Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Authored by Nomi Prins, originally posted at TomDispatch.com,

Speaking of the need for citizen participation in our national politics in his final State of the Union address, President Obama said, “Our brand of democracy is hard.” A more accurate characterization might have been: “Our brand of democracy is cold hard cash.”

Cash, mountains of it, is increasingly the necessary tool for presidential candidates. Several Powerball jackpots could already be fueled from the billions of dollars in contributions in play in election 2016. When considering the present donation season, however, the devil lies in the details, which is why the details follow.

With three 2016 debates down and six more scheduled, the two fundraisers with the most surprising amount in common are Bernie Sanders and Donald Trump. Neither has billionaire-infused super PACs, but for vastly different reasons. Bernie has made it clear billionaires won’t ever hold sway in his court. While Trump… well, you know, he’s not only a billionaire but has the knack for getting the sort of attention that even billions can’t buy.

Regarding the rest of the field, each candidate is counting on the reliability of his or her own arsenal of billionaire sponsors and corporate nabobs when the you-know-what hits the fan. And at this point, believe it or not, thanks to the Supreme Court’s Citizens United decision of 2010 and the super PACs that arose from it, all the billionaires aren’t even nailed down or faintly tapped out yet.  In fact, some of them are already preparing to jump ship on their initial candidate of choice or reserving the really big bucks for closer to game time, when only two nominees will be duking it out for the White House.

Capturing this drama of the billionaires in new ways are TV networks eager to profit from the latest eyeball-gluing version of election politicking and the billions of dollars in ads that will flood onto screens nationwide between now and November 8th. As super PACs, billionaires, and behemoth companies press their influence on what used to be called “our democracy,” the modern debate system, now a 16-month food fight, has become the political equivalent of the NFL playoffs. In turn, soaring ratings numbers, scads of ads, and the party infighting that helps generate them now translate into billions of new dollars for media moguls.

For your amusement and mine, this being an all-fun-all-the-time election campaign, let’s examine the relationships between our twenty-first-century plutocrats and the contenders who have raised $5 million or more in individual contributions or through super PACs and are at 5% or more in composite national polls. I’ll refrain from using the politically correct phrases that feed into the illusion of distance between super PACs that allegedly support candidates’ causes and the candidates themselves, because in practice there is no distinction.

On the Republican Side:

1. Ted Cruz: Most “God-Fearing” Billionaires

Yes, it’s true the Texas senator “goofed” in neglecting to disclose to the Federal Election Commission (FEC) a tiny six-figure loan from Goldman Sachs for his successful 2012 Senate campaign. (After all, what’s half-a-million dollars between friends, especially when the investment bank that offered it also employed your wife as well as your finance chairman?) As The Donald recently told a crowd in Iowa, when it comes to Ted Cruz, “Goldman Sachs owns him. Remember that, folks. They own him.”

That aside, with a slew of wealthy Christians in his camp, Cruz has raised the second largest pile of money among the GOP candidates. His total of individual and PAC contributions so far disclosed is a striking $65.2 million. Of that, $14.28 million has already been spent. Individual contributors kicked in about a third of that total, or $26.57 million, as of the end of November 2015 — $11 million from small donors and $15.2 million from larger ones. His five top donor groups are retirees, lawyers and law firms, health professionals, miscellaneous businesses, and securities and investment firms (including, of course, Goldman Sachs to the tune of $43,575).

Cruz’s Keep the Promise super PAC continues to grow like an action movie franchise. It includes his original Keep the Promise PAC augmented by Keep the Promise I, II, and III. Collectively, the Keep the Promise super PACs amassed $37.83 million. In terms of deploying funds against his adversaries, they have spent more than 10 times as much fighting Marco Rubio as battling Hillary Clinton.

His super PAC money divides along family factions reminiscent of Game of Thrones.  A $15 million chunk comes from the billionaire Texas evangelical fracking moguls, the Wilks Brothers, and $10 million comes from Toby Neugebauer, who is also listed as the principal officer of the public charity, Matthew 6:20 Foundation; its motto is “Support the purposes of the Christian Community.”

Cruz’s super PACs also received  $11 million from billionaire Robert Mercer, co-CEO of the New York-based hedge fund Renaissance Technologies. His contribution is, however, peanuts compared to the $6.8 billion a Senate subcommittee accused Renaissance of shielding from the Internal Revenue Service (an allegation Mercer is still fighting). How’s that for “New York values”?  No wonder Cruz wants to abolish the IRS.

Another of Cruz’s contributors is Bob McNair, the real estate mogul, billionaire owner of the National Football League’s Houston Texans, and self-described “Christian steward.”

2. Marco Rubio: Most Diverse Billionaires

Senator Marco Rubio of Florida has raised $32.8 million from individual and PAC contributions and spent about $9 million. Despite the personal economic struggles he’s experienced and loves to talk about, he’s not exactly resonating with the nation’s downtrodden, hence his weak polling figures among the little people. Billionaires of all sorts, however, seem to love him.

The bulk of his money comes from super PACs and large contributors. Small individual contributors donated only $3.3 million to his coffers; larger individual contributions provided $11.3 million. Goldman Sachs leads his pack of corporate donors with $79,600.

His main super PAC, Conservative Solutions, has raised $16.6 million, making it the third largest cash cow behind those of Jeb Bush and Ted Cruz. It holds $5 million from Braman Motorcars, $3 million from the Oracle Corporation, and $2.5 million from Benjamin Leon, Jr., of Besilu Stables. (Those horses are evidently betting on Rubio.)

He has also amassed a healthy roster of billionaires including the hedge-fund “vulture of Argentina” Paul Singer who was the third-ranked conservative donor for the 2014 election cycle. Last October, in a mass email to supporters about a pre-Iowa caucus event, Singer promised, “Anyone who raises $10,800 in new, primary money will receive 5 VIP tickets to a rally and 5 tickets to a private reception with Marco.”

Another of Rubio's Billionaire Boys is Norman Braman, the Florida auto dealer and his mentor. These days he’s been forking over the real money, but back in 2008, he gave Florida International University $100,000 to fund a Rubio post-Florida statehouse teaching job. What makes Braman’s relationship particularly intriguing is his “intense distaste for Jeb Bush,” Rubio’s former political mentor and now political punching bag. Hatred, in other words, is paying dividends for Rubio.

Rounding out his top three billionaires is Oracle CEO Larry Ellison, who ranks third on Forbes’s billionaire list.  Last summer, he threw a $2,700 per person fundraiser in his Woodside, California, compound for the candidate, complete with a special dinner for couples that raised $27,000. If Rubio somehow pulls it out, you can bet he will be the Republican poster boy for Silicon Valley.

3. Jeb Bush: Most Disappointed Billionaires

Although the one-time Republican front-runner’s star now looks more like a black hole, the coffers of “Jeb!” are still the ones to beat. He had raised a total of $128 million by late November and spent just $19.9 million of it.  Essentially none of Jeb’s money came from the little people (that is, us). Barely 4% of his contributions were from donations of $200 or less.

In terms of corporate donors, eight of his top 10 contributors are banks or from the financial industry (including all of the Big Six banks). Goldman Sachs (which is nothing if not generous to just about every candidate in sight — except of course, Bernie) tops his corporate donor chart with $192,500. His super PACs still kick ass compared to those of the other GOP contenders. His Right to Rise super PAC raised a hefty $103.2 million and, despite his disappearing act in the polls, it remains by far the largest in the field.

Corporate donors to Jeb’s Right to Rise PAC include MBF Healthcare Partners founder and chairman Mike Fernandez, who has financed a slew of anti-Trump ads, with $3.02 million, and Rooney Holdings with $2.2 million. Its CEO, L. Francis Rooney III, was the man George W. Bush appointed ambassador to the Vatican. Former AIG CEO Hank Greenberg’s current company, CV Starr (and not, as he has made pains to clarify, he himself), gave $10 million to Jeb’s super PAC. In the same Fox Business interview where he stressed that distinction, he also noted, “I’m sorry he is not living up to expectations, but that’s the reality of it.” AIG, by the way, received $182 billion in bailout money under Jeb’s brother, W.

4. Ben Carson: No Love For Billionaires

Ben Carson is running a pretty expensive campaign, which doesn’t reflect well on his possible future handling of the economy (though, as he sinks toward irrelevance in the polls, it seems as if his moment to handle anything may have passed). Having raised $38.7 million, he’s spent $26.4 million of it. His campaign received 63% of its contributions from small donors, which leaves it third behind Bernie and Trump on that score, according to FEC filings from October 2015.

His main super PACs, grouped under the title “the 2016 Committee,” raised just $3.8 million, with rich retired people providing the bulk of it.  Another PAC, Our Children’s Future, didn’t collect anything, despite its pledge to turn "Carson’s outside militia into an organized army."

But billionaires aren’t Carson’s cup of tea. As he said last October, “I have not gone out licking the boots of billionaires and special-interest groups. I’m not getting into bed with them.”

Carson recently dropped into fourth place in the RealClearPolitics composite poll for election 2016 with his team in chaos. His campaign manager, Barry Bennett, quit. His finance chairman, Dean Parke, resigned amid escalating criticism over his spending practices and his $20,000 a month salary. As the rising outsider candidate, Carson once had an opportunity to offer a fresh voice on campaign finance reform. Instead, his campaign learned the hard way that being in the Republican hot seat without a Rolodex of billionaires can be hell on Earth.

5. Chris Christie: Most Sketchy Billionaires

For someone polling so low, New Jersey Governor Chris Christie has amassed startling amounts of dosh. His campaign contributions stand at $18.6 million, of which he has spent $5.7 million. Real people don’t care for him. Christie has received the least number of small contributions in either party, a bargain basement 3% of his total.

On the other hand, his super PAC, America Leads, raised $11 million, including $4.3 million from the securities and investment industry. His top corporate donors at $1 million each include Point 72 Asset Management, the Steven and Alexandra Cohen Foundation, and Winnecup Gamble Ranch, run by billionaire Paul Fireman, chairman of Fireman Capital Partners and founder and former chairman of Reebok International Ltd.

Steven Cohen, worth about $12 billion and on the Christie campaign's national finance team, founded Point 72 Asset Management after being forced to shut down SAC Capital, his former hedge-fund company, due to insider-trading charges. SAC had to pay $1.2 billion to settle.

Christie’s other helpful billionaire is Ken Langone, co-founder of Home Depot. But Langone, as he told the National Journal, is not writing a $10 million check. Instead, he says, his preferred method of subsidizing politicians is getting “a lot of people to write checks, and get them to get people to write checks, and hopefully result in a helluva lot more than $10 million.” In other words, Langone offers his ultra-wealthy network, not himself.

6. Donald Trump: I Am A Billionaire

Trump’s campaign has received approximately $5.8 million in individual contributions and spent about the same amount. Though not much compared to the other Republican contenders, it’s noteworthy that 70% of Trump’s contributions come from small individual donors (the highest percentage among GOP candidates). It’s a figure that suggests it might not pay to underestimate Trump’s grassroots support, especially since he’s getting significant amounts of money from people who know he doesn’t need it.

Last July, a Make America Great Again super PAC emerged, but it shut down in October to honor Trump’s no super PAC claim.  For Trump, dealing with super PAC agendas would be a hassle unworthy of his time and ego. (He is, after all, the best billionaire: trust him.) Besides, with endorsements from luminaries like former Alaska Governor Sarah Palin and a command of TV ratings that’s beyond compare, who needs a super PAC or even his own money, of which he’s so far spent remarkably little?

On The Democratic Side:

1. Hillary Clinton: A Dynasty of Billionaires

Hillary and Bill Clinton earned a phenomenal $139 million for themselves between 2007 and 2014, chiefly from writing books and speaking to various high-paying Wall Street and international corporations.  Between 2013 and 2015, Hillary Clinton gave 12 speeches to Wall Street banks, private equity firms, and other financial corporations, pocketing a whopping $2,935,000. And she’s used that obvious money-raising skill to turn her campaign into a fundraising machine.

As of October 16, 2015, she had pocketed $97.87 million from individual and PAC contributions.  And she sure knows how to spend it, too. Nearly half of that sum, or $49.8 million — more than triple the amount of any other candidate — has already gone to campaign expenses.

Small individual contributions made up only 17% of Hillary’s total; 81% came from large individual contributions. Much like her forced folksiness in the early days of her campaign when she was snapped eating a burrito bowl at a Chipotle in her first major meet-the-folks venture in Ohio, those figures reveal a certain lack of savoir faire when it comes to the struggling classes.

Still, despite her speaking tour up and down Wall Street and the fact that four of the top six Wall Street banks feature among her top 10 career contributors, they’ve been holding back so far in this election cycle (or perhaps donating to the GOP instead).  After all, campaign 2008 was a bust for her and nobody likes to be on the losing side twice.

Her largest super PAC, Priorities USA Action, nonetheless raised $15.7 million, including $4.6 million from the entertainment industry and $3.1 million from securities and investment. The Saban Capital Group and DreamWorks kicked in $2 million each.

Hillary has recently tried to distance herself from a well-deserved reputation for being close to Wall Street, despite the mega-speaking fees she’s garnered from Goldman Sachs among others, not to speak of the fact that five of the Big Six banks gave money to the Clinton Foundation. She now claims that her “Wall Street plan” is stricter than Bernie Sanders’s. (It isn’t. He’s advocating to break up the big banks via a twenty-first-century version of the Glass-Steagall Act that Bill Clinton buried in his presidency.) To top it off, she scheduled an elite fundraiser at the $17 billion “alternative investment” firm Franklin Square Capital Partners four days before the Iowa Caucus. So much for leopards changing spots.

You won’t be surprised to learn that Hillary has billionaires galore in her corner, all of whom backed her hubby through the years.  Chief among them is media magnate Haim Saban who gave her super PAC $2 million. George Soros, the hedge-fund mogul, contributed $2.02 million. DreamWorks Animation chief executive Jeffrey Katzenberg gave $1 million. And the list goes on.

2. Bernie Sanders: No Billionaires Allowed

Bernie Sanders has stuck to his word, running a campaign sans billionaires. As of October 2015, he had raised an impressive $41.5 million and spent about $14.5 million of it.

None of his top corporate donors are Wall Street banks. What’s more, a record 77% of his contributions came from small individual donors, a number that seems only destined to grow as his legions of enthusiasts vote with their personal checkbooks.

According to a Sanders campaign press release as the year began, another $33 million came in during the last three months of 2015: “The tally for the year-end quarter pushed his total raised last year to $73 million from more than 1 million individuals who made a record 2.5 million donations.” That number broke the 2011 record set by President Obama’s reelection committee by 300,000 donations, and evidence suggests Sanders’s individual contributors aren’t faintly tapped out. After recent attacks on his single-payer healthcare plan by the Clinton camp, he raised $1.4 million in a single day.

It would, of course, be an irony of ironies if what has been a billionaire’s playground since the Citizens United decision became, in November, a billionaire’s graveyard with literally billions of plutocratic dollars interred in a grave marked: here lies campaign 2016.

The Media and Debates

And talking about billions, in some sense the true political and financial playground of this era has clearly become the television set with a record $6 billion in political ads slated to flood America’s screen lives before next November 8th. Add to that the staggering rates that media companies have been getting for ad slots on TV’s latest reality extravaganza — those “debates” that began in mid-2015 and look as if they’ll never end. They have sometimes pulled in National Football League-sized audiences and represent an entertainment and profit spectacle of the highest order.

So here’s a little rundown on those debates thus far, winners and losers (and I’m not even thinking of the candidates, though Donald Trump would obviously lead the list of winners so far — just ask him).  In those ratings extravaganzas, especially the Republican ones, the lack of media questions on campaign finance reform and on the influence of billionaires is striking — and little wonder, under the money-making circumstances.

The GOP Show

The kick-off August 6th GOP debate in Cleveland, Ohio, was a Fox News triumph. Bringing in 24 million viewers, it was the highest-rated primary debate in TV history. The follow-up at the Reagan Library in Simi Valley, California, on September 16th, hosted by CNN and Salem Radio, grabbed another 23.1 million viewers, making it the most-watched program in CNN's history.  (Trump naturally took credit for that.)  CNN charged up to $200,000 for a 30-second spot.  (An average prime-time spot on CNN usually goes for $5,000.) The third debate, hosted by CNBC, attracted 14 million viewers, a record for CNBC, which was by then charging advertisers $250,000 or more for 30-second spots.

Fox Business News and the Wall Street Journal hosted the next round on November 10th: 13.5 million viewers and (ho-hum) a Fox Business News record. For that one, $175,000 bought you a 30-second commercial slot.

The fifth and final debate of 2015 on December 15th in Las Vegas, again hosted by CNN and Salem Radio, lassoed 18 million viewers. As 2016 started, debate fatigue finally seemed to be setting in. The first debate on January 14th in North Charleston, South Carolina, scored a mere 11 million viewers for Fox Business News. When it came to the second debate (and the last before the Iowa caucuses) on January 28th, The Donald decided not to grace it with his presence because he didn't think Fox News had treated him nicely enough and because he loathes its host Megyn Kelly.

The Democratic Debates

Relative to the GOP debate ad-money mania, CNN charged a bargain half-off, or $100,000, for a 30-second ad during one of the Democratic debates. Let’s face it, lacking a reality TV star at center stage, the Democrats and associated advertisers generally fared less well. Their first debate on October 13th in Las Vegas, hosted by CNN and Facebook, averaged a respectable 15.3 million viewers, but the next one in Des Moines, Iowa, overseen by CBS and the Des Moines Register, sank to just 8.6 million viewers. Debate number three in Manchester, New Hampshire, hosted by ABC and WMUR, was rumored to have been buried by the Democratic National Committee (evidently trying to do Hillary a favor) on the Saturday night before Christmas. Not surprisingly, it brought in only 7.85 million viewers.

The fourth Democratic debate on NBC on January 17th (streamed live on YouTube) featured the intensifying battle between an energized Bernie and a spooked Hillary.  It garnered 10.2 million TV viewers and another 2.3 million YouTube viewers, even though it, too, had been buried — on the Sunday night before Martin Luther King, Jr. Day. In comparison, 60 Minutes on rival network CBS nabbed 20.3 million viewers.

