http://www.zerohedge.com/fullrss2.xml en Obama "Engages In Envy Economics": Proposes Offshore Profit Tax To Fund Public Spending http://www.zerohedge.com/news/2015-02-01/obama-engages-envy-economics-proposes-offshore-profit-tax-fund-public-spending <p>Just as <a href="http://www.zerohedge.com/news/2015-01-31/aapl-effect-q4-earnings-growth-without-apple-0-apple-21">AAPL stock hits record highs and single-handedly rescues Q4 earnings from the doldrums</a>, it appears President Obama is bringing his own brand of 'middle-class-economics' Robin-Hood-iness to crush the 'wealth generating' machine that has served America's 1% so well for so long. As AP reports, <strong>The White House plans a six-year half a trillion dollar public works program <span style="text-decoration: underline;">financed with a one-time mandatory tax on profits that U.S. companies have amassed overseas</span></strong>. Under current law, profits only face federal taxes if they are returned, or repatriated, to the US; but Obama's new deal would set a <strong>tax on accumulated foreign profits at 14% and due immediately</strong> as part of a broader administration plan to overhaul corporate taxes. Of course, with Republicans 'in charge', it is unlikely to pass as Paul Ryan blasted,<strong> "the president is trying exploit envy economics again," adding, "top-down redistribution doesn't work."</strong></p> <p>&nbsp;</p> <p><a href="http://bigstory.ap.org/article/354922582a4445c79be93d3599375fc6/obama-budget-offers-contrasts-long-shot-deals-gop"><em>As AP reports,</em></a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>President Barack Obama's budget will propose an ambitious six-year, $478 billion public works program of highway, bridge and transit upgrades, half of it financed with a one-time mandatory tax on profits that U.S. companies have amassed overseas</strong>, White House officials said.</p> <p>&nbsp;</p> <p>The proposal, one of the<strong> main components of the $4 trillion spending plan for the 2016 budget year that Obama will send to Congress on Monday</strong>, attempts to tap into bipartisan support for spending on badly needed infrastructure repairs and construction.</p> <p>&nbsp;</p> <p><strong>The tax on accumulated foreign profits would be set at 14 percent and due immediately. </strong>Under current law, those profits only face federal taxes if they are returned, or repatriated, to the U.S. where they face a top rate of 35 percent. Many companies avoid U.S. taxes on those earnings by simply leaving them overseas.</p> <p>&nbsp;</p> <p><strong>The foreign earnings tax would be part of a broader administration plan to overhaul corporate taxes</strong> by ending certain tax breaks and lowering rates, a challenging task that Obama and Republican congressional leaders insist they are poised to tackle this year.</p> <p>&nbsp;</p> <p>Under Obama's plan, the top corporate tax rate for company profits earned in the U.S. would drop to 28 percent. <strong>While past foreign profits would be taxed immediately at the 14 percent rate, going forward new foreign profits would be taxed immediately at 19 percent, with companies getting a credit for foreign taxes paid.</strong></p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p><strong>"What I think the president is trying to do here is to, again, exploit envy economics,"</strong> Republican Rep. Paul Ryan of Wisconsin, the new chairman of the tax writing Ways and Means Committee. <strong>"This top-down redistribution doesn't work."</strong></p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p>This time, the budget will call for the one-time 14 percent mandatory tax on the up to $2 trillion in estimated U.S. corporate earnings that have accumulated overseas. That would generate about $238 billion, by White House calculations. <span style="text-decoration: underline;"><strong>The remaining $240 billion would come from the federal Highway Trust Fund, which is financed with a gasoline tax.</strong></span></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>So tax foreign cash and tax cheap gas... </p> <p>In summary:</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150128_obama.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150128_obama.jpg" width="600" height="387" /></a></p> <p>&nbsp;</p> <p>*&nbsp; *&nbsp; *</p> <p>Perhaps most ironically - CNBC will now know what the "money on the sidelines" is waiting for... to pay taxes!!</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="974" height="628" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150128_obama_0.jpg?1422811417" /> </div> </div> </div> http://www.zerohedge.com/news/2015-02-01/obama-engages-envy-economics-proposes-offshore-profit-tax-fund-public-spending#comments Money On The Sidelines President Obama White House Sun, 01 Feb 2015 19:00:12 +0000 Tyler Durden 501269 at http://www.zerohedge.com Invasion Of The "Zombie Crazies" http://www.zerohedge.com/news/2015-02-01/invasion-zombie-crazies <p><a href="http://www.acting-man.com/?p=35493"><em>Submitted by Bill Bonner via Acting-Man blog</em></a>,</p> <p>With the European Central Bank in QE mode, stocks should be catching a bid. Instead, they seem to be following commodities &ndash; down. But who knows? The situation is so crazy that only a disabled person could understand it.</p> <p><strong>Why do we say that?</strong></p> <p>Because a report released last week told us that one out of every three people on Social Security&rsquo;s disability program is a mental defective. In Washington, DC, the rate of nuttiness among the disabled is even higher &ndash; 42%. No surprise there.</p> <p>And just to show we&rsquo;re not making this up, here&rsquo;s the report from CNSNews.com:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;One in three, or 35.2%, of people getting federal disability insurance benefits have been diagnosed with a mental disorder, according to the latest data from the Social Security Administration (SSA).</p> <p>Washington, DC, the seat of the federal government, ranked in the top-10 list of states where disabled beneficiaries were diagnosed with mental problems.</p> <p>&nbsp;</p> <p>In 2013, the latest data from SSA show there were 10,228,364 disabled beneficiaries, up 139,625 from 2012 when there were 10,088,739 disabled beneficiaries.</p> <p>&nbsp;</p> <p>Disabled beneficiaries have increased 49.7% from a decade ago in 2003 when there were 6,830,714 beneficiaries; and the number is up 14.3% from the 8,945,376 beneficiaries in 2009, the year President Obama took office.&rdquo;</p> </blockquote> <p><strong>Who better to understand what is going on in the financial world than a crazy person? Fortunately, America&rsquo;s zombies are going crazy in ever-greater numbers.</strong></p> <p>&nbsp;</p> <p style="text-align: center;"><img alt="wtf (2)" class="aligncenter size-full wp-image-35497" height="500" src="http://www.acting-man.com/blog/media/2015/01/wtf-2.jpg" width="496" /></p> <p style="text-align: center;">Young person preparing to understand the markets</p> <p>&nbsp;</p> <h3><u><strong>Multiplying Zombies</strong></u></h3> <p>Look, central banks are using money they don&rsquo;t have to buy &ldquo;assets&rdquo; &ndash; usually government IOUs (bonds) &ndash; from banks and other financial institutions such as pension funds. In other words, liabilities of governments, at whose whistle the central banks wag their tails.