Submitted on 03/31/2014
It was almost excatly five years ago to the day, on April 10, 2009, that Zero Hedge – widely mocked at the time by “experts” – began its crusade against HFT and the perils of algorithmic trading (which of course were validated a year later with the Flash Crash). In the interim period we wrote hundreds if not thousands of articlesdiscussing and explaining the pernicious, parasitic and destabilizing role HFT plays in modern market topology, and how with every passing day, markets are becoming increasingly more brittle, illiquid and, in one word, broken. Or, as Michael Lewis put it most succinctly, “rigged.” With Lewis’ appearance last night on 60 Minutes to promote his book Flash Boys, and to finally expose the HFT scourge for all to see, we consider our crusade against HFT finished. At this point it is up to the general population to decide if this season’s participants on Dancing with the Stars or the fate of Honet Boo Boo is more important than having fair and unrigged markets (obviously, we know the answer).
*This author wrote the ” The Big Short ” …Single best piece of financial journalism ever written
Submitted by Tyler Durden on 03/27/2014
The central premise of the Keynesian Cargo Cult is that this mechanism of making it cheap and easy to borrow money will work a kind of magic that can only be manifested by dancing around a fire at night waving dead chickens and chanting “humba-humba.” The Keynesian cargo Cult calls this magic “animal spirits.”Unfortunately, waving dead chickens while dancing around a fire doesn’t do anything in the real world, and neither does making it cheap and easy to borrow more money. You poor, dumb, deluded fools. You’ve destroyed our economy, our values and our ability to deal with reality. Your faith is as boundless and disconnected from the real world as your policies.
Submitted on 03/24/2014 -
Last week, after western sanctions against Russia expanded to include not only the first financial institution, Bank Rosiya, but also SMP bank whose main shareholders were on the sanctions list, unexpectedly both Visa and MasterCard halted providing transaction services to the two banks, without providing an explanation. Over the weekend, one of the banks got its full credit card functionality back after Visa Inc and MasterCard both resumed services for payment transactions for clients at Russia’s SMP bank. What was the purpose of this escalation? Simple: as Reuters reports, SMP Bank said on Monday around 9 billion roubles ($248 million) had been withdrawn by depositors since U.S. sanctions were announced last week. Washington imposed sanctions on Thursday against 20 Russians close to President Vladimir Putin over Moscow’s involvement in the Ukraine crisis, including Boris Rotenberg and his older brother Arkady, the co-owners of SMP Bank. SMP CEO Dmitry Kalantyrsky told a news conference that an estimated 4 billion roubles had been withdrawn by individuals and 5 billion by organisations. In other words, the staggered escalations against Russian banks, to which credit card processors have joined without any specific reason, were meant solely to incite a bank panic and to promote bank run conditions. With SMP this succeeded partially, with quarter of a billion withdrawn, however hardly enough to cripple the bank. At least for now.
Submitted by Tyler Durden on 03/21/2014
While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the “Holy Grail” energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may regain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.
U.S. regulator sues 16 banks for rigging Libor rate
A month ago we reported that according to much delayed TIC data, China had just dumped the second-largest amount of US Treasurys in history. The problem, of course, with this data is that it is stale and delayed. For a much better, and up to date, indicator of what foreigners are doing with US Treasurys in near real time, the bond watchers keep track of a far less known data series, called “Treasury Securities Held in Custody for Foreign Official and International Accounts” because it shows what foreigners are doing with their Treasury securities held, as the name suggest, in custody by the Fed. So here it goes: in the just reported latest data, for the week ended March 12, Treasurys held in custody by the Fed dropped to $2.855 trillion: a drop of $104.5 billion. This was the biggest drop of Treasurys held by the Fed on record, i.e., foreigners were really busy selling.
“Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending” - Ben Bernanke, 2010 But history suggests the opposite: it is higher savings rates which lead to economic prosperity. Examine any economic success story such as modern China, nineteenth century America, or post-World War II Japan and South Korea: did their economic rise derive from unbridled consumption, or strict frugality? The answer is self-evident: it is the savings from the curtailment of consumption, combined with minimal government involvement in economic affairs, which generates economic growth.
Submitted on 03/11/2014
While the world is terrified about what China – where corporate bond defaults are now permitted – may be about to unleash on the world, most are all too happy to remain in a state of delightful ignorance. We decided to take a peek behind the scenes.
El-ERIAN: It’s Getting Harder To Squeeze Growth Out Of The Economic Toothpaste Tube
But Mohamed El-Erian is not convinced.
In his latest op-ed on FT’s “A-List,” the outgoing PIMCO boss explains why. He compares the current situation to trying to what happens as you run out of toothpaste, and that we’ve relied too long on “experimental policy-induced growth” and not enough on a “truly sustainable variety.”
…to use a simple analogy, policy makers find themselves in a position that, I suspect, many of us may encounter as we transition through the different stages of using a tube of toothpaste.
With a relatively full tube, little thought is given to how much toothpaste is wasted. But as the tube empties, we are more likely to recognize the cost of having squandered earlier opportunities to modify behaviors consistent with longer-term benefits. And the regret is greatest when it becomes extremely difficult to squeeze any incremental bit of toothpaste out of an exhausted tube.
We are not out of growth-paste yet, El Erian says. But he warns that the recent string of good news and this unexpected focus on Ukraine have started to make us complacent. We still need “longer-term policy adjustment,” he says.
Submitted by Tyler Durden on 03/04/2014 -
While the comments by Russian presidential advisor, Sergei Glazyev, came before Putin’s detente press conference early this morning, they did flash a red light of warning as to what Russian response may be should the west indeed proceed with “crippling” sanctions as Kerry is demanding. As RIA reports, his advice is that “authorities should dump US government bonds in the event of Russian companies and individuals being targeted by sanctions over events in Ukraine.” Glazyev said the United States would be the first to suffer in the event of any sanctions regime. “The Americans are threatening Russia with sanctions and pulling the EU into a trade and economic war with Russia,” Glazyev said. “Most of the sanctions against Russia will bring harm to the United States itself, because as far as trade relations with the United States go, we don’t depend on them in any way.”
Submitted on 03/07/2014
What is it with this perennial fear the chief money printers have of falling prices? Not that we are likely to see it happen, but if it does, what of it? The problem is of course that when prices decline, the ‘wrong’ sectors of society actually benefit, while those whose bread is buttered by the inflation tax would no longer benefit at the expense of everybody else. But they never say that, do they? Has any central banker ever explained why he believes deflation to be a danger? No, we are just supposed to know/accept that it is. As Austrian economists have long explained, it is simply untrue that prices must rise for the economy to grow.
A few weeks ago, William White (former economist at the Bank of England, the Bank of Canada, and Bank of International Settlements) made a frank admission: “The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky…I’m becoming more and more convinced that all of the models we use are basically useless… We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right.” Doctors at least have the Hippocratic Oath: first, do no harm. If only economists and central bankers had a similar ethic. But they don’t. So they continue ‘making it up as they go along’, as Mr. White suggests, applying failed ideas with impunity and continued authority to an unquestioning public.