The Upshot

So what gives? In this election season, it’s clear that these skirmishes involving the ultra-wealthy and their piles of cash are transforming modern American politics into a form of theater. And the correlation between big money and big drama seems destined only to rise.  The media needs to fill its coffers between now and election day and the competition among billionaires has something of a horse-betting quality to it.  Once upon a time, candidates drummed up interest in their policies; now, their policies, such as they are, have been condensed into so many buzzwords and phrases, while money and glitz are the main currencies attracting attention.

That said, it could all go awry for the money-class and wouldn’t that just be satisfying to witness — the irony of an election won not by, but despite, all those billionaires and corporate patrons.

Will Bernie’s citizens beat Hillary’s billionaires? Will Trump go billion to billion with fellow New York billionaire Michael Bloomberg? Will Cruz’s prayers be answered? Will Rubio score a 12th round knockout of Cruz and Trump? Does Jeb Bush even exist? And to bring up a question few are likely to ask: What do the American people and our former democratic republic stand to lose (or gain) from this spectacle? All this and more (and more and more money) will be revealed later this year.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Back in April 2013, we showed for the first time something few were aware of, namely that “At $72.8 Trillion, The Bank With The Biggest Derivative Exposure In The World” was not JPMorgan as some had expected, but Germany’s banking behemoth, Deutsche bank.

Some brushed it off, saying one should never look at gross derivative exposure but merely net, to which we had one simple response: net immediately becomes gross when just one counterparty in the collateral chains fails – case in point, the Lehman and AIG failures and the resulting scramble to bailout the entire world which cost trillions in taxpayer funds.

We then followed it up one year later with “The Elephant In The Room: Deutsche Bank’s $75 Trillion In Derivatives Is 20 Times Greater Than German GDP.”

Then, last June, we asked the most pointed question yet: “Is Deutsche Bank The Next Lehman?” only this time it wasn’t just the bank’s gargantuan balance sheet risk shown below that was dominant…

…. but the fact that it impaired assets had finally started to trickle down through to the income statement, leading to loss after loss, management exit after exit, market rigging settlement after market rigging settlement, and all culminating ten days ago with the bank’s “titanic”, and record, €7 billion loss, surpassing the bank’s troubles even during the depths of the Global Financial Crisis.

But while income statement losses can be brushed aside, far more troubling was that even other banks had started paying attention to the bank’s balance sheet. This is what Citi said:

We view the leverage ratio as the binding capital constraint for Deutsche. The current 3.5% is well below peers and the company’s own 4.5% target. Post restructuring & litigation charges and a Postbank divestment at 0.6x P/TB, we estimate a pro-forma leverage ratio of c3.3%. This implies a c€15bn shortfall, of which we expect part to be met by underlying retained earnings and part via AT1 issuance. However this still leaves an equity shortfall – we see a c4% leverage ratio by end-2017 – which is likely to necessitate a capital increase of up to €7bn in our view. In addition we note the target CET1 ratio of >12.5% only allows for a 0.25% management buffer above the fully-loaded SREP requirement. This provides the company with limited flexibility especially if BaFin were to introduce a counter-cyclical buffer (max 2.5% add-on).

And then there is the huge black hole that is China, and exposure to it… although others are starting to pay attention, and as New Europe wrote two weeks ago, “Major European banks… are significantly exposed to China and if there is significant deleveraging the impact will no doubt be global.”

Banks such as HSBC, such as Deutsche Bank.

We bring all this up because here is what the stock price of Deutsche Bank has done since our first warning about the huge potential risks borne by Deutsche Bank, back in April 2013 – earlier today it touched on fresh post-crisis lows and down substantially since we first started warning about it:

But the real chart everyone should be paying attention to – we certainly have been for a long, long time – is that of DB’s Credit Default Swaps, the earliest harbinger not of company risk, that has been there for a long, long time, but far more importantly of the market’s realization and admission of this risk, have been blowing up and screaming that something is very, very broken at the bank with the largest gross notional derivative exposure in the world.

So, our question for today, is it time to panic about Deutsche Bank yet?

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

The one catalyst many Glencore bears have been eagerly waiting for, is the downgrade of the troubled independent energy trader to junk status, a catalyst which as previously explained, will likely spring various, heretofore unknown margin calls and collateral “waterfalls” a la AIG.

Overnight, one of the two rating agencies, Standard and Poors, came one step closer to that fateful moment when it downgraded Glencore, however it decided to throw the company one last lifeline by keeping it at the very lowest investment grade rating, and instead of cutting it from BBB to single B or CCC where its CDS and bond yield implies the company should be trading, it kept it a BBB-.

This is what it said:

Glencore PLC Ratings Lowered To ‘BBB-/A-3′ On Price And Sector Review; Outlook Stable

• Standard & Poor’s Ratings Services has recently lowered its price  assumptions for copper and other metals, reflecting the very challenging  market outlook and the increased uncertainty about demand. 
• These heightened operating risks, reported EBITDA declines, and increased volatility of earnings lead us to a more cautious assessment of global mining company Glencore PLC and its financial leverage.
• We are therefore lowering our long- and short-term corporate credit ratings on Glencore to ‘BBB-/A-3′ from ‘BBB/A-2′.
• The outlook is stable as we believe Glencore’s meaningful continuing free cash generation, strong liquidity, and active balance sheet deleveraging should mitigate downside risk.

Standard & Poor’s Ratings Services  today said it has lowered its long- and short-term corporate credit ratings on global diversified mining and trading company Glencore PLC to ‘BBB-/A-3′ from  ‘BBB/A-2′. The outlook is stable.

We also lowered the rating on the debt issued or guaranteed by Glencore and  Glencore International AG to ‘BBB-‘ from ‘BBB’.

The downgrade reflects both our view of the material challenges the mining industry faces, with increased uncertainty about future operating performance in 2016 and 2017, as well as our assessment that Glencore’s 2015 financial profile was below our earlier expectations with funds from operations (FFO) to debt closer to 20%, notwithstanding material debt reduction. This compares to a range of 23%-28% which we previously saw as commensurate with the ‘BBB’ rating. The rating action follows a modest negative re-evaluation of both business and financial factors for Glencore, as reflected in our negative comparative rating assessments. We believe the ‘BBB-‘ rating has more sustainable headroom, particularly in the prevailing low price environment, and we anticipate significant further debt reduction in 2016.

We recently lowered our price assumption for most commodities, including some of the key commodities for Glencore, such as copper, zinc, and nickel (see “Standard & Poor’s Revises Its Price Assumptions For Metals On Continuing Price Weakness,” published on Jan. 22, 2016). This was after metal prices came under pressure because of fears of lower demand from China, combined with excess supply. We believe that commodity prices will remain very unsettled while the impact of China’s slowdown plays out. This environment results in reduced visibility of future profits for Glencore and its peers. For Glencore, in particular, this also has, and may continue to result in, greater reported earnings volatility than we had previously anticipated, even if we recognize the relative stability over time of trading profits compared with those from mining activities. Glencore’s EBITDA in the first half of 2015 was down 29%, broadly in line with BHP Billiton and Rio Tinto.

Nonetheless, under our revised base-case scenario, we project that Glencore’s FFO to debt is likely to recover to above 23%-25%, although this is dependent on our price, foreign exchange, and other assumptions including the company’s December 2015 guidance for lower unit costs and capital expenditure (capex). Critically, we foresee continued delivery of Glencore’s debt reduction plan in 2016 and, in our view, likely disposals in the near term, as well as forecast free cash flow from operations of $2 billion-$3 billion, supported by expected resilient trading profits.

Our forecast of reducing leverage is also underpinned by the debt reduction plan of more than $10 billion that Glencore has been delivering since September 2015. This included a $2.5 billion equity raise, cancellation of the 2016 dividend payments, the further release of working capital, and other steps including disposals.

Key assumptions in 2016 and 2017 include:

• Annual copper production of 1.4 million tonnes-1.6 million tonnes at prices of $2.1 per pound (/lb)-$2.2/lb;
• Annual zinc production of 1.1 million tonnes at prices of $0.7/lb-$0.8/lb;
• Marketing EBITDA of $2.7 billion;
• A moderate net working capital release of $0.5 billion-$1.0 billion;
• Capex of $3.5 billion-$4.0 billion;
• No dividends; and
• Disposals of $1 billion-$2 billion.

Under our baseline, these assumptions result in proportionately consolidated EBITDA of $7.0 billion-$8.0 billion in 2016 and just over $8.0 billion in 2017, compared to $13 billion in 2014. Consequently, we foresee FFO to debt improving to over 23%-25% in 2016 and possibly approaching 30% in 2017.

The stable outlook reflects our assessment that Glencore’s meaningful continuing free cash generation of over $2 billion, strong liquidity, and active balance sheet deleveraging should support the ratings, even in a modestly weaker commodity price environment than our base case assumes. We believe FFO to debt consistently over 20% is compatible with the ratings. We expect rating headroom to materially increase over the coming quarters, as we anticipate significant further debt reduction through disposals. Glencore is targeting disposals of at least $3.0 billion-$4.0 billion, which the company has been delivering since September 2015.

We see the potential for a negative rating action as low, given the expected continued deleveraging in 2016-2017, supported by management’s strong commitment to strengthening its credit metrics and decisive actions to date. Key risk factors would stem from a further prolonged fall in commodity prices, notably if economic developments in China worsened and absent material offsetting factors. A downgrade of Glencore would become likely if FFO to debt remained below 20%. As an example, we estimate that if copper prices averaged below about $1.8/lb over 2016 and 2017, it could be difficult for Glencore to maintain FFO to debt above 20% without compensating measures or factors such as foreign exchange.

Rating constraints could stem from a material acquisition, without comparable offsetting disposals, or a more fundamental adverse reassessment of the resilience of the business mix and profile compared with peers.

The likelihood of an upgrade could increase if we perceived a sustainable improvement in the mining operating environment and Glencore’s earnings performance is stable. We could consider a positive rating action if we anticipate that FFO to debt will remain comfortably above 23%, while seeing continued positive discretionary cash flow.

* * *

To summarize, this is what according to S&P, represents an investment grade rating:

And now we look forward to Moody’s to likewise downgrade Glencore, although we won’t be holding our breath: as a reminder, back in December Moody’s already downgraded GLEN to Baa3, the lowest IG rating there is: any more downgrades would automatically mean the start of any latent junk “waterfalls” that may be hidden deep in the company’s $100 billion in total liabilities.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Yesterday morning, when musing on the day’s key event namely Yellen’s congressional testimony, we dismissed the most recent bout of European bank euphoria which we said “will be brief if not validated by concrete actions, because while central banks have the luxury of jawboning, commercial banks are actually burning through funds – rapidly at that – and don’t have the luxury of hoping for the best while doing nothing.” This morning DB has wiped out all of yesterday’s gain.

As for Yellen’s testimony, we said that “she can send stocks reeling with one word out of place” – the word in question being not what she said but what she didn’t say, in this case not supportive enough of risk assets. And the consequence is there for all to see as soon as their trading terminal boots up: everything is crashing (with the exception of China which is on holiday, and Japan which was mercifully closed yesterday). Here are the highlights:

• S&P 500 futures down 1.8% to 1814
• Stoxx 600 down 3.4% to 304
• FTSE 100 down 2.6% to 5525
• DAX down 2.9% to 8760
• German 10Yr yield down 7bps to 0.18%
• MSCI Asia Pacific up 0.1% to 117
• Hang Seng down 3.8% to 18546
• S&P/ASX 200 up 1% to 4821
• US 10-yr yield down 5bps to 1.62%
• Dollar Index down 0.42% to 95.49
• WTI Crude futures down 2.9% to $26.65
• Brent Futures down 1.7% to $30.31
• Gold spot up 1.9% to $1,220
• Silver spot up 1.5% to $15.50

It all started in Hong Kong where as we reported last night, the Hang Seng Index plunged 3.9%, catching up with the week’s selloff as the market reopened from a holiday, and capping its worst Lunar New Year start since 1994.

Japan’s Nikkei Stock Average and China’s Shanghai Composite Index were both closed, but investors continued to pile into the yen, as virtually every carry trade has fallen apart in the past month. As a result, the dollar was down 1.8% against the yen at ¥111.28 after sliding below 111 briefly, a massive gain of nearly 300 pips in the past 24 hours, sending the Yen to the lowest level since October 2014 when Kuroda expanded QE.

In the first 9 days of this month, the Yen has risen 985 pips: That is biggest advance, in pip terms, since Oct. 1998; that month, the currency rose 1,563 pips from 130.03 to 114.40 over nine trading days ended Oct. 19. Elsewhere, the euro was up 0.4% against the dollar at $1.1325, its highest since October.

It wasn’t just FX: European stocks slid toward their lowest since September 2013 and U.S. futures indicated equities will open nearly 2% and put the recent support level of 1812 in danger of being breached.

Among the key European movers was Societe Generale which tumbled 12% after reporting that quarterly profit missed estimates as earnings at the investment bank fell and it set aside provisions for potential legal costs.  Elsewhere, Rio Tinto Group slipped 4.1% as it scrapped its progressive dividend policy and set out new spending cuts.

“Financial markets are repricing for a global growth slowdown,” said Tim Condon, head of Asian research at ING Groep NV in Singapore. “Expectations that monetary policy would be able to do much have diminished considerably.”

Just as troubling is that Swedish shares slid and the OMX Stockholm 30 Index dropped 3.% despite Sweden’s central bank going even deeper into NIRP, cutting its interest rate from -0.35% to -0.5%, lower than the expected -0.45%. The yen leaped to its highest in more than a year. Major sovereign bond markets rallied, pushing U.K. gilt yields to a record low. Gold rose beyond $1,200 an ounce, while U.S. oil traded below $27 a barrel.

This is troubling, because as Bloomberg notes, “signals by central banks from Europe to Japan that additional stimulus is at the ready are failing to ease investor concern that global growth will keep slowing.” This means that it is no longer just a joke that central banks are losing credibility: judging by the markets’ reaction it is all too real. To this point, yesterday we wondered if Yellen will make bad news good news again. She has failed:

“Over the last few years when we got bad news, equity markets would rally because they would interpret this as potential for central banks to go more dovish,” said Mohit Kumar, head of rates strategy at Credit Agricole SA’s corporate and investment bank unit in London. “Now that correlation is shifting to bad news is actually bad news. Investors are concerned over central banks’ policy options given the market is driven by factors over which they have little or no control over.”

Imagine that: investors investing without a central bank to hold their hand.

Among other things crashing: bond yields – the 10Year plunged to 1.62%, the lowest level since May 2013 as the entire treasury complex prepares for NIRP.

Not everything was crashing however: as central planners lost control, the dull, boring yellow metal known as gold was up about 4% overnight and was trading at $1240 moments ago, well above the level it hit when the Fed ended QE3, and outperforming every asset class in that time period.

Also surging are peripheral European yields, most notably in Portugal and Greece both overf 30 bps wider, as suddenly 7 years of financial dirt kicked under the rug thanks to central bank jawboning and futile actions, re-emerges for all to see, and to be reminded that nothing was ever fixed!

In short, the market is threatening Yellen with a crash ahead of her 2nd testimony today this time before the Senate. We doubt she will comply, so the market will just have to try harder.

Here are the top news from overnight:

• Yellen Suggests Fed May Delay Rate Rises, Not Abandon Them: Fed chair non-committal on possible use of negative rates
• Assessing Yellen’s Warning That Markets Pose a Threat to Economy: Bear markets usually come ~9 months before recessions
• Mylan Slumps, Meda Soars on $7.2 Billion ‘Wealth Destroying’ Bid: Price represents a 92% premium to Meda’s close on Wednesday
• Sanders Raises $7.1 Million After New Hampshire Win: comes after Tuesday’s victory speech declaration that he was “going to hold a fundraiser right here, right now, across America”
• Clinton Reassesses Campaign With Thursday Debate Next Test: New Hampshire margin for Sanders puts Clinton on defensive
• Twitter Troubles Deepen as Lack of User Growth Threatens Sales: Dorsey says making product easier to use is top priority
• Amazon to Repurchase as Much as $5 Billion of Its Own Shares: co. commented in filing yday
• U.K. Bond Yield Drops to Record-Low as Investors Seek Safety: U.K. plans to auction 30-year securities later Thursday
• Swedish Central Bank Unleashes More Stimulus After Krona Warning: Sees scope to cut repo rate further
• ‘Brexit’ Vote Is Clouding U.K.’s Growth Outlook, CBI Says: Business lobby downgrades 2016 growth forecast to 2.3%
• Gold Soars Above $1,200 as Fed Chief Signals Go-Slow on Rates: set for 9th gain in 10 days on Fed chief’s remarks
• Oil Above $55 Is a Long-Term Inevitability, Maersk CEO Says: sees global demand pushing oil price higher over time
• Worst Still Ahead for Mining Industry After Losing $1.4 Trillion: This year looks even worse for an industry decimated by the commodities slump
• SocGen Slumps as Quarterly Profit Hurt by Securities Drop: Bank says ROE target for this year of 10% is ‘unconfirmed’
• As Zika Spreads, an Unexpected Winner in Brazil’s Mosquito War: Scandal-plagued leader Rousseff seeks unity to fight virus

In today’s closer look at regional markets, we start in Asia, where equities traded broadly in negative territory amid the soft lead on Wall Street, coupled with the persistent credit risk fears adding to the risk-off sentiment. As such, the iTraxx Asia index ex Japan, an index tracking the value of CDS’s in Asia, widened by 6bps to the highest level since Aug’13. The Hang Seng (-3.9%) returned from its elongated break to play catch up with the recent global equity and oil rout, consequently energy names were the notable laggard. While South Korea had also entered the fray as the Kospi (-2.5%) slipped amid the rising geopolitical tensions with North Korea after launching a satellite into space. ASX 200 (+1.0%) bucked the trend with stocks supported by a slew of strong earnings. As a reminder, Japanese markets were closed due to National Foundation Day.