</p> <p>They also happen to be liabilities that governments have no intention of honoring. That is why central banks are buying them: to suppress yields (and therefore governments&rsquo; debt service costs) and to drive up inflation (thereby reducing the value of the outstanding debt). Are you following, dear reader?</p> <p>European governments &ndash; as well as those in North America and Japan &ndash; are finding it increasingly difficult to keep up with their promises &ndash; especially their promises to zombies&hellip; oops&hellip; we mean old people. All over the developed world, health care and pension programs are underfunded&hellip; or completely unfunded. Economies are slowing. Citizens are aging.</p> <p>Zombie populations (people who live at others&rsquo; expense &ndash; some disabled &hellip; some crazy &hellip; and some very clever people) are multiplying. And if government-debt-to-GDP tests were administered like highway Breathalyzers, they&rsquo;d be way over the limit.</p> <h3><u><strong>Negative Yields</strong></u></h3> <p>You see, it&rsquo;s the private sector that ultimately pays the bills. In France, for example, the private sector is only about 40% of the economy. The rest is government.</p> <p>But the shrinking French private sector has to carry the weight of government spending&hellip; as well as government debt that is more than twice its size (90% of GDP). But here&rsquo;s the<em>&nbsp;really&nbsp;</em>crazy thing: France&rsquo;s government debt trades at the highest prices in history&hellip; so high the yields are negative after you factor in inflation.</p> <p>The French 10-year sovereign bond yields all of 0.5%. Over the last five years, consumer price inflation has averaged between 1.5% and 2%. Conclusion: Either inflation is going a lot lower, and will stay there for years, or investors are going to lose money.</p> <p>There is $4.6 trillion of government debt in this negative-yield category. And so along comes the central bank bidding driving yields down further! Have we ever seen anything like it? Not that we can think of. The ECB is buying assets at record prices. And to what end? To drive prices even higher!</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="http://www.acting-man.com/blog/media/2015/01/France-2-year-yield.gif" target="_blank"><img alt="France, 2 year yield" class="aligncenter wp-image-35494" height="365" src="http://www.acting-man.com/blog/media/2015/01/France-2-year-yield-1024x622.gif" width="600" /></a></p> <p style="text-align: center;">French 2-year government bond yields have turned negative as well &ndash; click to enlarge.</p> <p>&nbsp;</p> <h3><u><strong>Unfunded Liabilities</strong></u></h3> <p>Back in the US, many&nbsp;<em>Diary</em>&nbsp;readers have written to protest. They may be on the list of Social Security recipients. But they are not zombies, they tell us. They paid into the fund for many years (as we did). They earned the money honestly. And Social Security is just a pension plan in which they were, often unwilling, participants.</p> <p>So hold the &ldquo;zombie&rdquo; badge for someone else! Yeah. Yeah. We turn to Google. We type: &ldquo;social security unfunded liabilities.&rdquo; What do we find? Here&rsquo;s a report from 2013, again from CNSNews.com:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;The Social Security program faces $9.6 trillion in unfunded liabilities over the next 75 years, which is up $1 trillion from last year&rsquo;s projection of $8.6 trillion, according to the latest report from Social Security&rsquo;s board of trustees.</p> <p>&nbsp;</p> <p>The unfunded liability is the amount that has been promised in benefits to people now alive that will not be funded by the tax revenue the system is expected to take in to pay for those benefits. (The Social Security trustees calculate the unfunded liability for a period of 75 years into the future, from 2012 to 2087.)&rdquo;</p> </blockquote> <p>How can Social Security&rsquo;s honest pension fund participants expect to get almost $10 trillion more than they put in? How can governments facing that kind of obligation borrow at less than the rate of inflation? How can central banks put a $1.3 trillion bid under the priciest bond market in history?</p> <p><strong>Go figure. Maybe the fruitcakes in Washington can make sense of it.</strong></p> <p>&nbsp;</p> <p style="text-align: center;"><img alt="special-soc-sec-deficits-2012" class="aligncenter wp-image-35496 size-full" height="593" src="http://www.acting-man.com/blog/media/2015/01/special-soc-sec-deficits-2012.jpg" width="598" /></p> <p style="text-align: center;">Slightly dated numbers from a Heritage Foundation report on social security deficits to come &ndash; these figures have now worsened once again &hellip;</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="561" height="602" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150201_crazy.jpg?1422810739" /> </div> </div> </div> http://www.zerohedge.com/news/2015-02-01/invasion-zombie-crazies#comments Bond Central Banks European Central Bank France Google Japan President Obama Tax Revenue Sun, 01 Feb 2015 18:15:12 +0000 Tyler Durden 501268 at http://www.zerohedge.com Chinese Corruption Probe Pivots To Bankers As Manufacturing Contracts At Fastest Pace Since August 2012 http://www.zerohedge.com/news/2015-02-01/chinese-corruption-probe-pivots-bankers-manufacturing-contracts-fastest-pace-august- <p>With all eyes on China as the great Eastern hope for putting a floor under crude oil prices, last night&#39;s dismally disappointing Manufacturing PMI print looks set to remove that last pillar of &#39;demand&#39; - artificial or not. Having <strong>fallen 6 months in a row</strong> and printing 49.8, missing expectations of 50.2 (3rd of last 4 months) and down from the prior 50.1, this is the <strong>first official contractionary signal for Chinese manufacturing since September 2012</strong>. With Industrial Enterprises in China seeing profits collapse at 8% YoY along with the slowest GDP growth (7.3% of magic unicorns and credit expansion) since Q1 2009, the <strong>PMI components&#39; broad-based weakness show significant signs of a cyclical slowdown</strong>. What is perhaps most worrisome though is that with cries for more RRR cuts or government-sponsored largesse, the banking system has, it appears, become the new focus of the nation&#39;s corruption probes as the <strong>President of China Minsheng Bank was taken away by the Communist Party&rsquo;s Central Commission for Discipline Inspection</strong>.</p> <p>Triple Whammy of Chinese ugliness...</p> <ul> <li><strong>Industrial Profits -8% YoY - worst on record</strong></li> <li><strong>GDP growth weakest since Q1 2009</strong></li> </ul> <p>And now, <strong>Chinese Manufacturing PMI prints contractionary 49.8...</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150201_China.jpg"><img height="317" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150201_China.jpg" width="600" /></a></p> <p>&nbsp;</p> <p><em>As Goldman Sachs notes,</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>January official PMI data was weak. Most sub-components showed signs of cyclical slowdown. </strong>The most important sub-indexes (production and new orders) both clearly softened (production decreased to 51.7 from 52.2 in December, and new orders moderated to 50.2 from 50.4). The only exception was backlog of orders which inched up to 44.0 from 43.8. These signals are inconsistent with the flash reading of the HSBC manufacturing PMI which rebounded in January (its final reading is to be released tomorrow 9:45 AM).</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150201_China1.