en Why The Great Petrodollar Unwind Could Be $2.5 Trillion Larger Than Anyone Thinks <p>Last weekend, we explained <a href="">why it really all comes down</a> to the death of the petrodollar.&nbsp;</p> <p><img src="" width="600" height="284" /></p> <p>China’s transition to a new currency regime was supposed to represent a move towards a greater role for the market in determining the exchange rate for the yuan. That’s not exactly what happened. As BNP’s Mole Hau hilariously described it last week, "whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, <strong>[thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term." </strong>Of course a reduced role for the market means a greater role for the PBoC and that, in turn, means FX reserve liquidation or, more simply, the sale of <a href="">US Treasurys</a> on a massive scale.&nbsp;</p> <p>The liquidation of hundreds of billions in US paper made national headlines this week, as the world suddenly became aware of what it actually means when countries begin to draw down their FX reserves. But in order to truly comprehend what’s going on here, one needs to look at China’s UST liquidation in the context of the epochal shift that began to unfold 10 months ago. When it became clear late last year that Saudi Arabia was determined to use crude prices to bankrupt US shale producers and secure other "<a href="">ancillary diplomatic benefits</a>" (think leverage over Russia), it ushered in a new era for producing nations. Suddenly, the flow of petrodollars began to dry up as prices plummeted. These were dollars that for years had been recycled into USD assets in a virtuous loop for everyone involved. <strong>The demise of that system meant that the flow of exported petrodollar capital (i.e. USD recycling) suddenly turned negative for the first time in decades, as countries like Saudi Arabia looked to their stash of FX reserves to shore up their finances in the face of plunging crude.</strong> Of course the sustained downturn in oil prices did nothing to help the commodities complex more broadly and as commodity currencies plunged, the yuan’s dollar peg meant China’s export-driven economy was becoming less and less competitive. Cue the devaluation and subsequent FX market interventions.</p> <p>In short, China’s FX management means that Beijing has joined the global USD asset liquidation party which was already gathering pace thanks to the unwind of the petrodollar system. To understand the implications, consider what BofAML said back in January:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>During the oil-boom era, oil-exporters used oil earnings to finance imports of goods and services, and channeled a portion of surplus savings into foreign assets. ‘Petrodollar’ recycling has in turn helped boost global demand, liquidity and asset prices. With the current oil price rout, external and fiscal balances of oil exporters are undermined, and the threat of lower imports and repatriation of foreign assets is cause for concern.</em></p> <p><em><br /></em></p> <p><em><strong>Recycling of Asia-dollars might partly replace the recycling of petrodollars. </strong>&nbsp;Asian sovereign wealth funds ($2.8tn) account for about 39% of total sovereign wealth funds, and will likely see their size increase at a faster clip. Sovereign wealth funds of China (CIC &amp; SAFE), Hong Kong (HKMA), Singapore (GIC &amp; Temasek) and Korea (KIC) rank in the Top-15 globally</em></p> </blockquote> <p>Yes, the "recycling of Asia-dollars might partly replace the recycling of petrodollars." Unless of course a large Asian country is suddenly forced to become a seller of USD assets and on a massive scale. In that case, not only would the recycling of Asian-dollars not replace petrodollar recycling, but the "Eastern liquidation" (so to speak) would simply add fuel to the fire - and a lot of it. That’s precisely the dynamic that’s about to play out.&nbsp;</p> <p>A careful reading of the above from BofA also seems to suggest is that <strong>looking strictly at official FX reserves might underestimate the potential size of the petrodollar effect.</strong>&nbsp;<span style="font-size: 1em; line-height: 1.3em;">Sure enough, a quick check across sellside desks turns up a Credit Suisse note on the "secular downtrend in EM reserves" which the bank says could easily be understated by focusing on official reserves.&nbsp;</span></p> <p>First, note the big picture trends (especially Exhibit 2):</p> <p><a href=""><img src="" width="600" height="345" /></a></p> <p><a href=""><img src="" width="600" height="254" /></a></p> <p>And further, here’s why the scope of the unwind could be materially underestimated.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Taken into context, the year-to-date fall in EM reserves accounts for only 2% of the total stock of EM reserves. However, the change in the behavior of EM central banks from persistent buyers to now sellers of reserve assets carries important implications. Importantly, official reserves will likely underestimate the full scale of the reversal of oil exporters’ “petrodollar” accumulation. </em></p> <p>&nbsp;</p> <p><em style="font-size: 1em; line-height: 1.3em;"><strong>Crucially, for oil exporting nations, central bank official reserves likely underestimate the full scale of the reversal of oil exporters’ “petrodollar” accumulation. This is because a substantial part of their oil proceeds has previously been placed in sovereign wealth funds (SWFs)</strong>, which are not reported as FX reserves (with the notable exception of Russia, where they are counted as FX reserves).</em></p> <ul> <li><strong><em style="font-size: 1em; line-height: 1.3em;">Currently, oil exporting countries hold about $1.7trn of official reserves but as much as $4.3trn in SWF assets.</em></strong><em style="font-size: 1em; line-height: 1.3em;"><span style="white-space: pre;"> </span></em></li> <li><em style="font-size: 1em; line-height: 1.3em;">In the 2009-2014 period, oil exporters accumulated about $0.5trn in official reserves but as much as $1.8trn of SWF assets.</em><em style="font-size: 1em; line-height: 1.3em;"><span style="white-space: pre;"> </span></em></li> </ul> <p><em><strong>Now that the tide has turned, it is likely that not only official reserves drop but that SWF asset accumulation slows to nil or even reverses. </strong>SWF selling may be a slower process as assets tend to be less liquid, but the opportunity might still be taken to repatriate some investments, for instance to boost domestic rather than foreign infrastructure projects.&nbsp;</em></p> <p>&nbsp;</p> <p><em><a href=""><img src="" width="600" height="316" /></a></em></p> </blockquote> <p><strong>In other words, looking at the total amount of official reserves for oil exporters understates the potential for petrodollar draw downs by around $2.5 trillion. </strong>Now obviously, it's unlikely that exporters will exhaust the entirety of their SWFs. Having said that, the fact that EM FX reserve accumulation turned negative for the first time in history during Q2 underscores how quickly the tide can turn and how sharp reversals can be. If one fails to at least consider the SWF angle then the effect is to underestimate the worst case scenario by $2.5 trillion, and if 2008 taught us anything, it's that failing to understand just how bad things can get leaves everyone unprepared for the fallout in the event the situation actually does deteriorate meaningfully.&nbsp;</p> <p>So that's the big picture. <strong>In other words, the above is a discussion of the pressure on accumulated petrodollar investments and is an attempt to show that the pool of assets that could, in a pinch, be sold off to finance things like massive budget deficits (Saudi Arabia, for instance, is <a href="">staring down a fiscal deficit</a> that amounts to 20% of GDP) is likely being underestimated by those who narrowly focus on official reserves. </strong>Switching gears briefly to consider what $50 crude means for the <em>flow</em> of petrodollars (i.e. what's coming in), RBS' Alberto Gallo has the numbers:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em><strong>If petroleum prices continue in to year end at their current YtD average&nbsp;<span style="font-size: 1em; line-height: 1.3em;">($52), this would represent a 60% decline in Petrodollar generated in 2015 vs between&nbsp;</span><span style="font-size: 1em; line-height: 1.3em;">2011 and 2014. Assuming that 30% of gross Petrodollars generated per year are&nbsp;</span><span style="font-size: 1em; line-height: 1.3em;">invested in financial markets, this would imply $288bn ready for investments in 2015 vs&nbsp;</span></strong><span style="font-size: 1em; line-height: 1.3em;"><strong>a $726bn average between 2011 and 2014.</strong> Lower purchasing power from oil-exporting&nbsp;</span><span style="font-size: 1em; line-height: 1.3em;">countries may in turn reduce demand for $-denominated fixed income assets, including&nbsp;</span><span style="font-size: 1em; line-height: 1.3em;">$ IG and $ HY. US IG and HY firms have issued $918bn and $220bn YtD, which in total&nbsp;</span><span style="font-size: 1em; line-height: 1.3em;">marks a record-high vs past years.&nbsp;</span></em></p> <p>&nbsp;</p> <p><em><span style="font-size: 1em; line-height: 1.3em;"><img src="" width="600" height="309" /></span></em></p> <p><em><span style="font-size: 1em; line-height: 1.3em;"><a href=""><img src="" width="494" height="520" /></a></span></em></p> <p>&nbsp;</p> </blockquote> <p><span style="font-size: 1em; line-height: 1.3em;">And while all of this may seem complex, it's actually quite simple: <strong>less petrodollars coming in without a commensurate reduction in what's going out means the difference has to be made up somewhere and that somewhere is in the sale of USD reserve assets which are prone to being understated if one looks only at official FX reserves.</strong> Contrast this with the status quo which for years has been more petrodollars coming in than what's going out (in terms of expenditures) with the balance being reinvested in USD assets. </span></p> <p><span style="font-size: 1em; line-height: 1.3em;">Simplifying even further: the virtuous circle (for the dollar and for USD assets) has not only been broken, but it's now starting to reverse itself and the potential scope of that reversal must take into account SWF assets.