Feed aggregator

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

In recent months, Facebook has been quietly holding talks with at least half a dozen media companies about hosting their content inside Facebook rather than making users tap a link to go to an external site.

 

The new proposal by Facebook carries another risk for publishers: the loss of valuable consumer data. When readers click on an article, an array of tracking tools allow the host site to collect valuable information on who they are, how often they visit and what else they have done on the web.

 

And if Facebook pushes beyond the experimental stage and makes content hosted on the site commonplace, those who do not participate in the program could lose substantial traffic — a factor that has played into the thinking of some publishers. Their articles might load more slowly than their competitors’, and over time readers might avoid those sites.

 

- From the New York Times article: Facebook May Host News Sites’ Content

Last week, I came across an incredibly important article from the New York Times, which described Facebook’s plan to provide direct access to other websites’ content in exchange for some sort of advertising partnership. The implications of this are so huge that at this point I have far more questions than answers.

Let’s start with a few excerpts from the article:

With 1.4 billion users, the social media site has become a vital source of traffic for publishers looking to reach an increasingly fragmented audience glued to smartphones. In recent months, Facebook has been quietly holding talks with at least half a dozen media companies about hosting their content inside Facebook rather than making users tap a link to go to an external site.

 

Such a plan would represent a leap of faith for news organizations accustomed to keeping their readers within their own ecosystems, as well as accumulating valuable data on them. Facebook has been trying to allay their fears, according to several of the people briefed on the talks, who spoke on condition of anonymity because they were bound by nondisclosure agreements.

 

Facebook intends to begin testing the new format in the next several months, according to two people with knowledge of the discussions. The initial partners are expected to be The New York Times, BuzzFeed and National Geographic, although others may be added since discussions are continuing. The Times and Facebook are moving closer to a firm deal, one person said.

 

Facebook has said publicly that it wants to make the experience of consuming content online more seamless. News articles on Facebook are currently linked to the publisher’s own website, and open in a web browser, typically taking about eight seconds to load. Facebook thinks that this is too much time, especially on a mobile device, and that when it comes to catching the roving eyeballs of readers, milliseconds matter.

 

The Huffington Post and the business and economics website Quartz were also approached. Both also declined to discuss their involvement.

 

Facebook declined to comment on its specific discussions with publishers. But the company noted that it had provided features to help publishers get better traction on Facebook, including tools unveiled in December that let them target their articles to specific groups of Facebook users, such as young women living in New York who like to travel.

 

The new proposal by Facebook carries another risk for publishers: the loss of valuable consumer data. When readers click on an article, an array of tracking tools allow the host site to collect valuable information on who they are, how often they visit and what else they have done on the web.

 

And if Facebook pushes beyond the experimental stage and makes content hosted on the site commonplace, those who do not participate in the program could lose substantial traffic — a factor that has played into the thinking of some publishers. Their articles might load more slowly than their competitors’, and over time readers might avoid those sites.

 

And just as Facebook has changed its news feed to automatically play videos hosted directly on the site, giving them an advantage compared with videos hosted on YouTube, it could change the feed to give priority to articles hosted directly on its site.

Let me try to address this the best I can from several different angles. First off, what’s the big picture plan here? As the number two ranked website in the world with 1.4 billion users, Facebook itself is already something like an alternative internet where a disturbing number of individuals spend a disproportionate amount of their time. The only thing that seems to make many of its users click away is content hosted on other people’s websites linked to from Facebook users. Other than this outside content, many FB users might never leave the site.

While this is scary to someone like me, to Facebook it is an abomination. The company doesn’t want people to leave their site ever — for any reason. Hence the aggressive push to carry outside news content, and create a better positioned alternative web centrally controlled by it. This is a huge power play move. 

Second, the New York Times righty asks the question concerning what will publishers get from Facebook for allowing their content to appear on the site seamlessly. Some sort of revenue share from advertisers seems to be an obvious angle, but perhaps there’s more.

While Facebook isn’t a huge traffic driver for Liberty Blitzkrieg, it isn’t totally irrelevant either. For example, FB provided about 3% of the site’s traffic over the past 12 months. This is despite the fact that LBK doesn’t even have a Facebook page, and I’ve never shared a link through it. Even more impressive, Facebook drove more traffic to LBK over the same time period than Twitter, and I am very active on that platform. So I can only imagine how important FB is to website editors who actually use it.

This brings me to a key point about leverage. It seems to me that Facebook has all the leverage in negotiations with content providers. If you’re a news website that refuses to join in this program, over time you might see your traffic evaporate compared to your competitors whose content will load seamlessly and be promoted by the FB algorithm. If a large percentage of your traffic is being generated by Facebook, can you really afford to lose this?

One thing that FB might be willing to offer publishers in return other than advertising dollars, is increased access to their fan base. For example, when I try to figure out through Google analytics who specifically (or what page) on Facebook is sharing my work, I can’t easily do so. Clearly this information could prove very useful for networking purposes and could be quite valuable.

Looking for some additional insight and words of wisdom, I asked the smartest tech/internet person I know for his opinion. It was more optimistic than I thought:

This could be a huge shaper of news on the internet. or it could turn out to be nothing.

 

Other than saying that I don’t really know how to predict what might or might not happen, and I sort of don’t care much because it is in the realm (for now at least) of stuff that I don’t read (mainstream news), on a site that I never see (Facebook). However, the one thing I wonder in terms of the viability of this is whether in the end it may drive people away from FB.

 

Back in the day, probably when you weren’t so aware of the nascent net, there were two giant “services” on the Internet called Compuserve and America Online. They were each what you are thinking that Facebook is heading toward; exclusive, centralized portals to the whole net. They were also giant and successful at the time. Then people outside of them started doing things that were so much more creative and interesting. At the same time, in order to make everything fit inside their proprietary boxes and categories, they were making everything ever more standardized and boring. Then they just abruptly died.

Given the enormity of what Facebook is trying to achieve, I have some obvious concerns. First, since all of the leverage seems to reside with Facebook, I fear they are likely to get the better part of any deal by wide margin. Second, if they succeed in this push, this single company’s ability to control access to news and what is trending and deemed important by a huge section of humanity will be extraordinary.








By Keiko Ujikane at Bloomberg Japan’s industrial production fell more than forecast in February, adding to pressure from a drop in consumer spending and faltering inflation. Output declined 3.4 percent from January, when it rose 3.7 percent, the trade ministry said in Tokyo on Monday. The median estimate of 28 economists surveyed by Bloomberg was for a…
By DANIEL GOLDSTEIN at Marketwatch This San Francisco fixer-upper proves the old real estate adage, “location, location, location.” Click here to see more images of the home. The tale of this otherwise humble two-story home selling for more than $1.2 million has gone viral and has much of the real estate chattering class talking. “This is not…

The question is... would it be any worse?

 

 

Source: Townhall via Sunday Funnies








Submitted by Frank Suess via Acting Man blog,

Risks and Opportunities

Investors started off 2015 with a slow global economy, low oil prices, a strong Dollar, and a deflationary Europe with great uncertainties on the progress of the US economy and the recent launch of Europe’s quantitative easing. The question is, what opportunities lie ahead? This article highlights the main topics covered in an interview between Mr. Frank Suess, CEO and Chairman of BFI Capital Group, with the globally renowned Swiss fund manager, Mr. Felix Zulauf. Mr. Zulauf currently heads Zulauf Asset Management, a Switzerland-based hedge fund and has forty years of experience with global financial markets and asset management. He has been a member of the Barron’s Roundtable for over twenty years.

 

Zulauf-S-640x360

Felix Zulauf, Swiss fund manager and long-standing member of the Barron’s roundtable

 

Frank Suess: Felix, first I would like to thank you for taking the time to speak to us. You are a renowned investor and fund manager with a solid track record over the past 40 years. In those 40 years, you’ve encountered many highs and lows in financial markets and business cycles. What do you think about the current cycle we are in?

Felix Zulauf: The current cycle is very unusual, because never before have we seen authorities, central banks in particular, intervening on such a large scale and pumping so much money into global financial markets. Hence, global financial markets are more distorted than ever before and accordingly, the risks are very high. Investing becomes very difficult in such an unprecedented environment, as it can’t be compared to previous situations.

Frank Suess: When you look at our financial markets today, what would you consider are the most alarming themes? And how can they affect the current situation?

Felix Zulauf: Global demand has weakened due to structural reasons. This is a situation that cannot be improved by pumping liquidity into the system. Zero or even negative interest rates have distorted the valuation and pricing of virtually all assets. We know that the longer a distortion prevails, the more investors get used to it and it becomes the “new normal” to them. That’s where the problem lies!

I see three potential threats:

1) Inflation and bond yields rise and begin to prick asset bubbles;

 

2) The world economy gets hit again by more deflation due to a weaker Chinese currency that would reinforce deflationary pressure, dampen pricing and corporate profits and finally the real global economy; and

 

3) Asset prices continue to rise and finally exhaust on the upside at very high and unsustainable valuation levels.

In my view, #3 will be the most likely outcome.

 

USDCNY(Weekly)

A potential source of trouble: the yuan – click to enlarge.

 

Frank Suess: Central banks, with the US Federal Reserve in the lead, have embarked on a series of quantitative easing and credit stimulus packages. Particularly since the crisis in 2008, central bank influence on financial markets and the global economy has reached an unprecedented level. What is your view on this? Has this huge market intervention been justified? Will central bankers really be able to steer the global economy toward sustainable growth?

