http://www.zerohedge.com/fullrss2.xml/phonebook en The German 10 Year Bund Effectively a Call Option at 30 Basis Points http://www.zerohedge.com/news/2015-01-31/german-10-year-bund-effectively-call-option-30-basis-points <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">By&nbsp;<a href="http://www.econmatters.com/search/label/EconMatters">EconMatters</a></p> <p class="separator" style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal; clear: both; text-align: center;"><a href="http://1.bp.blogspot.com/-5W5pYFbC4lo/VM09t8s81FI/AAAAAAAAEmE/ILl0GZ7gp1c/s1600/th7GUJA451.jpg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img src="https://images-blogger-opensocial.googleusercontent.com/gadgets/proxy?url=http%3A%2F%2F1.bp.blogspot.com%2F-5W5pYFbC4lo%2FVM09t8s81FI%2FAAAAAAAAEmE%2FILl0GZ7gp1c%2Fs1600%2Fth7GUJA451.jpg&amp;container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" border="0" style="cursor: move;" /></a></p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;"><strong><span style="font-size: 12pt; line-height: 17.1200008392334px;">Bonds are not Stocks</span></strong></p> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">On Friday the German 10 Year Bund yield touched the 0.30 mark or 30 basis points, yeah that`s right the same instrument that was yielding 90 basis points in November of last year, a 140 basis points last May 2014, and 195 basis points at the beginning of 2014. It has gotten so ridiculous in the bond markets that I think investors have forgotten what bonds actually are as an asset class, they trade based on price appreciation like stocks, and this perverted mentality has completely ignored the risk component of what bonds represent as debt obligations. &nbsp;&nbsp;</p> <p style="margin: 0px;">&nbsp;</p> </div> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;"><strong><span style="font-size: 12pt; line-height: 17.1200008392334px;">German Core CPI expected to be 1.1% in 2015</span></strong></p> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">But the case of the German 10 year Bund has gotten so idiotic that all finance logic has been thrown out the window. Excluding food and energy, consumer prices are expected to increase by 1.1 percent year on year in Germany for 2015. Yes&nbsp;<a href="http://www.econmatters.com/2014/12/the-russia-mexico-opec-failed-agreement.html">energy has dropped 50%</a>&nbsp;and so the comps are skewing everyone`s inflation readings to the downside, this is the rationale for focusing on the core inflation readings historically because of the high volatility of these two categories. Once the bad year over year comps start coming out of the energy components all the inflation readings will start spiking up again late next year, but remember the German Bund yielding 30 basis points is for the duration of 10 years, not 3 months!</p> <p style="margin: 0px;">&nbsp;</p> <div style="text-align: center;"> <p style="margin: 0px;"><strong><em>Read More:&nbsp;<a href="http://www.econmatters.com/2015/01/the-bond-market-has-reached-tulip.html">The Bond Market Has Reached Tulip Bubble Proportions</a></em></strong></p> </div> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <p class="separator" style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal; clear: both; text-align: center;"><a href="http://1.bp.blogspot.com/-eaZ3aFdPUvA/VM096KUZUAI/AAAAAAAAEmM/2D95-mPTEjE/s1600/Germany%2B10-Year%2BBond%2BYield(15%2BMinutes)20150131134452.png" style="margin-left: 1em; margin-right: 1em;"><img src="https://images-blogger-opensocial.googleusercontent.com/gadgets/proxy?url=http%3A%2F%2F1.bp.blogspot.com%2F-eaZ3aFdPUvA%2FVM096KUZUAI%2FAAAAAAAAEmM%2F2D95-mPTEjE%2Fs1600%2FGermany%252B10-Year%252BBond%252BYield(15%252BMinutes)20150131134452.png&amp;container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="624" height="640" border="0" style="cursor: move;" /></a></p> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;"><strong><span style="font-size: 12pt; line-height: 17.1200008392334px;"><br /></span></strong><strong><span style="font-size: 12pt; line-height: 17.1200008392334px;">Bund Yields in the Financial Crisis</span></strong></p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">There is talk about slow growth in Europe responsible for these low yields, but during the financial crisis of 2008/2009 the German 10 year yield was between 3% and 4%, and this was a time of the global recession where oil was trading as low as $33 a barrel, things were much worse during the financial crisis compared to today.</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <p class="separator" style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal; clear: both; text-align: center;"><a href="http://2.bp.blogspot.com/-aKa-BVWS6D4/VM0-L098siI/AAAAAAAAEmU/gZG6ZHvX0BI/s1600/Germany%2B10-Year%2BBond%2BYield(Weekly)20150131134511.png" style="margin-left: 1em; margin-right: 1em;"><img src="https://images-blogger-opensocial.googleusercontent.com/gadgets/proxy?url=http%3A%2F%2F2.bp.blogspot.com%2F-aKa-BVWS6D4%2FVM0-L098siI%2FAAAAAAAAEmU%2FgZG6ZHvX0BI%2Fs1600%2FGermany%252B10-Year%252BBond%252BYield(Weekly)20150131134511.png&amp;container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="624" height="640" border="0" style="cursor: move;" /></a></p> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;"><strong><span style="font-size: 12pt; line-height: 17.1200008392334px;"><br /></span></strong><strong><span style="font-size: 12pt; line-height: 17.1200008392334px;">ZIRP is the Elephant in the Room</span></strong></p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">The real reason the German 10 year yield has dropped so dramatically is the abundance of cheap money in the financial system, all the big financial institutions are basically borrowing at ZIRP levels from government central banks, levering up their balance sheets, and taking advantage of this delta or difference in abnormally low borrowing costs and government bond yields, without any concern or notion of the risks associated with this strategy.</p> <p style="margin: 0px;">&nbsp;</p> <div style="text-align: center;"> <p style="margin: 0px;"><em><strong>Read More:&nbsp;<a href="http://www.econmatters.com/2014/12/the-russia-mexico-opec-failed-agreement.html">The Fed Has to Sell Treasury Holdings Back to Marketplace</a></strong></em></p> </div> <div style="text-align: center;"> <p style="margin: 0px;"><em><br /></em></p> </div> </div> <p class="separator" style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal; clear: both; text-align: center;"><a href="http://3.bp.blogspot.com/-KauwrZAtLc0/VM0_lc0tilI/AAAAAAAAEmo/t_RqH1Lyew8/s1600/euro-area-interest-rate2.png" style="margin-left: 1em; margin-right: 1em;"><img src="https://images-blogger-opensocial.googleusercontent.com/gadgets/proxy?url=http%3A%2F%2F3.bp.blogspot.com%2F-KauwrZAtLc0%2FVM0_lc0tilI%2FAAAAAAAAEmo%2Ft_RqH1Lyew8%2Fs1600%2Feuro-area-interest-rate2.png&amp;container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="640" height="291" border="0" style="cursor: move;" /></a></p> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">Remember these are 10 year bond durations we are talking about, and not 3 months! Do the central banks themselves think these are wise investments for financial institutions to be taking on their balance sheets at these prices and yield levels? They have to know, we can see the direct correlation of the ECB`s equivalent Fed Funds Rate dropping from 0.25 to 0.15 to 0.05 and the yield crashing in the German 10 Year Bund. But again this is for a duration of 10 years, for instance just 6 short years ago the ECB main borrowing rate was set at 3.75%.</p> <p style="margin: 0px;">&nbsp;</p> <div style="text-align: center;"> <p style="margin: 0px;"><strong><em>Read More:&nbsp;<a href="http://www.econmatters.com/2014/12/wall-street-will-always-find-excuse-for.html">Wall Street Will Always Find An Excuse For Not Raising Rates</a></em></strong></p> </div> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <p class="separator" style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal; clear: both; text-align: center;"><a href="http://3.bp.blogspot.com/-wonbQaS4Dk4/VM0_2Dzub_I/AAAAAAAAEmw/0zyHOWDTCnY/s1600/euro-area-interest-rate3.png" style="margin-left: 1em; margin-right: 1em;"><img src="https://images-blogger-opensocial.googleusercontent.com/gadgets/proxy?url=http%3A%2F%2F3.bp.blogspot.com%2F-wonbQaS4Dk4%2FVM0_2Dzub_I%2FAAAAAAAAEmw%2F0zyHOWDTCnY%2Fs1600%2Feuro-area-interest-rate3.png&amp;container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="640" height="292" border="0" style="cursor: move;" /></a></p> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;"><strong><span style="font-size: 12pt; line-height: 17.1200008392334px;">Unintended Consequences</span></strong></p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">Does the ECB realistically think about the long term consequences of these financial institutions levering up their balance sheets with German 10 year Bunds trading with a 30 basis points yield? They have to realize that their policies are directly incentivizing this insane, irresponsible investing behavior with fallout being far more detrimental to the entire financial system of the European Union than a Greek exit, or a slow growth environment.&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">All of these European Bonds are going to be extensively underwater from current price and yield levels for any holders at anywhere near these valuation metrics 5 and 10 years from now. This is like buying real estate in a hot real estate market, with no down payment loans, no documentation loans, and at zero percent borrowing costs with no borrowing limits, it is the housing crisis on steroids.