&nbsp;</span></p> <p><span style="font-size: 1em; line-height: 1.3em;">Where we go from here is an open question, but what's clear from the above is that between China's FX reserve drawdowns in defense of the yuan and the dramatic decrease in petrodollar flow, the self-feeding loop that's sustained the dollar and propped up USD assets is now definitively broken and we are only beginning to understand the consequences.&nbsp;</span></p> Central Banks China Credit Suisse Crude fixed headlines Hong Kong Purchasing Power Saudi Arabia Yuan Sun, 30 Aug 2015 02:04:49 +0000 Tyler Durden 512587 at Dis-Integrating America <p><a href=""><em>Submitted by Pat Buchanan via,</em></a></p> <p>The Wednesday morning murders of 24-year-old Roanoke TV reporter Alison Parker and cameraman Adam Ward, 27, were a racist atrocity, a hate crime. Were they not white, they would be alive today.</p> <p>Their killer, Vester L. Flanagan II, said as much in his farewell screed. He ordered his murder weapon, he said, two days after the slaughter of nine congregants at the African-American AME church in Charleston, South Carolina.</p> <p><strong><em>&ldquo;What sent me over the top was the church shooting,&rdquo;</em></strong> said Flanagan.</p> <p><strong>To be sure, racism does not fully explain why Flanagan, fired from that same WDBJ7 station, committed this act of pure evil.</strong></p> <p>Black and homosexual, he said<strong> he was the target of anti-gay slurs from black males and racial insults from white colleagues.</strong> He had gotten himself fired from other jobs in broadcasting. He carried a grab bag of grudges and resentments.</p> <p>Yet, in the last analysis, <strong>The Washington Post headline got it right: &ldquo;Gunman&rsquo;s letter frames attack as racial revenge.&rdquo;</strong></p> <p>Other news organizations downplayed the racial aspect. <strong><em><span style="text-decoration: underline;">But had those murdered journalists been young and black, and their killer a 40-something &ldquo;angry white male,&rdquo; the racial motivation would have been front and center in their stories.</span></em></strong></p> <p><strong>Now, Black America is surely as sickened by this horror outside Roanoke as was White America by the Charleston massacre.</strong></p> <p>But it is hard to see how and when we come together as a people. For racial crimes and race conflict have become &ldquo;the story&rdquo; that everyone seizes upon &mdash; since Ferguson in the summer of 2014.</p> <p><em>On the first anniversary of Michael Brown&rsquo;s death, protesters blocked public buildings in St. Louis and St. Louis County, shut down I-70 at rush hour. In Ferguson, hoodlums rioted and looted for days.</em></p> <p><strong>What justification was there for such lawlessness?</strong></p> <p>Explained some in the press, it was to protest the failure to prosecute a white cop who had killed an &ldquo;unarmed black teenager.&rdquo;</p> <p>Left out of most stories was that Brown, 18, had knocked over a convenience store, throttled a clerk half his size, and was unarmed only because he failed to wrest a gun away from Officer Darren Wilson, whom a grand jury declared had acted in self-defense when he shot the charging 290-pound Brown.</p> <p><strong>Since then, we have had the Eric Garner incident</strong> on Staten Island, where a 345-pound black man, suffering from diabetes, asthma, obesity and heart disease, died of heart failure after being wrestled to the ground by five cops, none of whom was charged.</p> <p><strong>Came then the death of Freddie Gray in Baltimore, </strong>while in police custody.</p> <p>There, six officers have been charged. Then came the<strong> death of a 12-year-old black kid in Cleveland</strong>, who was waving a toy gun.<br />As the incidents pile up, with white cops shooting black suspects, and black criminals killing white cops, the news goes viral and America divides along the lines of race and color, and between black and blue.</p> <p>Though, let it be said, the violence in Ferguson and Baltimore was<strong> child&rsquo;s play compared to Watts in &rsquo;65, Detroit and Newark in &rsquo;67, and D.C. and 100 other cities after Dr. King&rsquo;s assassination in 1968.</strong></p> <p><em>&ldquo;Can we all get along?&rdquo; pleaded Rodney King, when South Central exploded in rioting, arson and looting after the L.A. cops who had beaten King were exonerated.</em></p> <p><em>Answer: Probably not.</em></p> <p><strong>For what seems certain, ensuring that our racial divide widens and deepens, is that more incidents like those involving Michael Brown, Eric Garner and Freddie Gray are inevitable.</strong></p> <p>Why so?</p> <p>First, <strong>violent crime, declining since the early 1990s, is rising again.</strong> And violent crime in black communities is many times higher than in the white communities of America.</p> <p>Collisions between black suspects and criminals and white cops are going to increase, and some of these collisions are going to involve shootings. And such shootings trigger fixed, deep-seated beliefs about cops, criminals and injustice, they also cause an instantaneous taking of sides.</p> <p>Moreover, <strong>this is the sort of &ldquo;news&rdquo; that instantly goes viral through the Internet, Facebook and 24-hour cable TV.</strong></p> <p>Liberals and Democrats take sides with the black community out of solidarity and to solidify their political base, while Republicans stand with the cops, law-and-order conservatives, and the Silent Majority in Middle America.</p> <p><strong>The race issue has even begun to split the Democrats.</strong></p> <p>When former Maryland Governor Martin O&rsquo;Malley, a card-carrying liberal, attended a conference of Netroots Nation and responded to a chant of &ldquo;Black Lives Matter!&rdquo; with the more inclusive, <u><em>&ldquo;Black Lives Matter! White Lives Matter! All Lives Matter!&rdquo; he was virtually booed off the stage.</em></u></p> <p>O&rsquo;Malley proceeded to apologize for including the white folks.</p> <p><em><strong>To many Americans, even many who did not vote for him, the election of Barack Obama seemed to hold out the promise that our racial divide could be healed by a black president.</strong></em></p> <p>Even Obama&rsquo;s supporters must concede it did not happen, though we would, again, argue angrily over why.</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="519" height="440" alt="" src="" /> </div> </div> </div> Barack Obama Detroit fixed None South Carolina Sun, 30 Aug 2015 01:55:00 +0000 Tyler Durden 512581 at Despite Being A 'Pet Rock', The Premium For Physical Bullion Is Exploding <p>While status quo-huggers are all too happy to point out gold and silver&#39;s lack of utter exuberance amid this week&#39;s carnage, perhaps they need to re-comprehend the difference between a heavily manipulated &#39;paper&#39; market and the <strong>surging demand for physical precious metals that is evident in the 20-plus percent premium</strong> - and rising - being paid for silver bullion currently...</p> <p>&nbsp;</p> <p><a href=""><img height="452" src="" width="600" /></a></p> <p>&nbsp;</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 453px;" /></a></p> <p><a href=""><em>Chart:</em></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;One important aspect of the physical market that is often overlooked is the premium it commands over spot price. Right before the Global Financial Crisis in 2008, the spot Silver price fell as low as USD 9 per oz., whereas the price of a 1 oz. Silver Eagle was around USD 17 on the wholesale market and even higher on the retail market! That&rsquo;s a price premium of 188%!</p> <p>&nbsp;</p> <p>That means that if you had held 100 oz. of paper Silver, you might have had to liquidate that for USD 900 (assuming the market was not halted for trading then), whereas if you had held 100 pieces of 1 oz. Silver Eagle coins, you would have gotten at least USD 1700 for them if not more.&quot;</p> <p>&nbsp;</p> <p>BullionStar,&nbsp;<a href="">The Difference in Paper and Physical Gold and Silver in times of Crisis</a></p> </blockquote> <p><a href=""><em>h/t Jesse&#39;s Americain Cafe</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="761" height="573" alt="" src="" /> </div> </div> </div> Precious Metals Sun, 30 Aug 2015 01:20:00 +0000 Tyler Durden 512575 at Stagnant US Economic Growth Explained (In 1 Cartoon) <p>Presented with no comment...</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="455" /></a></p> <p>&nbsp;</p> <p><a href=""><em>Source:</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="682" height="517" alt="" src="" /> </div> </div> </div> Sun, 30 Aug 2015 01:20:00 +0000 Tyler Durden 512577 at Ayn Rand & Murray Rothbard: Diverse Champions Of Liberty <p><a href=""><em>Submitted by Tibor R. Machan via,</em></a></p> <h3><strong>Differences and Similarities</strong></h3> <p>No one should attempt to treat Ayn Rand and Murray N. Rothbard as uncomplicated and rather similar defenders of the free society although they have more in common than many believe.&nbsp;&nbsp;As just one example, neither was a hawk when it comes to deploying military power abroad.*&nbsp;&nbsp;There is evidence, too, that both considered it imprudent for the US government to be entangled in international affairs, such as fighting dictators who were no threat to America.&nbsp;&nbsp;Even their lack of enthusiasm for entering WW II could be seen as quite similar.</p> <p>&nbsp;</p> <p style="text-align: center;"><img class="aligncenter wp-image-39665" height="315" src="" width="600" /></p> <p style="text-align: center;">Ayn Rand, famed writer and founder of the Objectivist movement</p> <p style="text-align: center;">Photo credit: <span class="credit">Cornell Capa / Magnum </span></p> <p>&nbsp;And so far as their underlying philosophical positions are concerned, they both can be regarded as Aristotelians.&nbsp;&nbsp;In matters of economics they were unwavering supporters of the fully free market capitalist system, although while Rand didn&rsquo;t find corporations per se objectionable, arguably Rothbard had some problems with corporate commerce, especially as it manifest itself in the 20th century.