than prove to have been a temporary spike, while a sustained break below $4,300 would materially weaken the bullish structure. But the more important question is no longer technical. 

Gold is increasingly pricing the widening gap between what governments can credibly promise about their currencies and debt markets and what they can actually deliver. The interventions are themselves becoming part of that price signal: each attempt to contain currency or bond-market pressure produces a temporary market response, while the underlying imbalance quickly reasserts itself. 

And that is ultimately what makes this leg different from the earlier stages of the cycle. Gold is no longer simply rising because investors fear what might happen. It is rising because the market is beginning to price what governments are already doing—and the diminishing effectiveness of their attempts to contain the consequences. 

____

References

-Why Isn’t Gold Acting Like a Safe Haven—Yet? The Gold–Oil Ratio and the Liquidity Stress Behind Early-Crisis Gold Weakness (Part II)—April 5, 2026 

-Why Isn’t Gold Acting Like a Safe Haven—Yet? War, Liquidity Stress, and the Fracturing of the Bullion System (Part I)— March 22, 2026

Phisix 7,300: A Return to the Bull Market or Bull Trap? Bangladesh Cyber Heist: A Preview of Global Cyber Financial Warfare?

The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country.—Edward Bernays

In this issue

Phisix 7,300: A Return to the Bull Market or Bull Trap? Bangladesh Cyber Heist: A Preview of Global Cyber Financial Warfare?

-Bangladesh Cyber Heist-RCBC Scandal: The Popular Misconceptions

-Bangladesh Cyber Heist: A Preview of Global Cyber Financial Warfare?

-RCBC Scandal Exposes on BSP’s Fragility: The Emperor Has NO Clothes!

-Robust Domestic Demand? January OFW Remittances Sputter Again!

-PSA’s Self Contradiction on Employment Data

-Phisix 7,300: A Return to the Bull market? Or Just Another Violent Bull Trap?

-Has Central Banks Forged a Shanghai Accord to Push Down the USD and to Stoke a Pump on Risk Assets?

-VLL’s Fantastic Self Acquisition of Starmalls!

Phisix 7,300: A Return to the Bull Market or Bull Trap? Bangladesh Cyber Heist: A Preview of Global Cyber Financial Warfare?

Bangladesh Cyber Heist-RCBC Scandal: The Popular Misconceptions

A splendid example of how populist media deliberately misdiagnose cause and effect through the misreading forest from trees has been the controversial “cyber heist” which involved a domestic bank as facilitator of the encashment of money looted from abroad.

Labeled as “money laundering” by the establishment, the general idea has been that the paucity of regulations ‘caused’ and or paved way for the immoral transfer of stolen funds abroad to several entities.

And as expected, the knee jerk response has been to seek more “reforms” (more interventions) and to amplify shrill politically correct (PC) clamor to ease on bank secrecy laws. The predicated assumptions from these (PC) prescriptions should translate to the mechanical banishment of unscrupulous bank activities.

For instance, domestic casinos came under fire for being recipients of the stolen funds. Because they have been exempt from AMLA, populist demand has been for the industry to be subjected to increased regulations. Yet curiously it has not been established whether the casinos acted as an auxiliary to the crime or had been mere unfortunate victims of circumstances. By virtue of logical fallacies, casinos were publicly condemned!

Surprisingly, a quote from an anonymous international observer by a media outlet seems to capture the essence: “imposing anti-money laundering restrictions on casinos, beyond the relatively strict operating guidelines they already have to follow, essentially criminalizes the industry,” he added. “That sounds harsh, but that’s exactly what it boils down to: Transactions above a certain amount are presumed to be illicit and must be reported, and possibly investigated. As I said, that may still be the way to go. But if that’s the case, it’s going to put a limit on investment in that sector…you’re as much as telling investors, ‘There’s a limit on how much money we’ll let you make.’ At least that’s how it will come across. And given the Philippines’ enthusiasm for trying to build up its casino sector, I’m not sure that’s the message they want to convey.”¹

Yet casinos serve as a convenient scapegoat for populist politics.

Take Macau’s casinos as conduit for Chinese capital flight as example.