</p> <p style="margin: 0px;">&nbsp;</p> <div style="text-align: center;"> <p style="margin: 0px;"><strong><em>Read More:&nbsp;<a href="http://www.econmatters.com/2014/10/the-5year-bond-is-emblematic-of.html">The 5–Year Bond is Emblematic of Careless Risk Taking in Bond Markets</a></em></strong></p> </div> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">I have heard the response that these financial institutions believe that the ECB will buy these underwater bonds in a bailout scenario so they don`t really worry about traditional bond valuation metrics. Really the ECB is going to be able to buy all these bonds from them without steep haircuts? Why would any rationale central bank even go down this road in the first place, kicking the can down the road is one thing, going full boar into a suicide financial implosion is another matter entirely?</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;"><strong><span style="font-size: 12pt; line-height: 17.1200008392334px;">Out of the Money Prices versus Risk under Normal Mean Reversion of 10 Year Average</span></strong></p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">At 30 basis points yield, a short on this German Bund via the futures market is basically a call option on the utter destruction of this Massive Yield Chasing Strategy on behalf of financial institutions that has taken place over the last few years.</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">Seriously what is the downside risk of this trade, does the German Bund go down to yielding only 15 basis points? And what after the deflationary cycle the inflationary, or even hyper-inflationary cycle takes off? Remember it isn`t like Germany doesn`t remember the hyper-inflationary cycle. So what is the upside of this trade, it really is off the charts for the next 10 year period from a risk reward standpoint.&nbsp;</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <p class="separator" style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal; clear: both; text-align: center;"><a href="http://1.bp.blogspot.com/-dP0COlBWYcc/VM0-xsOgmqI/AAAAAAAAEmg/0PfSEMFoY2s/s1600/Germany%2B10-Year%2BBond%2BYield(Monthly)20150131134536.png" style="margin-left: 1em; margin-right: 1em;"><img src="https://images-blogger-opensocial.googleusercontent.com/gadgets/proxy?url=http%3A%2F%2F1.bp.blogspot.com%2F-dP0COlBWYcc%2FVM0-xsOgmqI%2FAAAAAAAAEmg%2F0PfSEMFoY2s%2Fs1600%2FGermany%252B10-Year%252BBond%252BYield(Monthly)20150131134536.png&amp;container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="624" height="640" border="0" style="cursor: move;" /></a></p> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> <p style="margin: 0px;">Just to put some rough numbers here let`s say 15 basis points risk, and 400 plus basis points reward on this trade scenario over the duration of this 10 year bond. Actually the sound investment for financial institutions is exactly the opposite of the one they are so aggressively seeking out at the moment in the bond markets. Remember these positions often sit on financial institutions balance sheets for years if not decades in some cases. I can just imagine the write downs on these Yield Chasing Trading Positions at the large financial institutions in the future.</p> </div> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">&nbsp;</p> </div> <p class="separator" style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal; clear: both; text-align: center;"><a href="http://1.bp.blogspot.com/-9vF87RlrvQA/VM1AFqn0-qI/AAAAAAAAEm4/OfPbVSaSYEo/s1600/euro-area-interest-rate.png" style="margin-left: 1em; margin-right: 1em;"><img src="https://images-blogger-opensocial.googleusercontent.com/gadgets/proxy?url=http%3A%2F%2F1.bp.blogspot.com%2F-9vF87RlrvQA%2FVM1AFqn0-qI%2FAAAAAAAAEm4%2FOfPbVSaSYEo%2Fs1600%2Feuro-area-interest-rate.png&amp;container=blogger&amp;gadget=a&amp;rewriteMime=image%2F*" width="640" height="292" border="0" style="cursor: move;" /></a></p> <div class="MsoNormal" style="font-family: 'Times New Roman'; font-size: medium; line-height: normal;"> <p style="margin: 0px;">There is no way in hell the German 10 Year Bund is trading at 30 basis points in five years’ time, let alone in ten years. When bond yields become so compressed that they represent far out of the money call option`s prices, but are not even premium priced for a normal reversion to the mean of the last 10 year average yields of the bonds, this sets up the entire financial system for systemic risk on a grand scale that central banks better start focusing on right now. We have a problem central banks, and it isn`t the problem you are worrying about, forget sluggish growth, we have the biggest financial bubble brewing right now in the largest financial asset class in the world, and the German 10 Year Bund yielding 30 basis points is a disaster waiting to happen for any investor levering up their balance sheets with this ridiculous bond investment.</p> </div> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">&nbsp;</p> <p style="margin: 0px; font-family: 'Times New Roman'; font-size: medium; line-height: normal;">©&nbsp;<a href="http://www.econmatters.com/">EconMatters</a>&nbsp;All Rights Reserved |&nbsp;<a href="http://www.facebook.com/EconMatters">Facebook</a>&nbsp;|&nbsp;<a href="http://twitter.com/#!/EconMatters">Twitter</a>&nbsp;|&nbsp;<a href="http://feedburner.google.com/fb/a/mailverify?uri=EconForecast">Email Subscribe</a>&nbsp;|&nbsp;<a href="http://astore.amazon.com/econforecast-20?_encoding=UTF8&amp;node=80">Kindle</a></p> http://www.zerohedge.com/news/2015-01-31/german-10-year-bund-effectively-call-option-30-basis-points#comments 10 Year Bond Bond Borrowing Costs Central Banks Consumer Prices Core CPI CPI European Union Futures market Germany Mean Reversion Real estate Recession Twitter Twitter Volatility Sun, 01 Feb 2015 03:48:38 +0000 EconMatters 501261 at http://www.zerohedge.com Socialist Exceptionalism http://www.zerohedge.com/news/2015-01-31/socialist-exceptionalism <p><em>"In the minds of the statists, "Government Works Better" and 'things' work at the surface; but at the core, it's a disaster... The <strong>Americans that look to the government to 'save' them</strong> - and even gleefully thank the government for helping bail them out - <strong>fail to realize that it was the government that f##ked them in the first place</strong>..."</em></p> <p>&nbsp;</p> <p>Simply put, <strong><em>"debt-financed socialism and corporatism isn't working"</em></strong> and a day of reckoning is coming...</p> <p><iframe src="https://www.youtube.com/embed/3WddN1Qx3hg" width="560" height="315" frameborder="0"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="797" height="466" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150131_socialism.jpg?1422743085" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/socialist-exceptionalism#comments Fail Sun, 01 Feb 2015 03:00:16 +0000 Tyler Durden 501259 at http://www.zerohedge.com How Ukraine Can Save China From Its Existential Threat (Spoiler Alert: Girls) http://www.zerohedge.com/news/2015-01-31/how-ukraine-can-save-china-its-existential-threat-spoiler-alert-girls <p><strong>In China last year, just over 115 boys were born for every 100 girls</strong>, and since sonogram technology was introduced to China in the 1980s - allowing families to determine a baby&rsquo;s gender during the first few months of pregnancy - the gender imbalance in the world&#39;s largest economy has grown colossal. However, <a href="http://mp.weixin.qq.com/s?__biz=MjM5MjMxMTY0MA==&amp;mid=203360550&amp;idx=2&amp;sn=f8598eb191de673f6b49bf5f38ffd094#rd">as Beijing News recently explained</a>, <strong>there may be a solution for China&#39;s 34 million woman shortfall... Ukrainian women, as &quot;their economy is depressed but beautiful women are running rampant.&quot;</strong> While <a href="https://foreignpolicy.com/2015/01/28/ukrainian-brides-may-solve-chinas-gender-gap-chinese-media-claims/">Foreign Policy notes</a> that the best destinations for Chinese men to find spouses are Japan and South Korea, there appears to be plenty of fish in the sea, at least outside China. Oh the wonders of Ricardian comparative advantage - <em>Ukraine needs an export business (and produces - from what we have heard - attractive women) and China needs to import &#39;women&#39; (to fill its massive shortfall)</em>. Global economic growth problems, solved...</p> <p>&nbsp;</p> <p><a href="https://foreignpolicy.com/2015/01/28/ukrainian-brides-may-solve-chinas-gender-gap-chinese-media-claims/"><em>As Foreign Policy reports,</em></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><u><strong>&quot;Their economy is depressed but beautiful women are running rampant,&rdquo; the state-run Beijing News reported Jan. 22 in a story suggesting that Ukrainian women could be the solution to China&rsquo;s woman shortage.</strong></u> The piece, illustrated with charts, bubbles, and cartoon illustrations of lonely Chinese men, was a breezy attempt to make light of China&rsquo;s missing women and the severe gender imbalance caused by couples aborting female fetuses in favor of boys. So widespread is the practice that it has badly skewed the country&rsquo;s sex ratio: The global average is around 105 boys born for every 100 girls; but in China last year, just over 115 boys were born for every 100 girls.