Fraud grows in good times because rescission is rarely sought (or granted) when asset values rise. Fraud is not a problem, till it is.
A Black Swan Lands In Southern Austria: The Ripple Effects Of "Mini-Greece Going Off In The Heartland Of Europe"Submitted by Tyler Durden on 03/08/2015 23:48 -0400
Austria’s decision to wind down Heta Asset Resolution AG sent ripples through the financial system, causing credit rating downgrades in Austria and bank losses in Germany: "It’s a mini-Greece going off in the heartlands of Europe." Here are some of the consequences, and delightful ironies, of a completely unexpected black swan landing in the south of Austria.
Having put Russia on review in mid-January, Moody's has decided (somewhat unsurprisingly) to downgrade Russia's sovereign debt rating to Ba1 (from Baa3) with continuing negative outlook. The reasons:
*MOODY'S SAYS RUSSIA EXPECTED TO HAVE DEEP RECESSION IN '15, CONTINUED CONTRACTION IN '16
*MOODY'S SEE RUSSIA DEBT METRICS LIKELY DETERIORATING COMING YRS
We assume the low external debt, considerable reserves, lack of exposure to US Treasuries, and major gold backing were not considered useful? Moody's concludes the full statement (below) by noting that they are unlikely to raise Russian sovereign debt rating in the near-term.
The Russian economy continues to suffer. The absolute desolation of the oil market effectively destroyed the economy in Russia, which is incredibly dependent on the commodity. Job’s have been lost, the standard of living has collapsed and now the once proud Russian bond, is being attacked.
Standard and Poors, what some call, “the international credit watchdog” slashed Russian debt to BB+, one step below what the markets consider investment grade.
"...we’ll have to face a new world financial crisis in the next few years... the growing volume of debts and the unsteady development of the economies of the US, the EU, China and some other developing countries mean the situation is even worse than ahead of 2008."
S&P Settles DOJ Lawsuit For $1.5 Billion; Agrees Not To Accuse Government Of Retaliation For US DowngradeSubmitted by Tyler Durden on 02/03/2015 09:26 -0400
As had been widely rumored in the past two weeks, and as the WSJ reported overnight, moments ago McGraw Hill, parent of disgraced rating agency S&P, entered into a $1.5 billion settlement to fully resolve the DOJ lawsuit regarding S&P ratings on RMBS and CDOs. As the WSJ reported overnight, In the "span of about 30 hours, the Justice Department lowered its asking price and backed off demands that S&P admit to violating laws when it issued rosy grades on risky mortgage deals, the people said." But the bottom line: 'S&P agreed to ... withdraw its assertion that the Justice Department lawsuit was political retaliation for the ratings firm’s 2011 downgrade."
"There will first be a pernicious excitement, and next a fatal collapse." -- Walter Bagehot, Lombard Street (1844)
- ECB to decide on bond-buying plan to revive euro zone (Reuters)
- Draghi Is Pushing Boundaries of Euro Region with QE Program (BBG)
- Investors Wonder Whether ECB Will Do Enough (WSJ)
- Treasuries Drop With Bunds Before ECB; U.S. Futures Rise (BBG)
- European shares hit seven-year high (Reuters)
- At least eight civilians killed in shelling of Ukrainian trolleybus (Reuters), both sides blame each other
- OPEC Will Blink First in Battle With Shale Drillers, Poll Shows (BBG)
- China Injects $8 Billion Into Banking System (WSJ)
- New York says Barclays not cooperating in 'dark pool' probe (Reuters)
Q: What is the fastest growing asset class at US banks? Leveraged loans? US Treasury debt? A: Reserves deposited at the Fed.
Just 13 short months ago - two months before then President Yanukovich was ousted - Russia lent Ukraine $3 billion (by buying their Eurobonds). As Reuters reports, the terms of that loan included a condition that Ukraine's total state debt should not exceed 60% of its GDP. As of last month, based on Moody's estimates, Ukraine has violated that condition with a debt-to-GDP of 72% (and will likely rise to 85% of GDP in 2015).. and so, according to Russian finance minister Anton Siluanov, "Russia has the right to demand early return of this loan." With European aid 'contingent on major reforms' and possibly taking up to 1 year, this leaves the good old IMF (i.e. the US and European taxpayer) to bridge Ukraine's 'gap' and ironically bailout Russia.
Deflation and the attendant risks caused by a sudden revelation about hidden debts will remain the chief concern for investors and policy makers in 2015
Europe's banks are vulnerable in 2015 due to weak macroeconomic conditions, unfinished regulatory hurdles and the risk of bail-ins according to credit rating agencies ... Oh what a tangled web, we weave ...
1. Heightened uncertainty over the achievability of fiscal deficit reduction goals and containing debt
2. Economic growth policy uncertainties and challenges in ending deflation
3. Erosion of policy effectiveness and credibility could undermine debt affordability
While we no longer live in a world in which debt matters - because central banks will just monetize it in their ongoing and no longer covert effort to reflate the final bubble - and thus debt ratings are an irrelevant anachronism from a bygone era, we can't help but recall a certain statement by S&P from September of last year, in which the rating agency reminded everyone just why Japan has to proceed with both its first sales tax hike from 5% to 8%, (which, together with weather, has now been blamed on Japan's shocking quadruple-dip recession), but also the follow up from 8% to 10%, which as we now know, has been delayed indefinitely, and which was supposed to prefund welfare spending for Japan's demographic disaster which with every passing day gets closer and closer.
While talking heads proclaim - incorrectly - that low oil prices are unequivocally good for the US economy, it is very much not the case for oil producers around the world. Most notably, Venezuela - which 'needs' oil prices above $100 to maintain its socialist utopia - and currently ranks at a lowly 100th on the world's prosperity index, is in grave trouble if this trend continues. Venezuelan bonds plunged to new record lows today as oil prices hit fresh cycle lows, strongly suggesting default or currency devaluation is imminent. However, as is usual (think Mexico) Finance Minister Rodolfo Marco Torres ruled out devaluation even as oil price drop exacerbates country’s finances. As one analyst noted, "there's broad understanding that in the absence of any corrective policy measures that these guys are going to be in serious trouble." It appears they already are. The Maduro government desperately needs a rise in oil prices, but Saudi Arabia has so far rebuffed calls for an emergency meeting as it pursues a strategy of waiting out higher cost competitors. OPEC does not plan on meeting until Nov. 27. That is still an eternity for a country that is beginning to unravel.