European Central Bank
For the last year or two, European banks have engaged in the ultimate of self-referential M.A.D. trades - buying the sovereign debt of their own nation in inordinate size to maintain the ECB's illusion of control (even as their economies collapse and stagnate) while referentially obtaining the funding for said purchase from the ECB by repoing the purchase back to the central bank, usually with no haircut to mention. Today though, as The FT reports, a top official at the European Central Bank has signalled it will try to force eurozone banks to hold capital against sovereign bonds, in an attempt to stop weak lenders using its cash to hoover up the debts of crisis-hit countries.
The FSB's first chairman was Mario Draghi, current President of the European Central Bank, while its current chairman is Mark Carney, Governor of the Bank of England. The inclusion of Financial Market Infrastructures means that large parts of the global financial system is susceptible to bail-in and could potentially be bailed-in including exchange traded funds.
- Glass-Steagall Fans Plan New Assault If Volcker Rule Deemed Weak (BBG) ... "if"? The banks control the legislators and regulators...
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As the eurozone debt crisis has steadily widened the divide between Europe’s stronger northern economies and the weaker, more debt-laden economies in the south (with France a kind of no man’s land economy in between), one question is on everyone’s mind: Can Europe’s monetary union – indeed, the European Union itself – survive? Fiscal and financial measures aimed at strengthening eurozone governance have been inadequate to restore confidence in the euro. And Europe’s troubled economies have been slow to undertake structural reforms and by maintaining large trade surpluses, Germany is exporting unemployment and recession to its weaker neighbors. But how will Germany react when the north-south divide becomes large enough to threaten the euro’s survival? Two outcomes now seem possible. Europe’s north-south divide has become a time bomb lying at the foundations of the currency union.
While the perma bears may find comfort in the dollar's decline, its weakness has not been very broad, but really limited to the euro, sterling and currencies that move in their orbit. Still further dollar declines look likely near-term.
On November 7, when the ECB announced a "surprising" rate cut, 67 out of 70 economists who never saw it coming, were shocked. We were not. As we observed ten days prior, Europe had just seen the latest month of record low private sector loan growth in history. Or rather contraction. Back than we said that "one of our favorite series of posts describing the "Walking Dead" monetary zombie-infested continent that is Europe is the one showing the abysmal state Europe's credit creation machinery, operated by none other than the Bank of Italy's, Goldman's ECB's Mario Draghi, finds itself in." We concluded: "we now fully expect a very unclear Draghi, plagued by monetary zombie dreams, to do everything in his power, even though as SocGen notes, he really has no power in this case, to show he has not lost control and start with a rate cut in the November ECB meeting (eventually proceeding to a full-blown QE) in order to boost loan creation." Less than two weeks later he did just that. The problem, as the ECB reported today, is that not only did M3 decline once more, to 1.4% or the slowest pace in over 2 years and well below the ECB's 4.5% reference growth value, but more importantly lending to companies and households shrank 2.1% in October - the biggest drop on record! Draghi's monetary zombies are winning.
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Recently, newspaper headlines declared that Greece would have a balanced budget for 2013 as a whole. The news came as quite a shock: Recall that when Greek officials came clean about the true state of their country’s public finances in 2010, the budget deficit was more than 10% of GDP – a moment of statistical honesty that triggered the eurozone debt crisis. It seemed too good to be true that the Greek deficit would be completely eliminated in just three years. In fact, it is too good to be true.
Are you deeply concerned about the future of America? Is something in your gut telling you that our system is fundamentally broken and that the mainstream media is not telling you the truth about what is happening? If so, you are definitely not alone. Right now, there are millions upon millions of Americans that are absolutely horrified as they watch this nation deteriorate. In fact, according to an analysis of recent polling data conducted by Real Clear Politics, approximately 68 percent of all Americans believe that the country is on the wrong track and only 23.5 percent of all Americans believe that the country is on the right track.
"Suicides rose by 17% between 2007 and 2009 and to 25% in 2010, according to unofficial 2010 data (398). The Minister of Health reported a further 40% rise in the first half of 2011 compared with the same period in 2010. Suicide attempts have also increased, particularly among people reporting economic distress (610). Homicide and theft rates have doubled. HIV rates and heroin use have risen significantly, with about half of new HIV infections being self-inflicted to enable people to receive benefits of €700 per month and faster admission on to drug-substitution programmes. Prostitution has also risen, probably as a response to economic hardship. Health care access has declined as hospital budgets have been cut by about 40% (398) and it is estimated that 26 000 public health workers (9100 doctors) will lose their jobs (611). Further cuts are expected as a result of recent negotiations with the IMF and European Central Bank."
Another day, another carry currency-driven futures melt-up to daily record highs (the all important EURJPY soared overnight on the return of the now standard overnight Japanese jawboning of the JPY which sent the EURJPY just shy of a new 4 year high of 138 overnight), and another attempt by the ECB to have its record high market cake, and eat a lower Euro too (recall DB's said the "pain threshold" for the EUR/USD exchange rate - the level at which further appreciation impairs competitiveness and economic recovery - is $1.79 for Germany, $1.24 for France, and $1.17 for Italy) this time with ECB's Hansson repeating the generic talking point that the ECB is technically ready for negative deposit rates. However, with the halflife on such "threats" now measured in the minutes, and soon seconds, the European central bank will have to come up with something more original and creative soon, especially since the EURJPY can't really rise much more without really crushing European trade further.
There are increasing signs of deflationary risks in the developed world, suggesting bonds are set for a comeback.
Given our earlier comment on the collapse of European earnings, it is perhaps unsurprisng that the CEB is throwing everything at the problem of a strong EUR:
- *ECB SAID TO WEIGH MINUS 0.1% DEPOSIT RATE IF MORE EASING NEEDED
Of course, we await the official denial but suspect this is nothing more than attempt to gauge market response to the policy idea (just as Draghi did in May). For now, EURUSD has dumped to 1.3480, and US equities are soaring...
Dispassionate discussion of the investment climate.
... Is shown on the chart below, which compares indexed growth, or lack thereof, in G-5 GDP and compares it to consolidated central bank balance sheets. We bring this up because following this morning's announcement by the ECB's Praet that the European central bank may launch a round of QE (of questionable legality) it is only a matter of time before the red line really takes off and insanity hits truly unseen levels.