</p> <p>&nbsp;</p> <p><strong>The problem has been brewing since sonogram technology was introduced to China in the 1980s, allowing families to determine a baby&rsquo;s gender during the first few months of pregnancy. </strong>Combined with the country&rsquo;s restrictive family-planning policies &mdash; until recently, most urban families were only allowed a single child in order to curtail population growth &mdash; and a traditional preference for sons, the newfound ability to practice sex-selective abortion has resulted in one of the world&rsquo;s highest gender imbalances. The topic flared anew in the public mind after the National Bureau of Statistics announced the latest population figures on Jan. 20, <strong>noting that at the end of 2014 China had 701 million men and 667 million women, a shortfall of nearly 34 million women.</strong></p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p><strong>China is not alone in these cultural predilections. </strong>Indian social scientist Ravinder Kaur wrote in an August 2013 paper that &ldquo;the common response&rdquo; in both China and India &ldquo;when the connection between sex selection and bride shortage is pointed out is that rather than allow daughters to be born, they would resort to importing brides.&rdquo; Kaur also wrote that bride shortages in China and India can lead to &ldquo;kidnap marriage,&rdquo; which includes &ldquo;deception and enticement&rdquo; and &ldquo;luring women for marriage into high sex ratio areas.&rdquo;</p> <p>&nbsp;</p> <p><strong>To address the problem, China has resorted to propaganda campaigns extolling the virtues of daughters and offering cash incentives for couples who have them. </strong>These measures have spurred more female births, but not enough &mdash; <u><strong>China&rsquo;s gender imbalance is still &ldquo;the most serious in the world and has lasted for the longest time and affected the largest number of people,&rdquo; China&rsquo;s National Health and Family Planning Commission said in a Jan. 21 statement.</strong></u></p> </blockquote> <p>Beijing News provided a tongue-in-cheek infographic explaining the problems and potential solutions... (our Chinese is not great but the pictures seemed to speak for themselves)...</p> <p>&nbsp;</p> <p>Encourage feather-boah tickling parties...?</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ukraine1.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ukraine1.jpg" style="width: 599px; height: 382px;" /></a></p> <p>&nbsp;</p> <p>or marry a Ukrainian woman...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ukraine2.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ukraine2.jpg" style="width: 600px; height: 354px;" /></a></p> <p>&nbsp;</p> <p>*&nbsp; *&nbsp; *</p> <p>Be careful though when &#39;googling&#39; Mail Order Brides - Ukraine...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ukraine4.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ukraine4.jpg" style="width: 600px; height: 500px;" /></a></p> <p>&nbsp;</p> <p>Because, from what we are told, not all Ukrainian women look like this...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ukraine3.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ukraine3.jpg" style="width: 599px; height: 205px;" /></a></p> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="300" height="250" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150131_ukraine4.jpg?1422742349" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/how-ukraine-can-save-china-its-existential-threat-spoiler-alert-girls#comments China India Japan Ukraine Sun, 01 Feb 2015 02:00:15 +0000 Tyler Durden 501258 at http://www.zerohedge.com What Do They Know? Why Are So Many Of The Super Wealthy Preparing Bug Out Locations? http://www.zerohedge.com/news/2015-01-31/what-do-they-know-why-are-so-many-super-wealthy-preparing-bug-out-locations <p><a href="http://endoftheamericandream.com/archives/what-do-they-know-why-are-so-many-of-the-super-wealthy-preparing-bug-out-locations"><em>Submitted by Michael Snyder via The End of The American Dream blog</em></a>,</p> <p><strong>A lot of ultra-rich people are quietly preparing to &ldquo;bug out&rdquo; when the time comes.&nbsp;</strong> They are buying survival properties, they are buying farms in far away countries and they are buying deep underground bunkers.&nbsp; In fact, a prominent insider at the World Economic Forum in Davos, Switzerland says that &ldquo;very powerful people are telling us they&rsquo;re scared&rdquo; and he shocked his audience when he revealed that he knows &ldquo;hedge fund managers all over the world who are buying airstrips and farms in places like New Zealand&rdquo;.</p> <p><strong>So what do they know?&nbsp;</strong> Why are so many of the super wealthy suddenly preparing bug out locations?&nbsp; When the elite of the world start preparing for doomsday, that is a very troubling sign.&nbsp; And right now the elite appear to be quietly preparing for disaster like never before.</p> <p>The insider that I mentioned above is named Robert Johnson.&nbsp; He is the president of the Institute of New Economic Thinking, and what he recently told a packed audience in Davos&nbsp;<a href="http://www.theguardian.com/public-leaders-network/2015/jan/23/nervous-super-rich-planning-escapes-davos-2015" target="_blank" title="is making headlines all over the planet">is making headlines all over the planet</a>&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>With growing inequality and the civil unrest from Ferguson and the Occupy protests fresh in people&rsquo;s mind, the world&rsquo;s super rich are already preparing for the consequences. At a packed session in Davos, former hedge fund director Robert Johnson revealed that worried hedge fund managers were already planning their escapes. &ldquo;<strong>I know hedge fund managers all over the world who are buying airstrips and farms in places like New Zealand because they think they need a getaway</strong>,&rdquo; he said.</p> </blockquote> <p>But he didn&rsquo;t stop there.</p> <p>In a separate interview, Johnson admitted that &ldquo;very powerful people are telling us they&rsquo;re scared&rdquo; and that the elite &ldquo;see increasing evidence of social instability and violence&rdquo;.&nbsp; You can watch <a href="https://www.youtube.com/embed/Sriuwxwols8" target="_blank" title="video of the entire interview">video of the entire interview</a> below&hellip;</p> <p><center> <p><iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/Sriuwxwols8" width="560"></iframe></p> <p></p></center> </p><p>Wow.</p> <p><strong>And Johnson is not the only one saying these things.</strong></p> <p>The following quote comes from&nbsp;<a href="http://www.mirror.co.uk/news/world-news/panicked-super-rich-buying-boltholes-5044084" target="_blank" title="the Mirror">the Mirror</a>&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>His comments were backed up by Stewart Wallis, executive director of the New Economics Foundation, who when asked about the comments told CNBC Africa: &ldquo;Getaway cars the airstrips in New Zealand and all that sort of thing, so basically a way to get off.&nbsp; <strong>If they can get off, onto another planet, some of them would</strong>.&rdquo;</p> </blockquote> <p>Of course not all elitists are planning to jet off to the other side of the globe.</p> <p><strong>Some are planning to go deep underground when things hit the fan.</strong></p> <p><strong><a href="http://www.zerohedge.com/news/2014-12-22/doom-boom-us-families-increasingly-prepared-modern-day-apocalypse">For example, there is an underground decommissioned missile silo in Kansas that has been transformed into luxury survival condos by a real estate developer.&nbsp; </a></strong>The following is from a <a href="http://www.wsj.com/articles/for-sale-renovated-luxury-condo-can-survive-nuclear-attack-1415575922" target="_blank" title="Wall Street Journal article">Wall Street Journal article</a> about those condos&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The so-called Survival Condo complex boasts full and half-floor units that cost $1.5 million to $3 million each. The building can accommodate up to 75 people, and buyers include doctors, scientists and entrepreneurs, says developer Larry Hall.</p> <p>&nbsp;</p> <p>Mr. Hall, who lives in a Denver suburb, bought his first missile-silo site in Kansas in 2008 and completed construction in December 2012. A year later, he says, the development had sold out. Work on the second security compound&mdash;the one where Mr. Allen bought a unit&mdash;is under way, and Mr. Hall says he is considering additional sites in Texas and elsewhere.</p> <p>&nbsp;</p> <p>As former nuclear missile sites built under the supervision of the Army Corps of Engineers, the structures were originally designed to withstand a direct hit by a nuclear bomb. At ground level, they can be sealed up by two armored doors weighing 16,000 pounds each. Mr. Hall added sophisticated water and air-treatment facilities, state-of-the-art computer network technology and several alternate power generation capabilities.</p> </blockquote> <p>Other wealthy individuals are turning their current homes into high tech security fortresses.</p> <p>Those that are involved in providing these kinds of services have seen business&nbsp;<a href="http://www.dailymail.co.uk/news/article-2515221/Sci-Fi-home-security-systems-rich-The-rise-billionaire-bunker.html" target="_blank" title="absolutely soar">absolutely soar</a> in recent years&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Wealthy families across the country are shelling out millions to protect their loved ones from intruders, natural disasters or the apocalypse as home security goes increasingly sci-fi.</p> <p>&nbsp;</p> <p>Companies that provide concerned homeowners with futuristic gadgets &ndash; and a priceless peace of mind &ndash; have revealed the growing demand of costly bunkers, passageways, panic rooms and recognition software.