"Russia Could Ditch Dollar In 2-3 Years"; Deputy PM Warns Nuclear Subs "Could Reach Any Country On Any Continent"Submitted by Tyler Durden on 09/30/2014 18:18 -0400
"Two to three years is enough, not only to launch [settlements in rubles], but also to complete these mechanisms," says Andrey Kostin, head of Russia’s second-biggest bank VTB, noting that the possibility of the US and EU widening sanctions to exclude Russia from the SWIFT global money transfer system would become “a point of no return” making any further dialog impossible. However, as Deputy Prime Minister Dmitri Rogozin explains in this interview, how Russia's military and industrial complex is responding to a growing threat from America. Russia is not responding with any talk about the nuclear button (at least not yet); but they are preparing for such an eventuality: "we are creating a nuclear submarine fleet... capable of reaching any country on any continent, if [USA] suddenly becomes the aggressor, and our top-most national interests come under threat," adding that Obama's coup has ushered in "the complete demise of the Ukrainian State."
The ultra high end of US housing is now sliding fast, and that unless some other central banks steps up and resumes the injections of some $100 billion in outside money into inflating asset prices such as stocks and billionaire mansions, then all bets are soon off.
Self-evidently, all the major economies are saturated with debt. Accordingly, central bank balance sheet expansion has lost its Keynesian magic entirely. Now the great sea of freshly minted liquidity simply fuels the carry trades as gamblers everywhere load up with any asset that generates a yield or short-run capital gain, and fund these bloated positions with cheap options and repo style finance. But here’s the obvious thing. Central banks can’t normalize interest rates - that is, allow the money markets to rise off the zero-bound - without triggering a violent unwind of the carry trades on which today’s massive asset inflation is built. On the other hand, they can no longer stimulate GDP growth, either, because the credit expansion channel to the main street economy of households and business is blocked by the reality of peak debt. Yes, the era of Keynesian money printing is over and done. But don’t wait for the small lady at the Fed to sing, either.
The bull case is not the recovery or the economy as it exists, it is the promise of one and the plausibility for that promise. Under that paradigm, the market doesn’t care whether orthodox economists are 'right', only that there is always next year. Other places in the world, however, are running out of “next year.” The greatest risk in investing under these conditions is the Greater Fool problem. Anyone using mainstream economic projections and thus expecting a bull market will be that Fool. That was what transpired in 2008 as the entire industry moved toward overdrive to convince anyone even thinking about mitigation or risk adjustments that it was 'no big deal'. Remember: "The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so." - Federal Reserve Chairman Ben Bernanke, June 9, 2008.
* Where is Venezuela's 366 tonnes of gold?
* Does Venezuela still control and own unencumbered it’s own gold reserves?
* Is any of the country's gold encumbered, loaned or leased to Goldman Sachs or other banks?
European stocks, U.S. equity index futures fall after Euro area PMI for Aug. missed ests., while bond yields for German, Spanish, U.K. debt fall. Copper rises with positive Chinese PMI data, while oil gains as OPEC discusses output cut. European health care stocks among largest underperformers as U.S. plans tighter rules on tax inversion M&A.
The present global financial ‘crisis’ began in 2007-8. It is not nearly over. And that simple fact is a problem. Not because of the life-choking misery it inflicts on the lives of millions who had no part in its creation, but because the chances of another crisis beginning before this one ends, is increasing. What ‘tools’ - those famous tools the central bankers are always telling us they have – will our dear leaders use to tackle a new crisis when all those tools are already being used to little or no positive effect on this one?
Desperate governments call for desperate measures. Unfortunately for us, citizens often end up paying for the mistakes of their governments. That’s not how it should be but, sometimes, that’s how it is. If and a when a government is no longer able to meet its obligations, capital controls, broad wealth confiscation measures, and other extreme burdens are often considered. Spanish bond yields just fell to their lowest levels in history but does that mean that your money is safe there? Absolutely not. It means that investors are complacent, not that Spain’s political risk has diminished. Portugal is in the same boat. While its borrowing costs continue to fall, its prospects for economic growth and its financial position continue to worsen. If you’ve got assets in Portugal then now would be a good time to contemplate how safe they really are. Unless you like bail-ins, that is.
The current environment is distinct from the period of 2009-2013 when governments and central banks were quasi-coordinated in providing gargantuan amounts of stimulus, and when the geo-tensions were only chirping modestly. This year, governments and central banks have focused more generally on domestic issues. This is good in theory, but it has splintered coordination into a quasi-fracturing of the global monetary system. Diverging policies serve as a trigger for capital flow movements. They are shaking the foundation of capital markets, which in turn is causing second order effects like a mini-contagion. Amplified volatility in FX and commodity markets are warning signs. They appear on the cusp of spilling more broadly into other markets, exposing the full size of the iceberg.
In today’s financialized economies, zero cost money has but one use: It gifts speculators with free COGS (cost of goods sold) on their carry trades. Indeed, today’s 10 basis point cut by the ECB is in itself screaming proof that central bankers are lost in a Keynesian dead-end. You see, Mario, no Frenchman worried about his job is going to buy a new car on credit just because his loan cost drops by a trivial $2 per month, nor will a rounding error improvement in business loan rates cause Italian companies parched for customers to stock up on more inventory or machines. In fact, at the zero bound the only place that today’s microscopic rate cut is meaningful is on the London hedge fund’s spread on German bunds yielding 97 bps—-which are now presumably fundable on repo at 10 bps less.
Sterling fell sharply yesterday as traders became nervous of a possible vote for Scottish independence. The referendum on Scottish independence from the United Kingdom takes place on Thursday 18th September.
While the referendum and the potential impact of an independent Scotland have been on the horizon for some time, the approaching vote in two weeks is causing upheaval for the British pound in currency markets, and also more general macro uncertainty in the regional economic and monetary system.
Draghi is a savvy political operator. He is fully aware of the limitations and consequences of a sovereign debt QE program. He knows that a central bank’s willingness to purchase a country’s debt (in ‘whatever –it-takes’ quantities), basically places an implicit cap on the price of a country’s funding. Such a program rids a government of fiscal discipline, while simultaneously eliminating the spikes in yields that would normally result. Complacency or fiscal stalemate ensues; enabled specifically by monetary actions. We expect Draghi to be dovish on Thursday, but it likely too presumptuous to expect any new measures.
The Central Bank policies of the last five years have damaged the capital markets to the point that the single most important item is no longer developments in the real world, but how Central banks will respond to said developments.
Capitalism gets into deep trouble when the price of financial assets becomes completely disconnected from economic reality and common sense. What ensues is rampant speculation in which financial gamblers careen from one hot money play to the next, leaving the financial system distorted and unstable - a proverbial train wreck waiting to happen. That’s where we are now.