To be clear, I show below how casinos have served instruments or tools to a given purposive action: capital flight. Pls don’t confuse means as the end.

In 2014, Chinese residents increasingly used state backed payment card, China Union Pay, to illegally ship money out of China. Chinese regulators eventually recognized this, and along with Macau authorities, both swiftly clamped down on the card to stem capital movements.

Let me add that some of the huge sums of money exiting China have allegedly been from illicit sources or “corruption” or have been part of the crackdown on the assets of the political opposition—which makes “capital flight” partly “money laundering” as per the definition of incumbent Chinese government. As I pointed out earlier, the crackdown on the state card had only aggravated on the financial conditions of Macau’s casino bubble.

Yet has the Chinese government been able to stop the capital flight (part of which was money laundering) through suppression means of transfer through the Union Pay card? Technically, yes. But generally, NO. Why? Because China’s capital flight only crescendoed! As much as $1 Trillion has been estimated to have fled China’s financial system in 2015.

Many Chinese denizens devised alternative creative ways to siphon money out of the country, e.g. by use relatives to hand carry cash, through the use checks from underground banks, through Hong Kong’s money changer, through buying of overseas assets financed by mortgages, or buying goods of abroad through credit or debit card.

As part of the capital flight/laundering dynamics, Chinese buyers have been instrumental in pushing up demand for foreign real estate.

Commercial entities likewise resort to the inflation of import receipts. The bigger firms have channeled capital flow through a huge surge in outbound foreign direct investments which now includes Anbang Insurance’s overpriced $13 billion bid for Starwood Hotels.

So from Union Pay card to many alternative routes. At the end day, Chinese capital flight continues.

The point is: it would be a big misperception to believe that prohibition and regulation on the means would justify the end.

Knee jerk or short term oriented reactions will come with unintended long term consequences.

Bangladesh Cyber Heist: A Preview of Global Cyber Financial Warfare?

Yet the mainstream forgot the real cause.

And the real cause has been a large scale international financial theft from, most possibly, a computer hacking syndicate combined with insider operations.

Said differently, the NYFED-Bangladesh heist seems to represent an elaborate plan to infiltrate and steal from the global financial system through the SWIFT system.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a global member-owned cooperative and the world’s leading provider of secure financial messaging services. The SWIFT has more than 9,000 (as of 2010) from 209 nations.

Could this have been a part of a grand plan to undermine and discredit the SWIFT system????

Note that the cyber heist operation originally consisted of $1 billion which apparently was bungled from a misspelling or typo error.

And here is the most important overlooked factor: That the involved parties were CENTRAL BANKS!

The New York Fed operates as a custodian of US dollar accounts for many central banks. Meanwhile, the fraud’s victim, the Bangladesh central bank has dollar accounts in the custody of the NY FED. Apparently the latter’s SWIFT codes had been compromised by hackers possibly located overseas.

Add to this list the indirect participant, which media has been uncannily silent about, the Philippine central bank, the Bangko Sentral ng Pilipinas (BSP).

Not only has been the BSP functioned as the main supervising authority for the bank, RCBC, where some of the personnel may have participated as accessories to the robbery, but the dollar remittances, usd to peso conversion, payments and settlement all operate under the BSP’s system.

In short, the scope of operations had been complex and global

The Bangladesh Central Bank believed that this was an insider job. Part of that conviction emanated from the possible sabotage or the disabling of printer that was supposed to print the SWIFT transactions for the day that suddenly malfunctioned. The absence of the report blinded the Bangladesh authority to the heist in action. Possibly as part of the investigation, an IT expert in Bangladesh has reportedly “gone missing”.

The Bangladesh central bank has commissioned the FBI to assist in the investigation. Though the NY FED denies the earlier charges made by the Bangladesh Central Bank that the former had been also at fault, last week a NY FED employee pleaded guilty for leaking confidential documents to his former employer, Goldman Sachs. While the latter has barely had any direct relationship with the former, what the latter shows has been the bureaucracy’s vulnerability to external influences and to corruption. So it would be too premature to dismiss the likelihood of the involvement of an insider at the NY FED in the Bangladesh incident.