Yesterday we reported that as part of the Ukrainian central bank’s plan to bailout the nation’s largely insolvent private banks, it would provide any needed funding but only “if they will remain under open control of the National Bank of Ukraine.” And since the new CB head Stepan Kubiv’s allegiance to Europe were already well-known, this was merely a quick and efficient way of providing Europe with all the banking details including asset holdings of the local population. Today, the annexation of the country’s banking system by a “benevolent” Europe is complete. Itar-Tass reports that Ukraine’s national bank has imposed temporary limits to withdraw money from foreign currency deposits to sums equivalent to no more than 15,000 hryvnias (about $1,500) a day, National Bank Chief Stepan Kubiv told a press conference. Or, as the citizens of Cyprus call it - capital controls.
Submitted by Tyler Durden on 02/28/2014
While the FT promptly retracted an article on precisely the topic of gold manipulation from earlier this week (recorded for posterity here), Bloomberg appears to not have had the same “editorial” concerns and pressures, and today released an article once again slamming the final conspiracy theory that while every other asset class is manipulated, gold is in a pristine class of its own, untouched by close-banging, price fixing traders or central bankers, and reports that “the London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say.” And the punchline: “Large price moves during the afternoon call were also overwhelmingly in the same direction: down. On days when the authors identified large price moves during the fix, they were downwards at least two-thirds of the time in six different years between 2004 and 2013. In 2010, large moves during the fix were negative 92 percent of the time, the authors found.”
Submitted by Tyler Durden on 02/26/2014
As we reported last night, in a scorching 175-page report, the Senate Subcommittee on Investigations threw the book at the second largest Swiss bank Credit Suisse for allowing up to 22,000 Americans to avoid paying taxes for years. Today is the obligatory post-report spectacle which since it is headed by Carl Levin, of Goldman “Shitty Deal”, fame, promises to be quite a populist fest.
Time to talk about why…..
The 10 Richest U.S. Presidents: 24/7 Wall St.
Suspicious Death of JPMorgan Vice President, Gabriel Magee, Under Investigation in London
By Pam Martens
February 9, 2014
London Police have confirmed that an official investigation is underway into the death of a 39-year old JPMorgan Vice President whose body was found on the 9th floor rooftop of a JPMorgan building in Canary Wharf two weeks ago.
The news reports at the time of the incident of Gabriel (Gabe) Magee’s “non suspicious” death by “suicide” resulting from his reported leap from the 33rd level rooftop of JPMorgan’s European headquarters building in London have turned out to be every bit as reliable as CEO Jamie Dimon’s initial response to press reports on the London Whale trading scandal in 2012 as a “tempest in a teapot.”
An intense investigation is now underway into the details of exactly how Magee died and why his death was so quickly labeled “non suspicious.” An upcoming Coroner’s inquest will reveal the details of that investigation.
It’s becoming clear that when JPMorgan tells us “nothing to see here, move along,” that’s the precise time we need to bring in the blood hounds and law enforcement with the guts to get past this global behemoth’s army of lawyers who have a penchant for taking over investigations and producing their own milquetoast reports of what happened…
Read the entire story here.
Argentina’s Stock Market Is Getting Skewered
Argentina’s Merval Index is down 4.3% today as the country’s government is still working to set any kind of agenda for fixing its economic problems.
The Burcap, a weighted index which includes stocks in the Merval, is also down 4.4%.
Last month the country devalued the Argentine peso in an effort to keep up dwindling foreign currency reserves and prices soared. The government alsoannounced minor changes to its tight restrictions of dollar buying — changes that some say don’t go far enough.
Here’s What JP Morgan Private Bank Is Telling Its Millionaire Clients As The Emerging Markets Crumble
SHE’S THE BOSS….
Janet Yellen is officially now one of the most powerful women in the world. She was sworn in as the first female Chair of the Federal Reserve today in a quiet ceremony attended by other Fed board members and her husbad, Nobel-winning economist George Akerloff. Despite the significance of her new position, Yellen made no remarks at the swearing-in, “but did smile to acknowledge the applause of the assembled group,” reported the Associated Press.
Helle Thorning-Schmidt is the first female prime minister in Denmark’s history.
EL-ERIAN: Today’s Shocking Jobs Report Is Somewhere Between Puzzling And Worrisome
Somewhere between puzzling and worrisome: that is how I would characterize this morning’s surprising employment report.
The puzzling part relates to both the huge shortfall relative to expectations and, more importantly, the inconsistencies with other recent economic data releases.
At just 74,000, December monthly job creation came in at its lowest level since January 2011. Even after adjusting for the upward revision (38,000) in the November estimate, the total job change is just half of consensus expectations of some 200,000.
This reported shortfall in job creation runs counter to quite a wide range of recent data releases – all of which speak to a steadily strengthening economy.
The worrisome part speaks to some of the other numbers in this morning’s report.
For those employed, earning growth was worrisomely stagnant. At 37.7%, long-term joblessness continues to account for an alarmingly high portion of the reported unemployed. Meanwhile, labor participation fell to its lowest level since February 1978, accounting for two-third of the decline in the unemployment rate to 6.7%.
It will take time and lots of more detailed analysis to sort out the exact mix of puzzlement and anxiety. Indeed, unusual weather is likely to play an important role in this analysis.
Angela Merkel’s bittersweet triumph
The German election may well decide the future of Europe for the next generation,
The big winner from the financial crisis
AS THE dust settles on an extraordinary period of financial tumult, which reached its zenith five years ago this week with the bankruptcy of Lehman Brothers, two banks vie for the title of the world’s biggest by market capitalisation. One is Wells Fargo, a San Francisco-based institution; the other is China’s state-owned ICBC. It says something about the state of global finance that both are largely domestic, conventional lenders, and that both are buoyed and buffeted by the policies of their respective governments.
Some of Wells’s success is serendipitous. The business model that it has refined since its merger with, and managerial takeover by, Minnesota-based Norwest in 1998 left it perfectly placed to benefit from the crisis and its aftermath. Wells went into the bust with a strong but limited franchise encompassing the western half of America and focused on the prosaic business of cross-selling multiple products from a “store” (Wells-speak for a branch). It did not have a big capital-markets business to blow it up. Simply by remaining solvent, a tribute to years of careful management, it was in a position to emerge from the turmoil with a business covering the other half of the country, too.
In the not too distant future you’ll be able to buy a share of TWTR—the company has confidentially filed for a secret IPO in the hopes of dodging the Facebook’s IPO expectation disaster. Start getting your pension ready, bubble fans!
The entrepreneurial state
A new book points out the big role governments play in creating innovative businesses
APPLE is generally regarded as an embodiment of everything that is best about innovative businesses. It was started in a garage. For years it played a cool David to Microsoft’s lumbering Goliath. Then it disrupted itself, and the entire entertainment industry, by shifting its focus from computers to mobile devices. But there is something missing from this story, argues Mariana Mazzucato of Sussex University in England, in her book, “The Entrepreneurial State”. Steve Jobs was undoubtedly a genius who understood both engineering and design. Apple was undoubtedly a nimble innovator. But Apple’s success would have been impossible without the active role of the state, the unacknowledged enabler of today’s consumer-electronics revolution.