Top Asian News

• Hong Kong Stocks Fall in Worst Start to Lunar New Year Since ’94: Global equity rout deepens during 3-day trading break
• Bass Says China Bank Losses May Top 400% of Subprime Crisis: Hedge fund manager says 10% asset loss would cut equity by $3.5t
• Rio Will Cut Dividend After Metals Rout Sees Profit Tumble: World’s 2nd-biggest mining co. to reduce spending by another $3b
• Billionaire’s Fund Sees India Extending Bear-Market Losses: Hedge fund awaits further 10% drop in values to turn bullish
• SBI’s Profit Growth Slows to Four-Year Low on Bad Loan Surge: Provisions for bad loans almost double in the December quarter
• North Korea to Shut Industrial Park, Freeze South Korean Assets: To expel South Korean personnel from Gaeseong complex

In Europe we have so far seen the most volatile day of what has been a very rocky 2016. Risk off sentiment is extremely apparent across asset class, with equities seeing a significant sell off so far today. Euro Stoxx 50 is lower by around 3.0% this morning, with financials and energy names the most significant underperformers as has been the case throughout the last 6 weeks. Financials have been weighed on by SocGen (-12.4%) who have suffered significantly in the wake of their earnings, while Deutsche Bank’s woes have not been forgotten (-5.7%), with the iTraxx Sub Financials index widening this morning by around 36bps, suggesting a rise in financials’ CDS. The heightened fear has also seen significant gains in fixed income, with Bunds higher by around 100 ticks so far today, while UK 10-year Gilt yields dropped to a record low this morning.

European Top News

• Glencore Copper Production Falls as Franco to Buy Metals Stream: 4Q zinc production fell 18%, coal declined 17%
• Zurich Insurance Quarterly Loss Misses Estimates on Claims: Company expects to miss its return-on-equity target for year
• Total’s Earnings Beat Estimates on Oil Production, Refining: Co. maintains dividend, offers payout in new stock
• Adidas Sees Higher Profit After 2015 Earnings Beat Estimates: Raises sales, profit outlook for this year
• BG Group Trades Final Time Before Merger: To delist from exchanges on Feb. 15 as Shell takes over; BG’s value has grown ninefold since company’s creation in 1997
• Mediobanca Second-Quarter Profit Declines on One-Time Charges: Fiscal 2Q profit falls 24%
• Nokia Earnings Increase on Cost Focus as Sales Fall Short: Projects 2016 “headwinds” as demand slows
• Publicis Sales Rise on Digital, North American Business: CEO Maurice Levy forecasts ‘modest’ growth this year
• Rio Will Cut Dividend After Metals Rout Sees Profit Tumble: To reduce spending by another $3 billion
• Natixis Buys Stake in U.S. Boutique as CEO Seeks Advisory Growth: To acquire 51% of Peter J. Solomon

In FX, the dominant move as noted above was the USD/JPY sell off, which has impacted on all the major currency pairs. This has contributed to the risk off theme, with stock markets in Europe in the red again and US futures pointing to a 5th consecutive day of losses. From the mid 112.00’s, the spot JPY rate was slammed through the 111.00’s to print 110.99, with no sign of the MoF or BoJ. Cross/JPY rates were dragged lower, with EUR/JPY trading through the key 126.00 level, but with limited momentum through here as EUR/USD rallied to new recent highs just above 1.1350. No such tempering in GBP and AUD, though the former JPY rate held 160.00 despite a heavy turnaround in Cable. EUR/GBP posted new highs through .7850. AUD/USD losses through .7000 contributed to sub 80.00 (and 79.00) in AUD/JPY. USD/CAD has tested 1.4000, but holds off the figure as yet.

WTI and Brent crude futures have ticked lower in European trade with WTI Mar’16 futures notably breaking below the USD 27.00 level, near 12 year lows despite the headline figure released in yesterday’s DoE inventories showing a surprise drawdown . However, some analysts have noted that Cushing OK crude inventories showed a surprise build, and the market is ready to pounce on any signs that the glut is expanding.

Gold has benefited from safe haven bids in Asian and European trade and is over USD 25.00/oz higher on the session, at its highest level since May 2015. The World Gold Council have noted that the upward trend in gold looks set to continue as buying by central banks and Chinese investors will bolster prices. Analysts have noted that the following year could see a surge of M&A activity, as gold miners have plenty of liquidity with surging gold prices and diversified miners look to offload assets, due to softness in industrial metals.

Turning to the day ahead, we get the latest weekly initial jobless claims data due in the US. The focus will again be on Fed Chair Yellen when she is due to speak in front of the Senate at 10am. Her prepared remarks will mirror what she said yesterday so the focus will be on the Q&A: for the sake of the market she better be much more dovish.

Bulletin Headline Summary from Bloomberg and RanSquawk

• Today has seen the most volatile day of what has been a very rocky 2016, risk off sentiment is extremely apparent across asset class
• The FX markets have been dominated by the USD/JPY sell off, which has impacted on all the major currency pairs
• Looking ahead: highlights include: Fed’s Yellen appear before Senate, weekly jobs data and earnings from PepsiCo
• Treasuries higher in overnight trading as European equity markets plunge, WIT oil drops below $27 a barrel; Treasury to sell $15b U.S. 30Y notes, WI 2.465% vs 2.905% in January, lowest 30Y auction stop since 2.880% in August 2015.
• Financial markets are signaling that investors have lost faith in policy makers’ ability to support the global economy. European stocks slid toward their lowest since September 2013 and U.S. futures indicated equities will open lower
• Sweden’s central bank lowered its key interest rate even further below zero to -0.5% and said it’s prepared to use its full toolbox of measures as it battles to revive inflation and keep the krona from appreciating
• European banks and insurers’ subordinated credit risk rose to the highest since March 2013 after disappointing earnings at Societe Generale and Zurich Insurance Group renewed concerns about financial companies’ profits; Societe Generale, France’s second-largest bank by market value, posted fourth-quarter profit that missed analysts’ estimates as earnings at the investment bank dropped and it set aside provisions for potential legal costs. The shares plunged
• With populist and anti-EU forces surging across the region, should David Cameron leave next week’s European Union summit with a deal to overhaul the terms of Britain’s membership, many of his counterparts will dig out their own wishlists
• Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said China’s banking system may see losses of more than four times those suffered by U.S. banks during the last crisis
• The world is so awash with crude, the boss of BP Plc said people will be filling their “swimming pools” with it by the end of the year
• Sovereign 10Y bond yields mostly lower, Greece (+31bp), Portugal (+31bp) higher; European stocks plunge, Asian markets mostly closed for holiday, Hang Seng drops; U.S. equity-index futures fall. Crude oil drops, copper, gold rise

US Event Calendar

• 8:30am: Initial Jobless Claims, Feb. 6., est. 280k (prior 285k); Continuing Claims, Jan. 30, est. 2.245m (prior 2.255m)
• 8:45am: Bloomberg Feb. United States Economic Survey
• 9:45am: Bloomberg Consumer Comfort, Feb. 7 (prior 44.2)
• 1:00pm: U.S. to sell $15b 30Y bonds

• Central Banks
• 10:00am: Fed’s Yellen testifies to Senate committee
• 5:30pm: Reserve Bank of Australia’s Stevens testifies in Parliament

DB’s Jim Reid concludes the overnight wrap

Looking at the latest in Asia this morning, markets in Korea and Hong Kong are open for the first time this week, although are largely playing catch up with the big falls that we’ve seen for risk assets in that time. The Hang Seng is currently down a steep -4.03% while the Kospi has dropped -2.97%. Mainland China exchanges are still closed although the Hang Seng China Enterprises Index (HSCEI) is down nearly 5%. Markets in Japan are closed for a public holiday. There’s better news in Australia where the ASX is currently +0.95%, although the Aus iTraxx index is 4bps wider as we go to print. US equity market futures are weaker while Gold has surged above $1,200.

Moving on. As we highlighted at the top, yesterday saw the 2s10s Treasury yield curve go below 100bps for first time since December 2007. After spiking as high as 1.772% in early trading, the benchmark 10y yield tumbled into the close, eventually finishing over 5bps lower on the day at 1.668% and just off the 12-month lows. 2y yields finished unchanged at 0.686% meaning the spread of 98bps is the lowest since the 6th December 2007. This is one of our favourite lead indicators of the business and default cycle and the flattening that has occurred in recent years is one of the reasons we think credit conditions have been tightening for a few quarters now and why our default models have been showing a continued pick-up in defaults into 2017-2018. To be fair the last four recessions have not started until the yield curve (2s10s) has inverted. We’re still some way off that but the fact that we’re at the flattest for over 8 years is a warning sign.

There was finally some good news to report for European equity markets yesterday as the Stoxx 600 (+1.87%) benefited from a financials-led (Banks +4.42%) rebound to close up for the first time this month. Having been heavily hit in recent days the IBEX (+2.73%) and FTSE MIB (+5.03%) finally got some much needed relief. European credit indices also had a better day although did finish well off their tights. The iTraxx senior and sub-financials indices ended up 5bps and 13bps tighter respectively which helped Main in particular close nearly 2.5bps tighter, although the index had been closer to 8bps tighter pre-Yellen.

Staying with credit, our US credit strategists published their latest note earlier this week (Chickens Come Home to Roost, 8 Feb 2016) wherein they construct a proprietary dataset to forecast expected US default rates. The team uses index transition data to capture all forms of default – bankruptcies, out-of-court restructurings and distressed exchanges – to build a robust market-based dataset that is more detailed, precise and timely than that available from ratings agencies. The most striking revelation of the data is that DM HY commodity names appear to already be in a full cycle, with issuer-weighted default rates at 15.9% (14.9% par).

Assuming that commodity defaults rise to 20% for the year ahead and that ex-commodity defaults hold steady at 4% as they forecast, the overall default rate for DM USD HY (Commodity weight: ~20%) would hit 7.2% – magnitudes higher than the 1.85% default rate seen last year! Rising credit pressures across a spectrum of non-commodity industries and downward pressure on recovery rates in energy bonds should only serve to further compound already apparent risks.

Wrapping up, yesterday’s economic data was focused on what was a pretty soft set of industrial production reports in Europe. Data for France (-1.6% mom vs. +0.3% expected), Italy (-0.7% mom vs. +0.3% expected) and the UK (-1.1% mom vs. -0.1% expected) all missed relative to expectations, while manufacturing reports for France and the UK were also soft for the month of December.

Turning to the day ahead, there’s not alot for us to report with no economic data of note due out in Europe and just the latest weekly initial jobless claims data due in the US this afternoon. Instead the focus will again be on Fed Chair Yellen when she is due to speak in front of the Senate at 3pm GMT. Her prepared remarks could mirror what she said yesterday so the focus will be on the Q&A. Away from this we’ll also get the Riksbank’s latest monetary policy announcement where current economist expectations are for another cut in the main policy rate deeper into negative territory (10bps cut to -0.45%). Earnings wise today we have 20 S&P 500 companies set to report including AIG and PepsiCo.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

A Nobel prize winning economist, former chief economist and senior vice president of the World Bank, and chairman of the President’s council of economic advisers (Joseph Stiglitz) says that the International Monetary Fund and World Bank loan money to third world countries as a way to force them to open up their markets and resources for looting by the West.

Do central banks do something similar?

Economics professor Richard Werner – who created the concept of quantitative easing – has documented that central banks intentionally impoverish their host countries to justify economic and legal changes which allow looting by foreign interests.

He focuses mainly on the Bank of Japan, which induced a huge bubble and then deflated it – crushing Japan’s economy in the process – as a way to promote and justify structural “reforms”.

The Bank of Japan has used a heavy hand on Japanese economy for many decades, but Japan is stuck in a horrible slump.

But Werner says the same thing about the European Central Bank (ECB).  The ECB has used loans and liquidity as a weapon to loot European nations.

Indeed, Greece (more), Italy, Ireland (and here) and other European countries have all lost their national sovereignty to the ECB and the other members of the Troika.

ECB head Mario Draghi said in 2012:

The EU should have the power to police and interfere in member states’ national budgets.

 

***

 

“I am certain, if we want to restore confidence in the eurozone, countries will have to transfer part of their sovereignty to the European level.”

 

***

 

“Several governments have not yet understood that they lost their national sovereignty long ago. Because they ran up huge debts in the past, they are now dependent on the goodwill of the financial markets.”

And yet Europe has been stuck in a depression worse than the Great Depression, largely due to the ECB’s actions.

What about America’s central bank … the Federal Reserve?

Initially – contrary to what many Americans believe – the Federal Reserve had admitted that it is not really federal (more).

But – even if it’s not part of the government – hasn’t the Fed acted in America’s interest?

Let’s have a look …

The Fed:

• Bailed out foreign banks … more than Main Street or the American people.  The foreign banks bailed out by the Fed include Gaddafi’s Libyan bank, the Arab Banking Corp. of Bahrain, and the Banks of Bavaria and Korea

• Offered to bail out Mexico, if it would agree to join the North American Free Trade Agreement (NAFTA)

• Threw money at “several billionaires and tens of multi-millionaires”, including billionaire businessman H. Wayne Huizenga, billionaire Michael Dell of Dell computer, billionaire hedge fund manager John Paulson, billionaire private equity honcho J. Christopher Flowers, and the wife of Morgan Stanley CEO John Mack

• Bailed out wealthy corporations, including hedge funds, McDonald’s and Harley-Davidson

• Artificially “front-loaded an enormous [stock] market rally”.  Professor G. William Domhoff demonstrated that the richest 10% own 81% of all stocks and mutual funds (the top 1% own 35%).  The great majority of Americans – the bottom 90% – own less than 20% of all stocks and mutual funds. So the Fed’s effort overwhelmingly benefits the wealthiest Americans … and wealthy foreign investors

• Is largely responsible for creating the worst inequality in world history

• Turned its cheek and allowed massive fraud (which is destroying the economy). Fed chair Greenspan took the position that fraud could never happen.   Fed chair Bernanke also falsely stated that the big banks receiving Tarp money were healthy when they were not

• Acted as cheerleader in chief for unregulated use of derivatives at least as far back as 1999 (see this and this), and is now backstopping derivatives loss

• And for subprime loans

• Allowed the giant banks to grow into mega-banks, even though most independent economists and financial experts say that the economy will not recover until the giant banks are broken up. For example, Citigroup’s former chief executive says that when Citigroup was formed in 1998 out of the merger of banking and insurance giants, Greenspan told him, “I have nothing against size. It doesn’t bother me at all”

• Argued that economists had conquered the business cycle, and that modern, technologically advanced financial markets are best left to police themselves

• Preached that a new bubble be blown every time the last one bursts

• Had a hand in Watergate and arming Saddam Hussein, according to an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the University of Texas at Austin.  See this and this

• Intentionally discouraged banks from lending to Main Street, which has increased unemployment and stalled out the economy

Moreover, the Fed’s main program for dealing with the financial crisis – quantitative easing – benefits the rich and hurt the little guy, as confirmed by former high-level Fed officials, the architect of Japan’s quantitative easing program and several academic economists.  Indeed, a high-level Federal Reserve official says quantitative easing is “the greatest backdoor Wall Street bailout of all time”. Even Fed officials now admit that QE doesn’t help the economy.

Some economists called the bank bailouts which the Fed helped engineer the greatest redistribution of wealth in history.

Tim Geithner – as head of the Federal Reserve Bank of New York – was complicit in Lehman’s accounting fraud, (and see this), and pushed to pay AIG’s CDS counterparties at full value, and then to keep the deal secret. And as Robert Reich notes, Geithner was “very much in the center of the action” regarding the secret bail out of Bear Stearns without Congressional approval. William Black points out: “Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth”

Indeed, the non-partisan Government Accountability Office calls the Fed corrupt and riddled with conflicts of interest. Nobel prize-winning economist Joe Stiglitz says the World Bank would view any country which had a banking structure like the Fed as being corrupt and untrustworthy. The former vice president at the Federal Reserve Bank of Dallas said said he worried that the failure of the government to provide more information about its rescue spending could signal corruption. “Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said.

But aren’t the Fed and other central banks crucial to stabilize the economy?

Not necessarily … the Fed caused the Great Depression and the current economic crisis, and many economists – including several Nobel prize winning economists – say that we should end the Fed in its current form.

They also say that the Fed does not help stabilize the economy. For example:

Thomas Sargent, the New York University professor who was announced Monday as a winner of the Nobel in economics … cites Walter Bagehot, who “said that what he called a ‘natural’ competitive banking system without a ‘central’ bank would be better…. ‘nothing can be more surely established by a larger experience than that a Government which interferes with any trade injures that trade. The best thing undeniably that a Government can do with the Money Market is to let it take care of itself.’”

Earlier U.S. central banks caused mischief, as well.  For example,  Austrian economist Murray Rothbard wrote:

The panics of 1837 and 1839 … were the consequence of a massive inflationary boom fueled by the Whig-run Second Bank of the United States.

Indeed, the Revolutionary War was largely due to the actions of the world’s first central bank, the Bank of England.   Specifically, when Benjamin Franklin went to London in 1764, this is what he observed:

When he arrived, he was surprised to find rampant unemployment and poverty among the British working classes… Franklin was then asked how the American colonies managed to collect enough money to support their poor houses. He reportedly replied:

 

“We have no poor houses in the Colonies; and if we had some, there would be nobody to put in them, since there is, in the Colonies, not a single unemployed person, neither beggars nor tramps.”

 

In 1764, the Bank of England used its influence on Parliament to get a Currency Act passed that made it illegal for any of the colonies to print their own money. The colonists were forced to pay all future taxes to Britain in silver or gold. Anyone lacking in those precious metals had to borrow them at interest from the banks.

 

Only a year later, Franklin said, the streets of the colonies were filled with unemployed beggars, just as they were in England. The money supply had suddenly been reduced by half, leaving insufficient funds to pay for the goods and services these workers could have provided. He maintained that it was “the poverty caused by the bad influence of the English bankers on the Parliament which has caused in the colonies hatred of the English and . . . the Revolutionary War.” This, he said, was the real reason for the Revolution: “the colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction.”

(for more on the Currency Act, see this.)

And Georgetown University historian Professor Carroll Quigley argued that the aim of the powers-that-be is “nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.” This system is to be controlled “in a feudalist fashion by the central banks of the world acting in concert by secret agreements,” central banks that “were themselves private corporations.”

