European Central Bank
Last week’s Jackson Hole meeting helped to highlight a simple reality: unlike other parts of the world, the eurozone remains mired in a deflationary bust six years after the 2008 financial crisis. The only official solutions to this bust seem to be a) to print more money and b) to expand government debt. Nothing Mr Draghi said in his Jackson Hole speech changed this reality.
At this stage, the path of least resistance is for the eurozone, and especially France, to continue disappointing economically, for the euro to weaken, and for Europe to remain a source of, rather than a destination for, international capital.
It is clearly not in the interests of the long-standing members of the EU to escalate a 'sanctions and financial conflict' with Russia. This is why politicians are walking on eggshells, paying lip-service to America and the scared Eastern fringe members of NATO while hoping this goes no further. So long as this is the case it is clear that NATO members are powerless to stop Russia from wresting control of all or parts of Ukraine from the government in Kiev. Putin knows this; unfortunately it is not clear to us that the American government does. All in all it seems likely that after a period of slow-burn as Putin dictates the pace of developments, the political situation in Ukraine will deteriorate with some unhelpful nudges from Russia.
- FTW: Europe Stocks Rise as Data Signals Need for Stimulus (BBG)
- More de-escalation: Dozens die in Ukraine in street battles, Donetsk shelling (Reuters)
- Calm largely holds in Missouri after grand jury opens shooting investigation (Reuters)
- Attorney General Eric Holder Vows Thorough Probe of Ferguson Shooting (WSJ)
- World’s Biggest Wealth Fund Slows Emerging Market Investment (BBG)
- Market Chilly to Argentine Debt Proposal (WSJ)
- Israeli air strike kills three Hamas commanders in Gaza (Reuters)
- Retooled Hamas Bloodies Israel With Help From Hezbollah (BBG)
- Investors Pour Into Vanguard, Eschewing Stock Pickers (WSJ)
- Fed Debates Early Rate Increases (WSJ)
Sometimes we are convinced it was completely by design, and not a weird little coincidence, that one of Germany’s most sprawling red light districts is just steps away from the European Central Bank. This fact becomes comically obvious right around happy hour... as self-congratulatory ECB economists and their bureaucratic bank underlings crowd the bars and cafes after work which are simultaneously frequented by pimps, thugs, and other assorted low-lifes. One would be forgiven for legitimately asking the question: which of these professions has done more damage to humanity? My [fiat] money’s on the bankers.
- Yellen Dashboard Warning Light Glows as Millions Work Part Time (BBG)
- More US drones boosting global GDP: Unidentified war planes, explosions heard in Libyan capital (Reuters)
- London Home Asking Prices Plunge Most in More Than Six Years (BBG)
- Carney - Rate Hike before Pay Recovers (Times)
- No Fed fireworks, but plenty of clues, expected at Jackson Hole (Reuters)
- Kurdish, Iraqi forces in control of Mosul dam (Reuters)
- China Pushes Cleanup of Banks (WSJ)
- Russia Widens Ruble Trading Band in Move Away From Managed Rate (BBG)
- Dollar General Makes $9.7 Billion Family Dollar Counterbid (BBG)
- Autopsy finds unarmed teen killed by police was shot six times (NYT)
- Bull Market Waning as Barclays Sees 1% Gain for S&P 500 (BBG)
- Credit Suisse Caught Up in Espírito Santo Mess (WSJ)
The current US air strikes in Iraq are unlikely to have a significant impact on defense spending or oil prices, Goldman Sachs writes, unless the scale of the conflict changes considerably. Evidence from past US conflicts that were similar in scale also suggests little impact on confidence and at most mixed evidence of a flight-to-safety effect in financial markets. The exchange of sanctions with Russia - a relatively minor US trading partner - is also likely to have only a modest impact on the US economy. Of course, Goldman caveats, both situations are highly unpredictable; as they expect little reaction to recent events from Fed officials, who have generally not discussed conflicts of this magnitude unless accompanied by other economic concerns, such as a large rise in oil prices.