Gold is the canary in the financial mine
Personally I think the wheels are falling off the economies of the West, and the financial engineers are hitting the panic button in advance. The BRICs are going to be in open rebellion if the rest of the G7 joins Japan in massive printing. The Anglo-American banking cartel is doing what they do best: engaging in opaque market operations to shift the pain to the broad mass of innocent people when their schemes start to fall apart. They have used their usual resources to spread the word in advance.
“A credibility trap is a condition wherein the financial, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform, or even honestly address, the problems of that system without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.
The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even the impulse to reform within the power structure is susceptible to various forms of soft blackmail and coercion by the system that maintains and rewards.
And so a failed policy and its support system become self-sustaining, long after it is seen by objective observers to have failed. In its failure it is counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for the thought leaders who receive their power from that system.
The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious, organized hypocrisy.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery
The CFTC is investigating fifteen of the biggest banks on evidence handed to them that they were rigging a key derivative for interest rates.
“ISDAfix is published each morning after banks submit bids for swaps via Icap, the inter-dealer broker, in a number of currencies. The CFTC has been investigating suggestions that the banks deliberately moved the rate in order to profit on these deals.
Given the hundreds of trillions of dollars worth of interest rate derivatives trades that occur annually, even the slightest manipulation can have a substantial effect.
The CFTC, which started to investigate ISDAfix after last summer’s Libor scandal has now been handed emails and phone call recordings that show the rate was deliberately moved…”
When crime pays, why wonder that it flourishes? And they have little fear, and no shame.
Treasury Department Reiterates Support for Financial Reform
Last week, Mother Jones reported that some financial reform advocates were worrying that Treasury Secretary Jack Lew was not taking a sufficiently fierce stance against a group of House bills that would weaken Wall Street reform. Similar measures died last year, and with some Democrats and Republicans in the process of reviving them, reform advocates have become nervous, especially since Lew has not yet echoed the strong opposition to these proposals that was voiced last year by his predecessor, Timothy Geithner.
Treasury Department officials, though, say there is nothing to fear. Last week, a Treasury Department spokesman told Mother Jones, “Of course the Treasury secretary would oppose any effort to weaken Wall Street reform,” known as the Dodd-Frank law. She pointed to Lew’s recent comments on Bloomberg television. “The purpose of Dodd-Frank was to make sure the American taxpayer would never again be in the position where they had to step in when banks failed,” he told the news channel. “We are committed to that purpose.” Treasury is not condemning these measures yet because, as a Treasury spokeswoman told Mother Jones last week, the bills have not even won approval at the committee level. A Treasury Department official this week reiterated Lew’s opposition to the crusade to water down Wall Street reform, but the official noted that the department doesn’t want to get into the habit of denouncing all the various bills that are thrown into the hopper on Capitol Hill. The official emphasized that Lew’s previous public statements opposing efforts to undermine Dodd-Frank or delay its implementation do indeed cover the set of bills that have been re-introduced in the House. The word at Treasury: if these bills do gain traction, Lew will not hesitate to slam them.
Four Years After China Eased Its Currency Policy, Yuan-Held Deposits In Hong Kong Have Ballooned More Than 500%
By Angelo Young | February 25 2013
(Photo: CME Group/IBTimes) Customer deposits of the offshore version of China’s yuan has ballooned since the country began allowing its legal tender to be more openly converted on the global market.
The KaChing! Dynasty
Financial officials meeting in Moscow agree not to manipulate their currencies to benefit their economies.
Senators Ask DOJ: Is Wall Street Really “Too Big to Jail”?
IMF cuts global growth forecast
The International Monetary Fund cut its global growth forecasts and now projects a second year of contraction in the euro region as progress in battling Europe’s debt crisis fails to produce an economic recovery.
The world economy will expand 3.5 per cent this year, less than the 3.6 per cent forecast in October, the Washington-based IMF said today in an update of its World Economic Outlook report.
It expects the euro zone to shrink 0.2 per cent in 2013, instead of growing 0.2 per cent as forecast in October, as Spain leads the contraction and Germany slows.
“Is Europe on the mend? I think the answer is yes and no,” IMF chief economist Olivier Blanchard said in a video released with the report. “Something has to happen to start growth.”
While measures to stem the debt turmoil last year helped boost financial markets around the world and decrease sovereign bond yields from Spain to Greece, European officials now still face a recession and unemployment at a record 11.8 per cent.
The IMF warned that the region still poses a “large” risk to the rest of the world if efforts under way to strengthen its economies and work on a banking union slip.
The forecast for a second year of economic contraction reflects “delays in the transmission of lower sovereign spreads and improved bank liquidity to private sector borrowing conditions,” as uncertainty remains over ending the trouble that has engulfed members such as Ireland and Cyprus, according to the report.
The fund expects the region’s outlook to improve, forecasting a return to 1 per cent growth in 2014. It sees the world economy expanding 4.1 per cent next year, 0.1 per cent less than in October.
In the US, “underlying economic conditions remain on track,” the IMF said as it cut its forecast for the world’s largest economy to 2 per cent from 2.1 per cent in 2013 and raised it 0.1 percentage points to 3 per cent next year.
The priority is for Congress to avoid too much deficit reduction too soon, reach an agreement between Republicans and Democrats to raise the debt ceiling and craft a plan to reduce debt over the medium term, according to the report.
While the forecast for Japan was left unchanged at 1.2 per cent this year amid fiscal and monetary plans to stimulate its economy, the fund cut the 2014 prediction by to 0.7 per cent.
Fiscal expansion is “going to help growth in the short run, no question,” Mr Blanchard said. At the same time “when you start with such a level of debt and without a medium term credible fiscal consolidation plan, increasing the fiscal deficit in the short run is a very risky thing to do.”
Commodities exporters will feel the pinch of falling prices, with oil now seen slipping 5.1 per cent instead of 1 per cent, according to the report.
While supportive policies have help buoy growth in some emerging market countries in recent months, there’s less space for such action now, it said.
Growth forecasts for Brazil were cut to 3.5 per cent this year from 4 per cent and to 4 per cent from 4.2 per cent in 2014. India was lowered 0.1 percentage point to 5.9 per cent this year and was left unchanged at 6.4 per cent in 2014.
The IMF didn’t change its forecast for China, seen growing 8.2 per cent this year and 8.5 per cent in 2014.
“It’s not the rates that we saw before the crisis, but these rates are long gone,” Mr Blanchard said of emerging countries. “Things in general are fine.”
Special Premium Report ….Pro Bono…Global Outlook………………
Volatile emerging markets top risk for 2013, India at 9th: Eurasia Group
New York:India’s difficult policy-making environment will be the ninth biggest risk for global economy in 2013, while increased volatility across emerging markets will be the top-most risk for the year, a new study has said.