Given the facts set forth above, this may be more conspiracy fact than whacko conspiracy theory.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Submitted by Jeffrey Snider via Alhambra Investment Partners,

Part 1 here…

The entire point of leveraged positions is the margin of safety. That is true on both sides of that equation, as for the provider and the borrower/user. In the most famous examples of collapse, from AIG to LTCM losses were never really the issue. None of them could withstand instead collateral calls to their liquidity reserves. As noted last week, AIG’s “toxic waste” positions ended up registering some $20 billion profits to the Federal Reserve and the government via its (illegal) Maiden Lane SIV’s. AIG just could not withstand the liquidity demands brought about by increasing calculated volatility.

Another famous episode offers the same interpretation while providing some further insight into the world of leverage and liquidity as it exists now. Orange County went into bankruptcy with assets that were all still money good. The county’s investment fund, run by Robert Citron, was holding paper from mostly government agencies and even UST’s. Out of the nearly $20 billion in the fund close to its demise, $16.7 billion was UST’s, agency fixed rate bonds, agency floating rate bonds, CD’s and commercial paper. The problem was the combination of the floating rate FNMA’s and that the fund was increasingly leveraged as Citron’s bets were further imperiled.

Throughout the early 1990’s, Orange County’s fund was handsomely beating every benchmark. So much so that municipalities throughout the county were beating down Citron’s door in order to invest in his magic; some cities, such as Irvine, even borrowed through bond offerings just to make available cash to put in. S&P, as the bankruptcy transcript tells, even conditioned its highest investment rating on Irvine’s bonds such that they were placed in Citron’s “care.”

The manner of the outperformance was as it usually is in modern wholesale finance; available and easy leverage of all kinds and all forms. In this specific instance, Citron was building the fund’s bond portfolio not for general coupon returns but so that they were available for reverse repos. When the interest rate environment was in his favor, the Orange County fund was leveraged less than 2 to 1; when it started turning against, that was when the leverage piled up as almost a gambler’s view of doubling down to “make it back.”

As it turned out, even though Citron’s broker Merrill Lynch had warned him about both the increasing volatility risk of an increasingly homogenous portfolio and that interest rates might rise, Citron continued on his course regardless of the advice (and Merrill kept selling securities to him and funding those positions). Later grand jury proceedings even found evidence that Mr. Citron was using a “mailorder astrologer and a psychic for interest rate predictions.” He was, starting in 1994, quite wrong with those predictions.

Still, the fact that rates had gone up even sharply did not alone produce catastrophe; there were no losses to book based on credit defaults or skipped coupons in any of the underlying. The “inverse floaters” at the center of the controversy were simply designed as a mechanism for FNMA to reduce or hedge its own funding costs in the event of conditions just the kind produced by the Fed’s rate hikes in 1994.

The inverse floating rate notes integral to Citron’s strategy for leveraged outperformance were agency coupon bonds that reset them regularly by LIBOR. In December 1993, the fund held approximately $100 million inverse FNMA floaters maturing in 1998, offered in reverse repo to Credit Suisse First Boston as collateral on $100 million funding (I haven’t seen anywhere descriptions of any haircuts, so it may just be or have been assumed 1 to 1). That was not the full extent of the leverage, as the bonds were repledged to total something like 3 to 1 leverage in other funded positions. All told, there were about $800 million in FNMA floaters that spearheaded the fall from grace.

The coupon of the floaters varied inversely to the volatility of LIBOR. The coupon rate is set as the initial payment rate minus some LIBOR spread, meaning that any increase in LIBOR reduces the coupon payments. For FNMA, it is funding protection; for Orange County and Citron, the bonds paid typically a much higher initial rate and in some cases might increase (up to a preset ceiling). The lowest possible rate was, conversely, 0%.

Because of this structure, the convexity of the bond is enormous, particularly when compared to the change in value of any fixed rate investment. In January 1993, the coupon on the FNMA 1998’s was 8.25%, but by 1994 the coupon rate was cut all the way to 2.3% and perhaps, via volatility calculations, on its way to zero. That didn’t mean that the bonds would default as they were agency paper, only that the current value of them would fall precipitously with the reset coupons being so far below the “market” interest rate.

If there had been no leverage involved, Citron’s run as something of a “guru” would have ended but at least not in a prison sentence; it would have continued in underperformance but absent loss as at maturity, in every underlying bond, principal would have been returned in full. As it was, given the repos, the current values of the securities pledged as collateral matters more than whether those prices actually mean credit losses or not. The more “sensitive” to changes in prices the larger the adjustments that will be made as volatility rises. For Orange County, the floaters that were pledged in reverse repos meant collateral calls and then eventually collateral seizure when prior demands for additional collateral were not met. Bankruptcy was the only means to stop the seizures (it was alleged), and even then banks viewed it within their rights to liquidate what they could at current (depressed) prices.

Thus the huge losses for Orange County were really produced because the fund could no longer fund itself; once liquidated, the assets were about $1.64 billion less than total liabilities including the nearly 3 to leverage employed near the end. For the overall fund of $20 some billion, even then $1.64 billion isn’t huge except that the underlying “equity” was just $8 billion.

It is not just a tale of woe and a lesson about the nature of leverage, it speaks to the nature of the whole idea of wholesale finance. Banking is no longer about lending and boring loans, it is about leveraged spreads and leveraged capital and leveraged capacity. When leverage is plentiful and in all types, there is great profit on all sides; from those doing the “investing” to those providing the funding and the advice. That is what built the eurodollar system before August 2007, the idea of plentiful leverage not just in repos and funding, but also in capital ratios and regulatory leverage provided by accounting rules (gain-on-sale for one) and math-as-money. The major conduit through which it all flowed was proprietary trading, where banks would mingle all sides of the leverage equations – as “investors” holding securities (in warehousing) and then testing the line of what might count as “hedging” those positions (which so often drew into outright speculation).

With all these avenues for profit available, it was simply accepted (and modeled in ridiculously low volatility) that it would continue forever and ever. And if recession were to result and interrupt the leverage festival, it was assumed the “Greenspan put” would work enough to keep it mild and temporary as was the case in 2001 (stocks may have suffered, but even the credit cycle did not interrupt the mortgage boom and eurodollar “hot money” pushing into every EM with access to the global financial network). It was the fatal flaw in the whole thing, assuming little or no volatility.

Without free flowing leverage on all sides, money dealing profits simply dried up. Banks have tried to make the most of it in the various QE’s and intermittent circumstances, but for the most part the world as it existed before 2008 just cannot be rebuilt. Again, it wasn’t losses so much as math (recalculated, post-crisis, volatility and “capital” efficiency that systemically sapped leverage capacity especially as reinforced by the events of 2011). It was, like Citron’s game, all an illusion based upon “perfect” circumstances that will never be repeated. It might have been possible had a real recovery started after the Great Recession was over, given enough time of a full and robust fundamental rebound, but as I wrote yesterday, that, too, was an illusion predicated on the lie of orthodox economics and the Phillips Curve view of economic potential.

Without leverage there is no money dealing, and without money dealing there will only be increasing volatility (leading to less leverage and so on). Some banks, such as UBS and Wells Fargo, worked that out early on; others, like Deutsche, Credit Suisse and Goldman Sachs, saw the potential rebirth of pre-crisis wholesale in Bernanke’s/Yellen’s fairy tale ending for QE and ZIRP. Like Citron’s psychically-derived interest rate forecasts, it was just a terrible idea and all the more so as leverage conditions have only worsened and worsened.

The difference now is, obviously, that EM debt and US corporate junk (including leveraged loans) are the center of the current and gathering liquidity storm. We might likely never know exactly what those banks have been doing, but through examples like AIG and Orange County we can see the destructive capacity and potential of volatility no matter if ever the credit cycle truly blasts apart this time – it is never losses that do it; it is illiquidity and lack of margin of safety. In the case of these particular banks though, there is a ready feedback that plays directly into quickening the process – they are both leveraged in their holdings and activities but also suppliers into those “dollar” conduits. It’s as if Orange County were not just reverse repo counterparty borrowing cash for its own portfolios but also then providing a good part of that cash or financial resources to the next guy. That is really what scared the Fed and the Treasury in 2008 into TBTF; which, of course, has only gotten worse over the intervening years.

I think that explains somewhat the trajectory of the eurodollar decay past the panic; that initially leverage restraint (including and especially collateral shortage) as compared to pre-crisis meant the downward baseline to begin with. Since 2013, increased volatility has only quickened that pace in the same manner as we have seen in all sorts of prior episodes. Again, some firms instead doubled down and are being undressed especially recently, which will only make it all the more difficult further on.

Restoring the eurodollar system as it was just wasn’t possible. That is why the collapse in oil and commodities is especially relevant as a signal about leverage and hidden liquidity capacity that otherwise goes unnoticed. The “thing” that made the eurodollar appear to work and work so well (at least as it was rapidly expanding to ridiculous proportions, in both quantitative and qualitative terms) were these artificial channels of leverage flow and capacity; the same kinds of ideas and “products” that made Robert Citron a hero are no different than what eurodollar banks had been up to all throughout their structures before the final reckoning in 2008. That might be the most important point about unwieldy and unconstrained leverage, that there is always an endpoint and then the cleanup.

Unfortunately, we remain stuck in the cleanup phase so long as economists and their ability to direct policy continue to suggest the Great Recession was anything other than systemic revelation along these lines; a permanent rift between what was and what can be. It is and was never about oil; only now that oil projects volatility into the dying days of eurodollar leverage.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Yesterday was the last day for hedge funds to submit their Q4 13-F filings, and the biggest reactions this morning can be found in the stock of Kinder Morgan which rises 9% pre-mkt after Berkshire reported a new stake. Autodesk also gained 2% post-mkt yday after Lone Pine took a new position. Several funds boosted or reported new stakes in JD.com while Jana Partners reported a new stake in Valeant. Both Icahn and Einhorn trimmed their AAPL holdings.

Below is a summary courtesy of Bloomberg of 4Q equity holdings from Dec. 31 13-F filings by the most prominent hedge funds, with some of the new, added, cut and exited positions for each; some stakes may have previously been reported in separate filings.

ADAGE CAPITAL

• Reports new stakes in SYF, IR, MMM, KLAC, FE
• Boosts DOW, MSFT, HON, CVX, DAL
• Cuts GE, PEP, UTX, MPWR, AXP
• No longer shows D, RCII, ABY, RLGY, UGI

APPALOOSA MANAGEMENT

• Reports new stakes ETP, KMI, ABY, PFE
• Boosts GOOG, ALL, LUV, DAL, WHR
• Cuts NXPI, GT, EXP, AAPL, EMN
• No longer shows JBLU, TEX, USG, KBR, AXLL

BAUPOST GROUP

• Reports new stakes in EMC
• Boosts AR, PYPL, RUN, KLXI, BITI
• Cuts FTR, KOS, NG
• No longer shows AA, PXD, EBAY, AER, LOCK

BERKSHIRE HATHAWAY

• Reports new stakes in KMI
• Boosts WFC, DE, AXTA
• Cuts T, WBC
• No longer shows CBI

BLUEMOUNTAIN

• Reports new stakes in SLH, WTW, CLACU, CDE, TROX
• Boosts NWSA, TERP, MGLN
• Cuts VRX, TWC, TSO, EURN, CLNY
• No longer shows BIIB, PXD, AXP, AYA

BRIDGEWATER ASSOCIATES

• Reports new stakes in HFC, AKAM, INTU, BRK/B, ADBE
• Boosts VMW, M, MAR, BCE, ADI
• Cuts SYMC, KO, RL, EMN, CTL
• No longer shows GOOGL, MON, AMAT, WFM, FDX

COATUE MANAGEMENT

• Reports new stakes in VRX, GPRO, FIT, ETE, WMB
• Boosts GOOG, MSFT, ATVI, JD, NFLX, EQIX, W
• Cuts AVGO, EXPE, AKAM, AGN, HAIN, DDD, SSYS
• No longer shows KHC, WBA, Z, ADSK, VIPS

CORVEX MANAGEMENT

• Reports new stakes in GOOG, BAC, COMM, CMA, P
• Boosts PFE, SIG, YUM
• Cuts BEAV, AGN, TWX, PAH, FNF
• No longer shows AET, TAP, APC, BUD, PRGO

DUQUESNE FAMILY OFFICE

• Reports new stakes in RTN, NOC, GOOGL, PSTG, SYF
• Boosts AMZN
• Cuts FB, HDB, MSFT, CTRP
• No longer shows WFC, WDAY, JD, ILMN, UA

ELLIOTT MANAGEMENT

• Reports new stakes in CAB, CNP, XLE, RRTS
• Boosts AGN, EMC, CTXS, VMW, PLCM
• Cuts PRGO, FCB, CCL, FBIO
• No longer shows CMCSA, FOX, APC, JNPR, SQM

EMINENCE CAPITAL

• Reports new stakes in HOT, LQ, CAA, CCE, BERY
• Boosts ADSK, GMCR, YHOO, YUM
• Cuts PRT, GNC, FOSL, G, LNKD
• No longer shows KORS, AIG, CTRP, CSOD, MCD

ETON PARK CAPITAL

• Reports new stakes in EMC, AGN, TWC, GMCR, ADSK
• Boosts CRTO
• Cuts PRGO, ODP, ADBE, AER, CI
• No longer shows WMB, BEAV, GOOG, SNN

FAIRHOLME CAPITAL

• Boosts LE, DNOW, MRC, SRG
• Cuts BAC, CNQ, LUK, IBM, AIG
• No longer shows C, NOV

GATES FOUNDATION

•    Cuts BRK/B
•    No longer shows BP

GLENVIEW CAPITAL MGMT

•    Reports new stakes in CSC, TWC
•    Boosts HCA, CI, HUM, FMC, MON
•    Cuts CDNS, PVH, CYH, TMO, WRK
•    No longer shows ENDP, AGN, TER, DG, A

GREENLIGHT CAPITAL

•    Reports new stakes in M, AGR, MYL, AGN, DSW
•    Boosts TWX, KORS, IAC, AER, FOXA
•    Cuts AAPL, CBI, ON, ACM, SEMI
•    No longer shows MU, BK, SC, AMAT, KS

HIGHFIELDS CAPITAL MGMT

•    Reports new stakes in YHOO, AGN, KSU, BK, DIA
•    Boosts DD, MCD, ABBV, HOT, TRIP
•    Cuts BEN, CBS, IRM, MHFI
•    No longer shows APD, IBM, LLY, PG, QCOM

ICAHN ASSOCIATES

•    Boosts HTZ, LNG, FCX
•    Cuts AAPL, TGNA, GCI

ICONIQ CAPITAL

•    Reports new stakes in VXUS, QQQ, CVX
•    Boosts GLD, IWB, JD, VTI, XLE
•    Cuts IAU, PARR, VNQ, LLNW, TSLA
•    No longer shows XES, XOP, GDX, BP, RDS/A

JANA PARTNERS

•    Reports new stakes in PFE, AIG, VRX, CSRA
•    Boosts MSFT
•    Cuts QCOM, BAX, AGN, CSC, TWX
•    No longer shows HTZ, BKD, MAT, ZTS
•    NOTE: Jan. 27, Jana Is Short Royal Mail, Dixons Carphone, InterContinental

LAKEWOOD CAPITAL

•    Reports new stakes in QRVO, AMLP
•    Boosts AGN, CFG, WRK, HCA, TWC
•    Cuts CDW, JBLU, IM, SPR
•    No longer shows BABA, BLL, AAL
•    NOTE: Feb. 8, Bozza’s Lakewood Capital Shorting Adeptus, Dycom, Dean: ValueWalk

LANSDOWNE PARTNERS

•    Reports new stakes in RACE, CLVS, LIVN, SYF, MTCH
•    Boosts GOOGL, AAPL, V, AMZN, JPM
•    Cuts GS, WFC, DIS, NKE, FIT
•    No longer shows XLE, KW, IAC, SEMI

LONE PINE CAPITAL

•    Reports new stakes in NOC, ADSK, LULU, GOOGL, GOOG
•    Boosts DLTR, AMZN, MSFT, V, STZ
•    Cuts VRX, CHTR, JD, PCLN, MA
•    No longer shows AGN, DVA, SCHW, SBAC, MBLY

MARCATO CAPITAL

•    Reports new stakes in M, TPHS, HZN, BLDR
•    Boosts CBPX, VRTS
•    Cuts GT, BID, MDCA
•    No longer shows NCR, MIC, LEA, SGMS, JMG

MAVERICK CAPITAL

•    Reports new stakes in NWL, CHTR, UNH, HDS, KHC
•    Boosts ARRS, PFE, ADBE, WCN, YELP, PACB, KSU, SABR
•    Cuts AER, GOOG, BUD, PCLN, ARMK
•    No longer shows VRX, MTG, TMH, TWX, SYMC

MELVIN CAPITAL

•    Reports new stakes in DLTR, SIG, NKE, BABA, LVS
•    Boosts JD, DPZ, FB, ADBE, CTRP
•    Cuts AMZN, KR, LULU, EXPE, SWK
•    No longer shows EL, CASY, VFC, YUM, TJX

MILLENNIUM MANAGEMENT

•    Reports new stakes in SYF, ITC, AGR, PEP, GMCR
•    Boosts MRK, KEY, AAPL, NEE, PNW
•    Cuts DOW, CMCSA, AMZN, SLB, AEE
•    No longer shows ILMN, WFC, RDC, APA, SKX

MOORE CAPITAL

•    Reports new stakes in CTRP, XOP, MSFT, RH, ICE
•    Boosts BAC, C, BABA, AMZN, FB
•    Cuts JPM, MGM, NRF, NSAM, TCO
•    No longer shows FXI, EAGLU, PACEU, GRSHU, BLVDU

OMEGA ADVISORS

•    Reports new stakes in FDC, EEM, MSFT, SYF, AET
•    Boosts AIG, NAVI, WBA, ASPS, LORL
•    Cuts PFE, TWX, TRGP, MSI, GPOR
•    No longer shows PCLN, VRX, SUNE, CI, LYB
•    NOTE: Nov. 16, Omega Sold Entire Valeant Stake, Reuters Says

PASSPORT CAPITAL

•    Reports new stakes in GE, SYT, MCD, LLY, RTN
•    Boosts MSFT, NKE, BMY, SBUX
•    Cuts DLTR, SRE, DAL, PFE
•    No longer shows SCTY, VIPS, NRG, RICE

PAULSON & CO.