The record-breaking outflows in high-yield bonds are not the only indication that the U.S. economy could be on the verge of very hard times. Retail sales are extremely disappointing, mortgage applications are at a 14 year low and growing geopolitical storms around the world have investors spooked. For a long time now, we have been enjoying a period of relative economic stability even though our underlying economic fundamentals continue to get even worse. Unfortunately, there are now a bunch of signs that this period of relative stability is about to end. The following are 14 reasons why the U.S. economy's bubble of false prosperity may be about to burst...
Physical gold is migrating to the East (Russia, China) and, with it, power and influence. We see it with China and Russia progressively imposing their will, building consensus with a great many countries that wish to end American domination made possible by their capacity (privilege) of issuing the world reserve currency. The saying, “He who holds the (physical) gold makes the rules”, is truer than ever. The announcement of the creation of the BRICs development bank is just the first cornerstone in the new international monetary edifice. All we have to wait for is the first official announcement from the East of a new means of settlement of commercial trade based on one or more tangible assets, with gold. Afterwards, logically, an announcement of the convertibility of certain currencies into gold, or even the creation of a new currency that would be convertible to gold, should be made.
Either Europe is run by a bunch of unelected idiots, or... well, that's about it. After blindly doing the US' bidding over all propaganda matters Ukraine-related, and following just as blindly into round after round of US-inspired sanctions, sanctions to whose retaliation Europe would be on the frontline unlike the largely insulated US, Europe appears to be absolutely shocked and is apoplectic that after several rounds of sanction escalations, Russia finally unleashed its own round of sanctions and yesterday announced a 1 year ban on all European food imports, something which will further push Europe into a triple-dip recession as already hinted by Italy yesterday.
Here we are now, two years later, and the ECB has failed to create the sustainable recovery that it promised. Because of this, in June of 2014, Mario Draghi implemented Negative Interest rate Policies or NIRP and hinted at launching a QE program
- New War Risk on Russia Fringes Amid Armenia-Azeri Clashes (BBG)
- Palestinians accuse Israel of breaking seven-hour Gaza truce (Reuters)
- Argentine Default Sours Outlook for Peso as Talks Ordered (BBG)
- Espírito Santo Saga Entangles Swiss Company (WSJ)
- Booming African Lion Economies Gear Up to Emulate Asians (BBG)
- CME Profit Falls as Trading Volume Declines (WSJ)
- Why Recalled Cars Stay on the Road (WSJ)
- London Renters Win in Billionaire Backyard as Prices Soar (BBG)
- Junk-Debt Liquidity Concerns Bring Sales (WSJ)
- Rescuers race to find survivors after 400 die in China quake (AFP)
Alarm bells in the European banking system have been ringing for quite a while but nobody seems to be listening. The roaring capital markets are just too loud. But we have been keeping track of a few things.
When you are leveraged at these levels, you only need the assets you invest in to fall 4% before you’ve wiped out all of your underlying capital (€26 * 0.04 = €1.04).
Curious what Europe's true economic state is? The chart below, showing Europe's annual inflation or lack thereof, and which just dropped from 0.5% to 0.4%, missing estimates of an unchanged print despite the ECB's ongoing and losing war with disinflation, and soon deflation, shows all you need to know.
It has been a deja vu session of that day nearly a month ago when the Banco Espirito Santo (BES) problems were first revealed, sending European stocks and US futures, however briefly, plunging. Since then things have only gotten worse for the insolvent Portuguese megabank, and overnight BES, all three of its holdco now bankrupt, reported an epic loss despite which it will not get a bailout but instead must raise capital on its own. The result has been a record drop in both the bonds (down some 20 points earlier) and the stock (despite a shorting ban instituted last night), which crashed as much as 40% before stabilizing at new all time lows around €0.25, in the process wiping out recent investments by such "smart money" as Baupost, Goldman and DE Shaw. The result is a European financial sector that is struggling in the red, while adding to its pain are some large cap names such as Adidas which also tumbled after issuing a profit warning relating to "developments" in Russia. Then there was European inflation which printed at 0.4%, below the expected 0.5%, and the lowest in pretty much ever, and certainly since the ECB commenced its latest fight with "deflation", which so far is not going well. The European cherry on top was Greece, whose dead cat bounce is now over, after May retail sales crashed 8.5%, after rising 3.8% in April.