&nbsp;&nbsp;One sphere in which they took very different positions, at least at first glance, is whether government is a <em>bona fide</em> feature of a genuinely free country. Rand thought it is, Rothbard thought it wasn&rsquo;t.&nbsp;&nbsp;Yet the reason Rothbard opposed government was that it depended on taxation, something Rand also opposed, so even here where the difference between them appears to be quite stark, they were closer than one might think.</p> <p>&nbsp;</p> <p style="text-align: center;"><img alt="RothbardChalkboard" class="aligncenter wp-image-39666" src="" style="width: 601px; height: 308px;" /></p> <p style="text-align: center;">Murray Rothbard, introducing his students to French economist Anne-Robert-Jacques Turgot (widely regarded as a &ldquo;proto-Austrian&rdquo; today)</p> <p style="text-align: center;">Photo credit: <a href="">Roberto Losada Maestre</a></p> <p>&nbsp;</p> <p>When intellectuals such as Rand and Rothbard have roughly the same political-economic position, it isn&rsquo;t that surprising that they and their followers would stress the difference between them instead of the similarities.&nbsp;&nbsp;Moreover, in this case both had a similar explosive personality, with powerful likes and dislikes not just in fundamentals but also in what may legitimately be considered incidentals&ndash;music, poetry, novels, movies and so forth.</p> <p>Yet what for Rothbard might be something tangential, even incidental, to his political economic thought, for Rand could be considered more germane since Rand thought of herself&ndash;and many think of her&ndash;as a philosopher (roughly of the rank of a Herbert Spencer or Auguste Comte).&nbsp;&nbsp;Rothbard wrote little in the sphere of metaphysics and epistemology, although he was well informed in these branches of philosophy, while Rand chimed in, quite directly, on several philosophical issues, having written what amounts to a rather nuanced long philosophical essay on epistemology and advanced ideas in metaphysics, such as on free will, causality, and the nature of universals.&nbsp;&nbsp;Her followers, such as Nathaniel Branden, Leonard Peikoff, Tara Smith, Alan Gotthelf, James Lennox, and David Kelley, among others, have all made contributions to serious discussions in various branches of philosophy.</p> <p>&nbsp;</p> <h3><strong>Disagreements on Government and Market Exchanges </strong></h3> <p>The central dispute, however, between Rothbard and his followers and Rand and hers focuses, as I have already noted, on whether a free country would have a government.&nbsp;&nbsp;The debate is moved forward in the volume edited by Roderick Long and me,&nbsp; Anarchism versus Minarchism; Is Government Part of a Free County&nbsp;(Ashgate, 2006).</p> <p>&nbsp;</p> <p style="text-align: center;"><img alt="they-live" class="aligncenter wp-image-39667" src="" style="width: 601px; height: 338px;" /></p> <p style="text-align: center;">A scene from John Carpenter&rsquo;s famous documentary &ldquo;They Live&rdquo; &ndash; the State ultimately enforces its diktats and demands by threatening and exercising violence.</p> <p style="text-align: center;">Photo credit: <span class="_Xbe kno-fv"><a class="fl" href=";hl=de-AT&amp;q=john+carpenter&amp;stick=H4sIAAAAAAAAAGOovnz8BQMDgz4HnxCnfq6-gWGlRVW5EgeImVJkWqkllp1spZ-WmZMLJqxSMotSk0vyi6Zbhpsc6uS7YRHx8WPI7uzDrBbzvwIAyJ1aK0wAAAA&amp;ved=0CIMBEJsTKAEwFGoVChMIgMGg1aTMxwIVxFcUCh0oQAB4">John Carpenter</a></span></p> <p>Even apart from their disagreement about the justifiability of government in a&nbsp;bona fide&nbsp;free country, there is the difference between them about the subjectivity of (some) values. Rothbard holds, for example, that &ldquo;&rsquo;<em>distribution&rsquo; is simply the result of the free exchange process, and since this process benefits all participants on the market and increases social utility, it follows directly that the &lsquo;distributional&rsquo; results of the free market also increase social utility</em>.&rdquo;&nbsp;&nbsp;The part here that shows the difference between Rothbard and Rand is where Rothbard says that the &ldquo;<em>free exchange process &hellip; benefits all participants on the market</em>.&rdquo;</p> <p>Maybe most of them benefit in such exchanges, but some do not.&nbsp;&nbsp;Suppose someone exchanges five ounces of crack cocaine for an ounce of heroin.&nbsp;&nbsp;Arguably, at least as Ayn Rand would very likely maintain, neither of these traders gains a benefit in this exchange, assuming that both commodities being traded are objectively harmful to the traders&rsquo; health.&nbsp;&nbsp;Both are, then, harmed, objectively speaking, even if they believed they would benefit.</p> <p>This may be a minor matter but it isn&rsquo;t, not at least if Rothbard&rsquo;s idea is generalized to apply to all market exchanges.&nbsp;&nbsp;True, from a purely economic viewpoint both parties in free exchanges tend to take it or believe that they are benefited by these.&nbsp;&nbsp;But this belief could well be false.</p> <p>Now of course Rand would agree with Rothbard that just because people engage in trade that&rsquo;s harmful to them, it doesn&rsquo;t follow that anyone, least of all the government, is authorized to ban such trade or otherwise interfere with it.&nbsp;&nbsp;Such matters as what may or may not harm free market traders from the trades they choose to engage in are supposed to be dealt with in the private sector.&nbsp;&nbsp;Family, friends, doctors, nurses,&nbsp;et al., or other agents devoted to advising people what they should and should not do are the only ones who may launch peaceful educational or advisory measures to remedy the private misjudgments and misconduct of peaceful market participants.&nbsp;&nbsp;Such an approach sees public policies such as the war on drugs as entirely unjustified even if consuming many drugs is objectively damaging to those doing so.</p> <p>In any case, the Randian view doesn&rsquo;t assume that all free trade benefits those embarking on them.&nbsp;&nbsp;Let me, however, return to the major bone of contention between Murray Rothbard and Ayn Rand, namely, whether government is (or could be) part of a free country.&nbsp;&nbsp;Given that Rothbard believes government cannot exists without deploying the rights-violating policy of taxation, his view is understandable, but the underlying assumption that gives rise to it is questionable.</p> <p>Rand did indeed question it in her discussion of funding government in the chapter &ldquo;Government Financing in a Free society&rdquo; in&nbsp;<em>The Virtue of Selfishness</em>, at least by implication, when she argued that government can be financed&nbsp;without&nbsp;taxation.&nbsp;If she is correct, then Rothbard or his followers need to mount a different attack on the idea that the free society can have a government.&nbsp;&nbsp;(And some have indeed made this argument, including me in, for example, my &ldquo;<em>Anarchism and Minarchism, A Rapprochement</em>,&rdquo;&nbsp;Journal des Economists et des Estudes Humaines,&nbsp;Vol. 14, No. 4&nbsp;[December 2002], 569-588).</p> <p>Rand proposed that instead of taxation, which involves the rights-violating policy of confiscation of private property, a government could be funded by way of a contract fee, a lottery, or some other peaceful method.&nbsp;&nbsp;Whether this is so cannot be addressed here but it shows that Rand and Rothbard were not very distant from each other on the issue of the justifiability of government in a free country. Perhaps the term &ldquo;government&rdquo; is ill advised when applied to whatever kind of law-enforcement institution would be involved in&nbsp;bona fide&nbsp;free countries. But this is not what&rsquo;s crucial&ndash;a rose by any other name is still a rose and a law-enforcement, judicial or defense agency in a free society is what is at issue here, not what term is used to call it.&nbsp;&nbsp;So, again, Rand and Rothbard seem closer than usually believed.</p> <p>Yet it&rsquo;s not just about taxation for many who follow Rothbard.&nbsp;&nbsp;Most also hold that the idea is mistaken that government&ndash;or whatever it is called&ndash;needs to serve a society occupying a continuous instead instead of Swiss cheese like region.&nbsp;&nbsp;The idea of a disparately located country, without a continuous territory and with the possibility of all parts being accessible by law enforcers without the need of international treaties, makes sense to Rothbardians.&nbsp;&nbsp;Not, however, to Randians, it can be argued, not unless the familiar science fiction transportation option of being &ldquo;beamed up&rdquo; from one area to anther (so that law enforcement can reach all those within its jurisdiction) is available.&nbsp;&nbsp;Otherwise enforcement of the law can be easily evaded by criminals.</p> <p>&nbsp;</p> <h3><strong>Conclusion</strong></h3> <p>Again, this isn&rsquo;t the place to resolve the dispute between Rand &amp; her followers and Rothbard and his.&nbsp;&nbsp;This brief discussion should, however, indicate where their differences lie.&nbsp;&nbsp;It doesn&rsquo;t at all explain, however, why the different parties to the debate tend often to be quite acrimonious toward each other.&nbsp;&nbsp;<strong>What may explain this, though, is a simple point of psychology.</strong>&nbsp;&nbsp;<em>Nearly all champions of a fully free, libertarian society are also avid individualists and often tend to insist on what might be called the policy: My way or the highway!&nbsp;&nbsp;Even when their differences don&rsquo;t warrant it.</em></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="752" height="573" alt="" src="" /> </div> </div> </div> Crack Cocaine Sun, 30 Aug 2015 00:45:00 +0000 Tyler Durden 512579 at Citigroup Chief Economist Thinks Only "Helicopter Money" Can Save The World Now <p><a href="">Having recently explained (in great detail) why QE4 (and 5, 6 &amp; 7) were inevitable</a> (despite the protestations of all central planners, except for perhaps Kocharlakota - who never met an economy he didn&#39;t want to throw free money at), we found it fascinating that no lessor purveyor of the status quo&#39;s view of the world - Citigroup&#39;s chief economist Willem Buiter - that<strong> a global recession is imminent and nothing but a major blast of fiscal spending financed by outright &quot;helicopter&quot; money from the central banks will avert the deepening crisis</strong>. <a href="">Faced with China&#39;s &#39;Quantitative Tightening&#39;</a>, <a href="">the economist who proclaimed &quot;gold is a 6000-year old bubble&quot;</a> and <a href="">cash should be banned</a>, concludes ominously, <strong><em>&quot;everybody will be adversely affected.