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150201_China1.jpg" style="width: 601px; height: 294px;" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p><strong>The fall in the official PMI is consistent with our expectations that 1Q growth will likely be weak. As the official PMI is viewed as more important by the government, the likelihood of further loosening measures has increased further.</strong></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>And while the calls for rate cuts and broad-based government bailoyts will grow stronger from this - despite the governnment&#39;s insistence that they will not embark on a broad-based credit expansion program - <strong>it appears the transmission mechanism for any such release of money is coming under signficant scrutiny... </strong><a href="http://www.bloomberg.com/news/articles/2015-01-31/china-minsheng-bank-says-president-has-issue-as-probe-reported"><em>(as Bloomberg reports)</em></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>China Minsheng Banking Corp. said its President Mao Xiaofeng resigned for personal reasons</strong> after Caixin magazine reported that authorities had taken him to assist with an investigation.</p> <p>&nbsp;</p> <p>Mao, who was appointed president last August, didn&rsquo;t have any disagreement with the board, the Beijing-based bank said in a statement to the Shanghai Stock Exchange Saturday. The board accepted Mao&rsquo;s resignation and appointed Chairman Hong Qi as acting president, it said in the statement.</p> <p>&nbsp;</p> <p>Minsheng has taken note of reports on Mao, whose situation has nothing to do with Minsheng&rsquo;s operations, the lender said in a statement earlier today. Mao&rsquo;s mobile was turned off when called by Bloomberg News today.<strong><u> He was taken away by the Communist Party&rsquo;s Central Commission for Discipline Inspection and removed as party secretary by the banking regulator, according to Caixin.</u></strong></p> <p>&nbsp;</p> <p>Minsheng&rsquo;s comment and the Caixin report come amid President Xi Jinping&rsquo;s crackdown on graft, described by state media as the harshest since the republic&rsquo;s founding in October 1949. The campaign has spanned businesses, the military, and officials such as Zhou Yongkang, a former member of the Politburo Standing Committee, and Ling Jihua, who was a top aide of retired president Hu Jintao.</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150201_China2.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150201_China2.jpg" style="width: 533px; height: 488px;" /></a></p> <p>&nbsp;</p> <p><u><strong>Turning 43 this year, Mao is the youngest president of a listed Chinese bank, according to Caixin. The president of a Chinese lender is the equivalent of a chief executive officer at a U.S. bank.</strong></u></p> <p>&nbsp;</p> <p><strong>Mao is a graduate of Harvard University, </strong>where he completed a masters degree in public administration in 2000, according to a company profile.</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="533" height="488" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150201_China2.jpg?1422808905" /> </div> </div> </div> http://www.zerohedge.com/news/2015-02-01/chinese-corruption-probe-pivots-bankers-manufacturing-contracts-fastest-pace-august-#comments Bloomberg News China Corruption Crude Crude Oil Goldman Sachs goldman sachs Sun, 01 Feb 2015 17:29:48 +0000 Tyler Durden 501267 at http://www.zerohedge.com It's Greece Vs Wall Street http://www.zerohedge.com/news/2015-02-01/its-greece-vs-wall-street <p><a href="http://www.theautomaticearth.com/its-greece-vs-wall-street/"><em>Submitted by Raul Ilargi Meijer via The Automatic Earth blog,</em></a></p> <p><em>On the one hand, I&rsquo;ve written so much about Greece lately I fear I&rsquo;m reaching overkill. On the other hand, there&rsquo;s so much going on with Greece, and so fast, that I wouldn&rsquo;t know here to begin. Moreover, I&rsquo;m thinking and trying to figure what is what and what is actually happening so much it&rsquo;s hard to stay focused for more than a short while before something else happens again and it all starts all over. And I&rsquo;m thinking it must feel that way for the Syriza guys as well.</em></p> <p><strong>One thing I do increasingly ponder is that it gets ever harder to see the eurozone survive.</strong> In its present shape and form, that is. Damned if you do, doomed if you don&rsquo;t, is an expression I&rsquo;ve used before. It&rsquo;s like this big experiment that a bunch of power hungry Europeans really get off on, that now all of a sudden is confronted with the democracy they all only thought existed in books of history anymore.</p> <p><strong>But if you take your blind hunger far enough to kill people, or &lsquo;only&rsquo; condemn them to lives of misery, they will eventually try to speak up, even if not nearly soon enough. </strong>It&rsquo;s like a law of physics, or like Icarus in, yes, Greek mythology: try to reach too high, and you&rsquo;ll find you can&rsquo;t.</p> <p><strong>What is Brussels supposed to do now?</strong> Throw Athens off a cliff? Not respect the voice of the Greek people? That doesn&rsquo;t really rhyme with the ideals of the union, does it? If they want to keep the euro going, they&rsquo;re going to have to give in to a probably substantial part of what Syriza is looking for. Or Greece will leave the eurozone, and bust it wide open, exposing its failures, its lack of coherence, and especially its lack of democratic and moral values.</p> <p><strong>The problem with giving in, though, is that there are large protest demonstrations in Spain and Italy too. Give anything at all to Greece, and the EU won&rsquo;t be able to avoid giving it to others as well. And by then you&rsquo;re talking real money.</strong></p> <p><strong>They called it upon themselves. They got too greedy. They thought those starving Greek grannies would not be noticed enough to derail their big schemes.</strong> That claiming &ldquo;much progress has been made&rdquo;, as Eurogroup head Dijsselbloem did again this week, would be considered more important than the fact that an entire eurozone member nation has been thrown into despair.</p> <p><strong>That&rsquo;s a big oversight no matter how you put it.</strong> The leadership can be plush and comfy in Berlin, Paris, Helsinki, but that doesn&rsquo;t excuse them sporting blinders. And now they know. Or, let&rsquo;s say, are beginning to know, because they still think they can &lsquo;win this battle&rsquo;, ostensibly with the aim of deepening the Greek misery even further, while continuing to proclaim that &ldquo;much progress has been made&rdquo;.</p> <p>Not very smart. At least that much is obvious. But what else is? Greek Finance Minister Varoufakis declares in front of a camera that Greece ever paying back its full debt is akin to the Santa Claus story. Less than 24 hours later, PM Tsipras says of course Greece will pay back its debt. Varoufakis lashed out about Syriza not being consulted on EU sanctions against Russia, but shortly after their own Foreign Minister was reported to have said he reached a satisfactory compromise on the sanctions with his EU peers.</p> <p>Discontent, confusion, or something worse, in the ranks? Hard to tell. What we can tell, however, is that the obvious discomfort with Dijsselbloem, Draghi, and the entire apparatus in Brussels &ndash; and Frankfurt &ndash; is a fake move. Either that or it&rsquo;s only foreplay. If Yanis and Alexis want to get anywhere, they&rsquo;ll need to take on Wall Street and its international, American, French, German, TBTF banks, primary dealers. <strong>And if there&rsquo;s one thing those guys don&rsquo;t like, it&rsquo;s democracy.