European Central Bank
We're just a little over two weeks into PSPP and signs are already beginning to show that the ECB is effectively breaking the market. "The soaring cost of borrowing government bonds in secured lending markets highlights the distortions caused by the ECB's asset-purchase scheme, which analysts say could clog up Europe's financial system," Reuters notes.
Ignoring the considerable risks in the mid 2000s led to the global financial crisis. Irish politicians, bankers and financial experts, like their international counterparts, are slow learners ...
Amid firey austerity protests at the site of its new headquarters, the ECB has a job opening available.
“Right now we are at the cusp," billionaire George Soros tells Bloomberg TV in this brief clip, the chances of Greece leaving the euro area are now 50-50 and the country could go "down the drain." The 84-year-old fears that talks between Greece and 'the institutions' could "break down," adding that "Greece is a long-festering problem that was mishandled from the beginning by all parties," concluding that the chances of Greece leaving the euro area are now 50-50 and the country could go "down the drain." Finally, Soros notes, what worries him the most is Ukraine.
- 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)
*FISCHER SAYS RATE LIFTOFF LIKELY WARRANTED BEFORE END-2015
With the world now convinmced that Janet Yellen is as dovish as she has ever been on rate hikes, today comes the first post-FOMC speech. None other than Vice-chair Stanley Fischer is due to address The Economic Club of New York on the topic of "Monetary-policy lessons and the way ahead." As Art Cashin warned this morning, Fischer "seems to feel that the Fed must raise rates this year. He is also the only Fed official to concede that any rate hike will be different than any seen before."
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.
What happens in the event a Fed rate hike triggers widening corporate credit spreads in a corporate bond market devoid of liquidity? Could it indeed be the case that the Fed’s highly anticipated “lift-off” will serve as the catalyst for credit market carnage? Some traders think so.
It matters not who is in charge of the Fed or what rules Congress may insist that it adopts. Once money printing, via fiat or fractional reserve credit creation, is seen to be both feasible, justified, and legal nothing and no one can stop it. The political pressure to fund government programs will be irresistible. Everyone knows that the Fed seemingly has the ability to solve their problem by monetizing the federal debt. Should it refuse to do so, we would see riots in the streets similar to what is happening in Europe as protesters target the European Central Bank. The only solution is to destroy the monster that makes it all possible, the Fed.
Back in 2009, when aside from a few insiders, nobody had heard of HFT, Zero Hedge launched its crusade to expose the algorithmic scourge that has since then caused an equity, treasury and now US Dollar flash crash, and has been the subject of a Michael Lewis bestseller and resulted in countless market halts and failures. More importantly, there is now roughly 50 pages of just bibliography citing the evidence-based, academic research that has shown just how pervsavibely, maliciously and premeditatedly HFTs manipulate, destabilize, impair and otherwise destroy every single market in which they participate.
Debt saturation and debt fatigue = diminishing returns on central bank tricks. The diminishing returns manifest in three ways: the gains from each round of central-bank tricks are declining, the periods of stability following the latest “save” are shrinking and the amplitude of each episode of debt crisis is expanding.
That the unraveling is speeding up is not just perception - it’s reality.
Recall Lenin’s quote: “The capitalists will sell us the rope with which we will hang them.” Today, of course, the capitalists don’t even sell the rope; they give it away, for nothing. But what’s not to like? Stock investors are getting rich. Bondholders are making money. The government can spend as much as it likes. And the voters are bamboozled by it; they think it helps make the economy work better. This is going to be a hard habit to break. So, here’s the gist of my conclusion: Governments won’t break the habit of getting something for nothing. It will break them. But how?
With Greek bank bonds collapsing, stocks near record lows, Greek default risk at post-crisis record highs, and Greek government bond yields spiking, it has been surprisng that we have not seen the ATM lines and generalized 'panic' of a population in fear of being "Cyprus'd." Well, now as ekathimerini reports, that appears to escalating and rapidly as credit sector officials estimated that the flight of deposits yesterday alone amounted to 350-400 million euros, which was some five times higher than the daily average in previous days.
What can strike a balance between the opposing forces operating on the euro-dollar exchange rate? No one can say for sure, but one thing is certain: Whereas the profits from playing transatlantic interest-rate differentials may run to 1% or 2% per year, investors can easily lose that amount in a single day – or even an hour – by buying the wrong currency when the trend turns. As we know from decades of Japanese and Swiss experience, selling a low-interest-rate currency simply to chase higher US yields is often a costly mistake.
Dear Greek readers: the writing is now on the wall, and it is in very clear 48-point, double bold, and underlined font: when the ECB "leaks" that it is modelling a Grexit, something Draghi lied about over and over in 2012 and directly in our face too, take it seriously, because it is time to start planning about what happens on "the day after." And incidentally to all those curious what the fair value of peripheral European bonds is excluding ECB backstops, the ECB has a handy back of the envelope calculation: a 95% loss.