Felix Zulauf: Markets are the best capital allocators and capitalism works if the authorities let it take its course. Had they let markets correct all the excesses in previous business cycles instead of printing more and more money, the world would be in a much better shape today. But our authorities had the dream to smooth the business cycle by not allowing the markets and the system to correct itself. It is difficult to correct this in a painless way, which is what the authorities are trying to do. That won’t work.

 

central bankers

Assorted central planners – no painless way out

 

Frank Suess: How do you see this affecting accumulated wealth, particularly in the US? You were previously quoted as saying that “it will be a trader’s dream, but an investor’s hell”. Could you please explain to our readers what you mean with that statement?

Felix Zulauf: My hunch is that the US market will not make much progress this year but rather go up and down. This may be good for talented traders but bad for investors holding stocks that perform more or less in line with the S&P.

Frank Suess: Following the Americans, and then the Japanese, Europe has now joined the “QE bandwagon”. And, European stock markets, in general, currently look more reasonably priced than those in America. Should we now reallocate a bigger part of our portfolio into European stock markets?

Felix Zulauf: On a relative basis, European markets are now higher priced than in 2007 versus the US. But cyclical forces remain in favor of European stocks due to the highly expansive ECB policies. Europe has zero interest rates or even negative rates in some cases. I wouldn’t even be surprised to see German 10-year Bonds going to negative yields (they are 0.25% at present). There is plenty of liquidity around and the banks cannot lend it out. But still, Draghi wants to flood the market with more than one trillion of newly printed Euros. That is insane! The rationale: Weaken the Euro even further to help the structurally uncompetitive economies like Greece, Italy or France. That is all a very far cry from sound central banking, of course. For a while longer it will be bullish for European stocks, particularly for German equities, as they had already performed well when the EUR/USD was trading at 1.40.

 

10 yr. yield, Germany

10 year Bund yield – just below 20 basis points as of today – click to enlarge.

 

Frank Suess: The slump in the oil price has been a major topic since last summer. Factors include a drop in global manufacturing, America’s increased production of shale oil, lower production by OPEC members. What is your interpretation? And where do you expect oil prices, and possibly commodity prices, in general, going forward? Who are the winners and losers here?

Felix Zulauf: The commodity cycle peaked in 2011 and I assume the bearish trend will last another few years. Oil’s decline is part of that down cycle. Demand and supply factors are at work here. Oil’s market share of total energy has been declining for some years. The Saudis want to change this by having a lower price and want others to cut back on production. On the demand side, the world is getting more and more energy efficient (the automobile sector is an example) and therefore demand is now rising, but at a slower rate than the economy. The winners remain the energy consumers, in a broad sense, and the losers are the energy producers. That relates to individuals, companies, industries and national economies. But of course, energy is always only one component of the whole investment landscape.

Frank Suess: Over the years, you’ve had great exposure to Asian markets, particularly Japan. Many eyes are now set on China. The Chinese are confident they will report strong growth numbers of 7% this year, while many analysts disagree, saying that it is unachievable on low export figures. What do you make of the current performance of the Chinese economy and its impact on Europe and the US?

Felix Zulauf: China’s investment and credit boom was the biggest in recorded history. It peaked a while ago and is now in a downswing. After such a boom, the economy usually slows for 5-7 years and that is what’s happening in China. 7% growth is a joke; I would rather say it is now beginning to fall below 3% and won’t stop slowing for several years. China will be forced to help the banking and shadow banking system to digest the fallout of the previous boom and that means it will become more and more expansive in its monetary policy. In turn, this will weaken the Chinese currency. But China is moving slowly – which reinforces the slowdown – because it is afraid of a big wave of capital outflows that could create a shock to the banking system. Hence, they play down problems and move slowly. But eventually, the currency will weaken further. Once the Renminbi weakens by 10-15%, it will weaken prices of globally traded goods once more. In turn, this will dampen inflation further as well as revenues, profit margins and profits in the corporate sector around the world. When this happens, many equity markets may realize that the “emperor has no clothes”. In other words, China is key to the rest of the world.

Frank Suess: Greece is on the brink of collapse and possibly exiting the Eurozone. Negotiations are still ongoing, and the situation is still developing. Do you see a way out of the Greek leverage situation? In your view, should the Greeks stay or exit the Eurozone? And what is the best course of action for both parties, in your opinion?

Felix Zulauf: Of course, Greece is bust – like several others. But as long as the fiction that everything is okay and financing will be provided remains, the world doesn’t worry. My hunch is that the percentage of those in European politics that are fed up with Greece is rising and therefore it is only a matter of time until Greece defaults. A major restructuring and reform with Greece staying in the euro zone will be very difficult to achieve because the ECB will hardly provide the capital necessary for the refinancing of a restructured Greece. Hence, an exit may happen and the Drachma could be reintroduced with a value that is perhaps 50-70% lower compared to today’s currency. At that time, Greece has a true chance to recover. However, this would set prejudice of exiting.

 

ATG

Greece’s stock market has declined precipitously since 2007 – click to enlarge.

 

Frank Suess: When the SNB removed the cap on the CHF in January, did you see it coming? How would you evaluate this decision by the SNB, noting that only days earlier they said they would maintain the cap? Can we expect more of these shocking decisions in the near future and why so?

Felix Zulauf: Well, I was pretty sure they would eventually separate from the ECB policy, but had rather expected it to happen sooner. As a policymaker, you cannot tell if the truth could jeopardize your own policy. That is part of the game authorities must play. Well, we could see capital controls of some sort in the years ahead, because it is unreal to expect that all players are prepared to accept what other nations are trying to do at their own expense.

Frank Suess: What markets would you consider the most positive or negative? What investment opportunities would you say could develop in the course of the year that one should take advantage of?

Felix Zulauf: All equity and currency markets are pretty extended, at present. And many of the bond markets are as well. Hence, risk is high as assets are priced off a zero interest rate policy. I said last year that currency movements will play a key role. I expected the strengthening USD at the beginning of 2014, which is over a year ago. And European investors made 40% in US equities over the last 12 months while a US investor lost 10% in European equities, all calculated in their home currency. Hence, if you don’t understand currencies, you may get lost in these markets. I would certainly stay as far away as possible from emerging market currencies, bonds and also equities. On the positive side, I expect the USD strength to continue over the next 2 years or so but see some potential for a correction this spring. Long US treasuries are the most attractive fixed income instrument in the world because the economy will soften again against the general expectations of an economic reacceleration and rate hikes may be postponed for longer than generally expected. In equities, I find German equities the most attractive. Leading German multinationals made good money when the EUR/USD was trading at 1.40. It is trading now, at the time of this interview, near 1.08 and it must be a bonanza for them in terms of earnings. I would use short-term setbacks to buy more, but always hedge the currency.








Up until now, the world's descent into the NIRPy twilight of fiat currency was a function of failing monetary policy around the globe as central bank after desperate central bank implemented negative and even more negative (in the case of Denmark some four times rapid succession) rates, hoping to make saving so prohibitive consumers would have no choice but to spend the fruits of their labor, or better yet, take out massive loans which they would never be able to repay. However, nobody said it was only central banks who could be the executioners of the world's saver class: governments are perfectly capable too.  Such as Australia's.

According to Australia's ABC News, the "Federal Government looks set to introduce a tax on bank deposits in the May budget."

Ironically, the idea of a bank deposit tax was raised by Labor in 2013 and was criticized by Tony Abbott at the time. Much has changed in two years, and as ABC reports, assistant Treasurer Josh Frydenberg has indicated an announcement on the new tax could be made before the budget.

Mr Frydenberg is a member of the Government's Expenditure Review Committee but has refused to provide any details.

 

"Any announcements or decisions around this proposed policy which we discussed at the last election will be made in the lead up or on budget night," he said.

 

Speaking at the Victorian Liberal State Council meeting Mr Abbott has repeated his budget message, focusing on families and small businesses.

 

"There will be tough decisions in this year's budget as there must be, but there will also be good news."

For the banks and creditors, yes. For anyone who is still naive enough to save money in the hopes of deferring purchases for the future, not so much.

The banking industry has raised concerns about a deposit tax, saying it will have to pass the cost back onto customers.

 

Steven Munchenberg from the Australian Bankers' Association said it would be a damaging move for the Government.

 

"It's going to make it harder for banks to raise deposits which are an important way of funding banks. And therefore for us to fund the economy," he said. "And we also oppose it because particularly at this point in time with low interest rates a lot of people who are relying on their savings for their incomes are already seeing very low returns and this will actually mean they get even less money."

Don't worry Steven, neither central banks nor government care about "a lot of people" - they just care about a select few. As for the banks, once China, and immediately thereafter Australia, launches QE as the entire world descends into a monetary supernova, and Australia's banks are flooded with trillions in excess reserves like those in the US, all shall be forgiven. As a reminder, banks such as JPM are so flush with zero-cost cash from other sources, well one other source, they are now actively turning away depositors.

As for Australia, while central banks are untouchable and unaccountable to anyone (except their commercial bank directors and anyone else they secretly meet during those bimonthly sessions in the BIS tower in Basel), the government can be voted in and voted out. Especially a government that is about to break one of its main election promises:

The Federal Opposition has accused the Government of breaking an election promise by planning to introduce a tax on bank deposits.