</strong></p> <p><strong>Syriza is not really up against the EU or ECB, or the Troika, that&rsquo;s a sideshow. They&rsquo;re taking the battle to the IMF, a sort of silent partner in the Troika, and the organization that rules the world for the rich and the banks they own.</strong> And that, if they had paid a bit more attention and a bit less hubris, could have gone on the way they have, small squeeze after small squeeze, without hardly anyone noticing, until the end of &ndash; this &ndash; civilization. But no. It had to be more.</p> <p><u><strong>It&rsquo;s going to be a bloody battle. And it hasn&rsquo;t even started yet. But kudos to all Greeks for starting it. It has to be done. And I don&rsquo;t see how the euro could possibly survive it.</strong></u></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="605" height="584" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150201_greece.jpg?1422809525" /> </div> </div> </div> http://www.zerohedge.com/news/2015-02-01/its-greece-vs-wall-street#comments Eurozone Greece Italy Sun, 01 Feb 2015 16:52:00 +0000 Tyler Durden 501266 at http://www.zerohedge.com Dollar Drivers http://www.zerohedge.com/news/2015-02-01/dollar-drivers <p>The bull case for the US dollar rests on two legs. The first is that the policy response to the crisis has produced superior economic results in the US that would lead to the Fed raising rates later this year. The second was the ongoing challenges faced by Europe and Japan. &nbsp;For several months both legs had strengthened.</p> <p>&nbsp;</p> <p>A combination of factors has frayed the consensus about the trajectory of Fed policy and the strength of the US economy. &nbsp;Weakness in retail sales and the decline in hourly earnings helped swing the pendulum of market sentiment. &nbsp;The FOMC statement, which added a new concern about international developments, was unable to assuage investors’ anxiety, despite upgrading the growth assessment.</p> <p>&nbsp;</p> <p>Oil prices recorded new cyclical lows last Thursday before bouncing before the weekend. &nbsp;The deflationary headwinds are widely understood to mean that headline inflation will likely turn negative in the coming months. &nbsp;Add to this the rise of the dollar to round out the dovish argument.</p> <p>&nbsp;</p> <p>The doves have won some adherents. &nbsp;Over the course of January, the implied yields of the December Fed funds futures and the generic two-year Treasury both fell 20-25 bp.</p> <p>&nbsp;</p> <p>The next string of US economic data is likely to push back against this dovish shift. &nbsp;There are three pieces of key data in this context. &nbsp;First, US auto sales are expected to ease on a serial basis, but at a 16.6 mln unit pace the consensus expects, they will still be above last year's average. &nbsp;In addition, US producers are expected to have picked up market share. &nbsp;Despite the disappointing December retail sales, the real message is that household consumption rose by 4.3% in Q4, the fastest since Q1 06, and without much use of revolving credit (credit cards).</p> <p>&nbsp;</p> <p>Second, the US reports December trade figures. &nbsp; Even though the government provides an estimate of Q4 GDP, not all the data have been reported. &nbsp;That is why the first estimate is subject to statistically significant revisions, which is one of the reasons why the FT's Weekend headline "Weak exports undermine US recovery hopes" was misleading. &nbsp;In addition, the FT failed to even acknowledge the slowdown in the West Coast ports as part of a labor dispute is more than two months old and is impact both imports and exports. &nbsp;In any event, the consensus expects a December trade deficit of $38 bln, which would be the smallest monthly shortfall in 2014 and will likely prompt revisions in the GDP estimate.&nbsp;</p> <p>&nbsp;</p> <p>Third, the January employment data are expected to extend the streak of more than 200k net new jobs being created. &nbsp;Weekly initial jobless claims recorded new cyclical lows after the survey week (265k). &nbsp; The December decline in hourly earnings will likely be reversed. &nbsp; &nbsp;This is not to say wage growth in the US is strong; it is just not as weak as the December report implied. &nbsp;In addition, many economists have begun arguing that the pent-up wage cuts that could not be delivered during the crisis have been now absorbed via smaller increases during the recovery.</p> <p>&nbsp;</p> <p>There is also something larger at work here. &nbsp;Regardless of the relative tightness of their labor market, wage growth has been anemic in other high income countries. &nbsp;This continues to be a threat to Abenomics. &nbsp;The UK's average weekly earnings are recovering now after falling into negative year-over-year territory briefly in the middle of last year. German wage growth has not kept pace productivity gains. &nbsp; It appears that the economic elite facing lower returns on their capital have increased their share of the productivity gains, which are divided between profits to capital on one hand, and wages to labor on the other.</p> <p>&nbsp;</p> <p>A common refrain against a mid-year Fed rate hike is the idea the US cannot be an economic oasis. &nbsp;And yet, isn't this precisely what happened in 2014? &nbsp;Even with the 2.6% pace growth in Q4, the US has strung together three quarters of the fastest growth it has experienced in a decade. &nbsp;During this period, the euro area was stagnant, and Japan contracted. In addition, US exports, and foreign sales more broadly, appear more linked to foreign demand than the exchange rate.</p> <p>&nbsp;</p> <p>The euro zone and Japan are taking fiscal and monetary measures that will help relieve some pressure on their economies. &nbsp;The cyclical low point is probably past for both economies. &nbsp;The drop in oil prices and the decline in the euro and yen in H2 14 have not worked their way through the system completely yet. &nbsp;For the last six quarters, including the contraction in Q1 14, the US economy grew by at an average pace of 3%. By most economists’ calculations, this is probably somewhat above the long-term sustained (non-inflationary) pace.</p> <p>&nbsp;</p> <p>Prior to the start of the expansion of the ECB's asset purchases in March, there are signs of an economic spring. &nbsp;Money supply and lending are improving. &nbsp;With the LTROs repayments nearly complete, the downward pressure on the ECB's balance sheet will subside.</p> <p>&nbsp;</p> <p>December retail sales will be reported on February 4. &nbsp;Even with a flat showing, Q4 14 would be the strongest quarterly gain since Q4 06. &nbsp;Given the unexpected strength reported last week by Spain and France warns of the risk of an upside surprise. &nbsp;The latest PMIs will also be reported. &nbsp;The results are likely consistent will small but positive growth. &nbsp;German industrial orders and production data is consistent with somewhat better growth in the world's fourth largest economy.</p> <p>&nbsp;</p> <p>Meanwhile, the European political landscape is changing. &nbsp;We believe clients are best served regarding much of the rhetoric from Greece and the Troika as negotiating posturing. &nbsp;We continue to believe there is plenty of room for compromise when the negotiations begin in earnest.