As per the study conducted by Eurasia Group, the world’s leading global political risk research and consulting firm, the second biggest risk in 2013 for the global economy could be China’s fight against flow of information, including those from the cyberspace.
The others on a list of ten biggest risks, as compiled by Eurasia report, include ‘Arab Summer’ at third place, followed by issues related to Washington Politics (4th), JIBs – Japan, Israel and Britain (5th), Europe (6th), East Asian geopolitics (7th), Iran (8th), India (9th) and South Africa (10th).
About India, the report said that the country “in 2013 will be one of the prime examples of the intrusion of political factors into what had been until recently seen as a long-term economic success story.
It said that India’s emergence as the world’s next ‘growth uber alles’ (the biggest growth engine) could not be so fast.
“In 2013, the ability of the government to implement robust economic policies will decline even further, perpetuating India’s ‘stalling or falling’ outlook.
“As general elections draw closer, political opportunism and obstructionism will increase. Any support for reform from the fickle regional parties that hold the balance of power in Parliament will likely wane,” it added.
Fearing that “poor policy-making will extend to fiscal policy”, Eurasia group said that any meaningful
fiscal consolidation would be unlikely this year in that case.
“The best of circumstances, the political context for economic reform might improve following the elections (scheduled for 2014).
“But, at this point, the more likely outcome is that India’s policy-making environment becomes even more difficult as the poll is expected to return a more fractious and divided Parliament, generating a weak ruling coalition without the political support for a strong reformist push,” it added.
The report said that political risk has come to the fore across the world while dealing with the worst slowdown since the great depression, and “geoeconomics now sits alongside geopolitics in matters of war, peace, and prosperity.”
“Whether staring over the fiscal cliff, battling the eurozone crisis, trying to profit from a rising China, or taking cover from the Middle East; around the world, politics has come to dominate market outcomes,” it added.
About the top-ranked risk, Eurasia said that emerging market growth in past few years has kept the trade moving, commodities prices afloat, and offered attractive investment opportunities.
“But in a tougher overall growth environment where the US economy looks like a better bet and the potential for explosive risk in the euro-zone goes away, concerns over emerging markets and their future will again receive closer attention.
“Emerging markets will have much more volatility and instability than advanced industrial democracies,” it said.
On ‘Arab Summer’, it said that the wold was talking about an Arab Spring barely more than a year ago.
“Middle East dictators
Were facing a wave of domestic dissent; international observers wondered whether it could be that the ‘end of history’ from Eastern Europe and the former Soviet Union would come to the Middle East.
“That has morphed not into ‘Arab winter’, where dictators rebound and consolidate power, but a long, hot, Arab summer – with radicalised movements, sectarian and Islamist, playing a much more important role,” it added.
About the fourth-ranked Washington Politics, Eurasia group said that “2013 should be a year for reform progress and renewed economic dynamism in the US… But every silver lining has a dark cloud, and dysfunctional American politics will weigh on both the economic recovery and the president’s legislative agenda.”
Street’s biggest headwind: Washington
World Bank fears fresh credit bubble in China on hot money flows
China and Asia’s tigers are roaring back to life and risk a fresh credit booms unless they can choke inflows of hot money, the World Bank has warned.
Shanghai at night: the new risk is a return to overheating as ultra-loose monetary policies in the West trigger a “flood of capital into the region that could lead to asset bubbles and excessive credit growth” — with the risk of sharp reversals later…
Some of the world’s stablest economies are Asian. Time to worry?
The Fog Of Libor
THE furore over alleged manipulation of the London Interbank Offered Rate (LIBOR) and its European cousin, the Euro Interbank Offered Rate (EURIBOR), continues to rage. In Britain, the deputy governor of the Bank of England and the chairman of Barclays were hauled over the coals this week by a parliamentary committee. In America, it emerged that the Federal Reserve Bank of New York may have been informed of alleged manipulation of LIBOR some time after 2007; the Senate Banking Committee plans to look into the affair.
Be generous, and assume that attempts to manipulate LIBOR are in the past. A deeper problem still besets these numbers: they are almost entirely fanciful even if the banks that submit them are providing honest estimates. That is because the unsecured interbank funding market, which is supposed to be where banks borrow from each other, is frozen solid. In the euro area in particular, banks are lending almost no money to one another. Most banks that now have cash prefer to deposit funds at the European Central Bank (ECB), which in turn lends it on to those that are short of it. At the moment banks have more than €800 billion ($980 billion) parked at the ECB, where it earns no interest. LIBOR and EURIBOR measure an activity that barely exists.
The fault behind defaults
Oct 10th 2012, 8:23 by T.E. | NEW YORK
SO FAR Wells Fargo has been the one large American bank that has seemed to escape high profile legal attacks. That ended on October 8th with a civil complaint filed in a New York federal court that accused Wells of systematically defrauding the federal government’s mortgage insurance programme for a decade, stopping only after the receipt of a subpoena in 2011.
“Yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure,” said Preet Bharara, US Attorney for the Southern District of New York, in a statement.
While it is tempting to dump the case in the wider cesspool of financial litigation, it has a number of unusual characteristics—and, notwithstanding the deficiencies cited by Wall Street’s federal prosecutor, will not necessarily end with a settlement. Wells has pledged to fight. It argues that the facts are on its side, that its performance in the government programme was exceptionally good, and that many of the issues cited in the complaint had already been resolved.
According to the complaint, Wells began in 2001 to ramp up its efforts to build a business in loans to borrowers who could not qualify under normal standards and needed the Federal Housing Administration (FHA) to insure their mortgages. These loans were then packaged and sold to investors. To build the business rapidly, Wells is alleged to have employed people lacking critical experience and compensated them based on the number of loans approved, rather than the number reviewed—which, according to the complaint, led to a collapse in loan quality. Wells is also accused of not having reported these problems to the FHA, as it is required to do. The complaint puts the associated loses loosely in the “hundreds of millions of dollars”.
Wells did not respond to the charges in detail. But if the case does reach court, scrutiny will not only be on the bank, but also on the FHA programme. It gave financial institutions the right to apply for government insurance for loans that by definition were too risky to qualify under normal prudential standards. And if the complaint is correct, the FHA—after having delegated a function that is considered to be the single most important feature of any insurance company: the ability to independently evaluate risks—was unable to independently monitor its exposure. Wells may be the sole entity accused in the complaint, but its approach to business will hardly be the only one on trial.
THE procedure is well-honed by now. In an effort to hold a bank accountable for what happened in the run-up to the financial crisis, a prosecutor or a regulator puts together a filing with hard-hitting allegations. A wave of headlines is triggered. The bank in question denies any wrongdoing, but prepares to negotiate a settlement sometimes worth billions.
New York’s attorney general files a bazaar complaint against JP Morgan Chase
Emerging market banks
Mexico’s once-dodgy banks are now sturdier than many of their foreign owners
Libor Scandal May Hit U.S. Banks Harder Than Their British Counterparts
Outlook darkens as Europe sinks, China struggles
By Jonathan Cable
LONDON | Thu Jun 21, 2012 7:06am EDT
(Reuters) – The downturn in the euro zone’s private sector is becoming entrenched and Chinese factories are finding the going increasingly tough, business surveys showed on Thursday, painting a darker outlook for the world economy.