 

The former Labor Government put forward the policy in 2013 to raise revenue for a fund to protect customers in the event of a banking collapse.

 

Shadow Assistant Treasurer Andrew Leigh said Treasurer Joe Hockey criticised the proposal at the time. "When we put it on the table Joe Hockey said that it was a smash and grab on Australian households just aimed at repairing the budget," he said.

It is almost surprising, but not really, how when it comes down to money, the thin white line between "us" and "them" always disappears when the money runs out.

As for Australia's savers, welcome to the NIRP world where savers in increasingly more countries are now on the endangered species list.








Although many economists—including at least some sitting central bankers—believe that nominal wage growth provides little forward-looking information about broader inflationary trends, policymakers have generally found wage growth useful in helping to assess the amount of slack in the labor market—a key consideration in monetary policy decisions, particularly at a time like today when labor market measures are sending differing messages about the degree of slack. Indeed, Fed Chair Janet Yellen has listed wage growth as one of a handful of measures she is closely watching as the Fed stands poised to embark on its first rate-hiking cycle in ten years.

 

 

The US is not the only country facing low wage growth and the Fed is not the only central bank focused on it.

 

But minimum wages around the world vary dramatically...

 

 

As total compensation is made up of ever increasing amounts of government transfers...

 

 

MIT professor Erik Brynjolfsson, author of Race Against the Machines and The Second Machine Age, argues that technology is fundamentally changing labor markets and increasingly displacing higher-skill, higher-wage workers. He is hopeful, however, that a new approach to education as well as entrepreneurship can result in new industries that “not only create value for consumers, but also leverage a lot of people and put them to work in new ways.”

"Median incomes are stagnating and have even fallen since the 1990s. And there is no doubt in my mind that technology is a big part of that." - Erik Brynolfson

Of course, for much of Europe, none of that matters as the worker is much more protcted than the average American...

 

Source: Goldman Sachs








With a no longer “patient” Fed set for “liftoff” sometime this year, some observers (including IMF chief Christine Lagarde) are bracing for emerging market turbulence. A new paper from the Center for Global Development attempts to discern which EMs are most vulnerable to an “external shock” (be it geopolitical or financial) and also seeks to determine which countries are more prepared to weather a storm now than they were pre-crisis. According to the study, the relevant factors are 1) current account balance, 2) ratio of external debt to GDP, 3) ratio of short-term external debt to reserves, 4) fiscal balance to GDP, 5) government debt to GDP, 6) inflation versus targeted inflation, and 7) financial “fragility”. 

From the study:

The values of the indicator for 2007 and 2014 are presented as well as the country rankings in both years. According to this methodology, the greater the value of the indicator the more resilient a country’s macroeconomic performance to external shocks is assessed to be. 

And here’s The Economist, simplifying things a bit further: 

How resilient are emerging-market economies? Many are struggling, thanks to the economic impact of a strong dollar. But what would happen if things suddenly got a lot tougher? A new paper, from Liliana Rojas-Suarez of the Centre for Global Development, a think-tank, offers some interesting data.

 

Let’s imagine that something really bad happens. The Federal Reserve tightens its monetary policy too soon; some new global debt crisis begins; Russia launches a full-scale invasion of Ukraine. Ms Rojas-Suarez wants to understand which emerging-market economies are most vulnerable.

 








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by Cam Hui, Humble Student of the Markets

Despite my bullish stock market outlook (see my last post Enjoy the party, but watch for the police raid), a good investor always thinks about the risks to his forecasts. So it is in that spirit that I explore the scenario of what might trigger a bear market in 2015.

Rising rates don`t cause bear markets by themselves
Recently, David Rosenberg explained that bear markets are caused either by recessions or Fed tightening (I agree with 80% of that statement, but that`s another story, via Business Insider):

Right now, the market consensus is that the Fed will start to raise interest rates in mid-2015. But Fed tightening, by itself, will not cause equities to tank. That`s because the Fed is tightening in response to a rising growth and inflation outlook. Higher growth translate to higher earnings, which should push stock prices higher.

A HY bear attack?
What if the source of a bear market comes from somewhere else? I recently came upon the summary of the 2014 CFA Institute Fixed-Income Management Conference, where Martin Fridson called a wave of junk bond defaults to start in 2016:

Fridson, CIO at Lehmann Livian Fridson Advisors, has been a leading figure in the high-yield bond market since it was known as the “junk bond” market — and he sees as much as $1.6 trillion in high-yield defaults coming in a surge he expects to begin soon.

“And this is not based on an apocalyptic forecast,” he assured the audience.

High-yield bonds, typically issued with credit ratings at the bottom of the scale, tend to suffer default surges during troughs in the credit cycle. The first high-yield default surge occurred from 1989 to 1992, and encompassed the collapse of Drexel Burnham Lambert. The second surge ran from 1999 to 2003, following the bursting of the dot-com bubble, and the third happened in the midst of the global financial crisis, from 2008 to 2009.

Fridson suggests the next default surge will be larger than the last three combined. Each surge saw an average annual high-yield default rate above 7% (which, if extended over a multi-year period, can add up to real money).

Fridson currently projects that 1,155 issuers will default in the next wave. Over a four-year period that easily surpasses the 644 defaults in 1999–2003, the largest of the three prior default surges.

The trigger could be the Fed raising short rates:

One key assumption behind Fridson’s forecast is that the Fed ends its program of quantitative easing (QE) and allows interest rates to rise. QE may have ended, but Fed guidance calls for interest rates to remain low for a “considerable time.” Fridson was asked about QE and the persistence of low rates during Q+A after his presentation, and the answer left the audience murmuring.

“If we’re in this Fed rescue mode [in 2016–2019], then I think we’re in a lot of trouble. Very serious trouble.”

To be sure, Fridson had been forecasting a wave of junk bond defaults back in November, 2012 (via Bloomberg):

Almost $1.6 trillion of junk bonds globally will default between 2016 and 2020, according to Martin Fridson, chief executive officer of New York-based FridsonVision LLC, a research firm specializing in speculative-grade debt.

Steve Blumenthal also warned about rising default risk in July 2014 (emphasis added):

In my 20 years of managing high yield bond investments, I’ve never seen so many signals that scream caution. Desperate to find yield, investors have poured billions into high yield bond funds and ETFs driving the yield on the Barclays High Yield Bond Index to just 5.54% — the lowest level in history. Investors are positioning in a risk they may not fully understand.

Let’s look at what will lead to the next default wave and discuss a tactical strategy that may help you further participate in price gains and also protect your wealth during periods of significant price loss.

While 5.54% looks better than a 10-year Treasury at 2.46%, what is happening beneath the surface is concerning. A greater number of less credit worthy companies are finding funding and at terms unfavorable to investors. A default cycle is ahead.

Rising defaults + illiquid bond market =  ???
Here is my bearish scenario. Could combination of Fed tightening, illiquid bond market cause a risk-off sell-off that spreads to other asset classes?

It is no secret that bond market liquidity has been shrinking because of higher capital requirements imposed on bond dealers (via Euromoney):

RBS recently surveyed 65 investors, including asset managers, hedge funds, insurance companies, private banks and others mainly based in Europe and the UK. Of these, the overwhelming majority (84%) sees lack of liquidity as a potential systemic risk for credit markets. Most say it is likely to get worse and while they are trying to manage liquidity risk, there is little consensus on how to do so.

Alberto Gallo, head of European macro credit research at RBS, argues: “Credit markets may have outgrown dealers’ capacity to trade risk. We have now nearly $7.7 trillion of credit in the US, versus $22 billion of inventories on trading desks, the lowest ratio in history.

“It is harder and more expensive to trade corporate bonds: liquidity is down roughly 70% since pre-crisis.”

Bond market liquidity in both Treasury and corporates have been a problem for institutional investors:

“The Fed data suggest that the volume of corporate bond inventory the sell-side holds is about a fifth of what it was before the crisis,” Nick Robinson, head of trading, fixed income at Schroders, tells Euromoney. “And the US corporate bond market has approximately doubled in size in that time.

“There have been lots of initiatives to try to address that. Many new agency brokers emerged very quickly – and subsequently disappeared – after Lehman collapsed. More recently, several crossing networks have sprung up, but to succeed they need a critical mass of clients while the market remains fragmented.”

Another investor tells Euromoney: “Banks have very little inventory or balance-sheet capacity. At the moment there is a kind of spurious agency model with a bit of balance sheet behind it and a lot of smoke and mirrors.”

Today, the HY bond market is not just the playground of institutional investors, but retail and fast-money hedge fund investors through ETFs. So what happens when default rates start to tick up and everyone tries to squeeze out a much smaller exit?

The worst-case scenario is that stresses from a HY induced risk-off sell-off cascades into a financial crisis in the banking system.

A 2015 problem
Today, junk bond market performance has started to roll over against equivalent duration Treasuries. Past episodes have led to stock market weakness, both in 2007 and 2011.

To be sure, the problem does not appear to be excessive today. Howard Marks isn’t finding a high level of financial stress from rising defaults. He believes that the investment environment remains favorable for equity prices:

Speaking of the environment, since mid-2011, our investing mantra across Oaktree has been move forward but with caution. In the US, we see the economy getting stronger and asset prices getting higher although not generally in bubble territory. Economies elsewhere especially in Europe and certain emerging markets are weaker. We are respectful of the determination of central banks to stem economic weakness by keeping interest rates historically low and the appeal of riskier assets high.