</p> <p>&nbsp;</p> <p>Framing the issue as who will blink first, as many observers are doing, is not particularly helpful or valid. &nbsp; It sees the situation as a zero-sum exercise, and that is to give up analysis for a partisan role. &nbsp;The basis of a compromise both sides get some of what they want. &nbsp;There are many areas where Syriza and the official creditors agree. Syriza supports structural reforms that break monopolies enjoyed by the rent-seeking, non-tax paying oligarchs. &nbsp; The old guards have driven the country to ruin, and their apologists blame the new government for its lack of experience.</p> <p>&nbsp;</p> <p>Greece will sell T-bills at mid-week to replace a maturing issue. &nbsp;It will have to do it again the following week. &nbsp;Anecdotal reports suggest deposit flight from the banks, who are also seeing their portfolio of government bonds lose value. &nbsp;In anticipation of this, at least a couple of Greek banks have requested funds from the national central bank (Emergency Lending Assistance) which the ECB is likely to approve around the middle of the week. &nbsp;It may impose some extra conditions that would keep the pressure on Greek officials to reach an agreement by the end of the month.</p> <p>&nbsp;</p> <p>Greece's new Prime Minister Tsipras and Finance Minister Varoufakis visit a number of European countries in the days ahead. &nbsp;Although much of the traditional media is portraying Greece's new government as isolated, Tspiras and Varoufakis will find much sympathy for its anti-austerity thrust. &nbsp;French Finance Minister Sapin has already expressed some sympathy for Greece's position. &nbsp; &nbsp;</p> <p>&nbsp;</p> <p>Italy Prime Minister Renzi has been strengthened by the successful conclusion of the presidential selection process that saw his candidate Mattarella win on the fourth ballot and solidify support within the PD coalition. &nbsp; &nbsp;Spain, another potential candidate for southern European anti-austerity bloc, appears some what less sympathetic to Greece. The Spanish government faces its own challenge from the Syriza-like Podemos. &nbsp;Despite the still high unemployment levels, Spain's Rajoy is the creditors' favorite debtor. &nbsp; &nbsp;</p> <p>&nbsp;</p> <p>The future of Renzi's reform agenda is in doubt. &nbsp;In effect, he chose to solidify his left flank at the cost of antagonizing Berlusconi whose support he relied on for his labor and electoral reforms. &nbsp; There could have been little doubt that Berlusconi would be antagonistic to Mattarella, a judge (Berlusconi has often claimed the judiciary was persecuting him), and a former cabinet minister who resigned over Berlusconi-inspired laws that favored his media empire. &nbsp;Berlusconi accused Renzi of breaking their pact. Renzi is a better position now to return to win a national election and a democratic mandate. &nbsp;There is some risk that Berlusconi tacks to the right and seeks a new alliance with the Northern League, which appears to be on the rise with a new charismatic leader. &nbsp;</p> <p>&nbsp;</p> <p>Lastly, we note that both Denmark and Switzerland appear to have intervened in the foreign exchange market last week to buy the euro. &nbsp;Denmark is defending a 1% range against the euro. &nbsp;That is more restrictive that the 2.25% bands permissible in ERMII. Unlike the Swiss cap, the narrow range for the krone is endorsement by the ECB. &nbsp;The ECB does not appear committed to defending the narrow 1% band. &nbsp;Denmark's deposit rate at - 50 bp was cut three times in the second half of January. &nbsp;The is talk of large speculative players, seeing the kind of franc move after the cap was lifted, are looking for a repeat. &nbsp;</p> <p>&nbsp;</p> <p>The SNB's intervention undermines arguments suggesting that the ownership structure (~55% the cantons and their banks and ~45% publicly traded on the stock exchange) forced its to abandon the cap and stop growing its balance sheet. &nbsp;We suggest this was a tactical decision not strategic. &nbsp;It chose not to predictably defend a Maginot Line, &nbsp;but still intervened and expanded its balance sheet. &nbsp;</p> <div class="field field-type-filefield field-field-image-blog"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_blog" width="406" height="325" alt="" src="http://www.zerohedge.com/sites/default/files/images/user113905/imageroot/watcher.jpg?1422807056" /> </div> </div> </div> http://www.zerohedge.com/news/2015-02-01/dollar-drivers#comments Abenomics Auto Sales Creditors France Greece Initial Jobless Claims Italy Japan Market Sentiment Market Share Money Supply recovery Switzerland Trade Deficit Unemployment Yen Sun, 01 Feb 2015 16:11:09 +0000 Marc To Market 501265 at http://www.zerohedge.com Swiss National Bank Scraps Hard Franc Ceiling, Replaces With Soft Ceiling Instead Local Press Reports http://www.zerohedge.com/news/2015-02-01/swiss-national-bank-scraps-hard-franc-ceiling-replaces-soft-ceiling-instead-local-pr <p>A little over three years after the Swiss National Bank embarked on one of the most shortsighted attempts to control its currency, one which cost it a balance sheet that has since ballooned to a gargantuan 80% of Swiss GDP, and in the process transforming it into a giant, <em><strong>and money-losing</strong></em>, FX hedge fund whose biggest holding was the fastest depreciating DM currency, the EUR, the SNB - as everyone knows by now - shocked the world, and countless now insolvent retail brokers, when it reported out of the blue that the Swiss cap would be no more, in the process unleashing the most vicious short squeeze in FX history, and sending the EURCHF from 1.20 to 0.80 before stabilizing at around 1.00 (if only before last week's month end window dressing by the SNB meant to dilute the P&amp;L impact of the soaring CHF on its balance sheet). </p> <p>The aftermath of this historic surge in the Franc is what most now agree will lead to an all out Swiss recession, as not only its export industry just got crushed, but tourism into Switzerland will be drastically reduced as a result of what to foreigners appears as a 20% drop in their purchasing power. Add that to the already well-known woes surrounding Swiss banking, whose deposit-funding model is now long-gone history, and one wonders just what will propel Swiss growth in the future?</p> <p>In retrospect, what the SNB really did was be the first developed central bank to <strong>admit defeat </strong>in the global currency wars, realizing that contrary to "popular" Magic Money Tree opinion, it does not have an infinite balance sheet. And now the time has come to pay the price for delaying reality by over three years. </p> <p>To many this was a welcome move as it means after several years of horrendous monetary policies, Switzerland has finally regained some monetary sense, and while the near-term economic (and stock market) pain may be acute, the long-term will be thankful. </p> <p>And then, earlier today, we read that the SNB didn't learn its lesson after all, and instead of a hard EURCHF 1.20 floor, <strong>it is now unofficially targeting an exchange rate of 1.05-1.10 per Euro, </strong>aka a "<em>soft", kinda/sorta </em>Swiss Franc cap, according to <em><a href="http://www.schweizamsonntag.ch/ressort/politik/mit_einem_kurs_von_110_franken_pro_euro_koennten_sich_die_unternehmen_arrangieren/">Schweiz am Sonntag</a>. </em></p> <p>More from <a href="http://uk.reuters.com/article/2015/02/01/swiss-snb-unofficial-idUKL6N0VB0KD20150201?feedType=RSS&amp;feedName=rbssFinancialServicesAndRealEstateNews">Reuters</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Citing unnamed sources close to the bank, the paper said the SNB was operating "<strong>a kind of minimum exchange rate against the euro".