&quot;</em></strong></p> <p><strong>China has bungled its attempt to slow the economy gently and is sliding into &ldquo;imminent recession&rdquo;, threatening to take the world with it over coming months, Citigroup has warned. </strong>As The Telegraph&#39;s Ambrose Evans-Pritchard reports, Willem Buiter, the bank&rsquo;s chief economist, said the country needs a major blast of fiscal spending financed by outright &quot;helicopter&quot; money from the bank to avert a deepening crisis.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Speaking on a panel at the Council of Foreign Relations in New York, Mr Buiter said<strong> the dollar will &ldquo;go through the roof&rdquo; if the US Federal Reserve lifts interest rates this year, compounding the crisis for emerging markets.</strong></p> <p>&nbsp;</p> <p>&quot;<strong><u>So why it matters is that the competence of the Chinese authorities as managers of the macro economy is really in question</u></strong> - the messing around with monetary policy, the hinting on doing things on the fiscal side through the policy banks. But I think <strong><u>the only thing that is likely to stop China from going into, I think, recession</u></strong> - which is, you know, 4 percent growth on the official data, the mendacious official data, for a year or so<strong><u> - is a large consumption-oriented fiscal stimulus, funded through the central government and preferably monetized by the People&rsquo;s Bank of China.</u></strong></p> <p>&nbsp;</p> <p>Well,<strong><u> they&rsquo;re not ready for that yet. Despite, I think, the economy crying out for it, the Chinese leadership is not ready for this.</u></strong></p> <p>&nbsp;</p> <p>So I think they will respond, but <strong><u>they will respond too late to avoid a recession,</u></strong> and which is <strong><u>likely to drag the global economy with it down to a global growth rate below 2 percent, which is my definition of a global recession</u></strong>. Not every country needs go into recession. The U.S. might well avoid it. <strong><u>But everybody will be adversely affected</u></strong>.&quot;</p> </blockquote> <p>Or translated from &#39;economist&#39; to English - a massive helicopter drop of cash (well 1s and 0s) into the inflating hands of Chinese soon-to-be-consumers is al lthat can the world from another recession... and The Chinese leadership may need to stare into the abyss before they actually pull the trigger.<a href=""><em> Just think of the pork prices?</em></a></p> <p>&nbsp;</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 404px;" /></a></p> <p>&nbsp;</p> <p>Mr Buiter had some more to add on the idiocy of Chinese Equity markets. He said<strong> the stock market crash in Shanghai and Shenzhen...</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong> a sideshow. </strong>Consumption effects, you know, wealth effects, minor. <strong>Almost no capex in China is funded through share issue. And so it is a symbol of the policy failure rather than intrinsically economically important.</strong></p> <p>&nbsp;</p> <p><strong>China&rsquo;s problems are excessive leverage in the corporate sector, in the local government sector, and the very fragile banking system, and shadow banking system.</strong> As Chen pointed out, it won&rsquo;t be allowed to collapse because it is underwritten by the government, but it won&rsquo;t be a source of great funding strength.</p> <p>&nbsp;</p> <p>There is excess capacity and a pathetically low rate of return on capital expenditure, right?<strong> Invest 50 percent of GDP and get, even in the official data, 7 percent growth. The true data is probably something closer to 4 &frac12; percent or less.</strong> So it is an economy that, I think, is sliding into recession.</p> <p>&nbsp;</p> <p>And what the stock market reminds us of, I think, especially this sequence of the<strong> government first cheerleading the stock market boom and bubble</strong> - because quite<strong> a few of the local pundits believed that this was a great way of deleveraging without paying for the corporate sector, to have a stock market bubble</strong>. And then, of course, the<strong> rather panicky and incompetent reaction in response.</strong></p> <p>&nbsp;</p> <p><u><strong>So, once again, why it matters is that the competence of the Chinese authorities as managers of the macro economy is really in question.</strong></u></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>So, it seems, all of a sudden - despite the permabulls, asset-gatherers, and commission-takers saying otherwise - China matters! <a href="">As Bloomberg notes,</a> <strong>China&rsquo;s deepening struggles are starting to make a bigger dent in the global economic outlook.</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>&ldquo;We&rsquo;re seeing evidence that the slowdown is broader than expected&rdquo; in China</strong>, saidMarie Diron, a London-based senior vice president at Moody&rsquo;s and one of the report&rsquo;s authors. &ldquo;It&rsquo;s long been clear that there&rsquo;s a slowdown in the manufacturing and construction sector, but the service sector was more resilient. That&rsquo;s still the case, but we&rsquo;re seeing some signs of weakness in the labor market.&rdquo;</p> <p>&nbsp;</p> <p>&ldquo;We continue to believe that the greatest risks to our growth forecasts remain to the downside,&rdquo; Schofield wrote. <strong><u>Actual growth is &ldquo;probably even lower&rdquo; because of &ldquo;likely mis-measurement in China&rsquo;s official data,&rdquo;</u></strong> he wrote.</p> </blockquote> <p>*&nbsp; *&nbsp; *<br /><strong>Which, is exactly what we have been saying for the last 2 years as the rolling collapse of China&#39;s ponzi becomes ever more evident (and hidden by ever more manipulation)...</strong></p> <p>Here, for those curious, are links to previous discussions:</p> <ul> <li><span style="font-size: 1em; line-height: 1.3em;"><a href="">China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium</a></span></li> <li><span style="font-size: 1em; line-height: 1.3em;"><a href="">China&#39;s Record Dumping Of US Treasuries Leaves Goldman Speechless</a></span></li> <li><a href="">How The Petrodollar Quietly Died And Nobody Noticed</a></li> <li><a href="">Why It Really All Comes Down To The Death Of The Petrodollar</a></li> <li><span style="font-size: 1em; line-height: 1.3em;"><a href="">Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks</a></span></li> <li><span style="font-size: 1em; line-height: 1.3em;"><a href="">What China&#39;s Treasury Liquidation Means: $1 Trillion QE In Reverse</a></span></li> <li><span style="font-size: 1em; line-height: 1.3em;"><a href="">It&#39;s Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington</a></span></li> </ul> <p>And so on and so forth.</p> <p><strong>In short, stabilizing the currency in the wake of the August 11 devaluation has precipitated the liquidation of more than $100 billion in USTs in the space of just two weeks, doubling the total sold during the first half of the year.&nbsp;</strong></p> <p>In the end, the estimated size of the RMB carry trade could mean that before it&rsquo;s all over, <strong>China will liquidate as much as $1 trillion in US paper, </strong>which, as we noted on Thursday evening, <span style="text-decoration: underline;"><strong>would effectively negate 60% of QE3 and put somewhere in the neighborhood of 200bps worth of upward pressure on 10Y yields.&nbsp;</strong></span></p> <p>And don&#39;t forget, this is<strong> just China</strong>.</p> <p>...</p> <p><strong>The potential for more China outflows is huge: set against 3.6trio of reserves (recorded as an &ldquo;asset&rdquo; in the international investment position data), China has around 2trillion of &ldquo;non-sticky&rdquo; liabilities including speculative carry trades, debt and equity inflows, deposits by and loans from foreigners that could be a source of outflows (chart 2). The bottom line is that markets may fear that QT has much more to go.<span style="font-size: 1em; line-height: 1.3em; white-space: pre;"> </span></strong></p> <p>What could turn sentiment more positive? The first is other central banks coming in to fill the gap that the PBoC is leaving. China&rsquo;s QT would need to be replaced by higher QE elsewhere, with the ECB and BoJ being the most notable candidates. The alternative would be for China&rsquo;s capital outflows to stop or at least slow down. Perhaps a combination of aggressive PBoC easing and more confidence in the domestic economy would be sufficient, absent a sharp devaluation of the currency to a new stable.<strong> Either way, it is hard to become very optimistic on global risk appetite until a solution is found to China&rsquo;s evolving QT.</strong></p> <p><strong>* &nbsp;* &nbsp;*</strong></p> <p><strong><img height="302" src="" width="500" /></strong></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="500" height="303" alt="" src="" /> </div> </div> </div> Carry Trade Central Banks China Citigroup Equity Markets Evans-Pritchard Federal Reserve Free Money Global Economy Market Crash Monetary Policy Recession Shadow Banking Shenzhen The Economist Willem Buiter Sun, 30 Aug 2015 00:00:00 +0000 Tyler Durden 512583 at Guns, Drugs, & Booze: The Bipartisan Support For Prohibition <p><a href=""><em>Submitted by Andrew Syrios via The Mises Institute,</em></a></p> <div class="body-content"> <p><strong>It&rsquo;s been noticed more than a few times that there aren&rsquo;t many substantive differences between the Republicans and Democrats.</strong> While this is true in many ways for the parties themselves, the Left and Right certainly differ on a range of issues from welfare to abortion to gay rights.