</p> <p>&nbsp;</p> <p>Chris Pollack &ndash; president of Pollack+Partners, a design and construction adviser in Purchase, New York &ndash; told <a href="http://www.forbes.com/sites/morganbrennan/2013/11/27/billionaire-bunkers-beyond-the-panic-room-home-security-goes-sci-fi/?utm_campaign=forbestwittersf&amp;utm_source=twitter&amp;utm_medium=social" rel="nofollow" target="_blank" title="Forbes ">Forbes </a>that, while security has always been important for the wealthiest clients, the spending on home security has noticeably grown in the past five years.</p> <p>&nbsp;</p> <p>And the options available on the market are like something from a Bond film.</p> </blockquote> <p>For much more on this, please see my previous article entitled &ldquo;<a href="http://endoftheamericandream.com/archives/why-are-so-many-wealthy-people-building-futuristic-high-tech-security-bunkers" title="Why Are So Many Wealthy People Building Futuristic High Tech Security Bunkers?">Why Are So Many Wealthy People Building Futuristic High Tech Security Bunkers?</a>&rdquo;</p> <p><strong>So why are all of these wealthy people so alarmed?</strong></p> <p>Well, the truth is that they can see what is happening.</p> <p>They can see that millions of people <a href="http://theeconomiccollapseblog.com/archives/27-facts-show-middle-class-fared-6-years-barack-obama" target="_blank" title="are falling out of the middle class">are falling out of the middle class</a>.&nbsp; They can see that society is breaking down <a href="http://endoftheamericandream.com/archives/category/moral-crisis" title="in thousands of different ways">in thousands of different ways</a>.&nbsp; They can see that anger and frustration are rising to unprecedented levels.&nbsp; And they can see that things are likely to boil over once the next major economic crisis strikes.</p> <p>Even though the economy is still fairly stable for the moment, signs of increasing economic suffering are everywhere.&nbsp; For example,&nbsp;<a href="http://www.latimes.com/local/california/la-me-homeless-encampments-20150125-story.html" target="_blank" title="the Los Angeles Times">the Los Angeles Times</a> is reporting that homeless encampments are rapidly spreading throughout the Los Angeles area&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Over the last two years, street encampments have jumped their historic boundaries in downtown Los Angeles, lining freeways and filling underpasses from Echo Park to South Los Angeles. The Los Angeles Homeless Services Authority, a city-county agency, received 767 calls about street encampments in 2014, up 60% from the 479 in 2013.</p> </blockquote> <p><strong>We live at a time when almost everyone is getting poorer <a href="http://www.shtfplan.com/headline-news/this-chart-tells-a-story-americas-middle-class-thrived-after-wwii-and-died-under-obama_01272015" target="_blank" title="except for the elite">except for the elite</a>.&nbsp;</strong> The top 1 percent now have close to 50 percent of the wealth in the entire world, and each year wealth becomes even more concentrated in their hands.</p> <p>The elite know that eventually a breaking point is going to come.&nbsp; Those that are smart don&rsquo;t want to be around when that happens.</p> <p>And we got a few clues about what things might look like what that time comes from the recent &ldquo;snow scare&rdquo; in New York.&nbsp; Frightened consumers wiped out supplies of bread, milk and eggs within just a few hours.&nbsp; People started to take advantage of one another, even the journalists seemed like they were on the verge of panic, <a href="http://www.bbc.com/news/world-us-canada-30996010" target="_blank" title="and virtually the entire city shut down">and virtually the entire city shut down</a>.</p> <p>All of this over just a few snowflakes.</p> <p>So what is going to happen when we have a real crisis?</p> <p><strong>If the elite are preparing to bug out, it is hard to blame them.</strong></p> <p>I wouldn&rsquo;t want to be right in the middle of a volcano when it erupts either.</p> <p><strong>Life is about to dramatically change, and signs of the coming storm are everywhere.</strong></p> <p>I hope that you are getting prepared for what is about to hit us while you still can.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="469" height="386" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150131_bunker.jpg?1422737648" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/what-do-they-know-why-are-so-many-super-wealthy-preparing-bug-out-locations#comments Bond Davos headlines New Zealand Real estate Switzerland Wall Street Journal Sun, 01 Feb 2015 01:15:15 +0000 Tyler Durden 501256 at http://www.zerohedge.com 16% Of Global Government Bonds Now Have A Negative Yield: Here Is Who's Buying It http://www.zerohedge.com/news/2015-01-31/16-global-government-bonds-now-have-negative-yield-here-whos-buying-it <p>A week ago <a href="http://www.zerohedge.com/news/2015-01-24/how-mario-draghi-unleashed-14-trillion-negative-interest-rate-tsunami">many were surprised to learn </a>that in his attempt to "fight deflation", the ECB's Mario Draghi unleashed the biggest deflationary wave of all time, when in the aftermath of the ECB's NIRP policy, and subsequently QE, an unprecedented €1.4 trillion in European debt with a maturity of more than 1 year traded down to subzero, as in negative, yields. </p> <p>But what happens if one expands the Eurozone NIRP universe to include the debt of other countries including Japan, Denmark, Sweden, Switzerland and so on? Conveniently, JPM has done the analysis and finds that a mindblowing $3.<span style="text-decoration: underline;"><em><strong>6 trillion of government debt </strong></em></span>traded with a negative yield as recently as last week. This represents 16% of the JPM Global Government Bond Index, <strong>or in other words </strong><span style="text-decoration: underline;">nearly a fifth</span><strong> of all global government debt is now trading with a negative yield, meaning investors pay sovereigns, using other people's money of course, for the privilege of buying their issuance</strong>!</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/01-overflow/Global%20NIRP.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/01-overflow/Global%20NIRP_0.jpg" width="600" height="623" /></a></p> <p>JPM's full take: </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>There is currently €1.5tr or $1.7tr of Euro area government bonds of greater than one year maturity trading with negative nominal yields, almost all of them of core euro governments of up to 5 years maturity. This figure rises to $1.8tr if one adds $16bn of Swedish, $60bn of Swiss and $45bn of Danish government bonds currently trading with a negative yield. <strong>Almost all Japanese government bonds are trading with positive yields this week, but last week around $1.8tr of them were trading with a negative yield. </strong>So the total universe of government bonds traded with a <strong>negative yield was $3.6tr last week or 16% of the JPM Global Government Bond Index</strong>.</p> </blockquote> <p>The logical follow up question: as the entire world appears slowly but surely headed to a uniform NIRP platform, where every single sovereign's debt will have a negative yield thanks to one or more central banks' guarantees that said debt will be monetized no matter what (those curious what happens when there is even a faint doubt if a given nation's Treasurys <em><span style="text-decoration: underline;"><strong>won't</strong></span></em> be backstopped and purchased by a central bank, just look at what happened to Greek bonds this past week), why do investors keep dumping their cash in securities that have a negative carry? </p> <p>Here again courtesy of JPM's Nikolaos Panigirtzoglou, are six investor classes which, even with US stocks trading at the <em>low, low </em>forward GAAP PE of a modest 20x, prefer to incentivise governments around the globe to issue <em>even "<strong>moar</strong>" debt</em>, in the process making a global debt crisis that much worse, as the stock of government debt rises to truly catastrophic proportions.</p> <ol> <li>Investors who fear or expect deflation tend to find nominal bonds with even negative yields attractive as long as expected deflation makes real yields positive. In a deflationary environment investors tend to shift away from real into nominal assets. During the previous two decades in Japan, this took the form of a shift away from equities and real estate into cash and nominal JGBs.</li> <li>Investors who speculate on currency appreciation, for example investors buying Swiss or Danish government bonds to speculate on CHF or DKK currency appreciation.</li> <li>Investors who expect capital gains from central bank easing i.e. rate cuts or QE. For example, investors who have been buying euro area bonds over the past six&nbsp; months in anticipation of ECB rate cuts and QE, have seen strong capital gains already and some of them hold on to their investments despite negative yields as they expect further capital gains. Another example is investors buying Swedish bonds currently to speculate on Riksbank cutting its repo rate to negative over the coming months.</li> <li>Central banks can buy bonds with negative yields. For example, the ECB stated that its QE program will encompass purchases of nominal bonds with negative yields. <strong>The ECB funds its bond purchases at a depo rate of -20bp so buying bonds with slightly negative yields is still a positive carry trade</strong>. The BoJ bought government debt securities at negative yields in recent months.