•    Reports new stakes in LRCX, AKRX, PFE, BIIB, ABBV
•    Boosts MYL, TEVA, MNK, LIVN, VRX
•    Cuts GLD, TWC, HOT, AGN, TMUS
•    No longer shows HCA, CAM, MGM, WWAV

PERRY CORP.

•    Reports new stakes in HCA, SE, CPGX
•    Boosts TWX, AER, UAM
•    Cuts AIG, WMB, CYH, ETE, BLL
•    No longer shows ZTS, PRGO, CBS, INVA, DPM

POINT72 ASSET

•    Reports new stakes in AAP, GLW, CSRA, AMAT, PBF
•    Boosts NKE, SIG, MCD, DLTR, WHR
•    Cuts AMZN, LULU, MSFT, SBUX, PXD
•    No longer shows CMCSA, TMUS, JWN, FTR, XLU

POINTSTATE CAPITAL

•    Reports new stakes in AGN, HUM, HYG, JD, DOW
•    Boosts TEVA, TWC, CLVS, LNG, CFG
•    Cuts GOOGL, AYA, PXD, LYB, MDCO
•    No longer shows TCO, VRTX, TLRD, WBA, AET

SACHEM HEAD

•    Reports new stakes in ADSK, MYL
•    Boosts AGN, AKRX, TWC, FIS
•    Cuts CDK, PTC, ZTS
•    No longer shows APD, FOXA

SANDELL ASSET

•    Reports new stakes in ARG, YOKU, FCE/A, ABG, CIT
•    Boosts CVC, TVPT
•    Cuts BOBE, VSLR, SLH, VIAV, ALLY
•    No longer shows BKD, QCOM, WIN, DK, SUNE

SOROS FUND MGMT

•    Reports new stakes in SYF, HYG, CPGX, MPC, GOOGL
•    Boosts LVLT, EQT, LYB, MCD, DAL
•    Cuts YPF, AGN, FB, CIT, TWC
•    No longer shows VIPS, NEE, SLB, NRG, LUV

STARBOARD VALUE

•    Reports new stakes in NYRT, CI, LNCE
•    Boosts BAX, MEG, M
•    Cuts ODP, WRK, CW, ACM
•    No longer shows GIS, LXU, TSRA, AGN, MSGN

TEMASEK

•    Reports new stakes in SYF, JD, TOUR, MON, REGN
•    Boosts GILD, BMRN
•    Cuts Q, BABA
•    No longer shows HXL

TIGER GLOBAL

•    Reports new stakes in AAPL, PCLN, QSR, SQ
•    Boosts VIPS, JD, CHTR, TWC, SPLK
•    Cuts ATHM, ETSY, VDSI, BABA, MA
•    No longer shows KATE, EROS, IBM, HDP

THIRD POINT

•    Reports new stakes in CB, MS, AXTA
•    Boosts DOW, SJM, TWC
•    Cuts YUM, KHC, EBAY, CWEI, STZ
•    No longer shows TMUS, NXPI, IAC, XON

TRIAN FUND

•    Boosts MDLZ, PNR
•    Cuts DD, GE
•    No longer shows IR, CC

TUDOR INVESTMENT

•    Reports new stakes in CSRA, HPY, LH, KING, EEM
•    Boosts ULTI, ADP, CSC, EFX, IYR
•    Cuts NCR, WDAY, FB, SPLK, PCLN
•    No longer shows MRKT, SINA, GE, PG, ADS

VALUEACT

•    Cuts HAL
•    No longer shows AXP

VIKING GLOBAL
•    Reports new stakes in PCLN, CMG, ENDP, PFE, BIIB
•    Boosts TEVA, NFLX, PXD, QUNR, AVGO
•    Cuts WBA, MA, LYB, KSU, AET
•    No longer shows SEE, MHK, HLT, HOT, ILMN

WILLIAM STIRITZ

•    Cuts HLF

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

At the MSNBC-moderated Democratic presidential town hall in Las Vegas, Nevada, Hillary Clinton was asked by an "everyday American" why she will not release video or transcript of her private speeches to Wall Street banks…

He begins by asking…

"As a realtor here in Nevada I know how important the economy is to our great nation.

 

As a Democratic candidate who has delivered speeches to the largest U.S. financial institutions in exchange for hundreds of thousands of dollars in speaking fees, why are you hesitant to release transcript or audio/video recordings of those meetings to be transparent with the American people regarding the promises and assurances that you have made to the big banks?" the man asked Clinton.

To which she responded – in rote manner…

"I was the candidate who went to Wall Street before the crash. I was the candidate who went to them and said you are wrecking our economy. What you are doing with mortgages is going to bring us down.

 

I now have the most effective and comprehensive plan to deal with the threats that Wall Street poses, and I go further than Senator Sanders does because I want to go through after all the other bank bad actors.

 

The bad actors like hedge funds, the bad actors like AIG, the insurance company. Like Countrywide mortgage. I take a backseat to nobody in being very clear about what I will do to make sure Wall Street never crashes main street again. And, that you can count on."

To which the man pled…

"Secretary Clinton, I do respect you very much. In fact, only a decade ago I was a very big supporter of yourself and your husband… How can we trust that this isn't just more political rhetoric? Please just release those transcripts so that we know exactly where you stand."

How indeed…

It seems people are losing faith…

Source: RealClearPolitics.com

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

• Shares fall with oil prices, yen in demand (Reuters)
• Trump’s third straight win has rivals looking for answers (Reuters)
• How Marco Rubio Blunted Ted Cruz—and Boosted Donald Trump (BBG)
• Donald Trump Seals GOP Front-Runner Status With Nevada Win (WSJ)
• Fischer says no Fed plan to move to negative interest rates (Reuters)
• Lew Says Don’t Expect `Crisis Response’ From Group of 20 Meeting (BBG)
• Solid support for Apple in iPhone encryption fight (Reuters)
• This Year’s Biggest IPO Is a Blank Check for the Oil Business (WSJ)
• Another Oil Crash Is Coming, and There May Be No Recovery (BBG)
• Goldman Sachs Banker Who Had Ties to 1MDB Leaves Bank (WSJ)
• Chesapeake Energy shares tumble after company’s loss widens, unveils drastic capex cuts (MW)
• French special forces waging ‘secret war’ in Libya (Reuters)
• China Inc.’s Nuclear-Power Push (WSJ)
• How Low Could Pound Go in a `Brexit’? Economists See 1985 Levels (BBG)
• Chesapeake to Cover $500 Million Debt Tab as Asset Sales Swell (BBG)
• AIG Says Goodbye to Guy Who Knew Where the Bodies Were Buried (BBG)

Overnight Media Digest

WSJ

– Honeywell International Inc kept the pressure on rival United Technologies Corp to engage in merger talks, saying there were no major regulatory obstacles to a combination of the two industrial conglomerates (http://on.wsj.com/1oFa9mR)

– Western Digital Corp said a Chinese company backed out of a $3.78 billion deal to invest in the disk drive maker, citing a decision by U.S. authorities to investigate the transaction on national security grounds. (http://on.wsj.com/21cBzkY)

– Same-day delivery startup Deliv Inc. is getting a funding boost from an unlikely source: United Parcel Service Inc. (http://on.wsj.com/1R06nuE)

– The chief executive of leading Canadian oil producer Suncor Energy Inc said on Tuesday that his company will increase output even if crude prices weaken further, while vowing it will emerge stronger than ever from the current commodity industry downturn.(http://on.wsj.com/1OtyqAO)

FT

Deutsche Boerse and the London Stock Exchange are making a third attempt at a merger that would create a European trading powerhouse that could better compete against U.S. rivals encroaching on their turf.

British luxury carmaker Aston Martin said it chose St. Athan in Wales as its second manufacturing site for the new crossover DBX car as part of its 200 million pound ($280.32 million) investment in new products and facilities.

Mars Inc has recalled chocolate bars and other products in 55 countries, mainly in Europe, due to choking risk after a piece of plastic was found in a Snickers bar in Germany.

NYT

– The Justice Department is demanding Apple’s help to unlock at least nine iPhones nationwide, in addition to the phone used by one of the San Bernardino, California attackers. (http://nyti.ms/1p2HNTm)

– Saudi Arabia’s petroleum minister on Tuesday ruled out the possibility that a recently announced oil production freeze by several countries might lead to cuts to reverse the plunge in oil prices. (http://nyti.ms/1QZZDNk)

– More than a year after defective Takata airbags led to recalls and at least two fatalities, company officials in Japan presented falsified test data about a new component’s design to Honda, their largest customer, according to internal documents.(http://nyti.ms/1RmcZpO)

– Viacom announced on Tuesday that it was pursuing a deal to sell a minority stake in its Paramount Pictures film and television studio after being approached by several strategic investors.(http://nyti.ms/1KJ09T9)

Canada

THE GLOBE AND MAIL

** Shoppers Drug Mart Corp, Canada’s biggest drugstore chain, is exploring the possibility of getting into medical-marijuana sales in a move that would dramatically alter the landscape of the new industry, bringing one of the country’s best-known retailers into the business if the strategy went ahead. (http://bit.ly/1LFfQWs)

** Canada’s spy agencies have tracked 180 Canadians who are engaged with terrorist organizations abroad, while another 60 have returned home. (http://bit.ly/1STm9gM)

** The Liberal government will introduce climate legislation on Wednesday, and on Thursday it will unveil detailed regulations for its long-promised cap-and-trade regime that aims to hit an aggressive 2020 greenhouse gas emissions target.(http://bit.ly/1Qc1xKY)

NATIONAL POST

** Finance Minister Bill Morneau’s federal budget in March is set to include C$1 billion ($723 million) in targeted relief for oil-producing provinces that are coping with a severe economic downturn. (http://bit.ly/1TyAkGI)

** Fares on an express train from downtown Toronto to Pearson international airport are being slashed by more than half because of lower-than-expected ridership. Since Union-Pearson Express launched in June, the one-way fare was decried by many as too expensive. (http://bit.ly/1WInaGx)

Britain

The Times

* Time Inc, the owner of world-famous magazines including Time, People, Sports Illustrated and Fortune, is understood to be exploring a bid for the core businesses of Yahoo Inc (http://thetim.es/1PXuTyQ)

* The London Stock Exchange Group PLC confirmed yesterday that it is in talks with a German rival over a 20 billion pounds ($27.99 billion) merger to create one of the largest market operators. Shares in the FTSE 100 company closed up by more than 13 per cent as investors bet on a possible bidding war for the LSE, which has had detailed negotiations with the Frankfurt-based Deutsche Börse. (http://thetim.es/1TxPYlP)

The Guardian

* Britain is setting a dangerous precedent by undermining human rights and contributing to a worldwide “culture of impunity”, Amnesty International has said in its annual report on the state of human rights. Plans to scrap the Human Rights Act, the UK’s absence from EU refugee resettlement schemes, proposed new spying laws and the alleged downgrading of human rights as a Foreign Office priority in favour of commercial deals are all cited by the group as evidence of a trend. (http://bit.ly/1QwSDXJ)

* George Osborne’s pension overhaul could trigger the next major wave of mis-selling claims, according to a report by the public spending watchdog. The National Audit Office has highlighted concerns that freedoms introduced last April, which allowed pensioners to cash in their savings, could lead to widespread exploitation. (http://bit.ly/1S02dHR)

The Telegraph

* London’s greatest strength is its access to the single market of the European Union, according to the capital’s business leaders. 95 percent of bosses polled by the Confederation of British Industry (CBI) and real estate firm CBRE said that London’s access to European markets was its biggest strength. The surveyed business leaders represented companies with around 471,000 employees. (http://bit.ly/1oFUqDU)

* Britain must stay in the European Union so it can protect itself from “grave security threats” caused by Isil and Russia, some the country’s most senior former military commanders say. In a letter to The Telegraph, 13 former Armed Forces chiefs say that they “believe strongly that it is in our national interest to remain an EU member”. (http://bit.ly/1ozSegv)

Sky News

* The maker of Mars and Snickers has recalled chocolate bars in 55 countries after pieces of plastic were found in its products. In the UK, Mars Funsize and Milky Way Funsize bars, Snickers Miniatures, some variety packs and Celebrations boxes with best before dates ranging from 8 May 2016 and 2 October 2016 are affected by the recall, and should not be eaten. (http://bit.ly/1QvPhEi)

* Johnson & Johnson has been ordered to pay $72 mln to the family of a woman whose death from ovarian cancer was linked to the company’s talc-based baby powder.(http://bit.ly/1ozZdpP)

The Independent

* Britain is a deeply Eurosceptic country but voters are still likely to decide to remain in the European Union when forced to choose in June’s referendum, the most representative polling on the issue so far has found. In research highlighting the dilemma for the Leave campaign, the National Centre for Social Research found that two-thirds of the electorate were unhappy with Britain’s current membership terms. (http://ind.pn/1RZSUrx)

* Scotland’s budget will be protected for the first six years after the devolution of major new tax and welfare powers from Westminster, under a historic deal agreed by the Scottish and UK Governments following almost a year of negotiations. The agreement, which was announced simultaneously in Edinburgh by Scotland’s First Minister Nicola Sturgeon and in London by the Chancellor George Osborne, will require both governments to observe a transitional period lasting until March 2022, during which time the Scottish Parliament’s budget cannot be cut. (http://ind.pn/1KIwYQ6)

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Back on February 10, when looking at Carl Icahn’s darling Chesapeake, whose stock had plunged to effectively record lows on imminent bankruptcy concerns, we said that for anyone brave enough to take the plunge, the “Trade of the Year” would be to go long a specific bond, the $500 million in 3.25s of March 2016 which were maturing in just over a month, and which on February 10 were yielding 300% at a price of 80.5 cents on the dollar.

And then, just two days later, in an unexpected turn, Chesapeake announced that contrary to public opinion, the troubled energy giant “is planning to pay $500 million of debt maturing in March, using a combination of cash on hand and other liquidity that may include its credit line, according to a person with knowledge of the matter.” The issue referenced was precisely the bond that was our “trade of the year.”

To be sure, the bond promptly surged, even as the stock priced tumbled, on what was seen as a very bondholder-friendly action (and thus to the detriment of shareholders) and hit a price of 95 cents while the stock tumbled by 15%, generating a 30% return for anyone who had decided to go along. At that moment we urged anyone in the trade to take their profits and go home, taking a few weeks, or the rest of 2016, off.

A quick update since then shows that those same bonds are currently trading effectively at par (99.25 cents)…

… suggesting that the risk of a near-term Chesapeake bankruptcy may be gone for now.

But is it truly off the table?

Sadly, we think that despite the brief hiccup in optimism, CHK’s troubles are about to get worse, even if this particular bond is ultimately repaid, for one simple reason: in its 10-K filed yesterday, Chesapeake announced that it has just reached its own “AIG moment.“

Recall that one of the reasons for AIG’s unprecedented, and rapid collapse, was a series of collateral calls resulting from a series of downgrades of the insurer, which forced it to post increasing amounts of collateral to which it had no access, and which in turn activated a liquidity death spiral which ultimately culminated with its bailout by the US Treasury.

The same is now taking place at Chesapeake, as the company’s 10-K has just confirmed:

Since December 2015, Moody’s Investor Services, Inc. has lowered the Company’s senior unsecured credit rating from “Ba3” to “Caa3”, and Standard & Poor’s Rating Services has lowered the Company’s senior unsecured credit rating from “BB-” to “CC”. The downgrades were primarily a result of the effect of low oil and natural gas prices on our ability to generate cash flow from operations. We cannot provide assurance that our credit ratings will not be further reduced if commodity prices continue to remain low. Any further downgrade to our credit ratings could negatively impact our availability and cost of capital.

 

Some of our counterparties have requested or required us to post collateral as financial assurance of our performance under certain contractual arrangements, such as transportation, gathering, processing and hedging agreements. As of February 24, 2016, we have received requests to post approximately $220 million in collateral, of which we have posted approximately $92 million. We have posted the required collateral, primarily in the form of letters of credit and cash, or are otherwise complying with these contractual requests for collateral. We may be requested or required by other counterparties to post additional collateral in an aggregate amount of approximately $698 million (excluding the supersedeas bond with respect to the 2019 Notes litigation discussed in Note 3 of the notes to our consolidated financial statements included in Item 8 of this report), which may be in the form of additional letters of credit, cash or other acceptable collateral. Any posting of collateral consisting of cash or letters of credit, which would reduce availability under our credit facility, will negatively impact our liquidity.

With this warning, energy giant Chesapeake has effectively warned that it may be the the energy-collapse’s AIG: a company which was teetering on the edge, until the rating agencies came along and with their downgrades, sprung an ever escalating series of collateral calls.

Furthermore, we now know roughly what the company’s liquidity state is: it has so far been able to post collateral on less than half, or $92 million, of its total inbound collateral calls amounting to $220 million. Worse, the company may at any moment face up to an additional $698 million or just under $1 billion in collateral calls.

Putting this in context, it took an unprecedented scramble by CHK in the last few weeks to free up precious liquidity and sell assets to just make the upcoming $500 million bond payment. In the meantime, CHK is already facing a collateral  defficiency of $128 million, one which can grow by $698 million, or more in the coming weeks, if further credit downgrades materialize.

And, adding insult to injury, is that the price of nat gas, Chesapeake’s bread and butter, just hit a 16 year low which suggests even greater cash burn for the company.

All of which explains our eagerness to get out of the “trade of the year” when we had the chance. Because considering these latest developments and this surge in collateral calls, if we had to speculate what the next direction for the company’s asset prices would be, the answer – absent a dramatic surge in the price of nat gas – is sharply lower.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Once again we find that it is only after they leave their official posts that central bankers finally tell the truth.

Last night, it was Alan Greenspan who blasted the state of the economy, saying that “we’re in trouble basically because productivity is dead in the water” and when asked if he is optimistic going forward, Greenspan replied “no, I haven’t been for quite a while.”

Then on Sunday, the former head of the BOE, Mervyn King, warned that another aspect of the global economy, namely the financial system whose structural problems remain untouched since the financial crisis have been untouched, is “certain to have another crisis.”

