A Full Analysis and Step-by-Step Guide for EU Area Residents To Aid In Escaping the Upcoming Bank Bail-ins & Capital ControlsSubmitted by Reggie Middleton on 04/18/2015 12:21 -0400
This may take you the entire weekend to digest, but if you are an unsecured creditor/lender (have a checking, savings or demand deposit account) to a euro zone bank, I would consider it your fiduciary responsibility to yourself to sit down and parse this piece with care and aplomb!
Without the support of the ECB, the country’s banking system would be shut off from international markets and likely collapse.
“In a time of deceit telling the truth is a revolutionary act.” ? George Orwell
“You shall know the truth and the truth shall make you mad.” ? Aldous Huxley
In recent weeks, Ruble appreciation against the USD has pushed it out of its traditional long term alignment with oil prices, and left it as the best-performing global currency of the year. There are several possible factor that can account for this...
The future is upon us. JP Morgan, in an effort to stop its employees from rigging markets, aiding criminals, and generally doing all of the things that appear on the unofficial global investment bank perks of employment list, is going into full-on Minority Report mode by deploying algorithms designed to predict which employees will go rogue before it actually happens.
In short, Bernanke bankrupted the US and most Americans in the span of ten years. He created the biggest housing bubble in 100 years and also casue the greatest Crash in 100 years. A few blog entries won’t change this.
There are times when not only truth is stranger than fiction, but also, when serendipity coincides with moments that are branded into the pages of history where they become the allegory of the times. Sometimes its hard to judge or pick just one. Reason being they’ll seemingly come one right after another instead of that just one, almost surreal, moment. There’s no better illustration of these than the dreaded “front page magazine cover” proclaiming not only that the good times are here; but rather, the far more important underlying premise: they’re here to stay and will only get better! All the while insinuating – to worry about anything is a fool’s errand. i.e., “everything is awesome!”
While the euro itself has recovered a bit from its worst levels in recent sessions, euro basis swaps have fallen deeper into negative territory on par with the epic nosedive of 2011. We are not quite sure what the move means this time around, since there is no obvious crisis situation – not yet, anyway. A negative FX basis usually indicates some sort of concern over the banking system’s creditworthiness and has historically been associated with euro area banks experiencing problems in obtaining dollar funding. This time, the move in basis swaps is happening “quietly”, as there are no reports in the media indicating that anything might be amiss. Still, something is apparently amiss...
Bankers who took up their business in the Square Mile of London’s banking heart could smell the Eurodollars in the air. As Anthony Sampson wrote, “Young British bankers and their foreign counterparts began to earn higher salaries than other bankers. Skyscrapers shot up by the old classic architecture near St. Paul’s Cathedral. Far Eastern and Arabic banks appeared, as did Mercedes and Cadillacs to cart bankers around the thin London streets.” The Soviet Union and other Eastern Bloc countries needed dollars for trade but wanted to avoid adverse US policy by not keeping or borrowing money in the United States. So they stuck funds in the London offices of British and American banks, causing the City of London to grow as a banking center and recoup some prewar financial glory.
Debt saturation and debt fatigue = diminishing returns on central bank tricks. The diminishing returns manifest in three ways: the gains from each round of central-bank tricks are declining, the periods of stability following the latest “save” are shrinking and the amplitude of each episode of debt crisis is expanding.
That the unraveling is speeding up is not just perception - it’s reality.
If it was the Fed's intention to slow down the relentless surge in the dollar with yesterday's "impatient" removal which blamed the dollar strength on the "strength" in the US economy, it promptly failed after algos and a few carbon-based traders looked at the Atlanta Fed and realized that a 0.3% Q1 GDP print is anything but "strong." As a result the EURUSD, after soaring by nearly 400 pips yesterday in a market reminiscent of a third-world FX pair's liquidity especially following the previously noted USD flash crash, the dollar has recoupped nearly all losses, and the DXY is once again on the way up and eyeing the resistance area of 100.
Borrowing in USD was risk-on; buying USD is risk-off. As the real global economy slips into recession, risk-on trades in USD-denominated debt are blowing up and those seeking risk-off liquidity and safe yields are scrambling for USD-denominated assets. Add all this up and we have to conclude that, in terms of demand for USD--you ain't seen nuthin' yet.
An epic decoupling in the cost of put protection and S&P earnings multiples may be a bad omen for stocks as Goldman suggests a "substantial market correction may be on the horizon."
Yields can always go lower… but at some point investors will have to ask, “how much am I willing to pay the Government to sit on my money? 1%? 2%? 3%?”
Single-name CDS performance suggests investors are buying the "opportunity" Citi and Goldman are selling, providing further proof that we truly will never learn.