Spain’s fourth-largest bank, Bankia, asks for a bailout worth 19bns euros ($24bn; £15bn), and admits that it made a massive loss last year.
- Bankia’s exposure to bad loans Watch
- Who’s to blame for Spain’s pain?
- Moody’s downgrades Spanish banks
- Results delay hits Bankia shares
- Peston: Spain’s banking test
- Extra capital for Spanish banks
JPMorgan Disaster Shows Financial Industry Hasn’t Changed… ‘Risk, Once Again, Taking A Backseat To Potential Reward’… SEC Head: ‘All The Regulators Focused On’ JPMorgan… CEO: I Don’t Know If We Broke The Law… JPMorgan Sought Loophole On Risky Trading… Fiasco Highlights Obama Failure
With Particle Accelerators, Wall Street May Literally Trade at Light Speed
Obama names surprise World Bank candidate Jim Yong Kim
President Obama: “I am nominating Dr Kim to be the next president of the World Bank”
President Obama has nominated Korean-born US academic Jim Yong Kim to be the next president of the World Bank.
The nomination of the Dartmouth College president and development expert is a surprise as he was not mentioned as a contender over the past weeks.
A US citizen has led the Bank since it was founded in 1944, but developing nations say it is time for change.
The World Bank confirmed that there are three candidates – with the other two coming from Nigeria and Colombia.
After the deadline for nominations to replace the current president, Robert Zoellick, passed, the World Bank that Nigerian Finance Minister Ngozi Okonjo-Iweala and Jose Antonio Ocampo, a former Colombian finance minister, have made the shortlist along with Dr Kim.
But with the US holding the most votes at the World Bank, which has 187 members, the vote on the next president should be a formality.
Why Are the Chinese Buying Record Quantities of Gold?
This month, the Hong Kong Census and Statistics Department reported that China imported 102,779 kilograms of gold from Hong Kong in November, an increase from October’s 86,299 kilograms. Beijing does not release gold trade figures, so for this and other reasons the Hong Kong numbers are considered the best indication of China’s gold imports.
Analysts believe China bought as much as 490 tons of gold in 2011, double the estimated 245 tons in 2010. “The thing that’s caught people’s minds is the massive increase in Chinese buying,” remarked Ross Norman of Sharps Pixley, a London gold brokerage, this month.
So who in China is buying all this gold?
Hungary’s Debt Is Now Unanimously Rated as ‘Junk’
Euro Hits 11-Month Low On Debt Crisis Fears
S&P Downgrades Goldman Sachs, Bank Of America, Wells Fargo And Citigroup
Unless Germany and the ECB move quickly, the single currency’s collapse is looming
Black Friday: most important day of the year for the US economy
It is being billed more than ever as the most important day of the year for the US economy, a carnival of consumerism in which Americans are expected to shop their way out of the country’s financial woe.
People shop at a Target store in Victoria, Texas on Black Friday
Chinese Economic Growth Slows To Lowest Level In Two Years
The debt crisis in Europe is draining confidence in banks
Oct 8th 2011
“THIS brutal lack of confidence” is how the chief executive of one of Europe’s biggest banks describes the situation facing his firm and its peers. The catalogue of troubles afflicting the institution (call it Bank X, so as not to punish it for its candour) shows how worrying the outlook has become for big banks, and hence for the real economy.
A bank-funding crisis that started on Europe’s periphery with worries over Greek, Irish and Spanish banks has now infected the core of the West’s financial system. The governments of France and Belgium said this week they would stand behind the debts of Dexia, a perennially troubled lender, while also engineering a break-up of the bank. Across the Atlantic shares in American banks whipsawed on worries about a Greek default and rumours of policy breakthroughs.
The shift in economic power from West to East is accelerating, says John O’Sullivan. The rich world will lose some of its privileges
Eurozone rescue plan ‘emerging’ as IMF and Greece talk
The plan agreed by leaders reportedly envisages a “haircut”, or writedown, of Greece’s sovereign debt
The outline of a large and ambitious eurozone rescue plan is taking shape, reports from the International Monetary Fund (IMF) in Washington suggest.
It is expected to involve a 50% write-down of Greece’s massive government debt, the BBC’s business editor Robert Peston says.
The plan also envisages an increase in the size of the eurozone bailout fund to 2 trillion euros (£1.7tn; $2.7tn).
European governments hope to have measures agreed in five to six weeks.
Turning the present outline into a practical reality will be immensely difficult, our editor says.
But he adds that the price of failure could be a financial crisis that would probably turn anaemic growth into a recession or worse.
Investors have so far been unimpressed with the speed at which policymakers have dealt with the eurozone debt crisis, and analysts say that action, not words, are needed to calm volatile stock markets.
Unless the banks are fixed, there will remain too big a risk that a financial crisis could turn the current global economic slowdown into something more akin to depression than recession”
Asian stocks have fallen after slide in US and Europe
Asian stocks have fallen on Friday, driving towards their worst weekly losses since 2008, after a sharp sell-off in the US and Europe.
The G20 said they were ready to preserve stability in the financial markets after Thursday’s falls, when European indexes fell about 5%.
But South Korea’s main Kospi index shed 5.7%, while Australia’s ASX lost 1.6%.
The latest market slump was sparked by a Federal Reserve warning about the weak outlook for the US economy.
A number of gloomy comments about global growth, particularly from the International Monetary Fund (IMF) and World Bank, then combined to sour market sentiment further.
On Thursday, Christine Lagarde, head of the IMF, said the global economic situation was entering a “dangerous place”.
Robert Zoellick, the World Bank president, said separately he thought the world was in a “danger zone”.
Italy’s credit rating was cut by Standard & Poor’s on concern that weakening economic growth and a “fragile” government mean the nation won’t be able to reduce the euro-region’s second-largest debt burden. The rating was lowered to A from A+, with a negative outlook, S&P said in a statement
Euro falls below $1.3600 to fresh session low
NEW YORK | Mon Sep 19, 2011 10:08am EDT
NEW YORK (Reuters) – The euro fell to a fresh session low against the dollar on Monday below $1.3600 as policymakers’ lack of progress on the euro zone’s debt crisis fueled concerns of a Greek default and fears the problems could engulf larger euro zone economies and the region’s banks.
Central banks act as economy hits ‘dangerous new phase’
Christine Lagarde: “We have entered into a very dangerous zone of the crisis’
Five central banks have moved to boost the liquidity of commercial lenders, as the boss of the International Monetary Fund warns of a “dangerous” new economic phase.
The central banks are to provide the commercial banks with three additional tranches of dollar loans to help ease funding pressures.
Banking stocks rose sharply, with BNP Paribas up as much as 22%.
IMF managing director Christine Lagarde said “bold action” was needed.
Speaking in Washington, she said: “Uncertainty hovers over sovereigns across the advanced economies, banks in Europe, and households in the United States.