To be sure, warnings by former central bankers who are more responsible about the current global mess sound as nothing but revisionist bullshit. And yet, it was what King said today at the launch of his new book that left us surprised.

As the Telegraph reports today, according to the former head of the Bank of England Europe’s economic depression “is the result of “deliberate” policy choices made by EU elites. Mervyn King continued his scathing assault on Europe’s economic and monetary union, having predicted the beleaguered currency zone will need to be dismantled to free its weakest members from unremitting austerity and record levels of unemployment.

King also said he could never have envisaged an economic collapse of the depths of the 1930s returning to Europe’s shores in the modern age. But, he added, the fate of Greece since 2009 – which has suffered a contraction eclipsing the US depression in the inter-war years – was an “appalling” example of economic policy failure, he told an audience at the London School of Economics.

“I never imagined that we would ever again in an industrialised country have a depression deeper than the United States experienced in the 1930s and that’s what’s happened in Greece. 

Lord King – who spent a decade fighting the worst financial crisis in history at the Bank of England – has said the weakest eurozone members face little choice but to return to their national currencies as “the only way to plot a route back to economic growth and full employment”.

But the biggest question about Europe’s depression has always been whether it was the result of sheer stupidity and poor economic decisions or deliberate. King’s answer was stunning: “it is appalling and it has happened almost as a deliberate act of policy which makes it even worse”.

The reason this statement is profound, is because it validates what “that” 2008 AIG report predicted long ago, and certainly years before the European crisis was unleashed, namely that Europe would specifically create a financial crisis (as well as an environmental crisis, as well as terrorism) in order to fortify “Empire Europe.”

Recall what then-AIG Banque’s strategist Bernard Connolly said in response to the rhetorical question of “What Europe wants“

To use global issues as excuses to extend its power:

• environmental issues: increase control over member countries; advance idea of global governance
• terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
• global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
• EMU: create a crisis to force introduction of “European economic government”

The tragedy for Europe is that it has all panned out just as Europe’s unelected, ruling oligarchy as expected, and while we should congratulate Brussels which has managed to not only preserve but solidify its power, it now rules over a decaying, economically insolvent continent, with an entire generation left unemployed, with millions of refugees scrambling to get in, and with Europe’s cultural “integration” back to levels not seen in decades.

And whereas before we could speculate that all of this had been at most a chance occurrence, we now know better: it was premeditated from day one.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Submitted by Simon Black via SovereignMan.com,

In the middle of a heated battle against my jetlag yesterday, I finally decided to exercise the nuclear option and turn on CNBC in order to stay awake.

I figured someone would say something completely ridiculous, and it would get my blood boiling enough to power through the next couple of hours.

Within minutes I saw a top economist for Moody’s (one of the largest rating agencies in the world) saying that there are absolutely zero signs of recession.

Boom. I was suddenly so wide-awake it was like that adrenaline scene from Pulp Fiction.

I couldn’t believe what I had just heard. Moody’s. No recession. Seriously?

In addition to being criminally complicit in committing widespread fraud that fueled the housing bubble ten years ago, Moody’s takes advantage of every opportunity to show the world that they don’t have a clue when it comes to economic forecasts.

It’s like what Churchill said about democracy– it’s the worst form of government, except for all the others.

Well, Moody’s is the worst rating agency and economic forecaster… except for all the others.

These are the same guys (along with their colleagues at S&P, Fitch, etc.) who totally missed the boat on the housing market and slapped pristine credit ratings on subprime mortgage bonds.

They also missed the boat on the subsequent banking crisis, giving strong ratings to Lehman Brothers and AIG right up through September 2008.

Lehman, of course, went bust that month. And AIG had to be bailed out by the taxpayer.

Moody’s and the gang also missed the rest of the global financial crisis, the collapse of Iceland, Greece’s bankruptcy, and just about every other significant financial event since… forever.

These guys are so drunk on their own Kool-Aid that in October 2007, Moody’s announced that “the economy is not going to slide away into recession.”

In December 2007, they called the bottom in the housing market, suggesting that prices would not fall any further.

Of course, the following year, the entire world was engulfed in the biggest financial crisis since the Great Depression.

Moody’s didn’t see it coming. Wall Street didn’t see it coming. The Federal Reserve didn’t see it coming. Governments didn’t see it coming.

Everyone assumed that the good times would last forever.

So when the agency that consistently fails to predict recession predicts that there will be no recession, you can pretty much guess what’s going to happen next.

This is what virtually assures negative interest rates in America.

Central banks almost invariably cut interest rates amid economic slowdown.

And over the last seven recessions in the Land of the Free, the Federal Reserve has cut interest rates an average of 5.68%.

The smallest cut was in the 1990 recession when the Fed lowered rates by 2.5%. The greatest was in 1982 when the Fed slashed rates by a massive 9%.

Think about it– rates right now are just 0.25%. So even with a tiny cut the Fed is almost guaranteed to take interest rates into negative territory in the next recession.

We can see the effects of this in Europe and Japan where negative interest rates already exist.

Negative interest rates destroy banks. They eat into bank profits and force them to hold money losing toxic assets.

Bank balance sheets become riskier, and people start trying to withdraw their money as a result.

In Japan (which just recently made interest rates negative), one of the fastest selling items is home safes, which people are buying in order to hold physical cash.

In Europe (where negative interest rates have existed for a while longer), bank controls have already been put in place to prevent people from withdrawing too much of their own money out of the banking system.

This is a form of capital controls– a tool that desperate governments use to trap your savings within a failed system and steal your prosperity.

Wherever you see negative interest rates you are bound to see capital controls close behind.

In light of this data there are fundamentally two courses of action.

1) Hope. Pretend that everything is going to be OK until the end of time.

 

2) Action. Take sensible steps BEFORE any of the metaphor hits the fan.

One of the easiest things you can do is withdraw some physical cash out of the banking system.

Buy a safe and hold 50s and 20s (they might ban the Benjamins, so avoid $100 bills). And don’t take out more than a few thousand dollars at a time.

It’s hard to imagine you’re worse off for keeping a safe full of cash.

Even if nothing bad ever happens in the banking system, you can still use the cash. And all you’re missing out on is 0.01% interest in your checking account. Big deal.

*  *  *

Even The Fed is forced to admit that recession probabilities are risinmg fast…

The latest reading from last November is higher than all but 3 months (in the last 50 years) when a recession did not immediately proceed.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Authored by Paul Brodsky of Macro-Allocation.com,

The Triumph of Politics

 All of life’s odds aren’t 3:2, but that’s how you’re supposed to bet, or so they say. They are not saying that so much anymore, or saying that history rhymes, or that nothing’s new under the sun. More and more theys seem to be figuring out that past economic and market experiences can’t be extrapolated forward – a terrifying prospect for the social and political order.

 Consider today’s realities:

Global economies have grown to their current scale thanks to a glorious secular expansion of worldwide credit – credit unreserved with bank assets and deposits; credit extended to brand new capitalists; credit that can never be extinguished without significant debt deflation or hyper monetary inflation

 

Economies no longer form sufficient capital to sustain their scales or to justify broad asset values in real terms

 

Markets cannot price assets fairly in real terms without risking significant declines in collateral values supporting them and their underlying economies

 

Politicians that used to anguish (rhetorically) over the right mix of potential fiscal policies, ostensibly to get things back on track (as if somehow finding the right path would have actually been legislated into existence), have come to realize the limits of their power to have a meaningful impact

 

Monetary authorities have become the only game in town, assassinating all economic logic so they may juggle public expectations in the hope – so far successfully executed – that neither man nor nature will be the wiser.

The good news for policy makers is that man remains collectively unaware and vacuous; the bad news is that nature abhors a vacuum. The massive scale of economies relative to necessary production (not to mention already embedded systemic leverage) suggests this time is truly different.

The net result of these realities is that assets are generally rich over the long term in both stock and flow terms. They are rich in stock terms because there is not enough money and transferable credit to settle accounts at current prices were all assets to be sold. (Although assets would never be sold en masse at once, the dearth of money and transferable credit relative to asset values implies lower future real valuations in societies with aging populations.)

Stocks, bonds and real estate are rich in flow terms because current revenues and earnings have been pulled forward from the far future and are insufficient to provide investors with positive returns when adjusted for debt service and/or necessary currency devaluation.

Unlike the credit crisis in 2008, the provenance of today’s spreading economic miasma is not grass roots greed and lather. Institutional idiocy (or corruption) in the form of poor policy responses to the crisis is to blame. Extraordinarily easy monetary policies, that continue today, have reduced economic sustainability and worsened future economic prospects. Like Catholicism without hell, capitalism without failure can’t work.

It has been a triumph of politics over economics, and still they persist. Taking the old cigarette ad as a guideline, monetary policy makers “would rather fight than switch” to a more laissez faire posture that would let price levels of goods, services and assets find natural clearing prices.

A Tenuous Thread

So into the breach we go with negative interest rates. Quickly slowing global output growth and trade, fully-priced equity markets and naturally occurring non-sovereign debt deflation are pushing sovereign debt yields ever lower. Investors are meeting asset allocation requirements and valuing return-of-capital over return-on-capital (at least in nominal terms)

Meanwhile, gold strength is discounting the eventual policy response to global debt deflation – central bank administered de-leveraging through monetary inflation. (Increasing the total money stock effectively de-leverages balance sheets by decreasing the burden of debt repayment, rather than decreasing the stock of debt, which also reduces nominal output.) To be sure, negative sovereign market yields across the world and gold strength reflect rational economics.

Central bank policy rates are following market yields through zero percent, not the other way around. Central bankers seem desperate to appear as though the global economy remains in a cyclical growth phase, and that negative market yields are a product of their contrivance, borne from their wisdom and unique cleverness that such a scheme will be economically stimulative. Their institutional stiff upper lips are politically expedient yet alarmingly negligent. It would be better to step aside, let valuations fall where they may, and then, if they must, help pick up the pieces.

A soothing narrative that ignores real asset values and unsustainably high real economic growth rates is being held together by beta investors structured during the economic scaling phase to allocate capital as though it would persist forever, and by policy makers willing to assume formerly model-able Keynesian economics.

Banks

Commercial banks are generally unconcerned with inflation-adjusted returns – theirs or their constituents. Their revenues and earnings can only be increased over time by increasing the nominal scale of their loan books.

Borrowing short-term and lending long-term requires only a positively sloped yield curve. Absolute rate levels do not matter. It makes little difference to commercial banks whether they borrow at 3% and lend at 5% or borrow at negative 3% and lend at negative 1%. This implies that commercial banks can survive in a negative interest rate environment.

Commercial bank funding rates are ultimately determined by deposit rates and/or central bank lending rates. Diminished returns elsewhere – like the capital markets – allow commercial banks to borrow from depositors or their central banks at reduced, even negative costs.

Investment banks are not really banks. Rather than using a spread model like depository institutions, they survive and prosper mostly on a transaction model, which requires healthy and active capital markets. Those that operate alongside commercial banks (e.g., JP Morgan Securities), tend to have trouble when investors withdraw from capital market participation.

Both investment and commercial banks suffer from declining capital market participation – investment banks due to declining transactional and asset management fees; commercial banks due to declining market liquidity, which leads to declining nominal values of their loan books.

The primary responsibility of central banks is the health and viability of their commercial banking systems. The secondary responsibility is the health of the economies their constituent banks serve. Importantly, central banks do not directly oversee the viability of non-bank creditors. This is a critical policy identity to understand in times of significant market dislocation and decreasing market liquidity.

Shadow Banking

We know a bit about shadow banking, having spent 1986 through 1996 as a mortgage-backed securities trader and 1996 through 2006 as an MBS hedge fund manager. Shadow banking ultimately reduces to non-bank investors that extend credit. It includes a broad swath of investors, including large and small bond buyers, and even private lenders like your uncle Henry.
There is a fundamental difference between bank loans and shadow bank loans. Banks make loans without having 100% of the capital they lend. Alternatively, shadow bank loans are fully-funded. JP Morgan creates a loan (at once an asset and a liability) from thin air while BlackRock or Uncle Henry must have $1,000 to lend $1,000.

When we overlay this fundamental identity with the primary responsibility of central banks (to maintain a healthy and viable commercial banking system), we cannot help but conclude that bonds and other loans made outside the banking system are not ultimately protected by central banks’ ability to create bank reserves.

This suggests extraordinary power lies in the subjective policies of central banks. In a contracting economy in which debt service is stressed, to what degree might monetary authorities decide to let shadow bank loans suffer? Is it possible central banks and other economic policy makers would pick favorites within the non-bank credit markets? Might central banks prefer to protect debt in the public credit markets that is also held as assets by its constituent banks? Was the 2009 experience, in which non-bank lenders and borrowers like General Motors and AIG were bailed out, be repeated? How political might this process be?

Rational Policy Applications

There is a lot to consider when it comes to negative interest rates and central bank monetary and credit policies. Negative interest rates means creditors pay to lend to governments, which further means that central banks, acting as monetary agents for sovereign governments, can turn government expenses into revenues. And they can do this while not necessarily impacting the viability of their primary constituent banks.

If we assume that high and rising global leverage (as measured by debt-to-GDP or debt-to-base money) will eventually crowd-out global consumption and demand growth, then we can also assume that the purveyors of money and credit will be able to selectively apply austerity within their economies.

Today, for example, sovereign debt and bank balance sheets in Japan and Europe are benefitting greatly from their central banks’ negative interest rate policies. The German government can sell five-year debt and receive forty basis points while Deutsche Bank can buy back its debt at levels that improve its sick balance sheet. Meanwhile European savers must find a place to store their wealth where it is not effectively taxed by negative yields.

We continue to argue the Fed will hike Fed Funds more this year in an effort to strengthen the Dollar and attract global capital to American banks and capital markets. The US Treasury curve would continue to flatten in response, pushing mortgages rates lower – an effective easing. Such a scenario would help fund the Treasury at lower yields and increase US bank deposits, which would be able to offer global depositors higher rates (even at 0%) than European and Japanese banks.

As Saudi Arabia is making a play for global market share in crude through its superior position as the low cost producer, so will the US make a play for global capital (and foreign assets) through its dominant reserve currency, asset markets and control over shipping lanes. This would be a perfectly rational response to current economic and market conditions.

Rational Investment Posture

Negative sovereign yields and policy rates (NIRP) might be ringing the proverbial bell. After seven years of major exogenous monetary stimulus concluding in negative rates around the world, investors today would be irrational to expect an economic expansion in the coming years or even a mild recession followed by a garden variety expansion, in our view.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

In what, if true, is the most incendiary allegation of the day, Israel’s Haaretz newspaper reports that Belgian security services and other Western intelligence agencies had “advance and precise intelligence warnings” regarding Tuesday’s bombings. According to the paper, “the security services knew, with a high degree of certainty, that attacks were planned in the very near future for the airport and, apparently, for the underground railway as well.”

Here is the full Haaretz report:

The Belgian security services, as well as other Western intelligence agencies, had advance and precise intelligence warnings regarding the terrorist attacks in Belgium on Tuesday, Haaretz has learned.

 

The security services knew, with a high degree of certainty, that attacks were planned in the very near future for the airport and, apparently, for the subway as well.

 

Despite the advance warning, the intelligence and security preparedness in Brussels, where most of the European Union agencies are located, was limited in its scope and insufficient for the severity and immediacy of the alert.

 

As far as is known, the attacks were planned by the headquarters of the Islamic State (ISIS) in Raqqa, Syria, which it has pronounced as the capital of its Islamic caliphate.

 

The terror cell responsible for the attacks in Brussels on Tuesday was closely associated with the network behind the series of attacks in Paris last November. At this stage, it appears that both were part of the same terrorist infrastructure, connected at the top by the terrorist Salah Abdeslam, who was involved in both the preparation for the Paris attacks and its implementation.

 

Abdeslam escaped from Paris after the November attacks, hid out in Brussels and was arrested last week by the Belgian authorities.

 

Abdeslam’s arrest was apparently the trigger for Tuesday’s attacks, due to the concern in ISIS that he might give information about the planned attacks under interrogation, particularly in the light of reports that he was cooperating with his captors.

 

The testimony of the detained terrorist, alongside other intelligence information, part of which concerned ISIS operations in Syria, should have resulted in much more stringent security preparedness in crowded public places in Brussels, along with a heightened search for the cell.

If this report is accurate, it leads to many unpleasant and frankly disturbing questions for both local as well as international authorities, like why in the aftermath of the Salah Abdeslam capture did Belgium not at least issue a heightened state of alert, as it did in November in the aftermath of the Paris bombings, when overnight Brussels looked like an army ghost town; at least it was safe.

Recall from our November report of how Brussels looks like a warzone after the Paris terrorist attack:

This time, however, the local police did nothing and the result was over 30 deaths and hundreds of injuries.

What’s worse as of this moment the third suspect remain at large: as Haaretz reminds us, “the search is focused on the terrorist Najim Laachraoui, who created the explosive vests used by the bombers and escaped from the airport at the last moment.”

There is concern, however, that other cells connected to ISIS in Western Europe will attempt to carry out additional attacks in the near future, either in Belgium or in other countries involved in the war against the terror organization in Syria and Iraq.

How Europe will handle the ongoing deadly fallout from the bursting of this one terrorist cell, will be closely watched, and should Tuesday’s event recur when local authorities had been warned about an upcoming terrorist attack leading to no specific action, perhaps some will finally ask if the local governments were at least partially complicit in the deaths of dozens of innocent people, for motives first hinted at in that infamous 2008 AIG Banque presentation which has so far predicted with absolute accuracy the future of the Eurozone.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Submitted by The Saker, authored by Cathal Haughian

250,000 capitalists read the Financial Times, and it has been our undertaking to chronicle our understanding of capitalism via our book The Philosophy of Capitalism. A USA led team has answered the question ‘What is The Nature of the Monetary System?’ The Monetary system has three layers – the core is Religion and the unconscious mind – as they formed first. The outer layer is operational and intersects with geopolitics, it explains:

Why we need to beat Russia

We may see Syria as a testing ground for Imperial Power. Russia has tested our influence and shown the World it’s wanting, so it’s crucial to appreciate why and of what consequence.