More than five years into recovery as we are now, one would typically expect to see a pickup in defaults and other signs of distress. But of course nothing about this cycle has been typical so it isn’t surprising that defaults and distress remain in short supply.

In short, the potential stresses in the HY market is something to keep an eye on. For now, I remain cautiously bullish on risky assets. The risks in the junk bond market is a 2015 problem.

Copyright © Humble Student of the Markets

Via Visual Capitalist,

In a lengthy bear market for mining stocks, there have been repeated calls by pundits for the culling of hundreds of companies that have been unable to raise new money or generate shareholder value. This piece of the capitulation process, some say, is what is needed to put confidence back in the market so that the bull cycle can start again.

 

 

Courtesy of: Visual Capitalist

 

 

Tony Simon, President of Seguro Consulting, has put together a report that has rather concerning findings for those interested in the venture markets. The chief finding in his report is that there are 589 companies (roughly 40%) that should no longer be listed as they do not meet the continuous listing requirements required by the exchanges.

As per Policy 2.5 in TSX-V document:

Working Capital or Financial Resources of the greater of (i) $50,000 and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a period of 6 months.

However, these nearly 600 companies still remain listed, which helps generate fees for a variety of service providers including legal companies, auditors, and listing fees for the exchange themselves.

*  *  *

The full worksheet of 589 companies and commentary can be found here and here.








Because it could never be just plain-old Keynesian-doctrine-destroying, debt-saturated, economic weakness...

 

 

h/t @Not_Jim_Cramer








Submitted by Koos Jansen of Bullion Star

When Will China Disclose Its True Official Gold Reserves And How Much Is It?

Things are heating up in the Chinese gold market

First let’s go through the latest Shanghai Gold Exchange data and then we’ll continue to discuss the most recent developments regarding Chinese official gold reserves.

Friday the Shanghai Gold Exchange (SGE) released its trade report of week 11, 2015 (March 16 – 20). Withdrawals from the vaults, which equal Chinese wholesale demand, accounted for 53 tonnes, up 3.91 % from the prior week.

Blue is weekly gold withdrawn from the vaults in Kg, green is the total YTD.

Year to date total withdrawals have reached a staggering 561 tonnes, up 7.3 % from 2014, up 33 % from 2013. When using the basic equation for the Chinese gold market to estimate import, we learn that up until March 20 China has net imported 412 tonnes. Add to this India has net imported about 230 tonnes over the same period, that’s 642 tonnes combined. I wonder how long the Chinese can keep up this pace of importing before physical supply from Western vaults runs dry.

Trading volume on the Shanghai International Gold Exchange (SGEI) has been 32 tonnes in week 11, which could have distort SGE withdrawals by 0.8 tonnes. (Read SGE Withdrawals In Perspective for more information on the relation between SGEI trading volume and SGE withdrawals)

When Will China Disclose Its True Official Gold Reserves And How Much Is It?

As most readers who are interested in gold will know, China’s official gold reserves are small in proportion to the size of their economy and their foreign exchange reserves. This disproportionate position has been difficult for China to escape from. Any slight move from their immense stock of US dollars into gold could disrupt the gold market, and thus the US dollar, spoiling the party for everybody.

China is forced to buy in secret. The latest update on the size of their official gold pile was in April 2009, when they disclosed to have 1,054 tonnes, up 454 tonnes from 600 tonnes, which they claimed to have since 2003. Common sense indicates the PBOC did not buy 454 tonnes in a few months; most likely they bought this amount in secret spread over six years (2003 – 2009). More common sense suggests they continued to buy in secret since 2009 and they hold at least twice the weight they currently claim.

Last week I reported it’s very likely the renminbi will be adopted into the SDR basket this year and before inclusion China will announce their true gold reserves. All arrows point in the same direction, IMF chief Lagarde stated:

China’s yuan [renminbi] at some point would be incorporated in the International Monetary Fund’s Special Drawing Right (SDR) currency basket, IMF Managing Director Christine Lagarde said, …”It’s not a question of if, it’s a question of when,”

The SDR basket is reconsidered every five years, in 2010 there was no adjustment made, as the renminbi was not considered eligible at the time. But the renminbi has made significant developments since then; this year will be appropriate for adoption.

Next to what Lagarde and the IMF have stated, more “official” channels are hinting at changes to come regarding China in the international monetary system. Roland Wang, China managing director at World Gold Council, told Reuters on March 26:

China currently holds about 1.6 percent of its foreign exchange reserves in gold, which is relatively low compared with developed countries and some developing countries, WGC China managing director Roland Wang said.

 

“The ideal amount should be at least 5 percent of its total forex reserves,” Wang told Reuters in an interview in Hong Kong.

The latest IMF data points out China’s total foreign exchange reserves, excluding gold, on December 1, 2014, were valued at 3.859 trillion US dollars. 1,054 tonnes at the price of gold on December 1, 2014 (37,600 US dollar for 1 Kg), was a little over 1 % of total reserves.

If China would announce on Monday they hold 5 % of total reserves in gold, this would translate into roughly 5,000 tonnes.

Remarkably, the exact same day Reuters published Wang’s statement, Chinese newswire Caixin published a detailed story on gold in China’s monetary history and its potential function in the present and future economy, written by Hedge Fund manager Li Sheng:

Gold accounts for only 1.6 percent of China’s forex reserves. This is only a fraction of the figure in the United States and many other developed countries. If China ever increased the level to 5 percent, it would have an enormous impact on global demand for gold.

Li mentions the exact same numbers as Wang from the World Gold Council: 1.6 % and 5 % of total reserves. Coincidence?

I think that if China will update us on their gold reserves, the total will be less than 5,000 tonnes. For clarity, I have little hard evidence on the amount of gold the PBOC or its proxies hold in reserve. However, the reason I think it will be less is because of what Song Xin, Party Secretary and President of the China Gold Association, wrote at Sina Finance on July 30, 2014:

Gold Will Support Renminbi As It Moves To Join World

 

For China, the strategic mission of gold lies in the support of RMB internationalization, and so let China become a world economic power and make sure that the “China Dream” is realized.

 

Though China is already the world’s second largest economy, there is still a long way to go to become an economic powerhouse. The most critical part to this is that we don’t have enough say in matters such as international finance and matters regarding the monetary system, the most obvious of which is the fact that the RMB hasn’t fully internationalized.

 

Gold is a monetary asset that transcends national sovereignty, is very powerful to settle obligations when everything else fails, hence it’s exactly the basis of a currency moving up in the international arena. When the British Pound and the USD became international currencies, their gold reserve as a share of total world gold reserves was 50% and 60% respectively; when the Euro was introduced, the combined gold reserves of the member countries was more than 10,000 tonnes, more than the US had. If the RMB wants to achieve international status, it must have popular acceptance and a stable value. To this end, other than having assurance from the issuing nation, it is very important to have enough gold as the foundation, raising the ‘gold content’ of the RMB. Therefore, to China, the meaning and mission of gold is to support the RMB to become an internationally accepted currency and make China an economic powerhouse.

 

That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.

According to Song step one is to reach the 4,000 tonnes mark to surpass Germany and become the second largest holder in the world, which would be in line with being the second largest economy (in terms of GDP). We can also read China’s aspirations in international finance that is currently, among other deveopments, to be established through the inclusion in the SDR basket. Bear in mind, Song is a Party Secretary, he wrote his article with permission, or on behalf of the Communist Party of China (CPC).

 

Song’s statements makes me think if China will increase its official gold reserves it will be more than Germany’s reserves; something north of 3,384 tonnes. Of course I could be wrong and it will be less – perhaps because they have less, perhaps because the international monetary system “can’t handle” and increase of more than 100%, perhaps because China has more than they see fit to disclose on the grand chessboard.

To finish please read the last bit of the article from Caixin, a must read and it has similarities with Song’s article:

Yuan and Gold: Old Enemies Should Finally Become Friends

 

…Since the global financial crisis that started in 2008, there has been consensus that an excessive issuance of U.S. dollars, driven by the U.S. Federal Reserve’s need to protect the U.S. economy, was partially to blame for causing havoc. Since the Bretton Woods system collapsed in 1971, the United States has been freed from having to restrict its money supply to the size of the gold reserve its central bank holds.

 

What does that say about the attitude China should take toward gold?

 

The boom years for gold between 2008 and 2012 were, of course, driven to a large extent by the United States’ easy monetary policy and an economic recovery in many countries. Yet, China played a part in it as well.

 

Its push since 2010 to promote the use of the yuan globally and diversify its foreign exchange investment away from U.S. Treasury bonds and U.S. dollar-denominated assets has made investors expect the demand for gold to rise because the Chinese central bank will need a greater reserve to support its currency.

 

Gold accounts for only 1.6 percent of China’s forex reserves. This is only a fraction of the figure in the United States and many other developed countries. If China ever increased the level to 5 percent, it would have an enormous impact on global demand for gold.

 

The price of gold started plummeting in early 2013 as the U.S. economy became stronger and the market expected the Federal Reserve to stop its policy of so-called quantitative easing. Meanwhile, China’s demand for gold soared. In the first half of 2014, imports skyrocketed, prompting speculation that the central bank was secretly beefing up its gold reserve.