“Without collective, bold, action, there is a real risk that the major economies slip back instead of moving forward.”
Germany’s euro question
Nobody knows the answer, especially not the Germans themselves
Sep 10th 2011
WHAT does Germany want? The question comes up in every discussion about the euro. What it does not want is clear enough: no “transfer union”, no pooling of national debts and no break-up of the single currency. But it is hard to know how it hopes to reconcile these aims, harder still to discern the ultimate goal of Germany’s European policy.
All of a sudden, though, Berlin is abuzz with talk of remaking the European Union: issuing joint Eurobonds, renegotiating the EU’s treaties, even creating a federal Europe. Nobody knows if any of this will come about. The obstacles to fundamental change are so forbidding that leaders will always be tempted to try to muddle through. Yet the terms of Germany’s debate are shifting. German politicians seem to have decided that the time has come to start redesigning European institutions. Again.
A Daring Move In Zurich Capping the Swiss Frank
Swiss francs (Radar Communication)
ZURICH – Theatricality, drama – any extravagant display of feeling — is certainly not a Swiss thing. So while the news this week that the franc would be capped at 1.20 against the euro produced gasps of surprise on international financial markets, the Swiss National Bank made the announcement with barely more than a nod of the head. The step was courageous. It was also necessary.
It has to be the most understated move of the year, because the daring maneuver on the part of the central bank’s Governing Board and its chairman Philipp Hildebrand has propelled Switzerland into an economic adventure — the outcome of which is anything but certain. Strictly speaking, the Swiss did not couple their currency to the euro. What did happen, however, is that Switzerland‘s fate just inched a little closer to that of the EU and its joint currency, without the Swiss gaining any greater say in policy.
That means that henceforth, whether prices in Switzerland rise, pensions fall, interest rates go south, or rents skyrocket: it will all depend just that much less on independent measures, decisions, or resolutions taken in Bern or Zurich. The determining factor at the end of the day will be the course of the euro’s rollercoaster ride on global financial markets – and that can’t be calculated ahead of time. Or, to choose imagery a little closer to the Alpine nation: it’s as if an experienced Swiss climber who, up to now, had the mountain to himself is now scaling with his rope tied to a bunch of tourists wearing T-shirts and sandals.
At this moment, the Eurozone is relatively quiet, and currency markets have set the value of the single currency against the franc exactly where Switzerland’s bankers want it. But what happens if there are new catastrophes down the road? What if Greece goes bankrupt, Germany doesn’t want to pick up the tab anymore, or a major European bank goes under? Is the dam the Swiss have erected strong enough to hold? Or will a stampede of speculators flock to the secure franc despite attempts by Switzerland’s currency watchdogs to scare them off? The daily volume of euro-franc transactions is worth $72 billion. If there were to be a stampede, the Swiss National Bank would have to come up with astronomical sums to buy weak euros – day after day, for an unforeseeable length of time.
Theoretically, and probably practically as well, the Swiss National Bank could stand up under the pressure for quite awhile. They would just have to mint ever increasing amounts of francs and flood the market. The consequences of that, however, would be inflation — and since price rises would be, so-to-speak, imported from the unpopular EU, that would not make the issue any easier to deal with politically on the home front.
Right now, the country stands behind its currency watchdogs. “Relieved” are not only companies, but also business and commercial associations, which were having trouble selling their products abroad because of the strong franc. “Satisfied” are also the Greens, Social Democrats — and unions, because employees are increasingly being asked to work more hours or take pay cuts in exchange for companies not pulling up stakes and moving abroad where labor and materials are cheaper.
The fear of a recession unites the nation. Some may perhaps derive a frisson of self-importance at the idea of their small country all alone against powerful financial markets. Secretly, they‘re a little scared. But of course they’d never show it.
Swiss bankers oppose mooted US tax treaty
The Swiss Bankers Association on Monday spoke out against the possibility of another tax treaty with the United States, which could force Swiss banks to divulge details of Americans clients using them to dodge taxes.
AP – The Swiss Bankers Association lashed out Monday at the possibility of another tax treaty with the United States aimed at handing over details of Americans suspected of using Swiss banks to cheat on their taxes.
The trade group’s chairman, Patrick Odier, urged the Swiss people and the government to “put up a united front” and work out a solution that applies to all countries. He said that U.S. and Swiss politicians must work with existing accords.
“The solution must be globally applicable, be definitive and correspond to existing Swiss law,” Odier told the association at a meeting in Basel, Switzerland, according to his prepared remarks. “A second bilateral treaty has to be avoided and the U.S. needs to respect this.”
A double taxation agreement was approved by Switzerland in 2009, but is still awaiting ratification by the U.S. Senate.
The United States last year forced Switzerland to agree to a separate bilateral tax treaty – and to break its own banking secrecy laws – in order to prevent the country’s biggest bank, UBS AG, from facing damaging civil litigation in U.S. courts for helping thousands of Americans hide money in offshore accounts.
UBS was forced to hand over the names of thousands of American account holders and pay a $780 million fine, in a landmark case that pierced Switzerland’s storied tradition of banking secrecy. Swiss lawmakers are due to approve a revised tax agreement with the U.S. this fall.
But Switzerland now fears that U.S. officials may try to bring charges against one or more Swiss banks, including Credit Suisse Group, if it does not divulge more details on how many Americans may have used Swiss banks to avoid paying their U.S. taxes.
The Swiss government has also faced similar growing pressure outside the United States, and has signed revised agreements with several countries, including Germany and Britain, to provide greater help to foreign tax authorities seeking information on their citizens’ accounts in the Alpine nation.
Taken together, the moves have been widely seen as the beginning of the end of Switzerland’s strict policy of noncooperation with foreign tax authorities.
“The U.S. should take the tax agreements with Germany and the United Kingdom as an example. Bilateral problems between friendly nations should be solved by mutual agreement,” Odier said.
The agreements with Germany and Britain were both reached in August. Swiss banks will pay an up-front guarantee of 2 billion francs (nearly $2.7 billion) to Germany and 500 million Swiss francs ($630 million; 385 million pounds) to Britain.
German residents who haven’t previously declared existing assets in Switzerland will have the chance to make a one-time tax payment totaling between 19 and 34 percent of those assets, or to declare them to German authorities. Similarly, British clients will have the option of making an anonymous one-off payment for taxes owed in the past, or declaring their assets to British authorities.
The Swiss Bankers Association said also there may be rough times ahead because of the strong franc and new banking requirements to boost capital holdings.
In a statement Monday, it said “the economic and regulatory trends indicate that there may be some headwinds going forward.”
But the group reported that Swiss banks’ combined assets rose slightly to 2.7 trillion francs, and generated earnings of 61.5 billion francs in 2010 – an increase of 13.4 percent in earnings on the year.
The value of the franc has risen sharply as a safe haven for investors, but that has made Swiss exports more expensive, driving down profits.
Banks also must meet new rules to gradually increase their capital cushions, eating into the amount they can invest.