</strong> </p> <p>&nbsp;</p> <p><strong>"The talk is of a 'corridor' from 1.05 francs to 1.10 francs," the paper said. It also cited a well-informed source as saying the bank would incur losses of up to 10 billion francs, without giving a timeframe.</strong> </p> <p>&nbsp;</p> <p>The SNB's Jan. 15 announcement that it had scrapped its cap of 1.20 francs to the euro - the centrepiece of its monetary policy since September 2011 - unleashed a surge in the value of the currency. After the initial shock, which took it below 0.90 francs per euro, the currency has retreated back to 1.0374 francs, <strong>a level still widely seen as strong enough to force Switzerland into recession.</strong></p> </blockquote> <p>The SaS added that "defending the corridor would cost the SNB as much as CHF10 billion." Actually, if and when the Greek deposits outflow accelerates in coming weeks ahead of the Greek February 28 D-Day, it will cost far, far more. </p> <p>It is unclear if this story is what official Swiss policy now is as a spokesman for the central bank refused to comment, or if this is merely an attempt at verbal intervention to test if the EURCHF can rise to 1.10 without the Swiss bank buying billions of Euros each day. However, if indeed the story is true, is merely mark the second abysmal decision the Swiss Bank has done since September 2011, because the only difference between then and now is that a) it has lost almost all credibility and b) if and when the 1.05 lower bound is tested, and the CHF surges below the stops, it will not only cost the SNB even more losses but further undermine what little credibility it does have left. </p> <p>Indeed, as our friend Sean Corrigan put it rhetorically, "So the SNB has a 1.05/10 'corridor' for swissy. <strong>Does that mean they now only buy EUR1 not 3 billion a day!?</strong>"</p> <p>Probably yes, but what's worse, there is no "utmost determination" language present anywhere, which means that the lower bound of the corridor will be promptly attacked at which point the story will be quietly retracted, only to reemerge in a few weeks with a "new" corridor suggestion, this one even lower for the EURCHF.</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="1024" height="768" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/SNB%20image.jpg?1422806333" /> </div> </div> </div> http://www.zerohedge.com/news/2015-02-01/swiss-national-bank-scraps-hard-franc-ceiling-replaces-soft-ceiling-instead-local-pr#comments B+ Monetary Policy Purchasing Power Reality Recession Reuters Swiss Franc Swiss National Bank Switzerland Sun, 01 Feb 2015 15:59:06 +0000 Tyler Durden 501264 at http://www.zerohedge.com Does Anyone Really Believe In A Grexit? http://www.zerohedge.com/news/2015-02-01/does-anyone-really-believe-grexit <p><img src="http://sproutmoney.com/files/2013/09/Greece.jpg" alt="Greece" width="600" height="391" style="display: block; margin-left: auto; margin-right: auto;" class="size-full wp-image-2005 aligncenter" /></p> <p>The new left-wing government hasn’t wasted any time and at a press conference in Athens, the new Greek minister of finance has torpedoed the existing bailout agreement between the troika (consisting of the IMF, the European Central Bank and the European Commission), citing it has <a href="http://www.theguardian.com/business/blog/live/2015/jan/30/greece-awaits-meeting-with-eurozone-finance-chief-live-updates" target="_blank">no intention to honor an agreement</a> with an organization which hasn’t been ratified by the European Parliament. This has strengthened the market's belief there will be a Grexit in the very near future.</p> <p>Cancelling the bailout agreement shouldn’t really come as a surprise as Syriza, the left-wing party which won the recent elections promised the Greek citizen it would escape from the European stranglehold. To show the Troika he wasn’t bluffing, Prime Minister Tsipras appointed Varoufakis as his Minister of Finance, a professor wo’s known to be a hardcore opponent of the bailout program as it stands.</p> <p><a href="http://sproutmoney.com/"><img src="http://sproutmoney.com/files/2015/02/Varoufakis-Minister-Greece.jpg" alt="Varoufakis Minister Greece" width="599" height="336" style="display: block; margin-left: auto; margin-right: auto;" class="size-full wp-image-10302 aligncenter" /></a></p> <p><em>Minister of Finance Yannis Varoufakis. <a href="http://tegenlicht.vpro.nl/.imaging/stk/tegenlicht/zoom/media/tegenlicht/2012/februari/Goldman-sachs-en-Griekenland/120126_Stills_GS/GS_Yannis_Varoufakis/original/GS_Yannis_Varoufakis.jpg" target="_blank">Source</a></em></p> <p>So what is Greece trying to do? It is definitely putting pressure on the European Union to re-negotiate the bailout deal the Greeks got a few years ago. The current phase of that program is expiring at the end of February and there’s no doubt the Greeks are torpedoing the deal now as there’s still a fair few weeks before the deadline expires.</p> <p>Whereas some people see this as the start of the ‘Grexit’, we aren’t so sure Greece will indeed leave the Eurozone as there are several indications they are just playing hardball. When the ECB announced it would start its Quantitative Easing program whereby it is planning to pump 60B EUR per year in the economy of the Eurozone, Tsipras specifically said he would hope that <a href="http://uk.reuters.com/article/2015/01/03/uk-greece-politics-idUKKBN0KC0IG20150103" target="_blank">'the ECB would include Greece as part of its QE-program</a>'. This obviously raises the question why Tsipras wants to be part of QE if he’d be planning to leave the Eurozone anyway? We do believe he really tipped his hand with that remark.</p> <p>Secondly, Varoufakis has left the door open to re-start negotiations on a renewed deal and specifically asked the syndicate of lenders to write off a large part of the debt. This probably won’t happen as the majority of Greece’s bailout plan was financed by the other member states of the Currency Block. Can you imagine what the repercussion would be if all these other countries had to write off a large part of the sum they lent to Greece? The effect would be absolutely devastating as every single country would suddenly have large multi-billion euro deficits as a loan would suddenly be evaporated.</p> <p><a href="http://sproutmoney.com/"><img src="http://sproutmoney.com/files/2015/02/Varoufakis-Dijsselbloem.jpg" alt="Varoufakis Dijsselbloem" width="599" height="336" style="display: block; margin-left: auto; margin-right: auto;" class="size-full wp-image-10305 aligncenter" /></a></p> <p><a href="http://fd.nl/images/04/99/65/landscape/1024x576/high/dijsselbloemenvaroufakis.jpg?v=38" target="_blank"><em>Source</em></a></p> <p>So forgiving a large part of the debt is very likely a bridge too far, but the Greeks are aiming high in order to secure something less invasive. They know damn well the Euro-countries won’t accept a large write-down but there seems to be some potential to discuss a longer payback period as well as a lower interest rate being charged on the Greek debt. Additionally, it’s also very likely the ECB would agree to purchase a relatively seen larger amount of Greek sovereign bond to relieve some of the pressure on the country and thus avoiding a Grexit.