 

Buying more gold seems to be a good choice for both the government and individual investors, given the new domestic and international circumstances. The yuan has been relatively stable throughout the most troubled times of the financial crisis, but its peg to the U.S. dollar means it will always fluctuate in sync with the latter, depending on the Fed’s moves.

 

That is why it is extremely important that we have an “anchor” ourselves.

 

Gold is a currency that supersedes sovereignty issues, is politically neutral, and is not easily manipulated by monetary policy. Gold may not be able to compete with the currencies of the world’s major powers, but it can certainly be used as an anchor.

 

In the past year or two, enormous changes have occurred to the structure of China’s economic growth, to the degree of social wealth accumulation, and to the investment and wealth management habits of ordinary people. It is important and urgent that we revisit certain issues, including the relationship between the yuan and gold, under these new circumstances.

 

The party came to power not only because it won the war but also, and more importantly, because it represented the right thing to do economically and financially. The relative advantages of its monetary system back then have been fully demonstrated, but it will not be long before they turn into obstacles to progress if the authorities reject reform and refuse to evolve along changing times.

 

The emphasis on material goods over gold and silver in the yuan system may have been superior in wartime and when supplies were insufficient, but it has increasingly become incompatible with today’s needs.

 

If it was necessary to use all means necessary to secure enough supplies of goods in the old days, today’s priority should be how to fairly distribute them. The emphasis should be on developing a fair market and protecting the ownership of private assets.

 

In a 1966 essay, former Fed chairman Alan Greenspan wrote that gold is “a protector of property rights.” This is true, but only in times of peace and in an open environment. The old wisdom of hoarding gold in troubled times is applicable only to eras of strife and war. In China in the 1960s, in Nazi-controlled Europe and in the Soviet Union under Stalin, gold could not buy one food, let alone protect property.

 

So instead of trying to peg the yuan somehow to gold to increase its credibility internationally, the government might as well work to establish rule of law and create a system where private property ownership is respected and the public believes in the strength of the monetary system. Confidence is more important than gold.

 

But that does not mean the yuan system does not need gold. It can be an anchor that stabilizes the yuan and increases people’s confidence in it. It can also serve as a check to the power of any one major currency.

 

Increasing private savings and investments of gold, or – as the Chinese government likes to call it – “storing gold with the people,” is not only about the diversification of investment channels. It is also an inevitable path that the yuan must take from being a currency supported by reserves of material goods to one based more on credit.

 

The government should be pleased to see this trend gaining momentum. Increasing its gold reserves at the same time can also strengthen the public’s confidence in the yuan and promote its use globally.








As Athens prepares to try and convince eurozone creditors that its latest set of proposed reforms represents a credible attempt to address Greece’s fiscal crisis, and as Greek depositors face the very real possibility that they will soon be Cyprus’d, a leverage-less Alexis Tsipras faces a rather unpalatable choice: bow to the Troika which “wants real reforms… meaning that Greece finally has to implement some/any of the long ago promised and never delivered redundancies in the government sector,” or to quote Credit Suisse, be “digitally bombed back to barter status.” Unfortunately for the Greek populace, the latter seems to be far more likely than the former. Here’s WSJ:

Greek proposals for a revised bailout program don’t have enough detail to satisfy the government’s international creditors, eurozone officials said, making it more likely that Athens will need to go several more weeks without a new infusion of desperately-needed cash…

 

“The proposals were piecemeal, vague and the Greek colleagues could not explain technically what some of them actually implied,” a eurozone official said. “So, let’s hope that they present something more competent next week.”

 

Senior eurozone finance officials will hold a teleconference on Wednesday to discuss the situation, officials said. But they said it is highly unlikely eurozone ministers will meet before mid-April to release more money for Greece. That means Athens will have to scrape together cash to pay salaries and pensions at the end of the month and make a €460 million debt repayment to the IMF on April 9.

As a reminder, here are two charts which demonstrate the urgency of the situation:

Despite what is unquestionably a rather dire outlook, Athens does have one card it has yet to play, because as we noted last week, “once the first week of April comes and goes and Greece officially runs out of money, it will go to anyone who can provide it with the funds needed to avoid civil war, even if that means switching its allegiance from Europe to the Eurasian Economic Union, something Russia is eagerly looking forward to, and something we predicted would be the endgame months ago.” With the Tsipras/Putin meeting now just a little over a week away, you can bet that Moscow will not squander an opportunity to procure a bit of leverage over Europe in the face of an increasingly contentious situation in Eastern Ukraine. In fact, Moscow is calling Tsipras’ visit a “big event” and has indicated that any request for financial assistance would be “examined.” Here’s more via ekathimerini

“We are certain that the Greek prime minister’s working visit to Moscow will be a big event for our bilateral relations,” said Russian ambassador Andrey Maslov. “The possibility of further cooperation in trade, energy, technical military issues, education and culture will be examined.”

 

Maslov said that any request from Athens for a loan would have to be “examined very carefully” because of Greece’s euro membership. “If the Greek government submits a request for a loan, it will be examined – as Foreign Minister Sergey Lavrov said after meeting his counterpart Nikos Kotzias and as Russian Finance Minister Anton Siluanov has said,” the Russian ambassador told Kathimerini.

 

Maslov played down the possibility of Moscow lifting the embargo on food imports from Greece or other European Union countries as long as the EU keeps its sanctions on Russia in place. However, the ambassador praised Athens for helping prevent a rift in the EU’s relations with Russia.

 

“We are grateful for Greece’s efforts in helping ease the tension in relations between Russia and the EU, which is mainly due to the sanctions,” he said. “The stance of our Greek partners and other EU member-states during the council of foreign ministers in January and at the EU leaders’ summit in February prevented the hawks... from creating a permanent rift in Russia-EU relations.”

This may indeed represent an opportunity for Moscow to conduct a quasi-annexation-by-loan (as opposed to by force) and besides, any money funneled to Greece will ultimately end up back in Moscow anyway because any cash Athens manages to scrape together to pay the IMF is essentially diverted straight to Kiev which as we’ve said before, “is just as broke as Greece, and needs to pay Gazprom yesterday to keep gas deliveries coming, with Gazprom promptly remitting the funds into Putin's personal money vault.” 

We’ll leave you with the following from ekathimerini:

“Pressures on Greek bank deposits have continued in March, with sector officials estimating that households and enterprises have withdrawn a net 3 billion euros in the first weeks of this month.”








Authored by Mark St.Cyr,

This past Friday saw what many like myself can only describe as a blatant example of just what’s wrong with both the economy – as well as the markets.

At precisely 15 minutes before the closing bell on Wall Street the now Chair of the Federal Reserve, Janet Yellen gave a press conference detailing further insights into upcoming monetary policy. I guess two days worth of FOMC discussions, along with a press conference detailing all that was discussed immediately after, followed by a question and answer session about all those “insights and decisions” wasn’t enough. For the markets remained red for the week while losing all its post FOMC pop which in itself is an ominous sign.

At first blush some might contend, “Well, that’s a good thing they decided to communicate even more. Best to have any and all the information available as soon as possible. After all: more information is always better for the markets – no?”

Yes it is, however, when it exposes just how cozy (as well as frightened) monetary policy setting has moved from the appearance of setting beneficial policies that help ensure a free and open capitalistic system – to one hell-bent on serving a newer more dominant form of crony styled capitalism rampant within our markets. Where winners and losers are decided solely on their ability to manipulate their bottom line earnings “beat” via access to resources made possible only via the Fed.’s current zero bound stance. (i.e., ZIRP) I don’t believe that was their original intent.

If you were one of the few (i.e., not one of the Wall Street “In crowd”) that watched and listened to that presser on Friday. You were left dumbfounded on just how illogical, as well as contradictory nearly every example given was as to what one should now infer about what the Fed. is going to do next – and when.

So convoluted was both the rationale as well as examples given, I concluded: there was no other intent for this presser other than to signal the “In Crowd” – You better get the heck out of Dodge because we’ve painted ourselves so deep into a corner this is probably the last time you’ll have a chance as to “paint the tape” in any upcoming quarters. For we might actually have to do what we implied (e.g., raise rates) regardless – just to keep up the appearance that we’ll do what we say. Even if so doing means – creating turmoil. So don’t say “we didn’t warn you.” (i.e., We’ve changed the meaning of “data” so many times now even we can’t figure out what it means or, what we should do any longer!)

Certainly total conjecture on my part. However, if you listened to the rational and explanations given about “data” and “the economy” – nothing made sense. Everything was conflicting not only in the examples but also the tenor and tone. Here are a few examples of what I mean: (I’m paraphrasing)

“The economy has improved considerably, that’s why we need to continue the extraordinary measures we’ve been implementing.” Huh?

 

Or better yet: “We see continuing improvement in the labor force and expect even further improvement.” (as they seemingly disregard the only sector that provided all that month over month, year over year boost in honest job formations, e.g., oil related sectors in States which has now dramatically fallen off a cliff with massive layoffs already announced, as well as the possibly of accelerating further as the price of oil drops ever more.)

 

And last but surely not least, “We see continued growth in upcoming quarters of GDP.” (As long as you don’t pay any attention to the latest Atlanta Fed.’s report that’s downgraded its GDP forecast from just over 2% which by itself was pitiful, to now just 0.2% faster than one can say “everything was is awesome!”)