Our Imperial weapons give definite form to our Empire. And nothing has shaped our Empire more than the FIAT. The deformation began in 1971, when the US imposed her Power to re-define the rules of the monetary system for her sole benefit. The ability to print IOU’s in exchange for real value is more clever than theft as we borrow and do not pay back in kind due to inflation. Our enemies, adversaries and vassals must found their financial systems upon the printed dollar which they must purchase with hard earned money. That seizure has financed a vast network of military bases, bribery, assassinations, coup d´états and perpetual war.

What’s not to like? All that Power without taxing the produce of the American people. So why have we lost in Syria?

Let’s begin by appreciating that the global “FIAT system” is responsible for our moral crisis and departure from virtue. As we embrace further the gods of greed – listen to the masses cheer for Clinton and Trump – we must recall that virtue is knowledge of what is good. We are getting weak because we have forgotten what is good for us.

The root of this evil is our love of easy money, or FIAT money, defined by those with power as “wealth by decree” which places an arbitrary value upon “wealth issued by men” such that buying power has no natural governor, as it did when gold was freely traded along currencies in truly free markets. But whom, may we ask, has the power to decree wealth? And with such great power to do so, who can be trusted with such great responsibility?

No one. That is who.

But nonetheless, governments and monarchies throughout the ages have been entrusted to issue wealth by decree. All have failed, because power corrupts, and absolute power corrupts absolutely.

So in every FIAT timeline we see the more powerful become wealthier and the wealthy become more powerful, because it is they who control the issuance and distribution of wealth. Inequality of Wealth, therefore, always reaches its peak at the end of the FIAT timeline. As social position offers more favours than purpose and production. What has happened is what always happens – you have a system politicized to such an extent that political access – and not profits from innovative new solutions – Become the core of the incentive structure.

Notice how productivity declined after Bretton Woods and later when Bretton Woods was abandoned. One of the problems of easy money, not the only one mind you, is the financialization of the economy. Financialization drains key human capital and generates malinvestment. Nuclear engineers are doing MBA’s so that they can work as investment bankers! Trillions of dollars have been invested in real estate developments that provide no productivity gains. Easy money kept fracking companies alive –producing an endless glut of gas that had nowhere to go but heat tar sands in Canada – what waste!

This is the real economic evil of our current monetary system – malinvestment – with two insidious effects:

1. A halt in fundamental scientific breakthroughs and
2. The West, apart from Germany and Norway, has run at a loss for decades

If the common man had a say in all this, he would declare his modest holdings to be the pinnacle of wealth, by his decree. He will offer you his apartment for your mansion, his hot dog for your lobster, his bike for your car and so forth. If this sounds ridiculous, then think how absurd it is to offer stacks of paper for these same items, which (based upon the numbers and signatures printed upon them) you would gladly accept, by decree.

We know that paper is just as intrinsically worthless as the electronic digits they represent in a bank account. The issue here is who holds the power of decree. The little people never will. The monied men hold this power – like a parasite feeding upon any who deign to offer value at the marketplace.

And that is the cut of the second edge my friends. That is the death blow. The Fiat produced a parasite – the financial sector – that in its greed is killing the real economy. So when we read about absence of opportunity with such empathy, know that the parasite suffers too, as the problem of debt reaches higher toward senior capital.

When we see debt piled on debt just to prolong the dying system, take note that a few monied men enjoy the fruits of this easy money for a time before defaulting … and with no collateral to make lenders whole, many walk away with nothing more than an impaired credit rating – into a waiting system where debt is harshly devalued.

Monsanto can darken the sunflower harvest in the Ukraine, and Allianz can steal a few tranquil Greek islands, but the ambience is never quite the same as when hard working people had their just rewards, and goodness and charity and kind souls rejoiced – with compassion and cooperation – while loving the narrative of a life written while desiring only the product of their work.

The world this Global Reserve Fiat creates is one of misery and strife where evil and greed feeds upon the spirit, and the world becomes an immoral wasteland of modernity. The worker is discriminated against as all pressure and stress is heaped upon his future, as the law discriminates between debts held as an asset vs. debt held as a liability.

You see, reader, while we all hold “deposits” at banks, which is an euphemism for bank debt, only the lending class (and I use this term in the broadest sense) get to hold debt on their balance sheets as a wealth asset, whereas the little people hold debt as an obligatory liability. If there is a default, all the better as the law allows them to seize the “secured” assets as collateral. Is there a flaw in my thinking? Let us see…

You may say that banks are able to hold debt as an asset because they have the capital to cover that debt – to which I would say, “Really ??!!” As we understand the nature of debt in this modern era of aging debt, and the derivatives that attempt to hedge those obligations, this is simply not the case, as the lessons of Enron, AIG, Lehman, MF Global – ad nauseam – clearly prove. The empire of debt is hallmarked by misery for the masses though this is no accident, for a system cannot discriminate in and of itself. Financial laws are written by and for the hidden agenda of monied men, how can we conclude otherwise? A few of which see war or systemic crisis as an opportunity to rewrite the social contract e.g. the tax payer takes over bank debt, see Ireland, Britain and soon Australia and the Eurozone.

Look at the workers as they make their way home on the subway, standing tightly together, neither wanting nor caring to utter a word to one another, their grey features melted by the stress of their “wealth as debt”. Their one shot at consciousness ground away while vampire and zombie stories speak to their existence. Look at the once prosperous cities around you, like Detroit, or Camden, crumbling into 3rd world ghettos. Not exactly a world that the 1% wants to live in, but one they deserve – one of their making.

They can insulate themselves in the Hamptons for only so long until the sirens sound. It has always been this way, and it will always be this way, until man changes his nature by recognizing what is good for him.

Now, the East – China / Russia / India – challenge the Global Reserve Fiat. And when the dollar fails, and it will: For debt is the essence of fiat, and when it defaults, the system defaults with it.

Fiat Debt is unstable for two reasons:

1. Because no natural ecosystem is able to sustain unlimited, continuous exponential growth – as all 100% fiat (debt-based) valuation systems require. More debt is required to repay existing debt plus interest. The basic operational problem: you can inflate a system easily by issuing new “secured” debt against collateral and thereby increasing collateral value (think about mortgages as buying power to buy houses, pushing house prices up, collateral looks fine even if debtors cannot pay interest or principal – as long they can easily refinance or banks can sell recovered properties in a real estate market spiked by easy credit and demographics (like in the US from 2001-2005, or London and Sidney now). Easy credit can paper over affordability and to some extent demographics. Now this definitely does not work in reverse; you cannot even stop because once credit stops flowing, prices start to tatter; and in the latter stages even an decrease in the rate of increase might be enough to crash the system.
2. Because it is entered into and created so lightly, and it is based on the assumption of a fixed future performance by an entity or individual. And when the 98% – their future burdened by intolerable debt, unemployment and declining wages – decide to walk away? The fear of that decision has been driving interest rates down for decades, to make it bearable not for the good of mankind but to prolong the system. This brings into relief an internal contradiction: wages decline in sync with interest rates because the bargaining power of workers evaporates as Central Bankers reduce the cost of capital, contributing to the substitution of labour and labour wages by that of the machines and AI software. Until the workers walk away from more debt for less income, we watch this balancing act between debt pretending to be wealth, and wealth being treated as a “bad investment”. All performed for the benefit of gradually changing our definitions, as we evolve into a new equilibrium determined by the East – Their collective gold reserves will be large enough to re-price the currencies and free the markets.

As we look at the precarious nature of our faith-based money, we must acknowledge the moral implications of “dishonest money”. Seizure by decree, whether judged just by Constituted Power, is immoral. But the fact that dishonest money is so easy to create, control and redistribute helps one understand the wave of immorality that has swept over our world.

Paying tribute with labor and exchange rates is not enough for the empire of debt. Rather, its vassals must accept and embrace the ideology of the empire as well – “Wealth as Debt” and Globalism. It’s their separation in language which causes the confusion – Globalism and Absolutism – for they are one and the same thing.

When Russia and China stockpile honest money, they attack our most potent weapon and father of our decline. Our Imperial weapon will die by both edges of its own sword, one being the contempt with which it is so easily created to bend the will of the world to its bidding, and the other sharp edge which the wicked are blind to recognize: The evil that sound money prohibits.

Will Russia and China attack the fiat dollar using overt enemy action? Possible, but not probable: as they can simply undermine “confidence” in the FIAT and wait upon the 2% to bury the blade. The Dynasties of Wealth – Have you ever wondered how we hedge our holdings through turmoil? The top 85 patricians of which own more wealth than the bottom 3.5 billion humans – will move first. The 1%, then 2% and whoever else left standing will be forced to follow through.

Only Gold has the history, depth, unique qualities, loyalty of the elite and transitional power to challenge any man, any nation, any system on earth, past, present and future. The Dynasties understand this, because they have both witnessed and authored this axiom across generations of asset accumulation.

When they vote, they vote with their ability to make markets, and then reap the profit from the market they make, offering favor to those who protect their interests. They easily control men through greed and are beholden to Gold alone. Gold transitions their wealth recycling system through change.

As the sand peters past the last curve of the hour glass the Dynastic hand is clear to see. So the Neo-cons need to beat Russia, and soon, as only Globalism can keep the markets enchained.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

One of the recurring concerns involving Europe’s seemingly perpetual economic, financial and social crises, is that these have been largely predetermined, “scripted” and deliberate acts.

This is something the former head of the Bank of England admitted one month ago when Mervyn King said that Europe’s economic depression “is the result of “deliberate” policy choices made by EU elites.  It is also what AIG Banque strategist Bernard Connolly said back in 2008 when laying out “What Europe Wants“

To use global issues as excuses to extend its power:

• environmental issues: increase control over member countries; advance idea of global governance
• terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
• global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
• EMU: create a crisis to force introduction of “European economic government”

This morning we got another confirmation of how supernational organizations “plan” European crises in advance to further their goals, when Wikileaks published the transcript of a teleconference that took place on March 19, 2016 between the top two IMF officials in charge of managing the Greek debt crisis – Poul Thomsen, the head of the IMF’s European Department, and Delia Velkouleskou, the IMF Mission Chief for Greece.

In the transcript, the IMF staffers are caught on tape planning to tell Germany the organization would abandon the troika if the IMF and the commission fail to reach an agreement on Greek debt relief. 

More to the point, the IMF officials say that a threat of an imminent financial catastrophe as the Guardian puts it, is needed to force other players into accepting its measures such as cutting Greek pensions and working conditions, or as Bloomberg puts it, “considering a plan to cause a credit event in Greece and destabilize Europe.”

According to the leaked conversation, the IMF – which has been pushing for a debt haircut for Greece ever since last August’s 3rd Greek bailout – believes a credit event as only thing that could trigger a Greek deal; the “event” is hinted as taking place some time around the June 23 Brexit referendum.

As noted by Bloomberg, the leak shows officials linking Greek issue with U.K. referendum risking general political destabilization in Europe.

The leaked transcript reveals how the IMF plans to use Greece as a pawn in its ongoing negotiation with Germany’s chancelleor in order to achieve the desired Greek debt reduction which Germany has been pointedly against: in the leak we learn about the intention of IMF to threaten German Chancellor Angela Merkel to force her to accept the IMF’s demands at a critical point.

From the transcript:

THOMSEN: Well, I don’t know. But this is… I think about it differently. What is going to bring it all to a decision point? In the past there has been only one time when the decision has been made and then that was when they were about to run out of money seriously and to default. Right?

 

VELKOULESKOU: Right!

 

THOMSEN: And possibly this is what is going to happen again. In that case, it drags on until July, and clearly the Europeans are not going to have any discussions for a month before the Brexits and so, at some stage they will want to take a break and then they want to  start again after the European referendum.

 

VELKOULESKOU: That’s right.

 

THOMSEN: That is one possibility. Another possibility is one that I thought would have happened already and I am surprised that it has not happened, is that, because of the refugee situation, they take a decision… that they want to come to a conclusion. Ok? And the Germans raise the issue of the management… and basically we at that time say “Look, you Mrs. Merkel you face a question, you have to think about what is more costly: to go ahead without the IMF, would the Bundestag say ‘The IMF is not on board’? or to pick the debt relief that we think that Greece needs in order to keep us on board?” Right? That is really the issue.

 

* * *

 

VELKOULESKOU: I agree that we need an event, but I don’t know what that will be. But I think Dijsselbloem is trying not to generate an event, but to jump start this discussion somehow on debt, that essentially is about us being on board or not at the end of the day.

 

THOMSEN: Yeah, but you know, that discussion of the measures and the discussion of the debt can go on forever, until some high up.. until they hit the July payment or until the leaders decide that we need to come to an agreement. But there is nothing in there that otherwise is going to force a compromise. Right? It is going to go on forever.

The IMF is also shown as continuing to pull the strings of the Greek government which has so far refused to compromise on any major reforms, as has been the case since the first bailout.

As the Guardian notes, Greek finance minister Euclid Tsakalotos has accused the IMF of imposing draconian measures, including on pension reform. The transcript quotes Velculescu as saying: “What is interesting though is that [Greece] did give in … they did give a little bit on both the income tax reform and on the … both on the tax credit and the supplementary pensions”. Thomsen’s view was that the Greeks “are not even getting close [to coming] around to accept our views”. Velculescu argued that “if [the Greek government] get pressured enough, they would … But they don’t have any incentive and they know that the commission is willing to compromise, so that is the problem.”

Below is Paul Mason’s summary of what is shaping up as the next political scandal.

The International Monetary Fund has been caught, red handed, plotting to stage a “credit event” that forces Greece to the edge of bankruptcy, using the pretext of the Brexit referendum.

 

No, this is not the plot of the next Bond movie. It is the transcript of a teleconference between the IMF’s chief negotiator, Poul Thomsen and Delia Velculescu, head of the IMF mission to Greece. 

 

Released by Wikileaks, the discussion took place in Athens just before the IMF walked out of talks aimed at giving Greece the green light for the next stage of its bailout.

 

The situation is: the IMF does not believe the numbers being used by both Greece and Europe to do the next stage of the deal. It does not want to take part in the bailout. Meanwhile the EU cannot do the deal without the IMF because the German parliament won’t allow it.

 

* * *

 

Let me decode. An “event” is a financial crisis bringing Greece close to default. Just like last year, when the banks closed, millions of people faced economic and psychological catastrophe.

 

Only this time, the IMF wants to inflict that catastrophe on a nation holding tens of thousands of refugees and tasked with one of the most complex and legally dubious international border policing missions in modern history.

 

The Greek government is furious: “we are not going to let the IMF play with fire,” a source told me.

 

But the issue is out of Greek hands. In the end, as Thomsen hints in the transcript, only the European Commission and above all the German government can decide to honour the terms of the deal it did to bail Greece out last July.

 

The transcript, though received with fury and incredulity in Greece, will drop like a bombshell into the Commission and the ECB. It is they who are holding E300bn+ of Greek debt. It is the whole of Europe, in other words, that the IMF is conspiring to hit with the shock doctrine.

The Greeks are understandably angry and confused; As Bloomberg reported earlier, “Greece wants to know whether WikiLeaks report regarding IMF anticipating a Greek default at about the time of the U.K. June 23 referendum on its EU membership is the fund’s official position” government spokeswoman Olga Gerovasili says Saturday in e-mailed statement.  For its part, an IMF spokesman in e-mail Saturday said it doesn’t “comment on leaks or supposed reports of internal discussions.”

Two side observations:

1. has a “Snowden” leaker now emerged at the IMF; if so we can expect many more such bombshell accounts in the coming weeks; or perhaps the reason for the leak is less nuanced: a bugged hotel.

Acc to #IMF leak, conf call was held March 19, when Velculescu was still in Athens, Hilton Hotel. Makes you wonder if Hilton is bugged.

— Yannis Koutsomitis (@YanniKouts) April 2, 2016

2. it may be another turbulent summer in Europe.

Source

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

What do Lloyd Blankfein, Jamie Dimon, James Gorman, John Thain, Jimmy Cayne, and any of the revolving door of AIG CEO’s have in common? Three things come to mind rather quickly: 1) All were financial executives during the 2008 global financial crisis. 2) All of their firms received massive public bailouts. 3) None of them went to jail for their firm’s involvement in said crisis. As a matter of fact, most are still plugged in somewhere on Wall Street, presumably helping to facilitate the next great financial crisis.

While everyday Americans were (and still are) quite disgusted with the fact that absolutely nobody was actually held accountable for the creation of the financial crisis, it’s safe to say that most have given up hope that anyone will be convicted. As a matter of fact, US Attorney General Eric Holder once said that banks are so large that it would be difficult to prosecute anyone. 

 That’s nice.

Enter Iceland, a small country of roughly 330,000 residents, where as Bloomberg reports, bank executives are actively being prosecuted and sent to jail for their negligent actions.

Unlike the jellyfish in the US, Iceland appointed Olafur Hauksson as special prosecutor to investigate bankers and their roles in the financial crisis. The result? 26 convictions of bankers and financiers since 2010. In upholding the convictions, Iceland’s Supreme Court said that actions were “thoroughly planned”, and “committed with concentrated intent” – refreshingly different than Holder’s let’s just let them get away with it because it’s hard to figure out verbiage.

This is Olafur Haukson: a person who is the diametrical opposite of Holder; a person who dares to prosecute bankers.

Olafur Haukson, special prosecutor to investigate the banking cases

As Bloomberg writes, in contrast to the Icelandic saga, no bank CEOs in the U.S. or the U.K. have been convicted for their roles in the subprime mortgage crackup and related disasters. Bringing white-collar criminal cases may be easier in Iceland because courts don’t use juries. Rather, they employ neutral experts to help judges understand the intricacies of finance. In Britain’s highest-profile case stemming from the crash, the country’s Serious Fraud Office investigated London-based real estate magnates Vincent and Robert Tchenguiz in connection with their business dealings with Kaupthing. The brothers were never charged, and in 2014 the SFO even had to pay them £4.5 million ($6.4 million) in damages to settle their claims of malicious prosecution.

