"We Are In Uncharted Waters" Singapore Central Bank Warns Of "Uneasy Calm"

Tyler Durden's picture

Submitted by Simon Black of Sovereign Man blog,

Well, at least someone gets it.

While just about every other central bank on the planet is giving everyone two thumbs up on the economy, the deputy chair of the Monetary Authority of Singapore (Lim Hng Kiang) said last night at a dinner that “an uneasy calm seems to have settled in markets” and that “we remain in uncharted waters.”

It was pretty amazing, really, to see such pointed language from a central banking official.

Mr. Lim jabbed at the “obvious” risks and said there would be “bumps on the road” ahead. That’s putting it mildly.

Warren Buffet once said that ‘only when the tide goes out do you discover who’s been swimming naked.’ (In my mind he says it like ‘nekked’ but I seriously doubt he pronounces it that way…)

That’s exactly what happens in severe financial crises. You find out which banks have been playing it safe… and which have so mind-numbingly stupid it’s a miracle they’re still around.

There are a number of ways to judge how safe a bank is. One way is by looking at its liquidity; my preferred metric is to calculate how much cash a bank has on hand as a percentage of customer deposits.

Note- this doesn’t mean physical currency, as in bricks of paper cash stacked up in a vault. Those days went away long ago. I’m talking about electronic currency– typically deposits with central banks.

The more cash a bank has on hand, the safer it is. Because in a financial crisis, people tend to panic (hence the crisis) and want to withdraw their money.

Banks bleed cash. And if they don’t have enough of it on hand, the bleeding turns into a sucking chest wound.

It’s at this point that they’ve been caught red handed swimming naked, and they need to go raise cash from somewhere, anywhere else.

So they start selling assets– loans, securities, and even shares of the bank itself.

But this is not an orderly liquidation in a well-functioning market. It’s a distress sale brought on by a full blown crisis. Asset prices are collapsing, fear has taken hold, and it’s difficult to find a buyer.

You never get full price in a crisis (unless you’re Goldman Sachs and can call up your BFF the Treasury Secretary). So in the process of raising cash, banks end up taking heavy losses on their balance sheets.

Now, banks that have healthy balance sheets will be able to withstand these losses.

But banks with razor thin capital ratios (i.e. a bank’s net equity as a percentage of total assets) will fold. Or go to the taxpayer with their hats in their hand claiming to be too big to fail.

This is precisely what happened to the US financial system back in 2009. Lehman Brothers. Wachovia. Washington Mutual. Etc. They were all swimming naked, with very little liquidity and miniscule capital levels.

Singapore’s monetary authority is obviously concerned about financial markets. They understand that you can’t expect to conjure trillions of dollars out of thin air without creating epic bubbles and even more epic consequences.

Sure, you can shuffle those consequences out a few months… even a few years. But at some point those bubbles must be reckoned with.

Perhaps the greatest concern is how few people seem to care.

Central banks and institutional investors turn a deaf ear to obvious risks and fundamentals that are screaming out in desperation hoping some conservative steward will notice that we are tap dancing on a knife’s edge, where nearly every single financial market is simultaneous at/near an all-time high, and central bankers keep pumping money into economies that they claim to be ‘recovered’.

This is the ‘uneasy calm’ that Mr. Lim discussed– a prevailing attitude that there’s nothing to see here; keep calm and buy the all-time high.

And he’s telling banks to get ready for something to happen.

Curiously, Singapore’s banks are already better capitalized and more liquid than most western banking systems. Back in 2008, Singapore demonstrated a lot of resilience as a financial center, sidestepping most of the problems with zero bank failures.

But for a country that went from third world to first world in just a few decades, complacency is not a cultural norm.

According to Mr. Lim, Singapore’s experience with the 2008 crisis “shows how the buildup of risks can severely destabilise even the most developed and sophisticated financial markets.”

So he wants them to increase their capital and liquidity even more.

If a senior official presiding over one of the world’s safer banking jurisdictions wants his banks to become even safer, a rational person would certainly wonder– “What do these guys know about the financial system that I don’t?”

They must be expecting the mother of all busts.

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Devotional's picture

<-- pool party at my house when SHTF

Top Gear's picture

> [from the article:] "how few people seem to care"

"Caring" is for Socialists.

flacon's picture

Ignore the warnings. Everything is fine. Trust me. There is nothing to worry about. My name is Draghi. 

flacon's picture

We've been in uncharted waters ever since 1913.... all the nay-sayers of the time are dead. .... can this keep going for 200 years more? 

Chief KnocAHoma's picture

Something that can not continue forever... won't.

But why all the long faces? You'ld think the USA... was in retreat, just adopted socialism, has turned into an eaves dropping police state, erased her southern border, elected an evil imbecile, was more concerned with the hollywood whorelet culture, promoting LGT over EVERYTHING, apologizing to the World for being the lone stablizing factor since the end of WWII, letting the ruskies, slopes and rag heads mass their power to challenge for global energy resources...

So cheer up. We're still alive in the World Cup!

macholatte's picture

 

banks that have healthy balance sheets will be able to withstand these losses.

 

.... and where do the sheeple get that information?

Oh, from the banks, who never, ever lie. 