The timing of this reprise in conjunction with the latest FOMC’s conference just a week ago was quite instructive in my opinion. I mean, think about it: Fifteen minutes before the closing of the markets on the very day of the quarter ending? Isn’t it just funny how the timing of this presser coincided with allowing for the opportunity as to “paint the tape” if needed? Along with the additional 15 minutes of the later closing futures market as to hedge for Monday’s opening? Again, “if needed” as in – just in case what you heard went against your current positions. The serendipity of that coincidence is an amazingly funny thing – no? I firmly believe this presser was nothing more than a contorted effort by the Fed. to signal what many like myself have been anticipating since the ending of QE just a few months ago: They’ve lost control.

I theorize the Fed. was trying to accomplish two things.

One: State for the record publicly as many C.Y.A. statements as possible regardless of how contradictory.

 

And two: Warn (i.e., signal “The In Crowd”) that because they’ve painted themselves into such a tight corner that messaging and more is now a useless exercise. The only way they’re going to be able to adjust going forward or, further intervene within the markets is: If and when a calamity is upon us. Or better said – If, and when the markets fall apart. And “when” just might be a whole lot closer to reality – than “if.”

All one has to do is be willing to look at the “true” data with eyes open and a rational open mind to see what’s taking place. Everything (and I do mean everything) as to what the Fed. said should be taking place via their intervention 6 years ago not only is not. Rather: it’s coming unglued, as well as beginning to run off the rails. Nearly every report released since the ending of QE that was previously always indicating “awesomeness” is now indicating borderline if not outright pathetic-ness.

We are entering our first (yes 1st!) earnings period since QE was halted just a few months ago and what are we beginning to see and hear? All those projections and assurances made by the so-called “smart crowd” that “this time is different” are suddenly changing their tune to “Well you know we’ve had so much improvement surely a pause is warranted.” Sure it is. And they call us “idiots.”

The unemployment rate is and has been an absolute joke having more in common with fairy-tales than anything factual. GDP has gone from poor to worse. And remember when you were told that 5% GDP print wasn’t an outlier but “indicative of the recovery” by the so-called “smart crowd?” How’s that meme working out?

The Dollar is still screaming higher making imports cheaper, and our exports non-competitive. Remember we were told by this very same crowd “we were going to export our way to prosperity soon?” I know, I can barely type as I chuckle also.

Reduction in oil prices were going to put “more money in consumers pockets to spend helping to boost the economy.” Problem is all that “free” healthcare now costs far more than the potential “gas savings.” But hey, don’t complain. For without having to now spend more on healthcare – retail spending would be far, far worse. And this is just a handful of the boatloads of fundamentally flawed data reports we were besieged with by the so-called “smart crowd” ad nauseam as to continue their narrative of “everything is awesome!”

However for the rest of us that have questioned such reports over the years  we’ve been branded as: uninformed – data deniers. Personally I just might go out and get a t-shirt made stating just that. On the front I’ll have: “I’m a data denier – and proud of it!” And on the back it’ll read: “I believe in critical thinking – That’s why you wont see me on CNBC™.”

It’s not just here in the U.S. where the once burgeoning commodity sectors like oil and gas, as well as others such as steel, and more are now getting bludgeoned. The entire shale industry for one is beginning to buckle under the weight of falling prices. Canada is now beginning too feel the effects. And these ripples are far from over – they’re just beginning. Remember oil and such helped insulate Canada from a downturn in housing such as we had here. By the most recent reports that all seems to have now changed. And the implications for our friends to the north could be dramatic.

How about China? That once rejoiced “savior” of the economic world is itself having a harder, and harder time trying to dismiss (as well as cover up) clearly visible signs of economic weakness. Here’s where I’d also like to bring attention to one economic fact squarely staring the world down with implications just as far-reaching as the latest oil carnage. And: with possibility the same effect to the repricing of everything everywhere. This ominous scenario alone seems lost across the financial media.

How can one not derive the implications on the market forces associated with the decision of the Saudi’s to continue pumping at record levels and at lower prices as to help preserve their market share with the added benefit of simultaneously crushing as many as possible competitors: and not see that pretty soon China is going to do, in effect – the very same thing with everything it exports? Once it begins just like with oil – It will crush pricing power (on everything from trinkets to commodities) globally in my opinion.

This is the world the Fed. has wrought with leaving the punchbowl out far too long after everyone at the party was clearly inebriated. Instead of wisely pulling the bowl back and away (at the least in 2012 or there about) while everyone was passed out. They decided it would not only be better to remain – but continued refilling it as the one’s with an affinity for risk gulped more and more down their gullet acquiring shares in any sector they thought provided yield.

And if you’re in Asia? Sectors be damned! It’s a straight Kamikaze spree into the Nikkei™ or better yet, Shanghai Composite™. There you don’t discern. You just buy, buy, buy in way that would make Cramer envious. All while using multiples of margin never before seen in the history of that market. What could possibly go wrong? And I haven’t even mentioned Greece, or The EU.

Again this is what I believe the Fed. has finally come to terms with. The realization that control is no longer an option. It’s been a mirage that’s held up far longer than originally anticipated. The monster has now grown far too big and dangerous while possibly exposing to their dismay – the only way they might have a shot of regaining some stability for future control is to let it fall apart: as they stand by and watch hoping to “thread the needle” for further intervention just in time. Along with trying to have some C.Y.A. assurance to the “In Crowd” that “Hey – we tried to warn you!” if it indeed does exactly that.

At issue is, even if I’m only partly correct. What should scare the heck out of any critical thinking person is: With everything we’ve witnessed over the last 6 years, along with what is now transpiring which is scarier?

A Fed. that may be signalling they’ve lost control? Or, a Fed. that still believes “Don’t worry – we’ve got this!”








The StealthFlation Blog

 

Greece was brought to her knees at the hands of its corrupt political class elites with the full support of an avaricious int'l banking cabal.  Please don't put the blame on the little old lady pushing her Gyro cart up the steep streets of Kolonaki.  She was perfectly within her rights to assume the political leadership of her country knew what the hell they were doing managing her distinguished nation's finances. 

Yet today, she has taken the full brunt of the fiscal pain, while those most responsible for this massive over leveraged abomination, namely the Greek political family dynasties and their complicit int'l banksters, continue to bask in the sun off of Mykonos on their luxury yachts. 
 

 
Along with the privilege of leadership comes responsibility, too easy to blame the little people for all of this mess.


The first mandate SYRIZA obtained from the sovereign electorate, who rightly rejected the corrupt old-guard Greek political establishment, was to offer to negotiate a more rational, realistic and productive debt repayment schedule / structure with the TROIKA.   
 
That is what Alexis Tsipras & Yanis Varoufakis have tried diligently to acomplish thus far, if they fail because Brussels insists on sucking blood from a rock, then the next mandate is to leave the Eurozone, and for that they will require a national referendum from the Greek people themselves. 
 
Tsipras is much smarter than many give him credit for, he knows that he must progress conservatively and as constructively as possible, in order not to be pigeon hold as an extreme radical, which the EU establishment is so desperately trying to paint him as.... 
 
Make no mistake, the international banking cartel of today's world are on a mission to dismantle the sovereignty of all people.  Greece is the first nation to fully recognize and realize this craven conniving cataclysm.
 
This Multilateral Banking Cabal is planning to transition to a new international monetary order by devaluing the USD, as they fold it into the SDR world reserve currency, backed by a basket of the existing currencies of the major trading block nations.  
 
This will serve to both ease the burden of the most indebted nation in history, the U.S., by permitting its outstanding debt denominated USDs to be debased, as well as appease the creditor nations, who will agree to have their US dollar denominated debt holdings devalued, because they now require a true stake in the globe's future monetary system moving forward.  
 
The only question remaining is will the global economy be in tatters before we get there........  
 
It's a monumental trade, the U.S. gives up exclusive world reserve currency status, and in return its outstanding debt, largely held by the creditor Nations of the East, gets devalued along with its currency..  
 
Worst of all, the Multilateral Banking Cabal doesn't miss a beat, and actually further consolidates its firm grip on the global monetary order, as National Sovereignty takes a back seat to a Global Corporate/Banking Autocracy, otherwise known as Fascism or Pimpocracy! 
 
I may not agree with all of SYRIZA's politics, but I wholeheartedly back any who expose that veritable truth...........
GO SYRIZA!








Depending on which side of the story you believe, the crisis in Ukraine represents either an attempt by the Kremlin to realize territorial ambition and reassert Russian dominance in the Baltics by violating other countries’ sovereignty or it represents yet another attempt by Washington to prop up puppet governments with financial and military support in order to advance US foreign policy aims even if that means risking armed conflict. As is usually the case, the truth likely lies somewhere in the middle, although one has to admit that recent events seem to validate the Russian security council’s claims that “the armed forces are considered as the basis of US national security and military superiority is considered a major factor in the American world leadership.” NATO war games along the Russian border and the recent House vote to provide Kiev with lethal aid seem to support Moscow’s assessment, and the dramatic collapse of the Yemeni government is a vivid example of how things can go horribly awry when Washington hijacks the political process in order to install “friendly” leaders in countries The White House deems “strategic” for whatever reason.

That said, it’s in Russia’s best interest to keep geopolitical tensions just high enough to support oil prices (which works right up until other powerful nations decide to use energy prices as leverage in a bid to bring about regime change in Syria) and Moscow is itself famous for sabre rattling. Whatever the case, the conflict in Ukraine has made an impact on the lives of everyday Russians as Western sanctions squeeze the Russian economy. To let Soc Gen tell it however, the Russian people remain, for the most part, resolute in their support not only for President Putin, but for Russia’s position vis-a-vis the rebels in Ukraine. 