By the way, NY FED’s president William Dudley is also an alumnus of Goldman Sachs. Talk about political revolving doors.

The cyber crime appears to have been a well-planned operation. The timing of execution was almost impeccable. It was done when the aforementioned central banks were most vulnerable. From the Financial Times: Sunday February 7, the start of the week in Bangladesh, was not a working day for banks in the US, and the Bangladeshis failed to reach their New York counterparts despite trying to communicate by email, fax and telephone on Saturday and Sunday. Monday February 8, furthermore, was a holiday for the Chinese new year in the Philippines, where many business people are of Chinese origin².

In short, the security networks of central banks, as national central planners of the financial system, whose institutions have large command over their respective nation’s resources, have been seriously challenged. The question is by who?

Moreover, reports from two cyber security firms, FireEye Inc. and World Informatix, appointed by Bangladesh Central Bank noted that their monetary system had been “stalked” or had been under cyber attack for two weeks through the commission of the crime.

And worst, the cyber intrusion into the SWIFT system has been reported to be a possible dry run for more or even larger scale operation. From Bloomberg³: (bold mine)

"Malware was specifically designed for a targeted attack on Bangladesh Bank to operate on SWIFT Alliance Access servers," the interim report said. Those servers are operated by the bank but run the SWIFT interface, and the report makes it clear the breach stretches into other parts of the bank’s network as well. "The security breach of the SWIFT environment is part of a much larger breach that is currently under investigation."

SWIFT is a member-owned cooperative that provides international codes to facilitate payments between banks globally. It can’t comment on the investigation, according to Charlie Booth from Brunswick Group, a corporate advisory firm that represents SWIFT.

More from the same Bloomberg report:

The assessment found the first suspicious log-in came on Jan. 24 and lasted less than a minute. On Jan. 29, attackers installed “SysMon in SWIFTLIVE" in what was interpreted as reconnaissance activity, and appeared to operate exclusively with “local administrator accounts.”

Operator logs showed the hackers logged in for short periods of time until Feb. 6, according to the report. The four transfers that went to the Philippines occurred on Feb. 4. The report said the hackers have already hit other FireEye clients, though it’s unclear if those include other central banks.

As of March 16, the FireEye team was about half-way through the examination of the central bank’s computer network.

"Complex malwares have been identified with advanced features of command & control communication, harvesting of credentials and to securely erase all traces of activity after accomplishing its task," the report said. It identified 32 "compromised assets" that “were used for reconnaissance and to gain control of the SWIFT servers and related assets."

If the accounts are true, then will we see more attack on the SWIFT member-users?

This brings to the point where the Bangladesh Cyber Heist could be part of a grand plan to discredit the SWIFT system.

Could it be that theft was only of subsidiary importance? And that real issue was to strain and undermine the SWIFT system?

Yet who are competitors of the SWIFT? There could be two I know of. The Chinese government has an alternative to SWIFT, it is called Cross-Border Inter-Bank Payments System (CIPS). Russia has reportedly been developing its own SWIFT version.

Has the Bangladesh Cyber Heist incident represented the opening salvo of global cyber warfare?

Moreover, the Bangladesh Cyber Heist exposes on a paradox; governments wants to impose war on cash allegedly to forestall money laundering, yet the bigger laundering comes from the cyberspace!

RCBC Scandal Exposes on BSP’s Fragility: The Emperor Has NO Clothes!

Going back to the Philippines.

The magnitude of the amount involved has been so enormous for a piddling branch (RCBC Jupiter) to actually handle the portions of “cash” withdrawals. Such cash requirements (most especially the USD tranches) must have been collated from several branches of the same bank or has originated from the bank’s head office and or from the bank head office deposits at the BSP.

And such likely means that the illicit transactions had permission or had a ‘go signal’ from the upper echelons or that the approval process had been perverted.

In short, this seems no work of a lone wolf or a bunch of small time crooks. There is more than meets the eye.

Curiously, lost in the Philippine political bedlam and grandstanding has been WHY the recipient bank (Pan Asian Bank) in Sri Lanka has been able to return the $20 million pelf.

