“Bail-in” means that the bank’s owners - the shareholders, and creditors - the bondholders and now even depositors, will be line to absorb losses banks will incur, before outside sources of finance may be called upon. Deposit confiscation cometh ...
*YELLEN SAYS FED COMMITTED TO ACCOMMODATION TO SUPPORT RECOVERY
Markets will be hanging on every word of what is likely Janet Yellen's first monetary policy speech and even more so the Q&A afterwards as she suggests that a considerable time is more than 6 months, and the delicate balance she has to play between admitting the economy is ugly while admitting that QE is over no matter what... all the while maintaining some semblance of credibility. One has to wonder if the ripfest rally of the last 24 hours is a buy the rumor ramp ahead of a sell the Yellen news event as once again she is tested...
"While the music is playing, you keep dancing," seems the only possible explanation for the fanatical demand for peripheral European bonds as everyone and their pet rabbit front-runs the ECB (or merely rushes to the 'yieldiest' thing given Draghi's implicit guarantee). At 3.1%, it beggars belief how 'risk' is mispriced in these sovereigns should any capital regulations ever mark sovereign debt as anything but riskless. Remember what happened the last time Draghi did any bond-buying (the SMP) - we saw bonds sell off into the actual actions of the central bank... so it seems the market continues to trade on the promise (and yet hope it never comes true)...
We believe Fed’s actions would be more appropriately described as permitted cancerous beliefs to spread throughout the financial system, thereby killing Democratic Capitalism which is the basis of the capital markets.
In light of the recent "triumphant" return of Greece to the capital markets with its brand new 5 Year bond issuance (which much to the chagrin of the flippers is already trading below its breaking price), one of our Greek readers decided to provide his "on the ground" perspective on what is really happening in Greece: "I am writing you in an effort to get you to provide a more public and harsh(I mean realistic) description of what has been going on, for the past few days with relation to what’s left of my country. I doubt it will not take you long to discover its mostly spent on “political commissions” and interest payments (I’d bet only 6-7% actually flows through). I am sure you are aware that according to Greek law all political parties receive some kind of (substantial) financial support from the government budget. The government has not delivered. There are still over 900,000 people working for public and government related services, for a population of roughly 11 million. The banks still maintain negative real equity and have consistently defrauded investors over the past few years."
There is a reasonably quiet start to the week before we head into the highlights of the week including the start of US reporting season tomorrow, FOMC minutes on Wednesday and IMF meetings in Washington on Friday. On the schedule for today central bank officials from the ECB including Mersch, Weidmann and Constancio will be speaking. The Fed’s Bullard speaks today, and no doubt there will be interest in his comments from last week suggesting that the Fed will hike rates in early 2015.
The reasons to hold gold (and silver), and we mean physical bullion, are pretty straightforward. So let’s begin with the primary ones:
- To protect against monetary recklessness
- As insulation against fiscal foolishness
- As insurance against the possibility of a major calamity in the banking/financial system
- For the embedded 'option value' that will pay out handsomely if gold is re-monetized
The punch line is this: Gold (and silver) is not in bubble territory, and its largest gains remain yet to be realized; especially if current monetary, fiscal, and fundamental supply-and-demand trends remain in play.
Being that markets are unrigged and all, at least according to every single proponent of HFT that is, futures have done their overnight levitation as they have every day for the past month driven by the one staple - the Yen carry trade - even if in recent days the broader market slump during the actual daytrading session mostly impacted biotechs yesterday. And since any news is good news, we don't expect today's main event, the ECB's rate announcement and Draghi press conference, both of which are expected to announce nothing new despite Europe's outright inflationary collapse which most recently dropped to 0.5%, the lowest since 2009.
Contrary to most consensus views (including Citi's FX technical group) EURUSD has failed to move lower in 2014. Why?
File this one in the "you can't make it up" category. Over two years after the MF Global collapse, in which the primary dealer headed by Jon "I don't recall" Corzine all but admitted it had engaged in the cardinal sin of any financial intermediary, i.e., commingling money, to cover up a trade gone horribly bad and which resulted in the disappearance of some $1 billion in client funds until such time as the bankruptcy process managed to "liberate" funds from other part of the company, MF Global has suddenly figured who is at fault: not the CEO, not his brown-nosing lackey, not some janitor meant to be scapegoated precisely in a situation such as this, not even the infamous "glitch" - no, the party that is accountable for the firm's theft of client funds, and horrible investing decisions that led to its bankruptcy, are the accountants.
Inequality – long ignored – is now centre stage in debate about economic policy around the globe. As Tony Atkinson and Salvatore Morelli note, the 2007-2008 collapse of the global financial system and the subsequent economic downturn/debt crises have acted as a catalyst for growing anxiety around the increasing dispersion of incomes within most advanced economies. In an effort to show that "we are not 'all in it together'", the two professors have created The Chartbook of Income Inequality.
No one in Germany is allowed to get in the way of the sacrosanct exporters.
Ukraine, we are told, is infamous for its colorful proverbs and as the title suggests Citi's Matt King warns that emerging market (EM) bond investors may yet become familiar with more of them in coming weeks. Unfortunately Ukraine’s importance is greater than its economic or even geopolitical significance would suggest. Risk premia everywhere have been compressed by the prolonged force-feeding of central bank liquidity. EM in particular has benefited from enormous inflows. However, for developed market (DM), King believes even a serious deterioration in Ukraine still feels unlikely to really derail the serene march tighter we see in spreads – but even so, he warns there are some broader implications of the EM woes which investors would do well to be aware of as "drunkards know no danger".
There probably isn’t a more over-used phrase thrown across the media landscape than, “It’s different this time.” One can’t look at the financial markets, the political stage, and more without shaking ones head. Nothing seems to make sense. Yet if one wants to lazily answer, “It’s different this time.” Things become crystal clear. Water now seems to run uphill. The definition of words no longer mean what they once did. (we’re still marveling on what is – is) Free society means the loss of only a few freedoms per year, as opposed to everything at once. Work is a bad thing however, if someone else goes to work and pay for your things – then that’s good. You can keep your plan if you like your plan – but if we don’t like it – well – you can’t. The Federal Reserve would never monetize the debt – however if you’re a preferred dealer in the QE (quantitative easing) program – they’ll do it for you. These precarious times leave many scratching their heads. Expressed another way, When everyone is on the band wagon – except the band. You had better take notice.
The sovereign debt of the developed world has risen from approximately 80% of GDP to 110%, an additional $12 trillion of debt, while interest rates have fallen to nothing. A ‘normal’ short term interest rate is one that is in line with inflation, which has been an average of 2% for the period 2007-2013. Therefore we can roughly calculate that ‘citizen-savers’ of the world have lost $1.75 trillion in unreceived interest. This is nothing short of being an undeclared tax levied by the State. As the quantum of debt has increased, a rise in interest rates would bring hefty costs to the State; currently, interest outlay in the USA alone, at 2.5%, is $400 billion per annum. Any sustained interest rate rise with the continued level of deficit is not manageable without growth being greater than the yields paid. Simply put, interest rates cannot rise without high growth, therefore a ‘lost interest generation’ is unfolding.