Here’s Soc Gen on why economic sanctions may become a fixture of Russian life:

Western sanctions have exerted a broad-based negative impact on Russian businesses. The cost of borrowing has climbed considerably not just for sanctioned institutions, but also for other Russian entities. Risk management departments across global enterprises are likely to continue erring on the side of caution, continually assessing the risk of sanctions materializing for counterparties in Russia. Normalization of business practices may only reemerge long after the removal of sanctions. Although this does not mean completely avoiding interactions with Russian entities, businesses and investors are increasingly cautious and selective in their participation…

 

Western sanctions against Russia may persist indefinitely. Some locals believe in the likelihood of de-escalation later this year, pointing to the lack of political cohesion and unanimity among Europe’s political leaders, and increasing calls for easing of sanctions. Russian businesses believe that escalation of sanctions may be hard to implement, given that they will also hurt European counterparties. Some local asset managers are optimistic on the performance of Russian assets later this year, based on a perceived high likelihood of improvement in geopolitics. Although locals differ in their assessment of the timeline when sanctions may be lifted, they appear united in their support and admiration of President Putin. Few care to speculate on President Putin’s ultimate game plan, or whether one exists, citing the opacity of the situation. With that said, locals broadly concur that Russia would never (again) relinquish Crimea. In this light, Western sanctions against Russia based on its annexation of Crimea may persist indefinitely…

Unsurprisingly, Russians view the conflict in Ukraine in an entirely different light than observers in the West: 

The local population’s interpretation of events unfolding in Ukraine and of Russia’s role in the current geopolitical turmoil differs incomprehensibly from the Western or US perspective, with virtually no middle ground. In the hotel where we stayed, over the three days of our visit, Russian state television played a continuous loop of repeated UK- and US negative stories, and those that reflected poorly on the Ukrainian administration. The vast majority of the Russian population believes the official state-sponsored story – that President Putin is pursuing the best possible course of action in defending the rights of Russian speakers everywhere, that the President is not an aggressor and has no territorial ambitions, that the US impinged upon Russia’s national security – and furthermore, that personal financial sacrifices during these difficult times are a source of honour in defence of the country’s national interests. Many locals express conviction that Europe and Russia’s interests are aligned, asserting that both sides desire de-escalation of injurious economic sanctions. Locals further highlight that the US and Ukraine are the sole parties insistent on aggravating the situation – the US by nature of its fundamental antipathy toward Russia, and Ukraine by virtue of its desperate reliance on funding from the international community. The logic goes that Ukrainians need to perpetuate havoc and chaos on the situation, as absent a crisis, funding will dry up for Ukraine. 

 

Chances for a diplomatic solution to current geopolitical tensions appear slim. The irreconcilable characterizations inside and outside of Russia of current geopolitical stress lead us to believe that it is unlikely that understanding / compromise between political parties involved can be achieved via diplomacy. Too much has been invested in shaping the public’s perspective. In turn, this suggests that notwithstanding the lack of political unanimity / cohesion among squabbling European leaders, there is a risk that Western economic sanctions on Russia may remain in place for the foreseeable future. 

And the President’s iron grip on the country isn’t likely to loosen any time soon:

President Putin personifies power in Russia. Notably, there are no clear successors to replace the president, as broadly agreed by local sources, with Russia arguably exposed to an over-concentration of power invested in one single individual. Indeed, President Putin is the personification of power in Russia. Not only is there a glaring deficit in checks and balances to President Putin’s political power, there is furthermore no succession plan. Strikingly, although locals are less than thrilled about President Putin’s personal consolidation of power, they are terrified of the prospect of his disappearance from Russian political life, and fear the worst for the country in such a scenario.

 

There is no obvious, credible challenger to the president thus far. An uprising of political opposition forces surged following the 2011 Duma (State Assembly) elections, amidst strong sentiment that the election results were heavily manipulated. Procedural irregularities persisted in the subsequent 2012 presidential election, in which Vladimir Putin won a third, non-consecutive term as President. However, since then, opposition forces have failed to gain traction with the public, presenting no credible alternative. Currently, President Putin enjoys a sky-high public approval rating of 88%, according to the latest polls.

 

*  *  *

So, far from any "de-escalation," it appears a diplomatic solution is becoming increasingly unlikely as both Russia and the West are now pot committed in terms of the enormous effort expended to demonize the other side. 








Submitted by Steve Keen via Forbes.com,

The Financial Crisis of 2007 was the nearest thing to a “Near Death Experience” that the Federal Reserve could have had. One ordinarily expects someone who has such an experience—exuberance behind the wheel that causes an almost fatal crash, a binge drinking escapade that ends up in the intensive care ward—to learn from it, and change their behaviour in some profound way that makes a repeat event impossible.

Not so the Federal Reserve. Though the event itself gets some mention in Yellen’s speech yesterday (“Normalizing Monetary Policy: Prospects and Perspectives”, San Francisco March 27, 2015), the analysis in that speech shows that the Fed has learnt nothing of substance from the crisis. If anything, the thinking has gone backwards. The Fed is the speed driver who will floor the accelerator before the next bend, just as he did before the crash; it is the binge drinker who will empty the bottle of whiskey at next year’s New Year’s Eve, just as she did before she woke up in intensive care on New Year’s Day.

So why hasn’t The Fed learnt? Largely because of a lack of intellectual courage. As it prepares to manage the post-crisis economy, The Fed has made no acknowledgement of the fact that it didn’t see the crisis itself coming. Of course, the cause of a financial crisis is far less obvious than the cause of a crash or a hangover: there are no skidmarks, no empty bottle to link effect to cause. But the fact that The Fed was caught completely unawares by the crisis should have led to some recognition that maybe, just maybe, its model of the economy was at fault.

Far from it. Instead, if anything is more visible in Yellen’s technical speech than it was in Bernanke’s before the crisis, it’s the inappropriate model that blinded The Fed—and the economics profession in general—to the dangers before 2007. In fact, that model is so visible that its key word—“equilibrium”—turns up in a word cloud of Yellen’s speech—see Figure 1. “Equilibrium” is the 17th most frequent word in the document, and the only significant words that appear more frequently are “Inflation” and “Monetary”.

In contrast, “Crisis” gets a mere 6 mentions, and household debt gets only one.

Figure 1: Word cloud (courtesy of tagul.com) of Yellen’s speech “Normalizing Monetary Policy

image002

 

 

What’s evident, when one compares Yellen’s speech to one to a similar audience by Bernanke in July 2007—the month before the crisis began—is that The Fed is just as much in the grip of conventional economic thinking as it was before the crisis. The only difference is that Bernanke’s speech focused on the “inflation expectations” aspect of The Fed’s model—which would be rather hard for Yellen to focus on, given that inflation is running at zero (versus 4% when Bernanke spoke). So Yellen has fallen back on the core concept—that a market economy reaches “equilibrium”—rather than part of the fantasy mechanism by which The Fed believes equilibrium is achieved.

Figure 2: Bernanke’s July 2007 speech “Inflation Expectations and Inflation Forecasting

image004

 

Equilibrium. What nonsense! But the belief that the economy reaches equilibrium—that it can be modelled as if it is in equilibrium—is a core delusion of mainstream economics. There was some excuse for looking at the world prior to the crisis and seeing equilibrium—though the more sensible people saw “Bubble”. But after it? How can one look back on that carnage and see equilibrium?

The epiphany that the real world is not in equilibrium is what enabled Irving Fisher to escape from the shackles of conventional thinking after the Great Depression. Prior to the crisis, he achieved fame amongst mainstream economists for extending the conventional “supply and demand” theory to cover finance markets. As part of that theory, he had to assume that the market for loans was in equilibrium at all times—and as a conventional economist, he had no problem in making the necessary assumptions:

(A) The market must be cleared – and cleared with respect to every interval of time. (B) The debts must be paid. (Fisher, The Theory of Interest, 1930)

After his economic theory had led him to personal ruin (Fisher lost over $100 million in current dollar terms during the Crash of 1929) Fisher realised that this false belief in equilibrium was the key delusion that led him astray. His new approach, which he called the “Debt Deflation Theory of Great Depressions”, was predicated on the principle that the economy must be modelled in disequilibrium:

the exact equilibrium thus sought is seldom reached and never long maintained. New disturbances are, humanly speaking, sure to occur, so that, in actual fact, any variable is almost always above or below the ideal equilibrium. (Fisher, “The Debt-Deflation Theory of Great Depressions”, 1933)

This led him to focus on two disequilibrium factors as key to explaining a crisis like the Great Depression—and like the one we have just been through—were “over-indebtedness to start with and deflation following soon after”.

So where do we stand today on Fisher’s disequilibrium markers of debt and deflation? In a phrase, on the precipice. As Figure 3 shows, private debt has only been reduced by 25% of GDP, whereas the decline in debt from its peak in 1932 to the end of WWII was almost 100% of GDP (this graph combined Federal Reserve data since 1945 with Census data from 1916 to 1970, and rescales the Census data to match The Fed’s data in 1945). And though we haven’t had deflation as severe as in the Great Depression—when prices fell by more 10% a year—we are back in deflation territory once more.