GOLD ON THE MOVE WITH THE UNCERTAINTY OF WORLD FINANCIAL CRISIS
The price of a Big Mac is now $17.19 in Zurich
Just a quick thought on a ridiculously volatile day:
One of the things that people pick up on very quickly as they travel are how different price levels are around the world. I’ve been to roughly 100 countries, and I still find it amazing how much variance there is among things like food, property, and entertainment prices.
There are certain places– Cambodia, Ecuador, Tanzania– that are so jaw-droppingly cheap that it almost seems unreal. And you wonder how these people could possibly ever survive if they came to your country.
Well, the United States has just joined this proud cadre banana republics… at least if you’re from Switzerland.
You see, the Swiss franc is one of the few currencies that have given investors some sense of comfort recently; Switzerland inspires confidence and stability, and the worse things get in the United States and Europe, the more investors pull their money out of the dollar and euro, and park it in the Swiss franc.
It’s all about supply and demand. Increased demand for the Swiss franc coupled with expanded supply of dollars and euros has caused the franc to surge over the last weeks and months. It wasn’t too long ago that it would take 1.20 francs to buy a US dollar. Now it takes $1.40 to buy a single franc.
I can think of a lot of words to describe the performance of the US dollar. Farce. Joke. Lunacy. Embarrassment. Disgusting. But it’s more clearly summed up like this: the price of a Big Mac is in Zurich is now so high (at $17.19) that a minimum wage employee in Minneapolis, Minnesota, would have to work for nearly 4-hours in order to afford it.
This is what stability looks like to Ben Bernanke.
August 11, 2011
Gold eases after hitting $1,800
Gold eased after climbing above $1,800 for the first time in US trading, while other commodities – including oil, base metals and grains remained firm as focus shifted onto supply-demand fundamentals.
Bullion, which hit a high of $1,814 a troy ounce on further European debt worries exacerbated by concerns over French lender Société Générale, fell back in early European trading, down 0.2 per cent to 1,790.36. SocGen shares rebounded after the bank gave reassurances of its financial stability.
Federal Reserve Actively Preparing For The Possibility Of U.S. Default
Moody’s to review US triple-A debt rating
Ben Bernanke said the Fed expects to keep interest rates near zero “for an extended period”
Ratings agency Moody’s has warned it may cut the US AAA debt rating because it is increasingly likely its debt ceiling will not be raised in time to avoid a default.
It has placed the US on a downgrade watch, saying the likelihood of a default was “low” but not “de minimis”.
Federal Reserve head Ben Bernanke said earlier a default would send shockwaves through the entire financial system.
He said the Fed would renew stimulus efforts if the economy remained weak.
‘Small but rising risk’
Moody’s became the first of the big three ratings agencies – the others being Standard & Poor’s and Fitch – to place the US’s triple-A rating on review for a possible downgrade.
“The review of the US government’s bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes,” Moody’s said.
“As such, there is a small but rising risk of a short-lived default.”
The US hit its $14.3 trillion debt ceiling on 16 May but has since used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating.
Republicans are refusing to lift the ceiling without deep government spending cuts.
All of the IMF’s Problems Now Belong to Christine Lagarde
The International Monetary Fund’s newly-minted leader Christine Lagarde has a lot on her plate. As the 55-year-old French Finance minister replaces Dominique Strauss-Kahn as managing director, she’ll be saddled with reviving a disgraced institution mired with challenges as Greece and much of Europe’s debt woes rage on. Here’s a look at how commentators are digesting her new leadership role at the lender of last resort and what it means for the institution.
Gold Still Prized as a Safe Haven: Gold Bull
24 June 2011
Central banks around the world have started buying gold and this tells the world they believe it has value and it is an important asset to back up their currencies and their economies, Michael Haynes, CEO American Precious Metals Exchange, told CNBC.
The World Gold Council expects central banks to be net buyers of gold in 2011 and 2012.
“It’s also important when we look at the physical holdings of gold and gold coins and bars, this is, what individuals buy, for example the kilo bar of gold,” Haynes explained.
“When we look across the last couple of years – 2009 and 2010 – you can see that in the US we’ve purchased a certain amount of this but in Asia you can see consistent purchasers in this but it’s been increasing in these other countries,” he said.
Certain countries prize gold for its “safe haven” status but also as an important cultural symbol. In India gold is prized as a status symbol during religious and wedding ceremonies.
Releasing Oil Reserves Called a ‘Sign of Desperation’
The Bank for International Settlements headquarters in Basel, Switzerland.
The Bank for International Settlements in Switzerland has just published its annual report, and it is a dour document. The BIS (as it’s known) was created in 1930 to handle post-World War I reparation payments from Germany to Britain and France. The Great Depression ended reparations, and now the BIS provides—among other things—sober commentary on the global economy. Its latest report oozes foreboding.
As Greek Default Becomes Increasingly Likely, Investors Flee To Safer Investments
Stock prices around the world have fallen sharply in response to the growing likelihood that the Greek government could default on its debt and plunge the European economy into a recession, endangering the euro and infecting the global economy.
Greek stocks plummeted Thursday, dragging down stocks across Europe. Greece’s ASE index declined 2.8 percent Thursday, and the Stoxx Europe 600 index closed down 0.5 percent. Meanwhile, the value of the euro fell to a record low, and the yield on bonds of more indebted European countries rose, according to Bloomberg and Reuters.
Markets far outside of Europe reacted negatively to the news. Latin American currencies fell against the dollar, since the dollar generally is viewed as a safe investment during uncertain times. In Asia, Hong Kong’s Hang Seng index fell 1.7 percent Thursday, Japan’s Nikkei Stock Average ended down 1.7 percent, and Australia’s S&P/ASX 200 fell 1.9 percent, according to Dow Jones Newswires.
SEC Considers Charges Against Credit-Rating Agencies For Role In Financial Crisis
U.S. regulators could file civil fraud charges against some credit-rating agencies for their role in developing mortgage-bond deals that helped bring about the financial crisis, the Wall Street Journal reported, citing people familiar with the matter.
The Journal said the Securities and Exchange Commission was reviewing the conduct of companies including McGraw Hill’s Standard and Poor’s and Moody’s Investors Service owned by Moody’s Corp on at least two mortgage-bond deals.
The paper said a Standard & Poor’s spokeswoman declined to comment, and it quoted Michael Adler, a spokesman for Moody’s, as saying: “Although Moody’s is uncertain as to what The Wall Street Journal is referring, we would certainly cooperate with any requests we receive from the SEC.”
Reuters could not reach Standard and Poor’s, the SEC or Moody’s for comment.
The SEC is considering whether the credit-ratings firms failed to do enough research to be able to rate adequately the pools of subprime mortgages and other loans that underpinned the mortgage-bond deals, the paper said.
George Papandreou, the embattled Prime Minister of Greece, has offered to resign to pave the way for a national unity government, according to various sources, as the Athens parliament prepares to enact more unpopular austerity measures.