Hauksson, a bear of man with a fighter’s jaw, is pressing ahead with a half-dozen more cases related to the crash. The former top lawman in Akranes, a port town up the coast from Reykjavik, Hauksson was one of only two applicants for the job of special prosecutor—and the only lawyer. “It was important for the country to look carefully at what happened in the months that led up to the banking collapse,” he says. Few expected him to succeed in untangling the web of self-dealing that stretched from Reykjavik to Luxembourg to London. “He was used to issuing parking fines and breaking up drunken brawls,” says Sigrun Davidsdottir, a journalist who writes about the bank cases on her website, Icelog. “It’s earth-shattering what he’s accomplished.”

What he has accomplished is to do the unthinkable: send criminal bankers in prison.

Working with the Financial Supervisory Authority, his office found that the country’s top three banks routinely made huge loans to their biggest stockholders. Worse, the banks secured the debts with their own equity, which spelled doom when share prices nosedived in September 2008. That month, Kaupthing Chairman Einarsson and CEO Sigurdsson surprised investors by announcing that Sheikh Mohammed bin Hamad bin Khalifa al Thani, a member of Qatar’s royal family, had acquired a 5.1 percent stake in the bank. The two bankers, with the help of Gudmundsson in Luxembourg and stockholder Olafsson, had directed Kaupthing to lend the sheik $280 million to buy the stake through a daisy chain of shell companies in the British Virgin Islands and Cyprus, according to court records. Arion Bank was formed from the domestic assets of Kaupthing after it failed in October 2008.

The result: Iceland’s economy is vibrant and growing: “It’s a rebound other European nations would envy. Iceland’s gross domestic product is set to expand almost 4 percent this year, according to forecasts compiled by Bloomberg. The unemployment rate of 2.8 percent is about one-third the average of the European Union. As the state prepares to lift capital controls later this year, the banking sector continues to strengthen: State-owned Islandsbanki, the nation’s No. 2 lender with $8.4 billion in assets, boasts a common equity Tier 1 ratio of 28.3 percent. That’s more than twice the 12.7 percent average recorded by Europe’s 25 largest banks as of Dec. 31, according to Bloomberg data. “Before the crisis, the banks grew too fast and too much,” says Unnur Gunnarsdottir, director general of the Financial Supervisory Authority, which oversees the lenders. “That will not happen again.”

* * *

Despite Haukson’s success in ensuring criminal bankers pay for their actions, Hauksson isn’t letting up. He still has half a dozen more cases relating to the 2008 crash. Those on the receiving end of his convictions get to visit the beautiful Kviabryggja Prison, an old farmhouse turned prison, located in a remote area bordered by the North Atlantic.

Kviabryggja Prison in western Iceland doesn’t need walls, razor wire, or guard towers to keep the convicts inside. Alone on a wind-swept cape, the old farmhouse is bound by the frigid North Atlantic on one side and fields of snow-covered lava rock on another. To the east looms Snaefellsjokull, a dormant volcano blanketed by a glacier. There’s only one road back to civilization.

 

This is where the world’s only bank chiefs imprisoned in connection with the 2008 financial crisis are serving their sentences, Bloomberg Markets magazine reports in its forthcoming issue. Kviabryggja is home to Sigurdur Einarsson, Kaupthing Bank’s onetime chairman, and Hreidar Mar Sigurdsson, the bank’s former chief executive officer, who were convicted of market manipulation and fraud shortly before the collapse of what was then Iceland’s No. 1 lender. They spend their days doing laundry, working out in the jailhouse gym, and browsing the Internet. They and two associates incarcerated here—Magnus Gudmundsson, the ex-CEO of Kaupthing’s Luxembourg unit, and Olafur Olafsson, the No. 2 stockholder in the bank at the time of its demise—can even take walks outside, like Kviabryggja’s 19 other inmates, all of whom were convicted of nonviolent crimes.

 

* * *

 

At Kviabryggja Prison, the tumult in the capital seems worlds away. It’s dead quiet around the single-story barracks, and in the distance rise massifs that form Iceland’s western fjords. The Kaupthing convicts are marking time in different ways. A couple of them are tutoring fellow inmates. The subjects: math and economics.

This is where Iceland’s criminal bankers can be found now:

Meanwhile, in the US…

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Almost exactly one month ago, on March 10,Mario Draghi unveiled his quadruple bazooka, which among other features, included the first ever monetization of corporate bonds (this has unleashed such an unprecedented scramble for European bonds that there are virtually none left in the open market leading to massive illiquidity and forcing yield chasers to sell CDS instead of buying bonds, thus laying the ground work for the next AIG debacle). More importantly, this was Draghi’s latest “whatever it takes” moment, and the “end justifying the means” was for European risk assets to rebound and the Euro to drop. This did not happen.

In fact, none of what has transpired to the assets that Draghi was intent to help, was supposed to happen. Here is DB’s Jim Reid explaining it.

It’ll be four weeks tomorrow that Draghi fired his quadruple bazooka and yet European markets are in apathetic mode. We show the returns of our usual selection of global assets since the cob the night before the last ECB meeting on March 10th. Perhaps markets haven’t been helped by a renewed but unrelated fall in Oil (Brent -9.1%, WTI -6.3%) since this point but it’s noticeable that outside of commodities the worst performers have generally been areas of the market that Draghi tried to help. European banks (-9.5%), FTSE-MIB (-6.0%), IBEX (-4.0%), and the Stoxx 600 (-3.0%) make up most of the other negative returning assets over this period.

 

The DAX has also slipped into negative territory over the period (-1.6%) after a -2.63% fall yesterday. These five European assets are now down -13.4%, -9.8%, -8.0%, -4.6% and -4.3%, respectively from their post-Draghi highs.

 

Things haven’t been helped by a +3.5% rally in the Euro over the period as a more dovish Fed and a belief that the ECB might be moving away from further rate cuts have shifted the debate. A more positive reaction has been seen in credit which is comfortably in positive return territory since the announcement and we’d still find it unlikely that many investors will be prepared to short European credit ahead of more details of the ECBs asset purchase plan.

 

Notwithstanding the current weaker sentiment we’d conclude that a softer dollar is probably better for reducing global systemic risk (not least as it helps China), even it causes headaches for the likes of Europe and Japan. Much attention was yesterday focused on the fact that the Yen briefly strengthened below $110 for the first time since October 2014 and also that the Nikkei is now down -16.7% YTD. The chatter is increasingly that this is a strong signal Japanese policy isn’t currently working in spite of seemingly aggressive action. Recent economic data out of Japan has been soft (Tankan and PMI’s in particular) and the question everyone is starting to ask is what the policy response from the BoJ may be. Further equity purchases have been mentioned while yesterday the former BoJ Governor Iwata suggested that the Central bank will hit its limit of government bond purchases in 2017 and suggested that further deeper negative rates would be more likely instead. The next BoJ meeting is the 28th of April and away from that another key decision is on the fiscal side and whether PM Abe will delay the upcoming hike in the consumption tax, a decision he has sounded ambivalent on so far.

 

 

Meanwhile the Stoxx 600, the DAX and European banks are now down -9.5%, -11.0% and -23.7% respectively YTD so there is a fear that Japan and Europe are becoming more resistant to central bank policies. Before getting too concerned, despite a -1.01% fall yesterday we should remember that the S&P 500 is +0.7% YTD and was at YTD highs only 2 days ago. So a softer dollar helps the US, leads to lower systemic risk but causes growth and asset return problems elsewhere.

And there is the post-mortem of the Shanghai Accord (which may or may not have happened): as long as the USD is tentatively weaker and keeps the Yuan contained, Europe and Japan will suffer, not only their capital markets, but also their exports and economies. The alternative is to allow the USD to resume its appreciation and to push both European and Japanese stocks higher, at the risk of inflaming the “Chinese problem” all over again.

How much longer will Draghi (and Merkel) and Kuroda (and Abe) keep their mouths shut and take the punishment unleashed on them by China (and a no longer data-dependent, dovish Yellen) before they snap and unleash the next leg in the global currecny devaluation race. That is the real ¥64 quadrillion question.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

The vendors and proprietors of blockchain solutions have almost all traveled the private blockchain route. We, at Veritaseum, have decided to go in the opposite direction. Call it a yearing for our macro and fundamental analysis roots, but the risk of trusting untrustworthy parties is just too great. The only way to eliminate the need for tirust is to open the network to many parties. Think the power of the Internet vs the utility of an intranet. Ths is the third in a series of articles that show, hopefully wihtout a shadow or a doubt, that Veritaseum is on the true and righteous path. The previous two, for your convenience, are:

1. With Wall Street Bitten by the Blockchain Bug, How Do We Admit the Truth About the Technology’s Disruptive Potential?
2. The Paucity of Plausible Arguments for Private Blockchains in Banking

In January of 2008, I warned (in exquisite detail) of the collapse of Bear Stearns. It was 2 months before Bear Stearns actually fell, while it was trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies. See for yourself: Is this the Breaking of the Bear? As part of the analysis, I did a counterparty risk profile, see below:

Counterparty Risk

(1) Excluded are covered transactions structured to ensure that the market values of collateral will at all

times equal or exceed the related exposures. The net exposure for these transactions will, under all circumstances, be zero.

(2) Internal counterparty credit ratings, as assigned by the Company’s Credit Department, converted to rating agency equivalents.

(3) Includes foreign exchange and forward-settling mortgage transactions) as of August 31, 2007

It didn’t take much of a concentration of bad assets to through Bear off kilter once the market started moving against it. At the end of the day it was a dearth of liquidity and Bear’s counterparties being afraid to touch it with a ten foot pole that did it in. What would such a scenario look like today, 8 years later? Well, look no farther than one of the biggest banks in Europe, and major counterparty to many banks considered a “trusted” party to members of unnamed blockchain consortia, etc. Let’s let the numbers do the talking, shall we? These are pages taken directly out of our 20 page report written for our Blockchain MacroTech consulting clients. If you are interested in becoming a consulting client, contact me here.

This “trusted party” has a investment grade to junk ratio of 2:1. That’s just about a junk bond fund – and this not only a bank that’s an ongoing concern, it’s one of the largest in its domiciled country. A full one quarter of its equity is junk. Don’t fret, but it gets worse…

Using the bank’s internal rating measures for default exposure to counterparties, 130% of its equity is exposed to medium-high to already defaulted exposure. One more time if that ran past you. 746% of its equity is exposed to medium-high to already defaulted exposure. Bad exposures outweigh good exposures by 1.3:1. This bank is heavily supported by the tens of billions of euro of the ECBs LTRO adn TLTRO (bank welfare) lending facilities, and it’s still not nearly enough. It makes Bear Stearns look like a walk in the park, and it’s arguably too big for the ECB to save in the event of a run, particularly once the counterparty daisychain effect is taken into consideration.

Then there’s the fact that the bank of all of those hundred’s of millions of euro in notional financial contract exposure. But notional value is meaningless in this context, right? Yeah, right!

The Notional Value Argument Often Used By Entities Taking Large Losses

During the last large financial reset of 2008/9, there was a heated debate over the utility of using notional values in the determination of risk and exposure of banks and financial companies. It is the Veritaseum’s contention that notional values must come into play.

The notional value of a financial agreement or security is contract value of said agreement. For instance, if one were to purchase one S&P 500 future for $2,000 at market, the market price (fair value) of said contract is $2,000. The contract controls $500,000 worth of market exposure though since the contract multiplier is 250 (250*$2,000=$500,000).  Thus, the notional amount of the contract is $500,000. Many banks balk using notional amounts to convey the risk of the assets held on balance sheet because the notional amount of derivatives and similar securities/contracts are often much higher than the market or fair value. This can be seen in the example given, $2,000<$500,000.

The problems is that the notional value IS the market value if the underlying moves to the extreme. For instance, if the S&P moved upwards to the exteme (nominally, for the sake of discussion), then the holder of that future would would literally be in the money for the full face value of the contract. The market value of the contract converges with the notional value. Don’t think this can happen? Ask AIG if it could, or Man Financial. Thus, it is quite possible for notional to equal market value. If or when it does, and that value moves against you – it usually means very bad tidings. On that note…

OTC Financial Derivatives-Regulatory Trading Portfolios-contracts not included in netting agreements

FICC (fixed income, commodities and currencies) has proven to be a most volatile revenue category, and it looks to be getting worse. Despite the fact it is one of the (if not the) largest revenue categories in the global banking business, it may likely be one of the largest sources of losses as interest rate volatility spikes.

Now, think of a blockchain based trading system with this bank as a “trusted” trading partner. Assume you did not have access to this analysis. Would you really be able to trust this “trusted” partner. 

These are pages taken directly out of our 20 page report written for our Blockchain & MacroTech consulting clients. If you are interested in becoming a consulting client, contact me here.

via zerohedge

Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Submitted by David Stockman via Contra Corner blog,

If you don’t think the current central bank driven economic and financial bubble is going to end badly, recall a crucial historical fact. To wit, the worldwide race of central banks to the zero bound and NIRP and their $10 trillion bond-buying spree during the last seven years was the brain child of Ben S Bernanke.

He’s the one who falsely insisted that Great Depression 2.0 was just around the corner in September 2008. Along with Goldman’s plenipotentiary at the US Treasury, Hank Paulson, it was Bernanke who stampeded the entirety of Washington into tossing out the window the whole rule book of sound money, fiscal rectitude and free market discipline.

In fact, there was no extraordinary crisis. The Lehman failure essentially triggered a self-contained leverage and liquidity bust in the canyons of Wall Street, and it would have burned out there had the Fed allowed money market interest rates to do their work. That is, to rise sufficiently to force into liquidation the gambling houses like Lehman, Goldman and Morgan Stanley that had loaded their balance sheets with trillions of illiquid or long-duration assets and funded them with cheap overnight money.

There would have been no significant spillover effect. The notions that the financial system was imploding into a black hole and that ATMs would have gone dark and money market funds failed are complete urban legends. They were concocted by Wall Street to panic Washington into massive intervention to save their stocks and partnership shares.

The same is true of the claim that corporate payrolls would have been missed for want of revolving credit availability and that the entirety of AIG had to be bailed out to the tune of $185 billion in order to protect insurance and annuity holders.

In fact, the entire problem of the collateral call on AIG’s bogus CDS insurance was contained at the holding company. The latter could have been liquidated with less than $60 billion of losses distributed among the world’s 20 largest banks. These were mostly state-backed European behemoths—-like Deutsche Bank and BNP Paribas—-that between them had balance sheet footings of $20 trillion. The loss would have amounted to a couple of quarters net income and a big dent in year-end bonuses for top executives. Nothing more.

The most important point, however, is that there was never any danger of a run on main street banks by retail customers. To be sure, there would have been a temporary disruption in the real economy owing to the necessary curtailment of unsustainable activities related to the housing bubble and due to a downshift of household consumption that reflected unsustainable borrowing.

But as I demonstrated in detail in the Great Deformation, the necessary liquidation of excessive inventories and labor that had built-up during the housing boom had exhausted itself by September 2009. That was long before there was even a remote hint that Bernanke’s wild money pumping had caused households and business to increase their borrowing levels.

Stated differently, the US economy was already at peak debt, meaning that the credit channel of monetary policy transmission was broken and done. The modest recovery that did occur thereafter was due to the natural regeneration capabilities of capitalism and the restoration of economic and financial balance in the main street economy.

The recovery did not depend on Wall Street. Bernanke and his merry band of money printers had virtually nothing to do with the restart of jobs growth and GDP expansion after June 2009.

But far be it for the Fed and the gaggle of Washington politicians to realize, let alone admit, that they actually caused the housing and credit bubble, but had nothing to do with the modest recovery that ensued after it burst.

Bernanke has actually made a career out of claiming just the opposite. Namely, that he alone had the insight and acumen to diagnose the purported onrushing depression and the “courage” to, well, run the printing presses white hot in order to stop it in its tracks.

The fact is, Bernanke has been a charlatan and intellectual lightweight all along – going back to his alleged scholarship on the Great Depression. He was no such thing. He simply zeroxed Milton Friedman’s mistaken theory that the Fed failed to go on a bond-buying spree during 1930-1932 and that this supposed error turned the post-1929 contraction into a deep, sustained depression.

No it didn’t. The 1930s depression was the consequence of 15 years of wild credit expansion—-first during the “Great War” to fund the massive expansion of US food and arms production and then during the Roaring Twenties to finance the greatest capital spending binge in history prior to that time. The depression was not a consequence of too little money printing during 1930-1932, but too much speculative borrowing and investment by business and households after the Fed discovered its capacity to print money during the war and the decade thereafter.

In any event, behold Bernanke’s latest contribution to the history of monetary crankery. The very idea that the Fed would set up a “loan account” that our already incurably profligate Washington politicians could tap at will is so nutty as to be virtually impossible to paraphrase. So let the man’s words do the dirty work:

Ask Congress to create, by statute, a special Treasury account at the Fed, and to give the Fed (specifically, the Federal Open Market Committee) the sole authority to “fill” the account, perhaps up to some prespecified limit. At almost all times, the account would be empty; the Fed would use its authority to add funds to the account only when the FOMC assessed that an MFFP of specified size was needed to achieve the Fed’s employment and inflation goals.

 

Should the Fed act, under this proposal, the next step would be for the Congress and the Administration—through the usual, but possibly expedited, legislative process—to determine how to spend the funds (for example, on a tax rebate or on public works)……Importantly, the Congress and Administration would have the option to leave the funds unspent. If the funds were not used within a specified time, the Fed would be empowered to withdraw them.

Let’s see. Does he think the boys and girls of Capitol Hill would ever not spend 100% of their allowance?

More importantly, does the man really think that you can get something for nothing? That real wealth can be created not through the sweat of labor, or entrepreneurial invention and managerial innovation or the sacrifice of current consumption in favor of savings and future returns, but simply through hitting the “send” button on the Fed’s electronic printing presses?

The rest of Bernanke’s post is too imbecilic to even quote or reprint, but the gist of it is that the US economy is wanting for some non-existent ether called “aggregate demand”. And that this ether is something the Fed can easily create by handing an open-ended spending account to politicians, and one that would never have to be repaid or even serviced with interest!

It puts you in mind of the medieval theologians who endlessly debated as to the number of angels which could fit on the head of a pin. The trouble is, there is not such thing as angels.

Nor is there any such thing as economic growth or wealth that can be conjured by politicians spending Bernanke’s utterly counterfeit money.

via zerohedge