</p> <p>And last but not least, should Greece leave the Eurozone, the country will have some serious problems to ever tap the international capital markets again. Its economy would crumble and it would be extremely difficult to get it resuscitated. It’s also unlikely Tsipras wants to go into history as ‘the prime minister who ruined the country’, upsetting every single country in the Eurozone as well as international and national creditors. He’s playing hardball, and Greece will definitely get something out of the negotiations. The only issue is that Tsipras must be able to tell his citizens that it’s a Greek victory over the Troika, meaning the gesture from the Euro-bloc must be big enough to make Tsipras look good.</p> <p><a href="http://sproutmoney.com/"><img src="http://sproutmoney.com/files/2015/02/Kitco-gold-price.jpg" alt="Kitco gold price" width="599" height="384" style="display: block; margin-left: auto; margin-right: auto;" class="size-full wp-image-10309 aligncenter" /></a></p> <p><a href="http://www.kitco.com/" target="_blank"><em>Source</em></a></p> <p>There will be no Grexit as the sacrifices would be much higher than the sacrifices which had (and still have) to be made under the bailout program. However, any renegotiated deal will also increase the pressure on the entire Eurozone as it will take much longer than anticipated to see a single dime back from Athens. And even if our assumptions on the Grexit-case are wrong, gold once again would prove to be a safe haven as the gold price jumped by $25/oz last Friday when the news hit the wires.</p> <p><strong><a href="http://sproutmoney.com/guide-gold/" target="_blank"> &gt;&gt;&gt; Check Out Our Latest Gold Report!</a></strong></p> <p><em>Sprout Money offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies from Sprout Money are transformed into the <a href="http://sproutmoney.com/gold-silver">Gold &amp; Silver Report</a> and the <a href="http://sproutmoney.com/technology">Technology Report</a>.</em></p> <p><em>Follow us on Twitter <a href="https://twitter.com/Sproutmoney"><strong>@SproutMoney</strong></a></em></p> http://www.zerohedge.com/news/2015-02-01/does-anyone-really-believe-grexit#comments Bond Capital Markets Creditors European Central Bank European Union Eurozone Greece Quantitative Easing Twitter Twitter Sun, 01 Feb 2015 14:58:05 +0000 Sprout Money 501263 at http://www.zerohedge.com Nomi Prins: The Sinister Evolution Of Our Modern Banking System http://www.zerohedge.com/news/2015-02-01/nomi-prins-sinister-evolution-our-modern-banking-system <p><em>By Adam Taggart of <a href="http://www.peakprosperity.com/podcast/91631/nomi-prins-sinister-evolution-our-modern-banking-system?utm_source=twitterfeed&amp;utm_medium=twitter&amp;utm_campaign=Feed%3A+PeakProsperity+%28Peak+Prosperity%29">PeakProsperity</a></em></p> <p><strong>Nomi Prins: The Sinister Evolution Of Our Modern Banking System</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>I quit Wall Street and decided that it was time to talk more about what was going on inside it, as it had changed. It had become far more sinister and far more dangerous. </strong></p> </blockquote> <p>&nbsp;&nbsp;&nbsp;&nbsp; ~ Nomi Prins</p> <p>Today, the 'revolving door' connecting our political and financial systems is evident to anyone with eyes. But this entwined relationship between Washington DC and Wall Street is nothing new, predating even the formation of the Federal Reserve.</p> <p>To chronicle the evolution to where we find ourselves today, we welcome Nomi Prins, Wall Street veteran turned financial industry reformist, and author of the excellent expose <a href="http://www.amazon.com/gp/product/156858749X/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&amp;camp=1789&amp;creative=9325&amp;creativeASIN=156858749X&amp;linkCode=as2&amp;tag=peakprosp-20&amp;linkId=FIAZYOLFYGFVPGZM">All The Presidents Bankers.</a></p> <p>In this well-detailed interview, Nomi goes into depth of the rationale and process behind the creation of the Federal Reserve, and more important, how its mandate -- and the behavior of the banking system overall -- metastasized into the every-banker-for-himself regime of sanctioned theft we now live with.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Chris Martenson</strong>:&nbsp;&nbsp; To me, it couldn’t have been more obviously obscene then in 2010, and I believe maybe 2009, right after the big banks had been handed just vast, huge, very favorable handouts and bailouts during the Great Recession -- and then they handed themselves record bonuses. I thought optically that was just horrible. As somebody who was inside the banking system: Are they that tone deaf? What’s behind that sort of behavior? </p> <p>&nbsp;</p> <p><strong>Nomi Prins</strong>:&nbsp;&nbsp; Indeed, they have become very isolated. </p> <p>&nbsp;</p> <p>It began with the period before the 1970s when different people were rising to leadership in banks, and worsened in the 80s when we started seeing people who had more sociopathic tendencies or less ability to appreciate the idea of the public's economic stability being beneficial to growing their institutions. They no longer viewed it as necessary. </p> <p>&nbsp;</p> <p>And with the advent of the larger futures market, the options market, the derivatives market, and all the off-shore elements of banking that were able to be developed, so much capital was now available and off of the books that the idea of maintaining some sort of a connection to stability policy -- or even to whatever the Presidency might want -- dissolved. At the same time, all the Presidents that were involved in running the country around that time didn’t ask or require accountability towards financial stability from them. </p> <p>&nbsp;</p> <p>So there was a bunch of things that were happening at the same time, and that’s why the media does a poor job of critiquing this because they’re not looking at all the strands. None of this is simple. A lot of things happened at the same time to create these kinds of shifts. On the one hand, you have no restraint:<strong> you don’t have the Gold Standard anymore, so you have less of a strain on having something physical be reserved against your leverage</strong>. You now have this ability of petrodollars being recycled. You have the ability to leverage more debt. You have less humility. You have a more technologically-advanced, less transparent global financial system, <strong>so you can make and hide money easier</strong>. And then you have <strong>ascendancies of leadership in banks and in the government that are OK with all this, and allow it to fester. </strong></p> <p>&nbsp;</p> <p>It's all defended as some sort of example of a free market and competition -- "the best gets the best", and so forth -- when the reality is it just destabilizes the entire system and creates an artificiality. <strong>We see central banks supporting all of this mess, as opposed to figuring out what the exit policy is -- which none of them have a clue about. </strong>That’s really where we’ve evolved to. </p> </blockquote> <p>Click the play button below to listen to Chris' interview with Nomi Prins (52m:45s)</p> <p><iframe src="http://www.youtube.com/embed/mcPcBI8pNoM?version=3&amp;autohide=1&amp;fs=1&amp;modestbranding=1&amp;rel=0&amp;wmode=transparent&amp;showinfo=0" width="640" height="360" 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="357" height="240" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/nomi%20prins.png?1422800506" /> </div> </div> </div> http://www.zerohedge.com/news/2015-02-01/nomi-prins-sinister-evolution-our-modern-banking-system#comments Central Banks Chris Martenson Federal Reserve