Figure 3: Private debt and inflation

image006

 

In this environment, Yellen is hoping that the economy is going to return to “equilibrium”—where this can also be interpreted as “behaving like the economy did from 1993 until all hell broke loose in 2007”. Fat chance.








As reported yesterday, the Hillary emailgate scandal took a turn for the worse and far more dramatic yesterday, when it was reported that not only did the former Secretary of State delete selected emails which in her opinion were "personal", but that she then decided to wipe her home-server clean, a server which it is still unknown why she used when the US government itself was perfectly happy to host her email communication on far more secure, if FOIA-accessible, servers.

But what's far worse than Clinton arbitrarily wiping any trace of her actions and demanding that the people take her word, is when she did it. This is what we said:

The key question is when said server formatting took place. This appears to have taken place after the first production request had come in, which means that Clinton may well be guilty of destruction of evidence. He said while it’s “not clear precisely when Secretary Clinton decided to permanently delete all emails from her server, it appears she made the decision after October 28, 2014, when the Department of State for the first time asked the Secretary to return her public record to the Department.”

Today the answer was revealed, when it became clear that Clinton indeed is guilty of Contempt of Congress (not to mention the American people), after Clinton's lawyer, David Kendall, reportedly told House investigators that after aides determined which emails were private and which were government-related, an account setting was changed to only save emails sent in the past 60 days, adding the setting was changed after she responded to the records request.

Said simply, Clinton deleted everything after she was expressly told to not only preserve the data but hand it over.

And, as expected, the GOP is about to have a field day thanks to Hillary herself, whose actions have made her an easy comp to none other than than the most disgraced US president in recent history, Richard Nixon himself. From the Hill:

Republican National Committee Chairman Reince Priebus blasted Hillary Clinton on Saturday for wiping her server and permanently deleting all emails. 

 

"Even Nixon didn't destroy the tapes," Priebus said in a statement.

 

Rep. Trey Gowdy (R-S.C.), the chairman of the committee, said in a statement Friday that "Clinton unilaterally decided to wipe her server clean and permanently delete all emails from her personal server." Gowdy, whose committee had subpoenaed the server earlier this month, charged that Clinton apparently decided to delete her emails after Oct. 28, 2014, when the State Department first asked her to turn over public records.

Clinton's lawyer explained it very simply: "it's all gone."

“Thus, there are no hdr22@clintonemail.com emails from Secretary Clinton’s tenure as secretary of State on the server for any review, even if such review were appropriate or legally authorized,” Kendall said in a letter to Gowdy's committee, according to The New York Times.

However, the GOP has smelled blood and itsn't going to give up easily: "Republicans are likely to keep up their attacks on Clinton over the emails heading into her official declaration of a 2016 presidential campaign, which is expected in weeks. Priebus on Saturday echoed calls from Republican lawmakers for Clinton to turn over her server.

"It's imperative an independent third party review the server immediately. Unless Mrs. Clinton went to extreme lengths to wipe this server, there are ways to recover this data," Priebus said.

Of course Clitnton went to "extreme lengths"... but it was in the spirit of transparency and accountability. Just like with Lois Lerner's emails.

Incidentally, those wondering what the next steps are, a reminder that non-compliance with a Congressional subpoena falls under the "Contempt of Congress" umbrella, an act which since the passage of an 1857 law has made it a criminal offense against the United States.

Some more details from Wikipedia:

Following a contempt citation, the presiding officer of the chamber is instructed to refer the matter to the U.S. Attorney for the District of Columbia; according to the law it is the "duty" of the U.S. Attorney to refer the matter to a grand jury for action.

 

The criminal offense of "contempt of Congress" sets the penalty at not less than one month nor more than twelve months in jail and a fine of not less than $100 nor more than $1,000.

It gets even more complicated:

While the law pronounces the duty of the U.S. Attorney is to impanel a grand jury for its action on the matter, some proponents of the unitary executive theory believe that the Congress cannot properly compel the U.S. Attorney to take this action against the Executive Branch, asserting that the U.S. Attorney is a member of the Executive Branch who ultimately reports only to the President and that compelling the U.S. Attorney amounts to compelling the President himself. They believe that to allow Congress to force the President to take action against a subordinate following his directives would be a violation of the separation of powers and infringe on the power of the Executive branch. The legal basis for this belief, they contend, can be found in Federalist 49, in which James Madison wrote “The several departments being perfectly co-ordinate by the terms of their common commission, none of them, it is evident, can pretend to an exclusive or superior right of settling the boundaries between their respective powers.” This approach to government is commonly known as "departmentalism” or “coordinate construction.”

In the end, it may be an executive decision by Obama himself that will be needed to avoid a humiliating and lengthy legal process into Clinton's actions. Which, considering the unprecedented animosity between the Obama and Clinton camps in recent months - recall that it was Valerie Jarrett who leaked the emails in the first place - is hardly a given, and Valerie Jarrett may just end up having the final laugh.

But the best summary bar none of the farce that is modern day US politics is the following:

Nixon resigned the presidency over 18.5 minutes of erased tape. Hillary could become president because of the hard drive she wiped clean.

— WH PRESS SECRETARY (@weknowwhatsbest) March 29, 2015








Despite all the talk of a "positive climate" Greek talks with their creditors have ended badly for the desperately cash-strapped nation. As WSJ reports, Greek proposals for a revised bailout program don’t have enough detail - are "piecemeal and vague" - to satisfy the government’s international creditors, eurozone officials said. Furthermore, as Dow Jones reports, EU finance ministers are unlikley to meet again until mid-April (and in the meantime, Greece has to pay salaries, pensions, and most critically IMF debts due on April 9th).

 

Looming payments...

 

 

As The Wall Street Journal reports,

Greek proposals for a revised bailout program don’t have enough detail to satisfy the government’s international creditors, eurozone officials said, making it more likely that Athens will need to go several more weeks without a new infusion of desperately-needed cash.

 

...

 

The Greek government is facing a dire shortage of cash: It must pay salaries and pensions at the end of the month and repay debts to the IMF on April 9. While talks over the weekend were friendly, officials said, mistrust at a political level continues to stew between the outspoken government in Athens and the rest of the eurozone.

 

...officials say crucial details were again missing from the Greek proposals after talks that started Friday night, lasted all day Saturday and continued on Sunday.

 

“The proposals were piecemeal, vague and the Greek colleagues could not explain technically what some of them actually implied,” a eurozone official said. “So, let’s hope that they present something more competent next week.”

 

Senior eurozone finance officials will hold a teleconference on Wednesday to discuss the situation, officials said. But they said it is highly unlikely eurozone ministers will meet before mid-April to release more money for Greece. That means Athens will have to scrape together cash to pay salaries and pensions at the end of the month and make a €460 million debt repayment to the IMF on April 9.

*  *  *

It appears clear that the EU is prepared to let Greece entirely run out of money in an effort to squeeze Tspiras as much as possible (though that action will likely further force a pivot to Putin).








Just a week after Jean-Claude 'I am not a hawkish warmonger' Juncker pressed for the creation of a Unified European Army to combat the 'looming' threat of their massive trade partner Russia; RT reports Arab leaders have agreed to form a joint military force from roughly 40,000 elite troops and backed by warplanes, warships and light armor at a Sharm el-Sheikh summit. Egyptian President Abdel Sisi has announced a high-level panel will work out the structure and mechanism of the future force. The work is expected to take four months. 

 

 

Europe's got one...

The president of the European Commission Jean-Claude Juncker, who leads the EU’s executive arm, said an EU army would let the continent “react credibly to threats to peace in a member state or a neighbour of the EU”.

And now, as RT reports, The Gulf is getting one too...

Arab leaders have agreed to form a joint military force at a Sharm el-Sheikh summit, hosting Egyptian President Abdel Sisi has announced. The meeting was dominated by the situation in Yemen, where Saudi Arabia leads a bombing campaign against rebels.

 

"The Arab leaders have decided to agree on the principle of a joint Arab military force," Sisi said Sunday as the summit wrapped up. The summit final communique called for "coordination, efforts and steps to establish an unified Arab force" to intervene in countries such as Yemen.

 

The Egyptian leader said a high-level panel will work out the structure and mechanism of the future force. The work is expected to take four months.

 

Earlier reports said the joint Arab military may be formed from roughly 40,000 elite troops and backed by warplanes, warships and light armor. There are however doubts that all 22 members of the Arab League would significantly contribute to it; the formations of the force could take months.

 

In a communique signed in the Egyptian resort city, the Arab countries also called on the West to form a new more comprehensive response to militancy, which is a thinly veiled reference to the desire by some Arab nations to see a new Western military intervention in Libya.

 

The country that was devastated after civil war and a NATO bombing campaign, which helped to oust strongman Muammar Gaddafi in 2011, became a hotbed for Islamist radicals, including the terrorist organization Islamic State.

Not everyone is buying it as a possibility...

James Dorsey, a Middle East analyst with the Singapore-based S. Rajaratnam School of International Studies, said that despite support for a joint-Arab force, "it would still take months to create and then operate on an ad-hoc basis.

 

"I don't think we will get an integrated command anytime soon, as no Arab leader would cede control of any part of their army anytime soon," he said.

 

"Today we will have a formal declaration that would be negotiated every time during action."

*  *  *

It appears The Endgame of this global game of Risk is fast approaching as one-by-one, geographically proximate nations join forces for whetever comes next.








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