</li> <li>Indexed or passive funds have to buy bonds with negative yields. This universe is considerable and has been growing due to an increasing shift towards passive investing. In the US the universe of bond and hybrid mutual funds that are passive is $375bn or 7.8% of all bond and hybrid mutual funds. Extrapolating this to the global bond and hybrid mutual fund universe of $11.5tr implies a passive bond and hybrid mutual fund universe of $900bn. And this excludes bond ETFs, a $350bn universe globally. Admittedly only a portion of these passive bond funds invest in government bonds only, but this portion is significant. In the case of bond ETFs for example we note that $150bn out of $350bn of bond ETFs invest in government bonds only.</li> <li>Banks buy bonds with negative yields to escape negative depo rates such as those by the ECB, SNB and the Danish central bank. There is currently a large amount of €220bn of reserves subjected to negative interest rates and this amount looks set to grow exponentially due to ECB's QE (this €220bn includes the ECB’s excess reserves, Danish central bank’s certificates of deposits and Swiss sight deposits subjected to a negative depo rate). And the recent experience in Switzerland shows that even a small amount of reserves subjected to negative interest rates can have a big impact on bond yields. For example, there are CHF380bn of sight deposits at the SNB’s balance sheet but only a small portion of around 10%-15% is subjected to the punitive -75bp depo rate. This is because this charge is only levied above a threshold which is 20 times the minimum reserve requirement. Most Swiss banks including the two biggest are said to be below this threshold. But foreign banks are more likely to be subjected to the negative depo rate. This is also true for financial institutions that do not have&nbsp; inimum reserve requirements, such as insurance companies. These domestic financial institutions are subjected to a fixed threshold of only CHF10m, above which the negative depo rate will be applied. As of the end of December, foreign banks had CHF17bn of sight deposits with the SNB while non-bank domestic institutions had CHF33bn of deposits. At a depo rate of -75bp these CHF50bn of sight deposits could cost CHF375m per annum to their owners. This is enough for these institutions to rush to get rid of these deposits by purchasing bonds with yields as low as -75bp in order to reduce this loss. Most likely they purchase these bonds from banks not subjected to negative depo rate. As a result, 7-year Swiss government bond yields declined to as low as -67bp last week. <p>In addition to negative depo rates, commercial banks still have a large gap between deposits and loans, meaning that they need to invest a large amount of excess deposits into securities. A big portion of this liquidity is invested in short-dated/intermediate government bonds of 2-5 year maturity given banks’ reluctance to take duration risk as it would compound the mismatch between asset and liabilities, given zero risk weighting for government bonds and given the liquidity coverage ratio regulation which forces commercial banks to buy high-quality government-related bonds.</p></li> </ol> <p>Of note: in their infinite wisdom, regulators continue to keep government debt at a "<em>zero risk weighting</em>", which is perhaps the biggest self-fulifilling prophecy ever and one which is only valid as long as the weakest link in the "<em>central banks are infallible"</em> chain holds. Because a few more episodes like the SNB's shocking, and <em>confidence-crushing,</em> reversal in January, and the faith in central banker omnipotence will slowly but surely start to evaporate, and as it goes, it will also reveal just how much <em><strong>risk </strong></em>there truly is in this biggest "<em>frontrun-the-central-banks</em>" bandwagon trade of all time.</p> <p>In the meantime, prepare for much more laughter as well as sheer horror, as such until recently Onionesque market dislocations as <em>negative interest rate mortgages </em>(<a href="http://www.zerohedge.com/news/2015-01-30/denmark-you-are-now-paid-take-out-mortgage">now available in Denmark</a>, soon everywhere else) become an ubiquitous feature of a broken financial system now clearly in its terminal phase, where prudent behavior is punished outright, while spending money one doesn't have, and will <em>never </em>be able to repay, becomes the most rewarded activity.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="759" height="788" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/Global%20NIRP.jpg?1422752645" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/16-global-government-bonds-now-have-negative-yield-here-whos-buying-it#comments Bond Carry Trade Central Banks Eurozone Excess Reserves fixed GAAP Insurance Companies Japan Real estate Sovereigns Swiss Banks Switzerland Sun, 01 Feb 2015 01:04:13 +0000 Tyler Durden 501260 at http://www.zerohedge.com "King Dollar" Is Crushing 'Recovery'Dreams, 87% Of US Companies Have Guided Lower http://www.zerohedge.com/news/2015-01-31/king-dollar-crushing-recoverydreams-87-us-companies-have-guided-lower <p><em><a href="http://www.zerohedge.com/news/2015-01-24/chart-day-souring-mothers-milk-edition">The &#39;souring&#39; of the mother&#39;s milk of stock markets continues</a>.</em> Management guidance and commentary implies 3-5pp impact due to &#39;king dollar&#39; FX headwinds as an <strong>astounding 87% of companies guided below consensus expectations for next quarter</strong>. Bottom-up consensus 2015 EPS estimates were cut by 4% during January, and, as Goldman Sachs warns, <strong>4Q EPS is tracking 7% below the consensus estimate at the start of reporting season</strong>. Finally, and perhaps most worrisome, granular bottom-up consensus is below top-down &#39;strategist&#39; consensus for the first time since 2009... as the <strong>gap between Forward P/E valuations and long-term growth is as wide as it has ever been</strong>.</p> <p><strong>&quot;King Dollar&quot; is not &#39;unambiguously good&#39; for America...</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Revenue results are correlated to dollar strengthening,</strong> which has led to weaker revenue results and lower forward guidance that incorporates the FX headwind.</p> <p>&nbsp;</p> <p><img height="428" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk2.jpg" width="600" /></p> <p>&nbsp;</p> <p>Anecdotally, management commentary implies the dollar strengthening will lower revenue growth by 300-500 bp. Foreign sales accounted for 33% of aggregate revenue for the S&amp;P 500 in 2013.</p> <p>&nbsp;</p> <p>Based on our earnings model, <strong>a 10% strengthening of the trade-weighted dollar lowers S&amp;P 500 2015 EPS by about $3.</strong></p> </blockquote> <p><strong><span style="text-decoration: underline;">Bottom-up Consensus 2015 EPS is tumbling...</span></strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>An astounding 87% of companies (39 of 45) guided below consensus expectations for next quarter, the highest level in our 34-quarter history.</strong> Historically, 71% of firms guide down in a typical quarter.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk3.jpg"><img height="805" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk3.jpg" width="600" /></a></p> <p>&nbsp;</p> <p><strong>Full-year 2015 guidance also disappointed. 80% of firms guided earnings below consensus.</strong></p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk4.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk4.jpg" style="width: 600px; height: 365px;" /></a></p> <p>&nbsp;</p> <p>The median company guided 4% below consensus expectations for 1Q 2015 and 2% below consensus for full-year 2015.</p> <p>&nbsp;</p> <p>Bottom-up consensus 2015 EPS estimates plummeted by 4% during January due to both falling oil prices and negative company guidance.</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk5.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk5.jpg" style="width: 600px; height: 517px;" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>The $4.50 decline in EPS to $120.50 from $125 now places bottom-up consensus estimates below our forecast of $122 and the top-down consensus forecast of $125. Bottom-up consensus estimates were last below top-down estimates in 2009.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk6.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk6.jpg" style="width: 600px; height: 471px;" /></a></p> </blockquote> <p><span style="text-decoration: underline;"><strong>And finally - valuations...</strong></span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Consensus long-term growth estimates are slumping... whch means multiple expansion is the only way to keep the dream of wealth creation alive. As @Not_Jim_Cramer exposes, this &#39;gap&#39; has seldom - if ever - been wider...</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk1.jpg"><img height="406" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_mothersmilk1.jpg" width="600" /></a></p> <p>&nbsp;</p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="503" height="395" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150131_mothersmilk6.jpg?1422730172" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/king-dollar-crushing-recoverydreams-87-us-companies-have-guided-lower#comments Goldman Sachs goldman sachs Jim Cramer recovery Sun, 01 Feb 2015 00:30:29 +0000 Tyler Durden 501254 at http://www.zerohedge.com Here's Some Frightening Honesty (Courtesy Of The US Congress) http://www.zerohedge.com/news/2015-01-31/heres-some-frightening-honesty-courtesy-us-congress <p><a href="http://www.sovereignman.com/trends/heres-some-frightening-honesty-courtesy-of-the-us-congress-16051/"><em>Submitted by Simon Black via Sovereign Man blog</em></a>,</p> <p>A member of my staff caught an obscure resolution that was introduced in the US House of Representatives last week&mdash;<a href="http://www.gpo.gov/fdsys/pkg/BILLS-114hres41ih/pdf/BILLS-114hres41ih.pdf" target="_blank">Resolution no. 41.