Futures market None Reality Recession Sun, 01 Feb 2015 14:23:32 +0000 Tyler Durden 501262 at http://www.zerohedge.com Caught On Tape: Dijsselbloem To Varoufakis: "You Just Killed The Troika" http://www.zerohedge.com/news/2015-01-31/caught-tape-dijsselbloem-varoufakis-you-just-killed-troika <p>Amid &#39;turmoiling&#39; stock markets on Friday, CNBC&#39;s Simon Hobbs summed up the status quo&#39;s thinking on the new Greek leadership when he noted, somewhat angrily and shocked, <strong><em>&quot;The Greeks are not even trying to reassure the markets,&quot;</em></strong> seeming to have entirely forgotten <em>(and who can blame him in this new normal the world has been force-fed for 6 years)</em> that political leaders are elected for the good of the people (by the people) not for the markets. Yesterday saw the clearest example yet of Europe&#39;s anger that the Greeks may choose their own path as opposed to following the EU&#39;s non-sovereign leadership&#39;s demands when the most uncomfortable moment ever caught on tape - the moment when <strong>Eurogroup chief Jeroen Dijsselbloem </strong><a href="http://www.zerohedge.com/news/2013-03-26/what-dijsselbloem-really-said-full-record-transcript"><em>(he of the &quot;template&quot; foot in mouth disease)</em></a> stood up at the end of the EU-Greece press conference,<strong> awkwardly shook hands with Greece&#39;s new finance minister, and whispered...&quot;you have just killed the Troika,&quot; to which Varoufakis responded... &quot;wow!&quot;</strong></p> <p>&nbsp;</p> <p><a href="http://www.keeptalkinggreece.com/2015/01/30/dijsselbloem-you-just-killed-troika-varoufakis-wow-video-pics/"><em>As Keep Talking Greece reports</em></a>,</p> <p>The joint press conference was concluding, when Greek Finance Minister<strong> Yanis Varoufakis</strong> droped a last bombshell.&nbsp; <em><strong>&ldquo;&hellip;and with this if you want &ndash; and according to European Parliament &ndash; flimsily-constructed committee we have no aim to cooperate. Thank you.&rdquo;</strong></em> Varoufakis was referring to the famous Troika, the country&rsquo;s official creditors consisting of the European Union, the International Monetary Fund and the European Central Bank..</p> <p>After concluding with a &ldquo;Thank you&rdquo; Varoufakis gives the word to Eurogroup Chief <strong>Jeroen Dijsselbloem</strong>, who wants to hear the translation first. Then he takes off the ear phones, he stands up and sets to leave. An enforced-looking shaking of hands delays the&nbsp; departure of the Dutch FinMin.</p> <p>Dijsselbloem quickly whispers something to Varoufakis&rsquo; ear, he briefly replies back and the Eurogroup chief leaves the press conference hall as soon as it was possible.</p> <p><strong>Video: the Awkward Greek-Eurogroup Moment</strong></p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/LPmFHW60Ho8" width="560"></iframe></p> <p>&nbsp;</p> <p>The whole afternoon, Greek and international media were trying to find out <u><strong>&ldquo;What the hell did they two men said to each other!?&rdquo;</strong></u></p> <p><img alt="" src="http://4.bp.blogspot.com/-Q8NxM9BVn5I/VMvQ1DgK7QI/AAAAAAAG5XI/BSeaOdyS2Pc/s1600/ntai.jpg" style="border-width: 0px; border-style: solid; width: 600px; height: 554px;" /></p> <p>&nbsp;</p> <p><em>Private Mega TV reported short before 9 pm on Friday.</em></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><u><strong>Eurogroup chief whispered to Greek FinMin&rsquo;s&nbsp; ear &ldquo;You just killed the Troika&rdquo; and that Varoufakis replied with a simple &ldquo;WOW!&rdquo;</strong></u></p> </blockquote> <p>&nbsp;</p> <p><img alt="" src="http://www.protothema.gr/files/1/2015/01/30/varr1.jpg" style="height: 400px; width: 600px;" /></p> <p><strong>Dijsselbloem</strong><em>: Whisper&hellip;whisper&hellip;</em></p> <p><img alt="" src="http://www.protothema.gr/files/1/2015/01/30/var.jpg" style="height: 400px; width: 600px;" /></p> <p><strong>Varoufakis:</strong> <em>Whisper&hellip;.</em></p> <p>&nbsp;</p> <p><img alt="" src="http://www.protothema.gr/files/1/2015/01/30/varr2.jpg" style="height: 400px; width: 600px;" /></p> <p>Dijsselbloom slides his hand away</p> <p><img alt="" src="http://www.protothema.gr/files/1/2015/01/30/varr8.jpg" style="height: 400px; width: 600px;" /></p> <p>Back remains Varoufakis with one palm open and the left hand stuck in his pocket &ndash; relaxed Greek style</p> <p><img alt="" src="http://www.protothema.gr/files/1/2015/01/30/varr5.jpg" style="height: 400px; width: 600px;" /></p> <p>The two men talk for a couple of minutes with lips hidden from the cameras.</p> <p><img alt="" src="http://www.protothema.gr/files/1/2015/01/30/varr7.jpg" style="height: 400px; width: 600px;" /></p> <p>Dijsselbloem leaves without turning back to watch his interlocutor.</p> <p><img alt="" src="http://www.protothema.gr/files/1/2015/01/30/varr00.jpg" style="height: 400px; width: 600px;" /></p> <p>I don&rsquo;t quite understand why Dijsselbloem is sour. I&rsquo;m sure that Varoufakis told him the same things when they had their 2-hour face-to-face talks.</p> <p>Unless they were talking about <em>Gouda</em> and <em>Feta</em> and the Greek FinMin surprised him when he said at the press conference, that the <a href="http://www.keeptalkinggreece.com/2015/01/30/varoufakis-tells-dijsselbloem-greek-govt-will-not-negotiate-with-troika/" target="_blank">Greek government will not negotiate with the Troika.</a></p> <p><u><strong>And furthermore, why is he offended? He is chief of the Eurogroup, he does not represent the Troika&hellip;</strong></u></p> <p><u><strong>Most probably he was expecting a Yes-Man behavior like in the past with HOHOHO-jocker Jean-Claude Juncker, when he was Eurogroup head.</strong></u></p> <p><a href="http://www.keeptalkinggreece.com/wp-content/uploads/2015/01/juncker-venizelos.jpg"><img alt="juncker venizelos" class="alignnone size-full wp-image-32350" src="http://www.keeptalkinggreece.com/wp-content/uploads/2015/01/juncker-venizelos.jpg" style="width: 601px; height: 318px;" /></a></p> <p><strong><em>Juncker &ndash; FinMin Venizelos</em></strong></p> <p><a href="http://www.keeptalkinggreece.com/wp-content/uploads/2012/03/Juncker.jpg"><img alt="Juncker" class="alignnone size-full wp-image-15774" src="http://www.keeptalkinggreece.com/wp-content/uploads/2012/03/Juncker.jpg" style="width: 601px; height: 497px;" /></a></p> <p><strong><em>Juncker &ndash; Spanish FinMin</em></strong></p> <p>*&nbsp; *&nbsp; *</p> <p>Later that evening Yanis Varoufakis gave an excellent more in depth interview with BBC&#39;s Newsnight... to explain why Greece will not accept more debt from the EU...</p> <p><iframe frameborder="0" height="315" src="https://www.youtube.com/embed/BiIO4YciewU" width="560"></iframe></p> <p>* * *</p> <p><u><strong>One final thought - how long before this chart converges?</strong></u></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_GRE.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/01-overflow/20150131_GRE.jpg" style="width: 599px; height: 316px;" /></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="338" height="347" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20150131_troika.jpg?1422723106" /> </div> </div> </div> http://www.zerohedge.com/news/2015-01-31/caught-tape-dijsselbloem-varoufakis-you-just-killed-troika#comments Creditors European Central Bank European Union Greece International Monetary Fund New Normal Sun, 01 Feb 2015 04:58:45 +0000 Tyler Durden 501244 at http://www.zerohedge.com 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