While Italian and Spanish political (and business) leaders are lauding Mario Draghi's plan to buy more assets and print more money, it appears not everyone is so excited. As Reuters reports, Christian Social Union chairman and Bavaria state premier Horst Seehofer (who is well known as an ally of Angela Merkel), blasted the ECB's plan: "It's only going to frighten a lot of people when ECB chief Mario Draghi opens up the central bank's money tap and at the same time buys junk paper," somewhat breaking the political taboo of criticizing the potential independence of the central bank.
For those just catching up on the main news event of the weekend, namely the sudden surge in Scotland "Yes" vote polling surpassing 50% for the first time, here is a complete round up of the background, updates and expert reactions from RanSquawk, Bloomberg and AFP.
"The ECB's quantitative expansion is hitting the financial system at a time when broad liquidity is also very high. The rise in excess liquidity, i.e. the residual in the model of Figure 3, is supportive of all assets outside cash, i.e. bonds, equities and real estate. The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude and the ECB actions have the potential to make it even more extreme, in our view.... These liquidity boosts are not without risks. We note that they risk creating asset bubbles which when they burst can destroy wealth leading to adverse economic outcomes. Asset yields are mean reverting over long periods of time and thus historically low levels of yields in bonds, equities and real estate are unlikely to be sustained forever."- JPMorgan
It appears there is another nation on planet Earth that is becoming isolated. One by one, Russia and China appear to be finding allies willing to 'de-dollarize'; and the latest to join this trend is serial-defaulter Argentina. As Reuters reports, China and Argentina's central banks have agreed a multi-billion dollar currency swap operation "to bolster Argentina's foreign reserves" or "pay for Chinese imports with Yuan," as Argentina's USD reserves dwindle. In addition, Argentina claims China supports the nation's plans in the defaulted bondholder dispute.
This is so completely ridiculous. But it really crystalizes what’s wrong with the entire financial system.
We’re told to keep our money in banks... that banks are safe. But the objective data tells a completely different story.
As we discussed yesterday, Vladimir Putin's apparent 'threat' to EU's Barroso that "If I want to, I can take Kiev in two weeks," prompted both anger and response as NATO reacted by stating a new "spearhead" force of 3-5,000 troops would be flown in to combat any (further) Russian aggression. However, Russia is not happy that the EC President leaked the conversation with Putin's aide Ushakov stating that recounting the private conversation was "inappropriate," "undiplomatic," and "unworthy of a serious political player." More troublingly, the cold-war-tension-like escalation from NATO has prompted Russia to revise its military doctrine to account for “changing military dangers and military threats.”
- Ukraine Shifts to Defense Against Russian Incursion (WSJ)
- U.S. forces carry out operation against al-Shabaab in Somalia (Reuters)
- Bond Markets Tilt Toward Frankfurt as Draghi Negates Fed (BBG)
- Another "unexpectedly" - Swiss Economy Unexpectedly Stalls as Euro Area Takes Toll (BBG)
- Japan's 'Abenomics' feared in trouble as challenges build (Reuters)
- Germany Imposes Nationwide Ban on Uber's Cab-Hailing Service (WSJ)
- Japan's 'forward guidance', the GPIF, has "already begun a highly anticipated portfolio reshuffle" (WSJ)
- Detroit Brings Bankruptcy Plan to Court With Billionaires (BBG)
- Burger King has maneuvered to cut U.S. tax bill for years (Reuters)
Does the use of leverage (properly defined) and derivatives (properly defined) create trading risks that wouldn’t be there if you just bought the Vanguard 60/40 fund and called it a day? Sure. But we believe risk-balancing strategies mitigate far more dangerous risks to a public pension portfolio – particularly an over-reliance on equity markets. Public pensions are complex entities whose liability structures are often many times greater than the size of their investment portfolios. The common practice to resolve this dilemma has been to pursue an equity-dominated asset structure that has greater chances of achieving the required return to make the entire structure work. The problem is that equities are themselves leveraged, but it’s hidden leverage and thus hidden risk.