</a></p> <p>The fact that there was essentially no coverage of this Resolution really shows how the mainstream media is completely turning a blind eye to the true fiscal situation of the United States of America.</p> <p><strong>The entire point of the resolution is to say that the federal government is broke.</strong></p> <p><strong><u>It can&rsquo;t pay its own bills, and therefore is shouldn&rsquo;t be responsible to pay anyone else&rsquo;s either.</u></strong></p> <p>It doesn&rsquo;t&rsquo; take a rocket scientists to figure out what a bankrupt government will do&mdash;just like any thief, they&rsquo;ll go after easy targets first.</p> <p>The easiest target of all is future generations.</p> <p>They&rsquo;re going to run up the debt as high as they can, which essentially means pulling future tax revenues into today. It&rsquo;s the easiest tax of all, <strong>because unborn children do not vote.</strong></p> <p>The <a href="http://www.sovereignman.com/tax/how-you-can-avoid-dying-as-property-of-the-state-16052/" target="_blank">estate tax is another one to watch out for</a>&mdash;because, like unborn children, <strong>dead people don&rsquo;t vote either.</strong></p> <p>We had a <a href="http://www.sovereignman.com/podcast/031-another-step-down-the-long-slow-road-to-ira-nationalization-audio-16042/" target="_blank">great podcast yesterday about retirement savings</a>, where there&rsquo;s an easy $5 trillion treasure chest for them to raid.</p> <p>And, of course, there&rsquo;s the greatest tax of all, the inflation tax, which decreases the standard of living for most of the population as the cost of living rises much faster than incomes.</p> <p><strong>This Resolution is a pretty scary dose of honesty. But again, what&rsquo;s even more concerning is that it was just ignored and has objectively a zero percent chance of passing.</strong></p> <p>I do encourage you to check it out though&mdash;even the government is admitting it&rsquo;s finished.</p> <p><strong>I&rsquo;ll quote from the Resolution now without comment and wish you a very pleasant weekend:</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Whereas the Federal Government is operating at an annual deficit and is increasing its outstanding debt every year;</p> <p>&nbsp;</p> <p>Whereas the Federal Government, as of January 2015, is carrying more than $18.0 trillion in debt, of which $13.0 trillion is owed to the public and $5.08 trillion is owed to Social Security and other trust funds;</p> <p>&nbsp;</p> <p>Whereas foreign governments, individuals, and corporations as of October 2014 own 47 percent of Federal debt held by the public;</p> <p>&nbsp;</p> <p>Whereas Social Security&rsquo;s unfunded liabilities in 2014 are $10.6 trillion over 75 years and $24.9 trillion over the infinite horizon;</p> <p>&nbsp;</p> <p>Whereas the Federal debt held by the public is expected to increase by more than $7 trillion from 2014 to 2024 according to the Congressional Budget Office;</p> <p>&nbsp;</p> <p>Whereas more than 16 percent of the entire Federal budget goes directly to States and local governments;</p> <p>&nbsp;</p> <p>Whereas more than 22 percent of total State and local government general revenue comes from the Federal Government according to Census Bureau&rsquo;s latest Annual Survey of State and Local Government Finance;</p> <p>&nbsp;</p> <p>Whereas several State and local pension plans are expected to fully exhaust their funds within ten years.</p> </blockquote> <p class="postbottom_title">*&nbsp; *&nbsp; *</p> <p class="postbottom_title"><a href="http://www.sovereignman.com/crash-course/">Our goal is simple: To help you achieve <strong>personal liberty</strong> and <strong>financial prosperity</strong> <em>no matter what happens</em>.</a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="385" height="309" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150131_res.jpg?1422737154" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/heres-some-frightening-honesty-courtesy-us-congress#comments Census Bureau Congressional Budget Office Sat, 31 Jan 2015 23:46:17 +0000 Tyler Durden 501255 at http://www.zerohedge.com The AAPL Effect: Q4 Earnings Growth Without Apple: 0%; With Apple: 2.1% http://www.zerohedge.com/news/2015-01-31/aapl-effect-q4-earnings-growth-without-apple-0-apple-21 <p>Yesterday <a href="http://www.zerohedge.com/news/2015-01-30/60-retail-sales-growth-hong-kong-was-due-iphone-6">we commented </a>on the outsized macro impact that one company already excerts on the world, when we reported that in the fourth quarter, a whopping 60% of retail sales growth was due to the launch of Apple's iPhone 6 in the fall of 2014, and the surge of Chinese tourists who tok advantage of Hong Kong's lower prices and earlier release. So how about the micro level? </p> <p>For the answer we present the chart below. Behold: the AAPL effect, which demonstrates that what <strong>until AAPL's release was shaping up to be a flat Q4 earnings season for the S&amp;P 500, has since transformed into Q4 EPS growth of 2.1%, </strong>and made Apple the largest contributor to earnings growth for the S&amp;P 500 at the company level for the fourth quarter. <em>All this, thanks to just one company!</em></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/01-overflow/AAPL%20effect.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/01-overflow/AAPL%20effect_0.jpg" width="600" height="399" /></a></p> <p>Factset's <a href="http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_1.30.15">take </a>on this dramatic, outsized impact :</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>During the past week, the blended earnings growth rate for the S&amp;P 500 for Q4 2014 increased to 2.1% today from 0.2% last Friday. The dollar-level earnings for the index rose by $5.0 billion over this period (to $273.8 billion today from $268.8 billion last Friday). <strong>What caused the increase in dollar-level earnings for the index this past week?</strong> </p> <p>&nbsp;</p> <p>At the sector level, the Information Technology sector witnessed the largest increase in dollar-level earnings of all ten sectors over the past week, as the dollar-level earnings for the sector rose by $3.1 billion over this period.</p> <p>&nbsp;</p> <p>At the company level within the Information Technology sector, <strong>Apple was the largest contributor not only to the increase in dollar-level earnings for the Information Technology sector, but also to the increase for the S&amp;P 500 index as a whole. </strong>On January 27, Apple reported actual EPS of $3.06 for Q4 2014, which was 17.5% above the mean EPS estimate of $2.60. Due to the magnitude of the surprise and the company’s weight in the index, <strong>Apple accounted for just over 2.5 billion (or 51%) of the $5.0 billion increase in earnings for the S&amp;P 500 index over the past week. </strong>If Apple had reported actual EPS that matched the mean EPS estimate, the blended earnings growth today would be 1.1% rather than 2.1%. </p> <p>&nbsp;</p> <p>As a result of the upside earning surprise, <span style="text-decoration: underline;"><strong>Apple is now the largest contributor to earnings growth for the S&amp;P 500 at the company level for the fourth quarter. If Apple is excluded, the blended earnings growth rate for the S&amp;P 500 for Q4 2014 would drop to 0.3% from 2.1%.</strong></span></p> </blockquote> <p>In light of these facts, one can only hope that Apple's growth, which many sellside analysts have already pegged will result in the first $1 trillion market cap, continues without a hitch in perpetuity, as it now appears that even the slightest deviation from "priced to perfection" growth of just this one company will result in not only an economic recession or worse, but an S&amp;P earnings and market crash too.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="941" height="626" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/AAPL%20effect.jpg?1422741041" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/aapl-effect-q4-earnings-growth-without-apple-0-apple-21#comments Apple Market Crash Recession Sat, 31 Jan 2015 23:29:40 +0000 Tyler Durden 501257 at http://www.zerohedge.com The Black Swan Of Super Bowls: "Ticket Prices Are Being Manipulated To The Extreme" http://www.zerohedge.com/news/2015-01-31/black-swan-super-bowls-ticket-prices-are-being-manipulated-extreme <p>Super Bowl ticket prices continue to soar. With the game now just a day away, <strong>prices have exceeded the $10,500 average</strong> and get-in price is just over $9,000 but, <a href="http://www.thedailybeast.com/articles/2015/01/29/the-same-thing-that-ruined-the-housing-market-is-now-ruining-the-super-bowl.html">as TiqIQ&#39;s CEO reports,</a> the ticket market&rsquo;s &quot;Black Swan&quot; moment will leave some fans showing up to Arizona having paid for tickets they&rsquo;ll never receive... as <strong><span style="text-decoration: underline;">derivative-based speculators</span> were selling tickets they never had to begin with, and the short squeeze is unprecedented</strong>. <em>&quot;The market is <strong>being manipulated to the extreme</strong> by those who have paid teams and the league for access.