Has it been because of Sri Lanka has a “surfeit” of AMLA regulations and or a lax bank secrecy laws? Or has it been because Sri Lankan bank officials had THE COMMON SENSE to discern and distinguish irregular transactions to put a stop on them? Officials from Pan Asian Bank noted “that the transaction as too big for a country like Sri Lanka”, so they reported the anomaly to the nation’s routing bank, Deutsche Bank, which subsequently put a freeze to the withdrawal request!

Additionally, all these transactions were channeled through the BSP’s financial system. Here is the BSP’s FAQ on foreign exchange operations and transactions: “The PvP links two real-time gross settlements systems– the BSP’s Philippine Payments and Settlements System (PhilPaSS) for the peso transactions and the Philippine Domestic Dollar Transfer System (PDDTS) for dollar transactions–with the Philippine Depository and Trust Corporation (PDTC) as designated clearing entity for peso-dollar transactions of commercial banks under the BAP. The PDDTS is a local clearing and electronic communications system operated by the BAP, the Philippine Clearing House Corporation (PCHC), Philippine Securities and Settlements Corp. (PSSC) and Citibank, Manila. The PDDTS provides the banking industry with a facility to move US dollar funds from one Philippine bank to another on the same day without having to go through correspondent banks in the US. The system allows online, real-time gross settlement of domestic interbank US dollar transfer and third party account-to-account US dollar transfers. In addition, it provides a facility for online inquiry and settlement of foreign exchange transactions, where the PDDTS participants enter interbank US dollar and Philippine peso transfer instruction in a single screen.”

While it is true that PDDTS represents a consortium of private corporations, they operate under the supervision of the BSP. So the BSP remains responsible for all USD dollar transactions.

Moreover, given the colossal amount of peso transfers, this means that the BSP’s Philpass has most likely been a conduit for the peso leg of such transactions.

So before the BSP calls for the easing of bank secrecy laws or other bank reforms, they should first impose discipline on their own bureaucracy and fix their operating system, as well as, on their private sector subsidiary agents—or operators of the PDDTS.

It would be of little merit to substitute incompetence with even more incompetence by adding more regulations that would likely spawn even more bureaucracy, heightened complexities, and consequently result to more loopholes from which the likelihood of corruption will only expand, and where scalawags will gladly use to such conditions to their advantage that will only increase the system’s fragility.

Maybe the BSP should learn from Sri Lanka and pass a regulation that mandates the use of common sense for bank officials!

It is important to note of the ironies and lessons from current events.

The BSP has been portrayed as having been IN TOTAL CONTROL of the banking system from which the latter’s operating condition has been sold to the public as “SOUND”, yet such grand scale of misconduct surfaces. The Bangladesh CYBER HEIST-RCBC Scandal essentially flies on their face.

Worst, it reveals that the emperor, the BSP, has no clothes!

And to add to the current paradox, there are only 41 universal and commercial banks based on the BSP’s latest directory, yet the BSP goes on to defend its position by saying that the RCBC scandal has been “isolated case” therefore not reflective of the banking system.

With the proliferation of no down-payment and ultra-low interest loans, here is a guess, the BSP has SPARSE idea of the real conditions of banking system, and importantly, how individual banks have been running in circles around their regulations.

Remember last year state owned DBP was accused of market manipulation?

Yet like cockroaches, one scandal may be a symptom of more scandals ahead.

Robust Domestic Demand? January OFW Remittances Sputter Again!

The Bangko Sentral ng Pilipinas reported on January remittances which had an uninspiring tone. Reason? 

 

On a monthly basis, personal remittances increased by only 3.2% year on year while cash remittances rose by only 3.4%.

After splendidly hiding the October-November collapse through a revamp on the two year dataset, December’s rebound seems to have sputtered anew as January data has fallen less than its predecessor.

From a monthly basis, the former lows have now become the resistance levels for both personal and cash remittance growth rates.

On a cumulative basis, it’s been an awful start for a usually robust January for both factors.

And even when Januarys has usually been seasonally robust, the monthly growth rate trend has been in a decline for the last two years (lowest window).

So with a foundering income supporting final consumption just where will domestic demand come from?

PSA’s Self Contradiction on Employment Data

More self contradictory data from the Philippine government.