</p> <p><strong>What they have in common &mdash; at least the mainstream varieties &mdash; is a desire to use the state to shape society in whatever way they see fit.</strong> As Andrew Napolitano <a href="" target="_blank">put it</a>, &ldquo;We have migrated from a two-party system into a one-party system, the big-government party. There&rsquo;s a democratic wing that likes taxes and wealth transfers and assaults on commercial liberties and there&rsquo;s a republican wing that likes war and deficits and assaults uncivil liberties.&rdquo; <strong>And both parties love prohibition, just of different things.</strong></p> <h4><span style="text-decoration: underline;">Alcohol Prohibition</span></h4> <p>There aren&rsquo;t many people left who believe the prohibition of alcohol in the 1920s was a good idea. Interestingly enough, it was the progressives of the time that pushed for that. As historian William Leuchtenburg <a href="" target="_blank">noted</a>, &ldquo;It was a movement that was embraced by progressives.&rdquo; On the other side, in the words of historian <a href="" target="_blank">Daniel Okrent</a>, were the &ldquo;&hellip; economic conservatives who &hellip; pushed so hard for repeal.&rdquo;</p> <p>Prohibition turned out to be a disaster. <a href="" target="_blank">A report</a> from the Cato Institute found that after Prohibition passed in 1920, homicide rates increased, corruption increased, alcohol-related deaths were unchanged and after a short dip in 1921, alcohol consumption returned to what it had been before the law was passed. Furthermore, in the midst of this chaos, Al Capone and organized crime came to power. Indeed, black markets and prohibition go together like peas and carrots.</p> <h4><span style="text-decoration: underline;">Drug Prohibition</span></h4> <p>In the past, it was <a href="">usually the progressives</a> who wanted to use the state to tell people what they could and could not put in their own bodies. However, something must have changed among conservatives as the Right has generally been at the vanguard of the War on Drugs (although, with plenty of help from many on the Left). <a href="" target="_blank">In 1971</a>, Richard Nixon decided to try prohibition all over again, but this time with cocaine, heroin, and marijuana.</p> <p>And of course, it has failed in every way imaginable.</p> <p>According to the <a href="" target="_blank">National Institute of Drug Abuse</a>, &ldquo;Illicit drug use in America has been increasing.&rdquo; In 2012, &ldquo;9.2 percent of the population&rdquo; had used illicit drugs in the last month &ldquo;&hellip; up from 8.3 percent in 2002.&rdquo; So drug use has actually gone up despite <a href="" target="_blank">spending over a trillion dollars</a> on this massive boondoggle.</p> <p>Meanwhile, the United States has the <a href="" target="_blank">largest prison population in the world</a>. Despite having only 5 percent of the world&rsquo;s population, the United States has 25 percent of the world&rsquo;s prison population. <a href="" target="_blank">A large percentage</a> of these prisonere are in prison for nothing more than non-violent drug charges.</p> <p>Some think this is counterproductive and immoral. Others, like <a href="" target="_blank">Michael Gerson</a>, believe that those who want to legalize drugs have &ldquo;second-rate values.&rdquo; First-rate values include locking drug addicts in cages. So in accordance with Gerson&rsquo;s first-rate values, instead of trying to help these poor addicts rebuild their lives, the government declared war on the substances, and thereby, the addicts themselves.</p> <p>And to wage this war has required a massively invasive police state. &ldquo;Victimless&rdquo; crimes don&rsquo;t leave many witnesses (or at least not many who want to talk about it). So the government must use more bellicose means. According to the ACLU, there are an estimated <a href="" target="_blank">45,000 SWAT raids</a> every year and only about 7 percent are for hostage situations. The vast majority are for drugs. These raids sometimes end tragically. For example, <a href="" target="_blank">David Hooks</a> was shot twice while face down on the ground in one raid and <a href="" target="_blank">a baby was put into a coma</a> when a flash bang was dropped in another.</p> <p>The evidence also shows that legalization works. <a href="" target="_blank">Glenn Greenwald</a> notes that &ldquo;Since Portugal enacted its <a href="">decriminalization scheme</a> in 2001, drug usage in many categories has actually decreased when measured in absolute terms&rdquo; and <a href="" target="_blank"><em>Forbes</em></a> points out that &ldquo;drug abuse is down by half.&rdquo;</p> <p>And despite some haranguing from conservatives, <a href="">Colorado has done just fine</a> since decriminalizing marijuana in 2014.</p> <h4><span style="text-decoration: underline;">Gun Prohibition</span></h4> <p>While conservatives have taken some notes from the progressives of old, progressives certainly haven&rsquo;t given up on the idea of molding society through prohibition. Fortunately, in the United States, most of the debate about guns has to do with regulation and not prohibition. This is not the case in many other countries. And it has also not been the case in several US cities, until Supreme Court decisions <a href="" target="_blank">overturned the gun bans</a> in Washington, DC and Chicago. Still, many US cities have extremely arduous gun laws on the books.</p> <p>John Lott did an extensive study and <a href="" target="_blank">noted that</a>,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The odds that a typical state experiences a drop in murder or rape after a right-to-carry law is passed merely due to randomness is far less than 0.1 percent. &hellip; The average murder rate dropped in 89 percent of the states after the right-to-carry law was passed. &hellip; There was a similar decline in rape rates.</p> </blockquote> <p>Further, to make sure he controlled for every variable imaginable (or didn&rsquo;t control for variables that would incorrectly skew the data) he ran &ldquo;20,480 regressions&rdquo; using every imaginable arrangement of possible criteria and concluded,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&hellip; all the violent-crime regressions show the same direction of impact from the concealed-handgun law. The results for murder demonstrated that passing right-to-carry laws caused drops in the crime ranging from 5 to 7.5 percent.</p> </blockquote> <p>John Lott found twenty-six peer reviewed studies on concealed-carry laws, sixteen showed a reduction in crime and ten were inconclusive. Not one showed that crime rates increased.</p> <p>We can all mourn tragic events such as the recent mass shooting in Charleston. But what is obviously problematic about restricting civilian gun use is that only law-abiding citizens will comply, criminals will not. (Like many other such massacres, the Charleston shooting took place in a <a href="" target="_blank">&ldquo;gun free&rdquo; zone</a>.) Indeed, criminals will likely have no harder a time getting guns then they do getting drugs, which means that restricting guns just disarms potential victims. A survey by <a href="" target="_blank">Gary Kleck</a> made him conclude that there were approximately 2.5 million incidents of defensive gun use each year. Although that number is almost certainly way too high, defensive gun use is still relatively common. <a href="" target="_blank">For example</a>, during a school shooting in Oklahoma, Mikael Gross and Tracey Bridges retrieved the guns from their vehicles and stopped the shooter before he could kill anyone else.</p> <p>As stated above, while there are some in the United States who call for <a href="" target="_blank">extreme restrictions on guns</a>, or bans altogether, for the most part, outright prohibition is only an issue in other countries. Many will point to the higher murder rates in the United States than Britain as proof that gun prohibition stops murder (interestingly they don&rsquo;t point to the property crime statistics as they are <a href="" target="_blank">actually higher in Britain</a> than the US).</p> <p>But there are major problems with this simplistic analysis. For example, gun ownership has been increasing rapidly in the United States while <a href="" target="_blank">gun crime has been falling</a>. In addition, most guns are owned by people in rural areas, then suburban, then urban. Crime rates are exactly <a href="" target="_blank">the opposite</a>. Further, as Thomas Sowell points out in <a href=";qid=1440782044&amp;sr=8-1&amp;keywords=intellectuals+and+society" target="_blank"><em>Intellectuals and Society</em></a>,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Russia and Brazil have tougher gun control laws than the united States and much higher murder rates. Gun ownership rates in Mexico are a fraction of what they are in the United States, but Mexico&rsquo;s murder rate is more than double that in the United States.</p> <p>&nbsp;</p> <p>Handguns are banned in Luxembourg but not in Belgium, France or Germany; yet the murder rate in Luxembourg is several times the murder rate in Belgium, France or Germany.</p> </blockquote> <p>And what about that lower murder rate for Britain? Well, <a href="" target="_blank">Thomas Sowell again</a>, &ldquo;London had a much lower murder rate than New York during the years after New York State&#39;s 1911 Sullivan Law imposed very strict gun control, while anyone could buy a shotgun in London with no questions asked in the 1950s.&rdquo; What matters are the trends, not simplistic and vulgar comparisons. Instead, an international study done at Harvard <a href="" target="_blank">noted</a>,</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>To bear that burden would at the very least require showing that a large number of nations with more guns have more death and that nations that have imposed stringent gun controls have achieved substantial reductions in criminal violence (or suicide). But those correlations are not observed when a large number of nations are compared across the world.