European Central Bank
As was largely expected, in the first monthly report of ECB Q€ purchases in which the European central bank reported a total of €47.4 billion in purchases, the one country with the largest proportional allottment was Germany, whose €11.1 billion in bond purchases represented a 23.4% of the total monthly purchase. This is somewhat less than the mandated capital key allottment to Germany, which as a reminder, is at 26%, however the remaining balance is where the €5.7 billion in supernational purchases came in.
Greek Minister Slams Troika's "Unbelievable Prejudice" As EU Proclaims Tsipras' Government "Cannot Survive"Submitted by Tyler Durden on 04/06/2015 08:58 -0400
The rhetoric, threats, and promises continue to increase as Greece, its international creditors (i.e. Troika), and its potential pivot partners from Russia to China to Iran all vie for attention. With EU officials proclaiming "[the Greek] government cannot survive," suggesting Tsipras divorce himself from the extreme left of his party; and with 68% of Europeans polled believing Greece is a drag on the EU economy, Greece's last best hope perhaps remains with a pivot to another Troika (Russia, China, and Iran) as energy minister Panagiotis Lafazanis denounced Greece’s international creditors for treating the country with "unbelievable prejudice and as a colony." This all on the day when FinMin Varoufakis 'promises' Christine Lagarde that Greece will repay its IMF loan on April 9th (somehow?).
The swell of anti-Russian propaganda, confrontation and attempted intimidation by NATO has increased, and if it continues to do so it is likely that Moscow will take action, thereby upping the stakes and the danger even more. It is time that NATO’s nations came to terms with the reality that Russia is a major international power with legitimate interests in its own region. Moscow is not going to bow the knee in the face of immature threats by sabre-rattling US generals and their swaggering acolytes. It is time for NATO to forge ties rather than destroy them — and to build bridges rather than glitzy office blocks.
Germany has been kind enough to provide an idea where the foundering Greek "radical leftist" government can find some additional funds: by freezing and raiding the bank accounts of wealthy Greeks. Of course, the legal loophole provision is that only those suspected (not convicted) of tax fraud would be eligible for such an asset freeze, however since in Greece virtually nobody pays the amount of tax they should, this is essentially a carte blanche to freeze and raid the funds of the wealthiest Greeks who have bank accounts in Germany (and soon in all other European nations) no questions asked.
At its core, currency manipulation is any intentional intervention that results in an undervalued currency and a substantial current-account surplus – exactly what the ECB is doing. If the ECB maintains this policy for an extended period, tension with the US is all but inevitable – tension that may obstruct the TTIP’s approval by the US Congress or hinder the treaty’s actual operation, resulting in its deterioration or termination. This runs counter to the popular view, which drove the eurozone’s creation, that Europe needs a single currency to compete with large economies like the US, China, and India.
Now we can see the real tragedy of negative interest rates: they not only have the perverse effect of reversing the flow of time, but they demonstrate that borrowers are not acting with the good faith incentives normally associated with someone who needs money. Rather than paying forward, borrowers are paying backwards because they are effectively trying to return something they don’t want. Such an arrangement renders it impossible for an economy to grow. By destroying the temporal and moral structure of money, negative interest rates destroy the economy. When tomorrow cannot be paid, the current regime must fail. The only question to be determined is the form that failure will assume. This may sound like philosophy but it is cold, hard reality.
According to Citigroup, the revenues from trading fixed income securities has been decreasing since the end of the global financial crisis, but this trend might very well be reverted soon as investors are desperately trying to protect their assets from erosion.
It has been another whiplash, rollercoaster, illiquid session which saw US equity futures tumble early overnight driven by a bout of USDJPY and Nikkei selling, only to regain all losses as European, and BIS, traders walked in, and promptly BTFD. In fact at last check, it was as if all the fireworks that took place just a few short hours ago and sent the ES as low as 2037, and below what has become the key support level, the 50-DMA never happened.
Weidmann had warned us about this...a new index, created by Handelsblatt, measuring the inflation of asset prices in Germany confirms the suspicion many have held - while German CPI stagnates (printing modestly hotter than expected today, driven by continued rises in higher gasoline prices and food prices), asset prices are rising sharply amid an over-relaxed monetary policy.
While we wait to see which “well capitalized” bank will be the next to crumble under the weight of mountainous writedowns occasioned by the sudden souring of “riskless” assets, we get to read the DuesselHyp post-mortem, which shows that the bank was effectively AIG’d by Eurex.
No wonder complacency reigns supreme: any time the stock market tumbles by more than 3%, a Federal Reserve flack runs to a microphone and starts talking about how the Fed stands ready to launch QE4 or "whatever it takes" to push stocks back into rally mode. For context, recall that both VIX and VXX tend to reach 40 in real moments of panic/fear. That the VXX "soaring" 2 points from 24 to 26 now qualifies as an extreme of fear is absurd. Yet this is the logical result of central banks constantly "saving" equities every time they swoon the slightest bit: traders and punters know that the Fed making reassuring sounds is all that's needed to reverse any decline and restart the Bull advance.
Finally The "Very Serious People" Get It: QE Will "Permanently Impair Living Standards For Generations To Come"Submitted by Tyler Durden on 03/28/2015 23:18 -0400
"In the long run classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time. In fact, although U.S. equity prices are setting record highs, real median household incomes are 9 percent lower than 1999 highs. The report from Bank of America Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output. The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity."
A five sigma event signifies extreme conditions, or an extremely rare occurrence. To bring this discussion from sports and weather to the financial world, we can relate a 5 sigma event to the stock market. Since 1975 the largest annual S&P 500 gain and loss were 34% and -38% respectively. A 5 sigma move would equate to an annual gain or loss of 91%. With a grasp of the rarity of a 5 sigma occurrence, let us now consider the yield spread, or difference, in bond yields between Germany and The United States. As shown in graph #1 below German ten year bunds yield 0.19% (19 one-hundredths of one percent) and the U.S. ten year note yields 1.92%, resulting in a 1.73% yield spread. This is the widest that spread has been in 30 years.
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.