The Philippine government reported that unemployment climbed from 6.6% last January 2015 to a 2016’s 5.8%. 

 

Online job placements disagree. Monster’s January job placements have fallen by another 33% on a year to year basis. (left) Remember, January’s 2015’s data was already down relative to 2014. So 2016’s decline compounds on 2015 data. Monster’s Job openings have been on a decline for the entire 2015.

The other online job website has shown similar dynamic. While it has bounced last January, numbers has been significantly down from May 2015, that’s when I started tabulating them every Thursday (which tends to be the strongest day of the week). My impression has that May’s numbers have been less than January 2015.

Diminished investments extrapolate to reduced job openings. So this is why online job openings have slowed. This is unless corporations have channeled job recruitment through other means (newspaper or viral).

Yet the government’s own job data contradicts their own employment report.

Let me reiterate the government Q3 employment index⁴: Total Employment Index increased at 2.8 percent growth slower from its 4.0 percent growth in the same quarter last year. Trade pulled down the index with a 1.4 percent drop from the previous year. The rest of the industries slowed down: Real Estate at 5.7 percent (from 11.2 percent); Private Services at 4.4 percent (from 6.3 percent); Manufacturing at 3.6 percent (from 4.0 percent); Mining and Quarrying with 2.7 percent (from 3.2 percent); Finance with 2.1 percent (from 10.0 percent); and Transportation and Communications with 0.1 percent (from 3.9 percent). Only Electricity and Water rebounded from a drop of 2.2 percent to positive 0.4 percent this year. (bold mine)

So the government’s own survey shows of significant broad based decline in jobs growth in 3Q yet their annual employment index points to a big recovery!

And if jobs in the trade industry had been a NEGATIVE in 3Q, where trade represents the largest share of the service employment at (34.8% DOLE 2014), just which sector has managed to buoy employment figures for the whole year???? The service sector accounted for 53.7% of jobs in 2014. This was followed by agriculture at 30.08% and industry at 15.6%.

Agriculture and manufacturing has been stagnating. Exports have been in a recession. Performance of PSE listed companies has been dismal through Q3 which should translate to less aggressiveness in capex. Remittances have also been materially slowing.

So just which industry will do most hiring to more than offset the drag from the noted sectors? Or has growth numbers been derived from models which just pop out of the computer screens?

Phisix 7,300: A Return to the Bull market? Or Just Another Violent Bull Trap?

Such statistical smoke and mirrors only reveals how desperate the government has been in trying to maintain the façade of the boom.

With an upsurge of 2.93%, the PSEi posted another scintillating week in favor of the bulls. Substantial gains from three consecutive weeks have accrued to a whopping 7.7%!

Add this to the gains from the January 21 lows, cumulative returns have now reached a stunning 20.09% in 39 trading sessions! So technically, PSEi at 7,300 extrapolates to a return of a bullmarket! That’s in the condition that such gains can at least be maintained.

And because of the ferocity of the recoil from the January troughs, current market actions have portrayed a precipitous or drastic V-shape recovery (green V-lines).

Yet the current rally (evidenced by the steepening slope) has shown to be more violent than the crash! The implication: greed (fear of missing out) has become mightier than fear!

Nonetheless, extreme accounts of volatility hardly have been suggestive of continuity of the current trend but of the risk of another vicious reversal. In short, volatility usually begets volatility.

Also moves from the past three weeks have brought the PSEi to severe overbought conditions.

And because the odds of a full recovery from a V-shape rebound seem small, based on the PSEi’s 50 year history, the bullish premise will depend on the fruition of ‘this time is different’.

Yet this week’s big move have accounted for as an extension of eight biggest market cap issues which continues to drive the headline index.

Some of the biggest market caps have virtually gone B-A-L-L-I-S-T-I-C!

Today, every decline have been seen as a taboo. So buying rampages occurs on the next sessions.

At 7,300, 3 issues stormed to fresh records from a vertical ramp. The three issues: SM, AEV and JGS.