 


wet_nurse's picture

We should be so lucky that when it goes down banks will have buyers for their loans and other "assets". Oh, this turd bank has a better corn to shit ratio.

max2205's picture

Maybe one decade one of the fuckers will be right

Cthonic's picture

1913        federal reserve act, 16th amendment
1933        eo 6102
1934        gold reserve act
1935        ssa
1938        fnma
1942        ration books
1944        bretton woods
1948        gatt
1963        eo 11110
1964        affirmative action
1965        medicaid
1966        medicare
1971        nixon shock
1977        community reinvestment act
1980        china provisional most favoured nation status
1980        fed fund rate 20%
1986        tax reform act (beginning of s&l crisis)
1995        wto
1996        reed amendment (shame and name)
1997        asian contagion
1998        ltcm bust
2001        china permanent most favoured nation status
2001        tech wreck,
2003        medicare act of 2003
2004        fed fund rate 1%
2008        expatriation tax
2008        financial crisis
2008        QE1
2008        fed fund rate 0.25%
2010        obamacare
2010        estate tax repealed
2010        fatca
2010        QE 2
2011        estate tax reinstated
2012        QE 3
       
Poisson process, major rule changes every 3 years

Grande Tetons's picture

2014 Federal depopulation act.

2017 Federal asset redistribution act. 

Groundhog Day's picture

"we will do whatever it takes....and believe me it will be enough"

Your trusted central banker....DDRRAAGEE

"markets are fairly priced"

Old Yeller

BandGap's picture

Simon Black is THE Sovereign Man. I have yet to understand what that means in the context of his writings.

"Endeavor to perservere."

Pool party, what can I bring?

Oldrepublic's picture

anyone know who Simon Black really is? He must be a real person because he was at a conference a year of so back down in Santiago, Chile, attended by Peter Schiff, Ron Paul, Jim Rogers and Nigel Farage

teslaberry's picture

shit hits the floor of your pool?

RaceToTheBottom's picture

"pool party at my house when SHTF"

Just what is the temperature of your pool?  I see frogs everywhere...

 

ebworthen's picture

Calm before the storm.

Central banks have been heating the waters and whipping the winds since 2009.

They're producing the hurricane to wipe out the little people to benefit the banks, again.

Chief KnocAHoma's picture

Wipe away dick heads! I'm no longer subject to your charms. 

In fact... if they bailed in my accounts they'ld claim less than $100. Spend it wisely assholes cause I'm gona be asking for gold in exchange for my food.

ThroxxOfVron's picture

Water in a toilet is always very very still -right up until the moment when someone takes an enormous shit in it and flushes it all into the sewer..

thatthingcanfly's picture

That was beautiful, man. <sniff, wipes tear from eye> Just beautiful.

Parabox's picture

There's a floater or two already.  Just waiting for the flush.

RaceToTheBottom's picture

Greece, Spain, those are the ones we can see, but the smell indicates more, many more.

Iceland got away by jumping out and running across the bathroom floor.

lasvegaspersona's picture

Since deflation will not be tolerated (and in a fiat system won't be tolerated) prepare for a Missean "crack up boom". The can be fun and profitable...while they last. I like a portfolio of physical assets with a hedge of crack up boom stuff. I envision being a starving biilonaire before the dust settles. Why can't I have what every good citizen of Zimbabwe had in 2008?

orangegeek's picture

BTFD/BTFATH until SHTF

 

Bankers can FOAD

jubber's picture

As all the Central Banks are reportedly buying everything, I guess, it will get messy when one decides to bolt for the door first while lying to the others?

kchrisc's picture

A "bank run" is where the depositors realize that fraudulent-reserve banking is theft. A "bail-in" is when they make the theft official and back it up with the violence of government.

 

"Long guillotines, 'short' banksters."

Frank N. Beans's picture

this Singapoor guy better not get close to any nail guns, though maybe it IS different over there.

Oldrepublic's picture

needs to get a good pilot to find the Mark twain

Jason T's picture

"

Chapter 1

MY EAGLE

THE SOFT summer wind stirs the redwoods, and Wild-Water ripples sweet cadences over its mossy stones. There are butterflies in the sunshine, and from everywhere arises the drowsy hum of bees. It is so quiet and peaceful, and I sit here, and ponder, and am restless. It is the quiet that makes me restless. It seems unreal. All the world is quiet, but it is the quiet before the storm. I strain my ears, and all my senses, for some betrayal of that impending storm. Oh, that it may not be premature! That it may not be premature!1"

From Jack London's Iron Heel

Oldrepublic's picture

 Iron Heel was probably the earliest dystopian novel in the 20th

century.

incidentally, Jack London's writings are very popular in Russia!

AdvancingTime's picture

 It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward. At some point the return on loaning money is simply not worth the risk!

 Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008.

When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants. More on this subject below.

http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit...

wet_nurse's picture

You may be right, but I think the problem will be when people stop accepting dollars for real stuff. Banks wil stilll be lending at 11:59 pm

Ban KKiller's picture

The bumps in the road happens to be hedge fund guys slurping each other over a mound of coke.

Spungo's picture

"You never get full price in a crisis (unless you’re Goldman Sachs and can call up your BFF the Treasury Secretary). So in the process of raising cash, banks end up taking heavy losses on their balance sheets."

Mr Simon needs to understand that ALL of the major banks have deep connections to the central bank, and this is likely true in most countries. Up in Canada, the connection between the central bank and the major banks is so deep that there is no longer a legal requirement for cash reserves. The Canadian banks only need capital reserves, which will not ever need to be liquidated due to the implicit guaranty that the central bank will provide as much liquidity as needed. Understanding this is why bankers around the world say Canada's banks are very well capitalized but Simon says they are very poorly capitalized. Simon is assuming there's no central bank support, which is an odd assumption because that's literally the reason central banks exist.