With the cease-fire on shaky ground in Ukraine, and the ongoing proxy war between the US and Russia growing in intensity (once again ignited in Syria); it seems Putin has fired a significant warning shot across the bow of the west. Reuters reports that Russia is considering banning state companies and other strategically important firms from holding accounts at foreign-owned banks. As Liberty Blitzkrieg's Mike Krieger notes if this actually happens, it would be a very big deal with significant negative implications to the global economy, and certainly an escalation in the friction between these two geopolitically crucial nations.
- At least 74 dead in crashes similar to those GM linked to faulty switches (Reuters)
- Obama Calls for $1 Billion Europe Security Fund; Will Increase U.S. Military Presence in Eastern Europe (WSJ)
- Euro Inflation Slowing More Than Forecast Pressures ECB (BBG)
- China accelerates as euro zone stumbles (Reuters)
- Russia says Ukraine situation worsening, submits U.N. resolution (Reuters)
- Secondary Sales Squeeze Investors (WSJ)
- Barclays Said to Start Cutting Jobs in Investment Banking Unit (Bloomberg)
- Backlash Grows on Release of Sgt. Bowe Bergdahl in Taliban Prisoner Swap (WSJ)
- For fallen soldiers' families, Bergdahl release stirs resentment (Reuters)
- PIMCO's Gross stares at record outflow (Reuters)
After the crisis, many expected that the blameworthy would be punished or at the least be required to return their ill-gotten gains—but they weren’t, and they didn’t. Many thought that those who were injured would be made whole, but most weren’t. And many hoped that there would be a restoration of the financial safety rules to ensure that industry leaders could no longer gamble the equity of their firms to the point of ruin. This didn’t happen, but it’s not too late. It is useful, then, to identify the persistent myths about the causes of the financial crisis and the resulting Dodd-Frank reform legislation and related implementation...."Plenty of people saw it coming, and said so. The problem wasn’t seeing, it was listening."
Despite the plethora of talking heads proclaiming credit markets as awesomely supportive of stocks - High-Yield bond spreads are flashing red... But that's not stopping investors piling into the worst of the worst. As Liberty Blitzkrieg's Mike Krieger notes, in an all too reminiscent scene from 2007 (MBIA CDS traded 11bps at one point then remember), investors have been buying up bonds with a triple-C-rating en masse.
The bailout floodgates are open and the US taxpayer is footing the bill once again - whether through IMF loans or more directly. Today saw Ukraine issue $1 Billion 5-Year Notes at a stunningly low risk of only 28bps above US Treasuries and dramatically cheaper than the cost of capital in the public markets (and from the IMF) which yield over 10%. The reason for the 1) low cost, and 2) actual ability to raise debt... the bond is guaranteed by the US Agency for International Development and "assures full repayment of principal and interest" based on the full faith and credit of the US (Taxpayer). We assume Gazprom will be happy...
India has long been an economic laggard to China but that may be about to change.
First-quarter growth in almost all Chinese provinces was below their annual targets, according to local media, with the most concerning data from resource-dependent and manufacturing-heavy provinces suffered the sharpest economic slowdown in the first quarter as the government pushed to tackle excessive factory capacity and pollution. As Reuters reports, the fastest growth regions are Chongqing, Guizhou and Tianjin and all saw growth drop significantly. Specific provinces affected by the government's reforms include Inner Mongolia, which provides one third of the coal supply in the country, saw GDP growth drop to 7.3% in Q1 from 9.9% a year earlier; Shanxi, a major coal producing province, which saw growth tumble to to only 5.5%; and Hebei province, the nation's top steel producer, collapsed to only 4.2% in the first quarter of 2014 from 8.2% in the previous quarter. It seems the sum of the parts is anything but the same as the whole.
Just weeks after the Fed signed off on CCAR and ackowledged how great the US banking system is, Bank of America (after being slapped with another $13bn RMBS suit demand) has ackowledged things are not quite as risy as they appeared.
BOFA HAD INCORRECT ADJUSTMENT ON TREATMENT OF SOME NOTES; BOFA SUSPENDS CAPITAL ACTION PLAN ON CHANGE IN CAPITAL RATIOS
BAC SEES REVISED CAPITAL ACTIONS LESS THAN PREVIOUSLY ANNOUNCED; BAC WILL ENGAGE THIRD PARTY TO REVIEW PROCESSES
So no buyback boost... no dividend boost... The question now is - how do we (or The Fed) trust any of the numbers?
This eruption of late cycle bubble finance hardly needs comment. Below are highlights from a Bloomberg Story detailing the recent surge of leveraged recaps by the big LBO operators. These maneuvers amount to piling more debt on already heavily leveraged companies, but not to fund Capex or new products, technology or process improvements that might give these debt mules an outside chance of survival over time. No, the freshly borrowed cash from a leveraged recap often does not even leave the closing conference room - it just gets recycled out as a dividend to the LBO sponsors who otherwise hold a tiny sliver of equity at the bottom of the capital structure. This is financial strip-mining pure and simple - and is a by-product of the Fed’s insane repression of interest rates.
- Russia raises interest rates to 7.5% (FT)
- Shanghai to Allow Raw Material Exchanges in Trade Zone (BBG)
- US, Japan Fail to Clinch Trade Deal (WSJ)
- 'We don't have a magic wand', says ECB's Constancio (Reuters)
- Tokyo Inflation Quickens to Fastest Since 1992 (BBG)
- Demand for Home Loans Plunges (WSJ)
- EU banks urged to grasp chance to raise capital (FT)
“Flash Boys” is a book written for Hollywood instead of the history books or policy makers. Stay tuned for the movie.
An explanation of how fractional reserve banking infringes on everyone’s freedom.
It’s perplexing that analysts are perplexed by the rout.
So from MF Global's "vaporized" commingled client assets to Basel's "evaporated" toughened derivatives rules, the banks are indeed "very happy." And now back to perpetuation the illusion that the system is stable.
Most Buy Side managers have no idea about the disparate business models of the four largest US banks by assets.