&quot;</em> When this happened in the 2011 BCS National Championship game, <strong>many brokers went out of business filling their short orders</strong>, and some others even walked away from their orders, leaving fans to fend for themselves and it appears tomorrow will be the same for Super Bowl attendees (and speculators).</p> <p><a href="http://www.thedailybeast.com/articles/2015/01/29/the-same-thing-that-ruined-the-housing-market-is-now-ruining-the-super-bowl.html"><em>As the CEO of online ticket site TiqIQ notes (via The Daily Beast),</em></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Two days after the conference championship game, the cheapest ticket for Super Bowl XLIX was going for under $2,000. That same cheapest ticket&mdash;also known as the &ldquo;get-in price&rdquo;&mdash;is now going $9,600. While good old-fashioned demand played a role in this year&rsquo;s run-up, like 2008&#39;s market-based Black Swan euphoria and subsequent crash, the 2015 Super Bowl dynamic was driven principally by derivative-based speculators looking to make a quick buck.</p> <p>&nbsp;</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ticket.jpg"><img height="491" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_ticket.jpg" width="591" /></a></p> <p>&nbsp;</p> <p>In the 2015 Super Bowl ticket market, short selling has again played a major role, but this time around, anyone that shorted the market is now looking at losses of as much as $8,000 for each ticket.</p> <p>&nbsp;</p> <p>In ticketing, short selling works like this: A speculator offers to sell a ticket they do not own, for a price above where he thinks the market will ultimately end up. At the time of the sale, this may seem like a good deal. Following the normal ticket market demand curve, as the event gets closer, prices drop.</p> <p>&nbsp;</p> <p>When that happens, the &ldquo;spec&rdquo; buys a ticket, ideally below the price at which they originally sold it. For last year&rsquo;s Super Bowl in New York, the cheapest ticket on game-day was going for around $1,500. If the same pattern held this year, a spec seller who sold their ticket for $2,000 after the conference championship would pocket $500 and a 33% return for their week&rsquo;s worth of work.</p> <p>&nbsp;</p> <p>With the cheapest pair to the 2015 game now going for $10,000, those same sellers are now looking at losses of up to $8,000&mdash;for each ticket. The result of this short-selling has been a week-long scramble by underwater brokers looking to fill orders at the best price available.</p> </blockquote> <p>Simply put - the average fan never sees a fair price as the &quot;short squeeze&quot; demand prices all reasonable buyers out of the market. <strong>This is not the first time - but it is the most significant yet...</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The first time the U.S. ticket market crossed the $5,000 average mark was in 2011 for the BCS National Championship between Auburn and Oregon. That game also took place at University of Phoenix Stadium, and like this year, short selling played a big part in the elevated price levels. That year, however, tickets dropped as low as $3,000 on game-day.</p> <p>&nbsp;</p> <p>Despite that drop, many brokers went out of business filling their short orders, and some others even walked away from their orders, leaving fans to fend for themselves in Arizona without the ticket they thought they had.</p> </blockquote> <p><strong>Yet again a market is being manipulated by those with financial might or elite positioning to the detriment of the general public...</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>With the arrival of $10,000 tickets, now something has to be done to protect consumers in situations like this. </strong>As a lawsuit filed last year makes clear, less than 2 percent of Super Bowl tickets actually become available to the general public. The NFL controls who gets the rest, with the two participating teams getting 17.5 percent, the host team getting 5 percent and each NFL team getting 1.2 percent each.</p> <p>&nbsp;</p> <p>That way, the NFL dictates when and to whom tickets are made available. Unlike most events, the Super Bowl does not allow for e-tickets, so tracking and accountability is entirely within control of the NFL.</p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p><strong>The cheapest face value ticket for this year&rsquo;s Super Bowl was $1,200, which is $8,000 less than what you can get now on the secondary market.</strong> With nothing particularly different about the match-up, the participants or the location, those kinds of numbers suggest that the market is rigged.</p> <p>&nbsp;</p> <p><u><strong>The market is being manipulated to the extreme by those who have paid teams and the league for access.</strong></u></p> <p>&nbsp;</p> <p>While those with access won financially this year, they&rsquo;ve done so at the expense of the fan, their own integrity, and the consumer&rsquo;s trust in the ticket market. For Super Bowl 50 in San Francisco, the NFL needs to have a fix in place to ensure 2015 never happens again.</p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="591" height="491" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150131_ticket.jpg?1422732455" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/black-swan-super-bowls-ticket-prices-are-being-manipulated-extreme#comments Black Swan Sat, 31 Jan 2015 23:00:52 +0000 Tyler Durden 501249 at http://www.zerohedge.com ECB Threatens Athens With Bank Funding Cutoff If No Deal In One Month: February 28 Is Now D-Day For Greece http://www.zerohedge.com/news/2015-01-31/ecb-threatens-athens-bank-funding-cutoff-if-no-deal-one-month-february-28-now-d-day- <p>As Deutsche Bank's George Saravelos politely puts it, "Developments since the Greek election on Sunday have moved very fast." And indeed, so far the new Tsipras cabinet, and here we focus on the words and deeds of the new finance minister Yanis Varoufakis, has shown that the market's greatest hope - that the status quo in Greece will continue - has been crushed into a pulp (and so have Greek stock and bond prices) especially following yesterday's most <a href="http://www.zerohedge.com/news/2015-01-30/greece-slams-eu-bailout-ers-we-dont-want-7-billion-we-want-rethink-whole-program">recent comments by the finmin </a>in which he said that Greece "<strong>does not want the $7 billion</strong>" from the Troika agreement and that it wants to "rethink the whole program", culminating with an epic exchange with Eurogroup chief Jeroen Dijsselbloem in which Greece made it clear that the "constructive talks" are over. </p> <p>And suddenly the Eurozone is stunned, because what had until now been its greatest carrot when it comes to dealing with Greece, has become completely useless when the impoverished, insolvent nation itself says it no longer needs a bailout, seemingly blissfully unaware of the consequences. </p> <p>So earlier today the ECB's Erikki Liikanen, tired of pleasantries and dealing with what to Europe is a completely incomprehensible and illogical stance, one which is essentially a <em>massive defection </em>by Greece in the European "prisoner's dilemma", and which while leading to a Greek financial collapse and Grexit - <strong>both prerequisites to a subsequent Greek economic recovery unburdened by the shackles of the Euro - </strong>would also unleash a European depression, came out and directly threatened Greece that it now has 1 month until the end of February to reach a deal with the Troika, <strong>or else the ECB would cut off lending to Greek banks, in the process destroying the otherwise insolvent Greek banking sector. </strong></p> <p>And since only the ECB backstop has prevented a banking sector panic, the ECB is essentially betting the house, and the sanctity of the Eurozone (because after a Grexit all bets are off which peripheral leaves next) that the threat, and soon reality, of a bank run (at last check Greece had about €145 billion in deposits still left in its bank after JPM's latest estimate of €15 billion in outflows in January) will finally force Varoufakis and Tsipras to sit at the negotiating table with the understanding that not they but the Troika has all the leverage.</p> <p><a href="http://www.reuters.com/article/2015/01/31/ecb-liikanen-greece-idUSL6N0VA05620150131">Reuters explains</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>A deal on extending Greece's bailout deal must be found by the end of February or the European Central Bank will not be able to continue lending to its banks, ECB council member Erkki Liikanen said on Saturday. </strong>Europe's bailout programme for Greece, part of a 240-billion-euro ($270 billion) rescue package along with the International Monetary Fund, expires on Feb. 28 and a failure to renew it could leave Athens unable to meet its financing needs and cut its banks off from ECB liquidity support. </p> <p>&nbsp;</p> <p>Greece's new leftist government, which aims to ease the strict terms of the bailout that have imposed harsh austerity, opened talks with European partners on Friday by flatly refusing to extend the current programme or to cooperate with the international inspectors overseeing it. </p> <p>&nbsp;</p> <p><strong>"We (ECB) have our own legislation and we will act according to that... Now, Greece's programme extension will expire in the end of February so some kind of solution must be found, otherwise we can't continue lending," </strong>Liikanen, also the governor of Finland's central bank, told public broadcaster YLE. </p> <p>&nbsp;</p> <p>"I don't believe that one can hide from the realities in the economy," he said in an interview. </p> </blockquote> <p>And then another hint from the ECB, this time from Vitor Constancio. As <a href="http://www.bloomberg.com/news/articles/2015-01-31/tsipras-says-greece-to-repay-ecb-imf-reach-deal-with-eu">Bloomberg notes</a>, "at the moment, Greece has a special dispensation from the ECB because it’s complying with a bailout program. That means its debt can be used in central bank refinancing operations even though it is rated junk. <strong>“There will be no surprises if we find out that a country is below that rating and there’s no longer a program that that waiver disappears,” </strong>ECB Vice President Vitor Constancio said at an event in Cambridge, England, on Saturday."