For SM which soared by an astonishing 6.85% this week, be reminded that the same largest firm of the PSEi had posted ZERO net income growth in 2015, has a PER of about 28+ (as of Friday), has seen considerable decline on topline growth rate for two straight years, has ballooning debt, and has been emitting symptoms of excess capacity (e.g. ballooning vacancy rates at malls and increasing real estate inventories as sales slowdown).

Nonetheless, my hunch is that SM will soon announce the IPO of SM Retail at the coming stockholders meeting. The hope is that financial engineering will drive SM’s G-R-O-W-T-H! Can’t deliver growth from ordinary course of business? Then use financial magic to mesmerize the public!

Yet SM’s previous aerial acrobatics in 2013, which were a lot less in degree than today, has only led to crashes.

And now it’s more than the FANTASTIC EIGHT.

In a complete reversal of sentiment, equity prices of the telecom duopoly skyrocketed: TEL by 16.08% and GLO by 23.73%! The belated surge in telecom issues can be construed as a spillover effect or the rising tide phenomenon from the eight issue index pump

And with mania spreading to the telecom duopoly, the service sector led the sectoral gainers.

The 10.12% expansion by the service sector eclipsed the considerable gains by the financials, the holding and the property sector which posted 2.44%, 2.56% and 2.45% advances respectively.

Essentially, the bidding rampage on the four of the top 5 biggest market caps had been reflected on the stupendous near vertical ascent of the PSEi. The combined market share weighting of the four of the biggest issues was 32.577% as of Friday.

With this week’s runup, PLDT regained its top 5 ranking.

Of course, the idea of pumping the index is to spread the sentiment, so three other index issues have virtually gone berserk: RLC, MBT and GLO

Yes some people have come to believe in the impossible: that the markets will provide free money!

So will current momentum present itself as This Time is Different?

We shall see.

Has Central Banks Forged a Shanghai Accord to Push Down the USD and to Stoke a Pump on Risk Assets?

I have previously pointed out that the PSEi’s chart has eerily resonated with Brazil’s Bovespa. Current actions have only reinforced such relationship as shown in the above chart.

Since April 2015, the undulations of the Bovespa’s price trend appear to resonate with the PSEi. While the consonance of the chart trends may manifest sheer coincidence, both the PSEi and Bovespa have virtually characterized actions of bourses of the Emerging Market sphere.

Aside from the abrupt reaction from the brutal selloffs last January, the key fundamental influence to the current rally has been central bank actions.

Central banks have launched what seems as coordinated strike on the bears or an orchestrated move to shore up the markets.

In the heat of the market’s panic, the Bank of Japan surprised the market with its introduction of NEGATIVE interest rates.

The other week the ECB deployed its latest bazooka (new TLTRO, expanded QE, 0% for marginal lending facility and negative rates for deposit facility).

This week, the US Federal Reserve cited “global economic and financial developments continue to pose risks”, as well as, a downgrade on growth forecast.

Such outlook has rationalized the deferment on the move to raise rates.

Construed as “one of its most dovish decisions of the new millennium”, the effect of the FED’s non-action and the material decline in expectations for the Fed to further conduct tightening measures this year, have been to crash the USD (left).

The USD dropped 1.2% this week!

With the exception of Indonesia’s rupiah, Asian currencies rallied furiously (right) led by the South Korean won, Taiwan dollar and Singapore dollar. The USD won crashed by 2.57%, USD Taiwan dollar slumped by 1.34% and USD Singapore dollar tumbled by 1.1%.

Based on official rates, the USD Philippine peso stumbled by .56% to 46.36.

Interestingly, the Indonesian government ironically chopped interest rates for the THIRD consecutive month this year.

In essence, the US FED has been perceived to have implicitly EASED conditions!

It was not just the US FED, China’s central bank, the PBOC, aggressively fixed her currency the yuan to a 3 month high. However, the USD rose against the yuan on Friday to partially erase early gains by the yuan.

Aside from the yuan, the PBOC announced of the paring down of interest rates on medium term loan facility, the trimming of transaction fees for bank card transactions, and injections to the financial system subdue restive interbank lending rates.

Norway likewise cut interest rates during the week.

BoJ’s Governor Haruhiko Kuroda also said last week that “there is room to cut interest rates further” even when the BoJ kept present policies intact. Despite Mr Kuroda’s assurance for more easing, the yen soared against the USD by a remarkable 2.0%!

