If normalisation is the result of economic recovery we will be familiar with the playbook. However, The Fed has to face the possibility that, for whatever reason, highly suppressed interest rates are not working, and an escape from the zero interest rate bound without economic recovery may have to be contemplated. If interest rates cannot rise, then the dollar itself is ultimately exposed to loss of confidence in the foreign exchanges. The dawning realisation that after recent strength, the dollar is vulnerable after all can be expected to be reflected in a positive sentiment towards gold, which once under way could drive the price up dramatically due to the lack of available bullion.
"A relatively low-profile entity in Austria – Pfandbriefbank Oesterreich AG (Pfandbriefbank) – is becoming the next critical chapter in the Austrian banking system story." - Daiwa
There is a risk that Japan, China, and the US will not sit on their hands while the euro loses value, with the world possibly even sliding into a currency war. Moreover, the southern EU countries, instead of leaving prices unchanged, could abandon austerity and issue an ever greater volume of new bonds to stimulate the economy. Competitiveness gains and rebalancing would fail to materialize, and, after an initial flash in the pan, the eurozone would return to permanent crisis. The euro, finally and fully discredited, would then meet a very messy end. One can only hope that this scenario does not come to pass, and that the southern countries stay the course of austerity. This is their last chance.
Default Risk Soars After Ukraine's 'American' FinMin Suggests Severe Haircuts For Creditors (Including Russia)Submitted by Tyler Durden on 03/27/2015 08:18 -0400
Ukraine’s American Finance Minister has announced a broad restructuring plan with a wide range of severe haircuts for creditors, and she – well, obviously – wishes to include Russia in the group of creditors who are about to get their heads shaved. Russia sees the world as one in which multiple major powers can govern together. The US sees Russia as a power that must be defeated by any means necessary, and subdued. One of these worldviews must prevail in the end. Perhaps we won’t know which one that will be until the third power, China, raises its voice. What we do know is that Russia will back down only so far, and then it will no more.
BNP is out with a note calling China’s equity bubble “a microcosm for the overall economy: unsustainable growth in leverage masking ever-deteriorating fundamentals and increasing future downside risks. Margin purchases are now accounting for almost 20% of equities daily turnover which itself has soared to wholly unprecedented levels in another sign of self-feeding speculative frenzy. What happens next is clearly an ‘unknown-unknown’."
So what has transpired is another day and another play in the casino. This ketchup and mac merger could not be more emblematic of how the Fed’s destruction of honest financial markets has fatally deformed American capitalism. Warren and Jorge are understandably singing Janet’s praise. Everyone else should be getting out the torches and pitchforks.
With Washington throwing its full faith and credit behind a new Ukrainian bond issue, it appears it’s time for Moscow to play spoiler to current debt restructuring talks between Kiev and its creditors. Russia holds some $3 billion of Ukraine's debt and doesn't think it should have to incur losses as part of any deal because Vladimir Putin is no average joe private creditor.
The political pressure on Germany is rising in Europe. The country faces a choice: Continue business as usual or change the strategy? Only the latter option may give it real influence on shaping the future course of economic and political affairs in Europe. Playing defense is the comfortable choice, but it may be the wrong strategy. What needs to be done? Below is a proposal for saving the Eurozone in a way that would safeguard Germany’s interests, too
With The ECB banning Greek banks from continuing the GGB-buying ponzi scheme, the banking system in deposit outflow panic, cash running extremely dry, food shortages building, and bond/loan payments looming, Greek celebrations of Independence Day today are likely tempered by European officials coin-tossing over the nation's future (in or out of the EU). 196 years after winning their sovereignty from The Ottoman Empire, one wonders if The Greeks have the ability to fight their sovereignty back from "The Institutions." Perhaps, in the future, The Greeks will mourn "In Dependence" Day as opposed to celebrating "Independence" Day...
Banks have reclassified a quarter trillion in assets in order to avoid the negative effects of an impending rate hike cycle. In the end, investors would be wise to remember that something is only worth what someone is willing to pay you for it.
- Germanwings Airbus crashes in France, 148 feared dead (Reuters)
- Greece promises list of reforms by Monday to unlock cash (Reuters)
- Merkel Points Tsipras Toward Deal With Greece’s Creditors (BBG)
- Banks Shift Bond Portfolios -Move to ‘held to maturity’ category aims to guard against rising rates, shield capital (WSJ)
- Beijing to Shut All Major Coal Power Plants to Cut Pollution (BBG)
- As Silence Falls on Chicago Trading Pits, a Working-Class Portal Also Closes (NYT)
- Oil below $56 as Saudi output near record, China activity slows (Reuters)
"Leverage is risky. Purchasing assets with borrowed money can amplify small movements in prices into extraordinary gains or crippling losses, even default."
- San Fran Fed
Greece – faced with illiquidity, insolvency and a potential banking collapse – is running out of time and appears to be on the back foot as its international creditors refuse to countenance any debt restructuring, rescheduling or forgiveness.
QE makes sense only from a Keynesian/socialist perspective and ignores the long-term cost of low interest rate policies to individual investors and financial institutions.