</p> <p>The question arose why when Greece already has undergone a Private Sector Involvement restructuring, i.e. a bankruptcy that however only impacted private entities and not official ones, such as the ECB, can't Greece have another debt haircut to which Liikanen responded that: "A significant debt restructuring has been carried out with private investors. The ECB cannot fund a state directly, which is what it would mean in this case."</p> <p>Odd: because that is precisely what the ECB is doing with QE, when it monetizes any of a number of Eurozone deficits. To this Liikanen also had a quick response:</p> <ul> <li><strong>LIIKANEN SAYS ECB ISN'T FINANCING EURO GOVERNMENTS' DEFICITS</strong></li> </ul> <p>Well, it is, but we'll let that slide for the time being. The bigger issue is that since the ECB directly holds tens of billions of Greek debt, any impairment on this debt would crush what the ECB has been saying from day one: that it can <em><strong>not </strong></em>suffer losses on the debt it has monetized or otherwise transferred over to its balance sheet. Such an impairment would immediately destroy Draghi's credibility, and promptly lead to furious screams from around the Eurozone as taxpayers suddenly realize all too well they are on the hook for funding the Eurozone's most insolvent members, first Greece and then everyone else who has already entered a toxic deflationary spiral. And since the ECB would finally be exposed for being Europe's "bad bank", the scramble to dump as much toxic exposure on Draghi would begin in earnest in the process launching the beginning of the end of the Eurozone. </p> <p>One can almost see why Greece does think it has all the leverage.</p> <p>That said, Greece now also has a countdown in which it can and will have to make a decision what to do with its leverage, and precisely 28 days until its very own D-Day which is now February 28, 2015 as per today's ECB threat. </p> <p>So with February now shaping up to be an even more volatile month for Europe, and thus the world, than January and December (both of which closed red) here is the full schedule of events and what the "known unknowns are" in the next 4 weeks, courtesy of Deutsche Bank.</p> <p><em>From George Saravelos' Update on Greece</em></p> <p>It is worth bearing in mind that the timing, scope and commitment to the policy changes announced by Greek ministers is highly uncertain, not least because the legislative agenda is likely to be directed by the leadership team of the new government rather than individual line ministries. This still leaves plenty of uncertainty on the new government’s intentions. On the more negative side, the breadth of statements was so wide and the speed with which they were made so quick, that we now consider an extension of the February 28th program expiry date as<em><strong> a key date </strong></em>within the negotiation process: <strong>Europe and the Troika are very likely to request an explicit commitment from the Greek government to close the current mission review and not reverse previous policy</strong>. The precise form such a commitment would take is unclear at this stage, but our underlying assumption is that uncertainty around the new government’s policy intentions is so high, that Europeans will request assurances before proceeding with more in-depth negotiations over the program in Q2.</p> <p>In turn, the above developments will likely have important implications for Greek bank financing at the ECB. Termination of the program on February 28th renders GGB-based collateral ineligible at Eurosystem refinancing operations, but still allows Greek banks to shift funding to Emerency Liquidity Assistance. <strong>However, ELA usage is under bi-weekly ECB review and is very likely to be on a rising trend over the next few weeks<span style="text-decoration: underline;">: to accommodate potential deposit flight</span>; to absorb foreigners’ refusal to roll-over t-bills that are maturing; and to absorb fresh government t-bill issuance to finance upcoming debt repayments to the IMF and other obligations</strong>. These large needs make it likely that the availability of ELA usage is itself linked to program extension above. </p> <p>All of the above then leaves three things that need to be clarified over the next few weeks. </p> <p><em><span style="text-decoration: underline;"><strong>First,</strong></span></em> under what conditions would the Troika be willing to extend the program and what form would this extension take? Our initial expectation was that a technical extension would have been offered to July followed by a successor ECCL program. Recent market developments and poor budget execution leave Greece’s ECCL eligibility an open question however, and it is possible that the Troika now only accepts program extension by a full year to coincide with the conclusion of the IMF program in March 2016. Such a large extension would be more difficult for the Greek government to manage domestically. </p> <p><em><span style="text-decoration: underline;"><strong>Second,</strong></span></em> does the ECB link Greek bank ELA provision to program extension as well? Given rising usage over the next few months, we would consider this an increasing possibility. </p> <p><em><span style="text-decoration: underline;"><strong>Third,</strong></span></em> what will the Greek government’s response to these conditions be? Public statements over the last 48-hours make it particularly difficult to envisage the government’s reaction function. On the one hand an offer of a one year extension and a written commitment to close the review would be particularly difficult for the government to manage domestically. On the other hand, the suspension of ECB financing of Greek banks would be exceptionally damaging to the economy. </p> <p>Here is an indicative timeline of key events that will likely provide answers to these questions: </p> <ul> <li><strong>Friday January </strong>30th – Eurogroup President Dijsselbloem meets with the Greek finance minister Varoufakis and Deputy PM Dragasakis in Athens. A press conference will follow, with the meeting likely setting the tone of negotiations to follow. </li> <li><strong>Sunday February 1st </strong>- Greek finance minister Varoufakis meets UK finance minister Osborne in London </li> <li><strong>Monday February 2nd</strong> – Greek finance minister Varoufakis meets French finance minister Sapin in Paris Tuesday </li> <li><strong>February 2nd </strong>- Greek finance minister Varoufakis meets Italian finance minister Padoan in Rome </li> <li><strong>Wednesday February 4th-5th</strong> – Bi-weekly ECB review of ELA </li> <li><strong>Wednesday February 4th</strong> – Likely t-bill auction to cover 1bn redemption on 6th </li> <li><strong>Thursday February 5th </strong>- Greek parliament opens, elects new speaker of the House </li> <li><strong>Saturday February 7-9th </strong>Government presents legislative agenda to parliament, vote of confidence midnight Monday 9th </li> <li><strong>Wednesday February 11th </strong>– Likely tbill auction to cover 1.4bn maturity on 13th </li> <li><strong>Thursday February 12th </strong>– European Council of EU Leaders, Tsipras likely to meet Merkel on sidelines </li> <li><strong>Friday February 13th </strong>– Voting for new Greek President begins, EC Commissioner Avramopoulos most likely candidate as per various media reports, originating from New Democracy. Likely completed by second round on the following day requiring 151 MP majority </li> <li><strong>Monday February 16th </strong>– Eurogroup where Greece likely to be top of agenda, conditions for extension of program to be made explicit by now </li> <li><strong>Wednesday February 18th-19th- - Bi-weekly ELA review </strong></li> <li><strong>Saturday February 28th </strong>– Current EFSF program expires</li> </ul> <p>In sum, developments and pressure on Greece have accelerated over the last few days, with a very large degree of uncertainty around both the Greek government’s and Troika’s position on how negotiations will proceed. We expect this to be ultimately resolved by a Troika request from the Greek side to commit to program completion and the broad contours of previously committed policy, particularly with regard to structural reform. In turn, program extension may itself be linked to ongoing ECB/ELA financing of Greek banks. The precise form this request takes and the Greek government’s reaction will ultimately determine the path Greece takes in coming weeks and months.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1200" height="833" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/Draghi%20Satan_9.jpg?1422715238" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/ecb-threatens-athens-bank-funding-cutoff-if-no-deal-one-month-february-28-now-d-day-#comments Bad Bank Bank Run Bond Deutsche Bank European Central Bank Eurozone Greece International Monetary Fund Reality recovery Reuters Sat, 31 Jan 2015 22:40:54 +0000 Tyler Durden 501241 at http://www.zerohedge.com