</p> </blockquote> <p>Finally, when it comes to gun bans, the results are predictably terrible. <a href="" target="_blank">John Lott again</a>, &ldquo;Every place around the world that has banned guns appears to have experienced an increase in murder and violent crime rates.&rdquo; This includes Washington, DC, Chicago, Britain, Ireland, and Jamaica. One British newspaper ran the darkly humorous article &ldquo;<a href="" target="_blank">Gun Crime Soaring Despite Ban</a>.&rdquo; Change the &ldquo;Despite&rdquo; to &ldquo;Because&rdquo; and you have an accurate article.</p> <h4><span style="text-decoration: underline;">Conclusion</span></h4> <p>Penn Jillette <a href="" target="_blank">has half-joked</a>,<em><strong> &ldquo;If you can convince the gun nuts that the potheads are ok and the potheads that the gun nuts are ok, then everyone&#39;s a libertarian.&rdquo;</strong></em> Arguments about whether these things should be regulated and how much so would be the subject for a different article. But it&rsquo;s hard to understand why many liberals think that prohibiting drugs creates black markets with drugs, but that it wouldn&rsquo;t happen with guns. Does one really think that drug cartels couldn&rsquo;t add guns to their list of products to push? And the same goes for conservatives in the reverse.</p> <p><span style="text-decoration: underline;"><strong>It&rsquo;s really quite simple; prohibition doesn&rsquo;t work. Freedom does.</strong></span></p> </div> <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="698" height="693" alt="" src="" /> </div> </div> </div> Belgium Brazil Cato Institute Corruption France Germany Ireland Mexico Mises Institute New York State Newspaper Oklahoma Portugal Sat, 29 Aug 2015 23:15:00 +0000 Tyler Durden 512578 at What Bill Dudley's Hedge Fund Advisors Told Him About A September Rate Hike <p>By now virtually every prominent financial authority or pundit has chimed in and told the Fed not to hike rates: these <a href="">include the IMF</a>, <a href="">Larry Summers </a>(who for some reason lost the fight with Yellen for the Fed chair because <a href="">he was seen as "too hawkish</a>" - oops, irony), and <a href="">even China</a>. Yet all of these are irrelevant, because when it comes to soliciting opinions, the NY Fed in general, and former Goldmanite Bill Dudley in particular, care about just one group of "advisors" - the <a href="">Investor Advisory Committee on Financial Markets</a> (a <a href="">group created in July 2009 </a>after the 2008 market crash) also known as the billionaires who run the country's biggest hedge funds, prop desks and PE firms, including JPM, Credit Suisse, Apollo, Blackrock, Blue Mountain, Brevan Howard, Tudor, Fortress, and lo and behold, David "Balls to the Wall" Tepper. </p> <p>The next IACFM meeting is scheduled to take place in October, as such it will be too late to change the Fed's opinion for a potential September 17 rate hike.&nbsp; Which is why we have to revert to the latest advisory committee meeting which took place on June 25, just before the Greek referendum was announced and two months before the Chinese devaluation, the July FOMC minutes and subsequent market correction. It will have to do. </p> <p>This is what the "smartest people in the room" told Bill Dudley and his minions about a potential September rate hike. <a href="">From the June 25, 2015 minutes</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Domestic Developments</strong></p> <p>&nbsp;</p> <p>Committee attendees discussed the outlook for the U.S. economy and their expectations for monetary policy. Overall, they noted that real economic activity has gradually improved after a lackluster first quarter. Committee attendees characterized indicators of realized inflation as improving, but subdued relative to FOMC objectives. Meanwhile, the labor market was viewed as at or near full employment.</p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>Committee attendees suggested that the FOMC is likely to increase the federal funds target range during 2015, with September cited as the most likely timing of liftoff</strong></span>. Some felt that financial markets are well positioned for liftoff, <strong>while others expected volatility following the first increase in the target range</strong>. Most Committee attendees suggested that the path of the policy rate would be more impactful on financial conditions than the timing of liftoff. They expected the path of monetary policy to be data dependent, but noted that they expect the FOMC to be cautious during normalization.</p> </blockquote> <p>A quick primer on what "discounting" means - since all the participants expected a September rate hike, and since most expected volatility "following" the rate hike, some of these "smartest people in the room" decide to frontrun the volatility (a polite way for violent selling), and sell first before everyone else did. Just in case there was still some confusion about the recent market selloff. </p> <p>But back to the advisory committee minutes, and what it said about <em><strong>global developments </strong></em>including China:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The sharp rise in core euro area yields during the second quarter was mostly attributed to positioning dynamics, with some feeling low yield levels were too extended. Committee attendees suggested relative value considerations prompted the coordinated move in global developed market rates. Better-than-expected economic data in the euro area and, to a lesser extent, shifting expectations for the ultimate size of the ECB asset purchase program were cited as contributing factors. </p> <p>&nbsp;</p> <p>Committee attendees suggested that the euro area economy is improving, but that inflation indicators remain below mandate consistent levels and are likely to remain there for a considerable time. They felt that the ECB was doing its part, but fiscal and labor market policies across the region were likely to inhibit the euro area from reaching its inflation mandate in the near term. Most felt that that further euro depreciation was necessary to stimulate the economy. </p> <p>&nbsp;</p> <p>Committee attendees generally concluded that the Japanese economy has also improved, highlighting the strength of the labor market and the improvement in inflation indicators. A few cited concerns about the Bank of Japan’s exit strategy, given the size of their balance sheet. </p> <p>&nbsp;</p> <p><strong>China was the focus of the emerging markets discussion. Committee attendees characterized the Chinese economy as slowing, with most believing GDP was running below the target level. </strong>Most concluded that recent PBOC easing measures were executed to combat the slowing economy, but noted that financial conditions were not easing much in response. Committee attendees acknowledged officials’ efforts to internationalize Chinese markets<strong>, but suggested some of those efforts may run counter to easing initiatives</strong>. Beyond China, <strong>Committee attendees did not consider emerging markets, on the whole, well prepared for liftoff by the Federal Reserve given that few countries have made structural changes necessary to absorb higher rates.</strong></p> </blockquote> <p>Well, they were right: emerging markets have since been paralyzed by the biggest currency collapse since the Asian Crisis of 1998 in the aftermath of the Chinese devaluation. However, if the June minutes are to be trusted, then none of what is going on in China is a surprise to any of these smartest people in the room, which is why <strong>"Committee attendees suggested that the FOMC is likely to increase the federal funds target range during 2015, with September cited as the most likely timing of liftoff", </strong>unless...</p> <p>What appears to have happened in the ensuing 2 months is that none of these so-called "smartest" people hedged against anything that they warned may happen. Well, actually we take that back: recall from August 14, or just two weeks ago: "<a href="">Did David Tepper Just Call The Market Top</a>" - the S&amp;P tumbled some 10% since then. </p> <p>In fact, what has happened is that none of these "smartest people" were actually <strong>hedging anything </strong>- only Nassim Taleb was actually prepared and ready to capitalize from a market crash, and as we <a href="">reported last night</a>, his affiliated hedge fund, Mark Spitznagel's Universa made $1 billion last Monday. As for everyone else, well, just look at the table below which including many of the "advisors" listed above:</p> <p><a href=""><img src="" width="600" height="715" /></a></p> <p>In fact, the hedge fund performance ranking above is the <strong>only </strong>thing anyone has to care about when evaluating the chance of a Fed rate hike: if and when the hedge fund losses become too unbearable, any rate hike - September, December, or whenever - will be indefinitely delayed. And that is all Bill Dudley will hear from the only group of advisors whose opinion, and offshore bank accounts, he cares about.</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="800" height="513" alt="" src="" /> </div> </div> </div> Bill Dudley Blackrock Brevan Howard China Credit Suisse Federal Reserve Larry Summers Market Crash Monetary Policy Nassim Taleb None Volatility Sat, 29 Aug 2015 22:42:56 +0000 Tyler Durden 512588 at Did Tim Cook Lie To Save Apple Stock: The "Channel Checks" Paint A Very Gloomy Picture <p>Back in February 2013, Thorsten Heins, then-CEO of what was once the iconic "smartphone" brand Blackberry, publicly lied that its Hail Mary iPhone competitor, the Z10, had "record" early sales. He <a href="">told CNET</a>, that "BlackBerry nearly tripled the sales of its best performance over the first week in the U.K., while it had its best first day ever in Canada. In fact, it was more than 50 percent better than any other launch day in our history in Canada." </p> <p>Less than one year later, and less than two years after he was hired, the ruse was up - Blackberry's US market share has fallen from 50% to 3% in four years – and Thorsten was fired.