The seeming orchestrated central bank activities have been suspected by some as an outcome of an implicit adoption of a modern day version the Plaza Accord or the contemporaneous Shanghai Accord in the wake of the G-20 meeting last February at Shanghai.

So the concerted measures adapted by major central bankers over the past few weeks has reinforced on the risk ON conditions that sent stocks, bonds, commodities and emerging market assets flying!

But understand too that for the US stock markets, there has been only ONE BUYER which has kept the bullmarket alive. That ONE BUYER: Corporate BUYBACKS!!! (see left)

From Bloomberg⁵: Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever. (bold mine)

And paradoxically, rising US markets have occurred as earnings growth continues to plunge. From the Factset⁶: For Q1 2016, the estimated earnings decline is -8.4%. If the index reports a decline in earnings for Q1, it will mark the first time the index has seen four consecutive quarters of year-over-year declines in earnings since Q4 2008 through Q3 2009. (bold added)

So like the Philippines, US stock market prices have been departing from fundamentals.

Central banks continue to destroy stock markets so it can persist on its subsidies to the political elites and their cronies.

VLL’s Fantastic Self Acquisition of Starmalls!

Horizontal property developer Vista Land released its annual report last week.

And again I find the same dynamics that plagues the sector.

One, despite the “record” income, topline growth has been dramatically falling over the past two years. Sales growth for real estate dropped below 10% to only 9.77% in 2015. That’s lower than 11.36% in 2014 and more than half below the 22.7% rate in 2013.

But because political entrepreneur Manny Villar owned VLL “acquired” another Manny Villar owned Starmalls for Php 33 billion last December which was largely financed by debt, topline sales of Starmalls padded up on VLL’s overall sales picture. Gross revenues increased by 12.47% in 2015, from 11.15% in 2014 and from 31.95% in 2013.

So STR added only 1.32% to VLL’s topline.

Second, like her other peers, record income has been cash deficient. That’s because the topline (as well as income) has been financed by vendor financing through receivables expansion. In 2015, receivables growth ballooned by 18.67% which has been more than double than the 7.27% in 2014 but lower than 34.24% in 2013.

Third, the company continues to massively grow her real estate inventories. Inventories bulged by 27.5% in 2015 which has been double the 13.32% rate in 2014 and more than triple the 7.23% growth in 2013.

So inventories continue to grow MORE than sales. This means massive excess capacity in the making, if not already existing through unsold supplies.

There is nothing more that generates my interests than to see how such adventurism had been financed.

This leads to the fourth factor: DEBT

Total non current liabilities has skyrocketed by 63.12% to Php 60.73 billion in 2015 compared to Php 37.225 billion in 2014. Yet much of that loan had been used to finance the Starmall acquisition.

Yet hasn’t it been ironic for VLL to borrow tons of money (billions) just to generate an additional 1.32% G-R-O-W-T-H in the firm’s NGDP/Gross revenues?

Well why not? Since Starmall and VLL have been owned by the same entity, would lavishing on a self-acquisition with borrowed money not make sense?

Anyway, borrowed money comes from poor depositors who not only will get miniscule returns but also take on the risks by the owners. So if the company losses money, it would be the poor depositors who will likely take the brunt of the losses.

After all, that’s what zero bound rates have been made for: Through the funneling of the resources of the masses, the hope that by enriching the elites via wealth inflation such would “trickle down” back to the masses.

And that’s what “record” income has been about!

___

1 Manila Times Uncomfortable truths about the RCBC scandal March 18, 2016

2 Financial Times How cyber criminals targeted almost $1bn in Bangladesh Bank heist March 18, 2016

3 Bloomberg.com Hackers Stalked Bangladesh Bank for Two Weeks Before Big Heist March 19, 2016

4 Philippine Statistics Authority Total Gross Revenue Index of Industries grew by 4.3% in Q3 2015 February 24, 2016

5 Bloomberg.com There's Only One Buyer Keeping S&P 500's Bull Market Alive March 14, 2016

6 Factset EARNINGS INSIGHT March 18, 2016