"As the murderous, terrorist Islamic State continues to threaten Iraq, the region and potentially the United States, it is vitally important that we examine how this problem arose. Any actions we take today must be informed by what we've already done in the past, and how effective our actions have been... The Islamic State represents a threat that should be taken seriously. But we should also recall how recent foreign-policy decisions have helped these extremists so that we don't make the same mistake of potentially aiding our enemies again."
- Obama Cools Talk of Strikes Against Islamic State in Iraq or Syria (WSJ)
- Separatists say will allow 'trapped' Ukrainian forces to withdraw (Reuters)
- Ukraine Fighting Surges as Russian-Backed Forces Gain (BBG)
- Missouri police sued for $40 million over actions in Ferguson protests (Reuters)
- BTFDividend stocks? Tesco Slumps as Retailer Slashes Dividend 75% on Forecast (BBG)
- In town halls, U.S. lawmakers hear voter anger over illegal migrants (Reuters)
- Obamacare’s Latest Threat Nears Turning Point in Court (BBG)
- Untangling the Mess of Austrian Bank Hypo (WSJ)
- The billion-dollar fall of the house of Espirito Santo (Reuters)
- Manhattan Condo Resale Prices Reach Record High (BBG)
- California Drought Squeezes Wells: State Considers Regulating Groundwater Use for First Time (WSJ)
According to Russia's RIA Novosti, citing business daily Kommersant, Gazprom Neft has agreed to export 80,000 tons of oil from Novoportovskoye field in the Arctic; it will accept payment in rubles, and will also deliver oil via the Eastern Siberia-Pacific Ocean pipeline (ESPO), accepting payment in Chinese yuan for the transfers. Meaning Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan, in effect making the two currencies equivalent as far as the Eurasian axis is conerned, but most importantly, transact completely away from the US dollar thus, finally putin'(sic) in action the move for a Petrodollar-free world.
In this first of a series of London interviews that Lars Schall conducted for Matterhorn Asset Management this summer, Lars met up with the Telegraph's Ambrose Evans-Pritchard to discuss geopolitical tensions in the world, China's challenges, threats to the global economy and the expectations for gold.
Over the past week a new geopolitical mystery emerged: an "unknown" party was launching airstrikes against Libya, which is already reeling in its latest political crisis. The strikes puzzled various media outlets, such as Reuters which over the weekend reported that "Unidentified war planes attacked positions of an armed faction in the Libyan capital Tripoli on Saturday." This follows a similar report when on Monday, the government said unknown fighter jets had bombed positions from armed factions in Tripoli, an attack claimed by a renegade general in Benghazi. Turns out the renegade general was lying, and merely trying to take credit for another party's intervention. That party, or rather, parties has been revealed as Egypt and the United Arab Emirates, which "have secretly teamed up to launch airstrikes against Islamist-allied militias battling for control of Tripoli" And sure enough, "US diplomats were fuming about the airstrikes" as the US was never given advance notice of these attacks.
"Cynical disregard for the fate of civilians and 'couldn't care less' attitude toward the international humanitarian law when it comes to geopolitical interests, becomes the core of the policy of the United States and its European satellites regarding Ukrainian. More and more questions are being raised about the ability of the current US administration to participate in the development of realistic and pragmatic approaches to international problems, to adequately assess the situation in the various regions of the world." - Russia Foreign Ministry.
This essay is not intended to address a crisis that may be occurring on the border at this time. We make no comment on that. Nor does it discuss the issues around war, such as how to deal with citizens of enemy nations. This essay is not a policy proposal, it does not set out, for example, when an immigrant can become a citizen and attain the vote or what to do to immigrants who commit crimes. It has but one purpose: to enumerate and respond to the common arguments used in favor of an impenetrable and guarded border fence to shut down immigration.