</p> <p>Fast forward to Monday morning, when the S&amp;P500 had just hit its first limit down in history, stocks were crashing, countless ETFs were crashing more as ETF pricing models were corrupt and broken, the QQQs were plummeting, and none other than AAPL was set to open at a price of $92 wiping out tens of billions of market cap overnight. </p> <p>It is then that AAPL CEO Tim Cook may have pulled a page straight out of Thorsten Heins' playbook when did something nobody expected him to do - he panicked, and emailed CNBC anchor Jim Cramer to do what the AAPL CEO himself admitted the company does not do by providing mid-quarter updates, and assure the CNBC anchor that there is no need to sell AAPL stock. </p> <p>Specifically <a href="">he said that: </a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><a href=""></a>"I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks."</p> </blockquote> <p>Needless to say, this stunning intervention by Tim Cook to arrest the plunge in AAPL stock succeeded, and AAPL soared from $92 to close back over $100, a gain of nearly $60 billion in market cap, in turn dragging the entire market higher with it. </p> <p>Yet what many have found problematic is that in emailing Jim Cramer with what was clearly material, non-public information - how long did Cramer have possession of Cook's email, who did he privately share the information with first, did Cramer trade on the information before going public with it, etc -&nbsp; Cook may have breached Regulation FD. </p> <p>We wondered as much in our Monday post "<a href="">Did Tim Cook Violate Regulation "Fair Disclosure" By Emailing Jim Cramer To Save AAPL Stock This Morning</a>." Nearly a week later, there is still no 8-K, even if grotesquely delayed, with what should clearly have been a replica of the statement made by Cook to Cramer. </p> <p>So we decided to follow up. </p> <p>What we uncovered may explain why Tim Cook did not want to publicly file his "all is well" email to Cramer: the simple reason is that Tim Cook may have simply been lying in order to halt the rout in his stock, a rout which incidentaly had little to do with concerns about AAPL's Chinese sales and was driven by the latest HFT-facilitated marketwide flash crash as we described previously.</p> <p>Of course, accusations that Tim Cook is lying should be taken very seriously, which is why instead of relying on Thorsten Heins' pardon, Tim Cook's self-assessment, we went with the latest AAPL channel check out of <a href="">GFK</a>, Germany's largest market research institute. </p> <p>For those who are unaware, GfK is almost universally accepted as the best source for end-market demand, collecting and aggregating point of sale data from servers at all major retailers, collecting real time consumer data, as well as conducting manual channel checks at smaller retailers. In short: if something is selling with an upward trajectory, GfK will know about it, with about an 80% confidence interval. And vice versa. </p> <p><em>Here is the latest GfK data on Apple:</em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em><strong>C3Q15 sell-out outlook: </strong></em></p> <ul> <li>Apple’s global ex-NA outlook worsened slightly with the additional JUL/AUG weekly data. Units are now forecast to grow +2.6% q/q (prior +3.0%). Softer early AUG trends in China were only partially offset by resilience in Dev. Asia. </li> <li><strong>In China, iPhone 6 demand softened in the final week of JUL, and remained at such levels in AUG weekly data (Figure 17). </strong>Apple, as a result, <strong>is expected to see more pronounced share loss in China than prior expectations</strong>, though units are still expected to grow +62% y/y. </li> <li>In Japan, iPhone 6 improved meaningfully in AUG despite no material ASP movements. Sony’s Xperia Z4 was most impacted following its short-lived demand uptick in JUL (Figure 18). </li> <li><strong>Apple’s 3Q ASP is expected to decline -3.1% q/q (prior -2.5%); </strong>+6% y/y.</li> </ul> <p><em><strong>US iPhone demand </strong></em></p> <ul> <li><strong>Apple lost share m/m in final JUL data, with iPhone 6 &amp; 6 Plus unit demand declining -14% m/m. </strong>This was worse than the -7% m/m decline seen for the 5s/5c in JUL-14 and <strong>was also weaker than GfK’s expectations. </strong></li> <li><strong>Apple’s US smartphone share fell, as a result, to a level below that seen LY (Figure 20). </strong></li> <li>The downtick was more pronounced for iPhone 6 and drove the 6/6 Plus ratio from 4.2:1 in JUN to 3.8:1 in JUL. </li> <li>iPhone 6/6 Plus continues to significantly outperform the 5s/5c launch to date, with units +22%, only modestly below the +24% growth seen through JUN.</li> </ul> <p><em><strong>C3Q15 sell-in projection: </strong></em></p> <ul> <li>49.4m; +4% q/q; +26% y/y (prior 50.6m, +7% q/q; +29% y/y) </li> <li>International sell-out: 37.0m, -0.3% q/q (prior 37.2m, +0.1% q/q); +39% y/y (unchanged) <ul> <li>US sell-out: 11.4m, +4% q/q (prior 12.4m); -2% y/y (prior +7%) </li> <li>Inventory build of 1.0m units (unchanged) </li> <li>Shipment ASP projection: USD667, flat q/q; +10% y/y (unchanged)</li> </ul> </li> </ul> </blockquote> <p>* * * </p> <p>While the above data has a roughly 2 week lag, but considering the explosion of market volatility into the past two week period, it is certain that sales , if anything, deteriorated as the Shanghai Composite went red for the year (after soaring 60% two months ago). </p> <p>So what can we make of the above data? Here are GfK's highlights:</p> <ol> <li>The Q3 outlook for Apple has softend notably as a result of weaker trends not only in the US, but in China - the place where Cook assured Cramer Apple has "experienced strong growth in its business." </li> <li>US unit demand declined 14% in July, far more than the -7% drop a year prior, and weaker than GfK's own expectations. This could point to substantial weakness over the next 6-12 months for Apple, considering last year, ahead of the iPhone 6 launch, the sales decline was about half of the current decline even without a major new phone rollout imminent. This may mean that the upgrade cycle was much stronger and/or shorter until now, and is starting to fade dramatically.</li> <li>The data started deteriorating before the recent rout in Chinese stocks and EM currencies (which make products such as the iPhone more expensive). Keep in mind most of the future growth for Apple is expected to come from Emerging Markets and China now that the US only accounts for a third of total sales.</li> </ol> <p>So did Tim Cook lie? </p> <p>If one uses channel check data to objectively determine end demand, the answer is a resounding yes. To be sure, Cook may be telling the truth in a very narrow sense, if Apple is simply be resorting to the oldest trick in the book at this point: channel stuffing. </p> <p>The problem with channel stuffing is that it only allows you to mask the problem for 2-3 quarters at which unless there has been a dramatic improvement in the end-demand picture, it re-emerges that much more acutely: just ask AOL which was channel stuffing for months on end, only to be ultimately exposed, leading to a epic plunge in the stock price. </p> <p><strong>So is AAPL the next AOL, and is Tim Cook the next Thorsten Heins? </strong></p> <p>It all depends on China: if the world's most populous nation can get its stock market, its economy and its currency under control, then this too shall pass. The problem is that if, as many increasingly suggest, China has lost control of all three. At that point anyone who thought they got a great deal when buying AAPL at $92 will have far better opportunities to dollar-cost average far, far lower. </p> <p>Oh, and to anyone still holding their breath for AAPL to file a public statement which may well contain an outright lie, you may exhale now.</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="1160" height="1121" alt="" src="" /> </div> </div> </div> Apple Channel Stuffing China ETC Japan Jim Cramer Market Share None Volatility Sat, 29 Aug 2015 21:54:29 +0000 Tyler Durden 512586 at Greece - Now What <p><em>Submitted by George Kintis of <a href="">Alcimos</a></em><a href=""></a></p> <p><strong>Greece - Now What</strong></p> <p>For those of you who like fast-forwarding to the end of the film, here it is:</p> <ul> <li>Grexit was never on the cards. Even less so after the recent European Summit decisions and the Greek bank recap recently put in motion. This is mainly on account of the dual surpluses Greece currently runs: the current-account and primary budget ones. Even if one could push a magic button and kick Greece out the euro, there is nothing that would prevent Greece from immediately reintroducing it, Kosovo- or Montenegro-style. The only impediment would be the funding of the banking system, but this <a href="">is being taken care of.</a></li> <li>There has been a decoupling of a large part of the Greek economy from the sovereign issue; for example, exports of goods and services, accounting for around 30% of the Greek economy have been growing at 9% a year. Investors readily recognize this in publicly-traded assets (most Greek corporate bonds are trading well above the sovereign ceiling), but are so far oblivious to it when it comes to non-traded ones (e.g., loans, receivables, etc.). This is a “ginormous” arbitrage opportunity—one just needs to put in a bit of legwork to identify, diligence and acquire such assets. Sorry, you can’t do it off your Bloomberg terminal, or over lunch at Cecconi’s.</li> <li>Greece does not have a functioning banking system—credit has been contracting for years, while new origination is practically non-existent. This depresses asset prices to ridiculous levels—even prices of assets which are uncorrelated to the sovereign situation, per the previous point. This reversal of this situation is likely to start in Q2 2016, post the Greek bank recap, which we expect will be coupled with a bank bail-in—and the mother of all NPL trades.</li> </ul> <p>Those of you who think that it’s the journey that teaches you a lot about your destination, read on.</p> <p>In our recent analyses in the Greek situation, we got many things right—and <a href="">not just that Grexit will not take place</a>. For example, we had predicted that <a href="">Tsipras will do an about-face even before the elections</a>, but we also warned that <a href="">GGBs are not the way to play this on 24 February </a>(unless one has inside information on political decisions). We then <a href="">advised people on 24 February </a>to stay away from anything that has to do with the public sector and the banks. <a href="">On 5 April we discussed </a>why investing in Greek banks makes little sense–and then explained why we think <a href="">Greek banks will be bailed-in on 17 July.</a></p> <p>We also got some things wrong: the outcome of the referendum (for better or for worse, there’s a clear bias in our circle of friends towards people with a positive balance in their bank accounts) and the imposition of capital controls (which <a href="">we believe to be completely illegal</a>).</p> <p>Here’s why we were wrong in predicting that capital controls wouldn’t be imposed: our working assumption in predicting various outcomes at every step of the way of the Greek saga, is that all players are totally selfish, as well as ruthless and shameless in pursuing their own interests. We realize that the ruthlessness and shamelessness of Greek politicians knows no bounds—we’ve known quite a few of them personally for way too long to have any illusions. We assumed, however, that European politicians had a modicum of dignity; that’s where we got it all wrong.</p> <p>We did not, for example, expect that Ms. Danièle Nouy, head of the Single Supervisory Mechanism, <a href="">would go on record </a>as recently as 7 June proclaiming Greek banks “to be solvent and liquid”, but then the Euro Summit of 12 July would identify in its <a href="">statement </a>the need for the “the establishment of a buffer of EUR 10 to 25bn for the banking sector in order to address potential bank recapitalisation needs and resolution costs”. Where did these guys get that €25bn number—if not from the head of the bank supervisory mechanism? We’d never think that the ECB would cut off financing to banks it considers solvent, saying that they do not have adequate collateral. If they were solvent, how could they not have adequate collateral? Substituting ELA for deposits can have no effect on the solvency of the institution; if the institution was solvent—and therefore its deposits were safe, then the ELA which substitutes these deposits should be safe, too. Anything else is financial alchemy, of which we did not think an institution like the ECB would partake.</p> <p>Nor could we have imagined that the ECB would refuse to disclose the rationale behind its decisions to freeze Greek ELA, citing as reason that <em>“[i]f the ELA ceiling determined by the Governing Council and the related deliberations including the names of the credit institutions receiving ELA were to become known to the public, market participants could infer from this information the liquidity situation of the credit institutions, with immediate detrimental effects on financial stability. Even if such ELA ceiling determined in a particular situation were to be disclosed ex post, such publication could have detrimental effects on the Governing Council’s opinion-building and decision-making in future similar situations.</em></p> <p><em>The ELA ceiling would be an indication of the extent of stress that the credit institutions were facing, and in particular if market participants were able to monitor the development of the ELA ceiling over time, an upward trend would be interpreted as a signal of increasing stress. Hence, publication of such information would negatively impact the banks’ ability to borrow funds from the market and thereby reinforce their liquidity problems”. </em>This, at a time when the ceiling on Greek ELA is leaked to Reuters and Bloomberg immediately after the relevant ECB decisions, is reported on the <a href="">Bank of Greece balance-sheet published on a monthly basis</a>, while all four Greek systemic banks recently reported their ELA funding to the Athens Stock Exchange (see for example <a href="">here</a>).</p> <p>Who needs another “<em>signal of increasing stress</em>“, when the Euro Summit itself has adjudged “<em>potential [Greek] bank recapitalisation needs and resolution costs [to be between]€10 to 25bn</em>”? Of course, the irony of claiming that “publication of such information would negatively impact the banks’ ability to borrow funds from the market and thereby reinforce their liquidity problems”, when said banks have been locked out of credit markets for months, while their liquidity problems have been a direct effect of the contested ECB decisions, was lost on them. But we are digressing…</p> <p>We now know better: we are convinced that all players in the Greek drama are thoroughly unscrupulous. Once one analyses the Greek situation through this lens, it’s hard to get predictions wrong. You can only go wrong when certain players turn out to be even more ruthless than you would have imagined.</p> <p>Once one agrees that both sides (i.e., Greece and Germany) are only self-interested, the dynamics of the current Greek negotiation can be analysed within the framework <a href="">of a prisoner’s dilemma</a>. Greece does not want the structural changes (austerity and the like), while Germany wants to avoid a haircut at all costs. “<em>Cooperation</em>” would then entail Greece swallowing its medicine, while Germany continues to happily fork over money for as long as needed. “<em>Defection</em>” would mean that the Greek government only pretends to be discharging its obligations under the various memoranda, while Germany is forced to accept a haircut. Now, someone who’s even remotely familiar with game theory can easily predict how this will end: both sides will lose. But let’s follow the various steps.</p> <p>Germany, as we all know, won the Euro Summit battle: Tsipras surrendered and capitulated (in theory) to all German demands. Germany, has, therefore, “punished” Greece in the prisoner’s dilemma framework. Now we think Greece will retaliate—with the help of the IMF. </p> <p>Here is how:</p> <p>We have previously <a href="">analysed </a>the ongoing tug-of-war between Germany and the IMF (read: the US) on a possible haircut on Greek debt as part of the (supposedly) ideological conflict between “austerity” and “Keynesianism”. Germany has <a href="">said</a>, no deal without the IMF. The IMF has <a href="">said</a>, no deal without a haircut. Germany has <a href="">said</a>, no haircut under any circumstances. You can see where that leads: Greece will pass through the measures, but the creditors will find it difficult to agree between themselves on a new package. We may have <a href="">a few more bridge loans</a> (in the grand can-kicking tradition of Greek negotiations) but the music will eventually stop. Then Germany will be faced with the stark choice between:</p> <p>(a)&nbsp;&nbsp;&nbsp; a Greek default, which will result in Greece going to the IMF for help, which “<em><a href="">stand[s] ready to assist Greece if requested to do so</a></em>”, which then leads to an effective subordination (read: haircut) of Germany’s bilateral loans to Greece due to the IMF preferred-creditor status; and</p> <p>(b)&nbsp;&nbsp;&nbsp; a haircut on Germany’s loans to Greece, which will allow the IMF to participate in the Greek bailout.</p> <p>Germany is, therefore, free to choose between a haircut and a haircut—even Die Zeit <a href="">seems to agree with this</a>. A haircut is of course political suicide for Merkel, but the latter version can be sugared with some grand-European-vision talk, so we think she will go for this. We also claim, however, that whatever she does only affects her chances of political survival and not Greece. Here’s why:</p> <p>Despite all the talk, Greece (still) runs a healthy primary surplus (<a href=" GOVERNMENT MONTHLY BULLETIN JUNE 2015.pdf">Jan-Jun 2015</a>) and a <a href=";List_ID=1af869f3-57fb-4de6-b9ae-bdfd83c66c95&amp;Filter_by=DT">current account surplus</a>. The former means that if there was no deal with the lenders, the Greek government would keep on functioning; any new money lent to Greece goes back to repay existing debt. The latter means that Greece will still have the euros it needs to pay for its imports, irrespective of any agreement with the lenders. <strong>The only leverage Germany has over Greece, is through ECB financing of Greek banks</strong>. That last card has been played—we <a href="">claim</a> to the benefit of large European banks. <strong>Greeks banks will be recapitalized (read: bailed in) no matter what, and bought out by large European banks</strong>. Their funding no longer will come from the Bank of Greece, but from the parent—which also has access to the ECB. That bullet has been spent.</p> <p>Here’s where that leaves us: Greece stays in the Euro, but Greek banks are sold off, properly recapitalized at last. Here’s the back-of-an-envelope calculations behind this:</p> <p>As at June 2015, the Greek banking system had loans to the private sector of €220bn and total provisions of €41bn. There’s a <a href="">35% NPL figure being bandied around,</a> but we have long believed the real number to be higher. How higher—God knows, but let’s assume it’s 50% (it’s probably even higher, but a good part of those NPLs may be strategic, so let’s settle at 50%). To the €41bn of existing provisions one should another €30bn (equal to 8% of total liabilities which, per <a href=";from=EN">article 44(5) BRRD</a>, need to be bailed-in before the public purse can be accessed) and the €25bn which have been set aside for the Greek bank recap per <a href="">the 12 July Euro Summit statement </a>and you get to a figure of €97bn in capital available to absorb losses on an NPL book of €110bn—translating to an NPL coverage ratio of 88%.</p> <p>The big NPL trades, the ones everyone (and their mothers) has in vain been coming to Greece for since 2010, will finally arrive, probably in Q2 2016.</p> <p>As to the Greek economy: it’s doing very well, thank you, <a href="">having grown at 1.6% y-o-y in Q2 2015</a>. It will do even better, when Greece has a functioning banking system. Stay tuned.</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="836" height="634" alt="" src="" /> </div> </div> </div> B+ Creditors default ETC Germany Greece Reuters Sat, 29 Aug 2015 21:29:49 +0000 Tyler Durden 512585 at