Economists at Goldman Sachs last week cut their economic growth forecast for the second time in a month, only to warn a few days later that “we already see downside risk to that estimate.” FULL STORY
Thibault Camus/Associated Press
Finance Minister Christine Lagarde of France announced her candidacy for the I.M.F. post at a press conference in Paris.
PARIS — Christine Lagarde is seen as the leading candidate to replace Dominique Strauss-Kahn, despite an unusual joint rebuke from developing nations against the custom of always naming a European to the job.
ASIA’S WEEK AHEAD | Asian markets news
Japan’s trade problems
Japan could reveal a record trade deficit when April figures are released, reports MarketWatch’s Virginia Harrison.
• Reports to show how Japan is recovering
• China-Japan quake reconstruction agreement
Why Gold and Silver May Have Bottomed
by Rick Ackerman on May 19, 2011 12:01 am
[Have Gold and Silver seen their lows for this correction? Were encouraged to think so, for two reasons. First, downtrends in both Comex June Gold and July Silver reversed on Tuesday from precisely where they should have if the long-term uptrend is to be judged healthy. Second, our astute friend and mining stock consultant Chuck Cohen, who turned cautious on bullion just before the correction began, thinks the selling may have run its course. In the guest commentary below, he explains why. RA]
Like Freddy Krueger, it’s back. The infallible New York Times contrary indicator has returned for another testing. If you remember last August at the market bottom, amidst the palpable gloom on Wall Street, the Times was moved to interview superbear Bob Prechter on the dire market situation, not coincidentally within a week of the bottom. At the time, I mentioned the Times contrarian indicator in a lengthy essay published at LeMetropole Café, 22 Things to Look for When Gold Finally Makes Its Top.
For some amazing coincidence, since the Times rarely takes sides at the markets, when it does it is usually right on the money — on the wrong side. Lo, last Sunday, one of the Times‘ savvy financial reporters wrote about the seemingly endless gold bubble and the danger of getting caught in it. Read it and see what I mean. In particular, note the clear logic that gold has had a major correction of 4% after doubling from its bottom in 2008. The size of the correction is definitely proof that what goes up must always come down — except for the thousands of positive articles the Times put out on housing through the mania several years ago.
If the Times barometer continues to hold, we should be ready for something very special for the anxious gold community. For the first time in months, my own reticence has receded and I believe we are at, or nearly at, another terrific buying point for the gold shares. You know I have been cautious for several months especially as the spike of silver was in full bloom, and as the bank stocks continued to deeply underperform the markets, both definite warning signals. But with the drop in silver, gold and other commodities as the dollar rallied, the speculative air has seeped out of these markets. And it feels good to be positive again. Whether or not this will be the start of THE move in the shares, I don’t know, as it has appeared to be so on other occasions, only to result in disappointments.
When to Bail Out…
You can be certain that a major top in gold will not come until the Times has a major interview with a true gold bull like Jim Sinclair or Turk as it did back in May 2005, at the top or when you have a major front page article with a large price chart of the yellow metal.
But besides the Times article I have some other strong reasons for believing the worst is over. In brief, here are some of them:
1. The sharp drop in sentiment in silver and in the Hulbert Gold survey, which fell from 74 to 7 in 4 days. Who says gold buyers don’t panic?
2. The heavy volume and gaps in the HUI shares over the past 10 days. Interestingly, this week the shares are beginning to outperform the metal.
3. The incredibly low level of the Rydex Precious Metals Assets–now back to the point in 2008 when gold was almost 50% lower.
4. The bold, confident talk of the end of the commodity bubbles in the media.
5. The mushrooming number of correction callers in Kitco.
6. The report that George Soros has sold out his gold (apparently about $100 lower.) George Soros is no Jim Sinclair when it come to gold. He was a nouveau bull.
My chief point is that if you have been in cash anticipating a decline in the shares, now is the time to start to nibble or even buy on weakness. Once a bottom occurs, many of the smaller companies could scoot up 50% before you can ever get in. It is uncomfortable to buy stocks only to see them fall more, but it is also wiser to buy on weakness when many of the signs are turning so positive. I’m here for some suggestions and help.
(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)
‘The Only Real Option Left for Greece Is Debt Restructuring’
A report on Friday that Greece may exit the euro zone has shaken Europe.
How successful was bin Laden, anyway? Ezra Klein takes up the question in a column today, and finds that while the al Qaeda leader didn’t win his battle with the U.S., he sure came close. According to al Qaeda expert Daveed Gartenstein-Ross, bin Laden’s goal all along was to bankrupt the United States, just as he bankrupted the Soviet Union by waging a resistance war in Afghanistan. The Afghan campaign taught bin Laden that “superpowers fall because their economies crumble, not because they’re beaten on the battlefield,” writes Klein. “For another, superpowers are so allergic to losing that they’ll bankrupt themselves trying to conquer a mass of rocks and sand.” That’s the strategy he set out to use against the United States, and it almost worked. Nobel laureate Joseph Stiglitz estimates the price of the Iraq War alone at over $3 trillion. Afghanistan will likely add another trillion or two. Then there’s another trillion for the homeland security spending. “It’s a smart play against a superpower,” writes Klein. “We didn’t need to respond to 9/11 by trying to reshape the entire Middle East, but we’re a superpower, and we think on that scale.” Bin Laden “may not have won,” writes Klein, “but he did succeed, at least partially.”
Gold Tops $1,500 an Ounce in ‘Flight to Quality
Gold jewelry on display in the jewelry district in New York. The contract for May delivery of gold in New York was quoted at $1,502.50 an ounce on Wednesday.
Published: April 20, 2011
PARIS — Investor concerns about global inflation, government debt and turmoil in the Middle East converged Wednesday to push the price of gold above $1500 dollars ever
Other precious metals also rose, benefiting from what analysts call a “flight to quality.” That is when uncertainty about the economic and political outlook pulls investors into those assets perceived to be safest.
The list of factors that have supported the price of precious metals in recent weeks is long. It includes worries about the sustainability of European debt levels — and whether countries like Greece will soon default; the threat of a possible downgrade of U.S. credit ratings amid an impasse over raising the debt limit and dealing with the budget deficit; the weaker dollar; rising inflation in many parts of the world and continued unrest in North Africa and the Middle East, which has pushed up oil prices.
“We’re seeing a perfect storm for gold and silver prices,” said Robin Bhar, a senior metals analyst in London for the French bank Crédit Agricole.
Bric summit ends in China with plea for more influence
The leaders of the so-called Bric emerging economies
have called for more influence – including Russia’s speedy entry to the World Trade Organisation (WTO).
The Bric countries are some of the world’s fastest-growing economies – China, India, Brazil and Russia.
South Africa is attending the group’s annual summit for the first time.
As well as the WTO call, the group has asked for certain changes to the global financial system.
These include a call for the International Monetary Fund to expand its use of Special Drawing Rights (SDRs), which are used as a quasi currency to transfer funds between member governments.
The Brics called for a broad-based international reserve currency system “providing stability and certainty”.
A joint communique, termed the Sanya Declaration, said the current system was no longer representative.
“The governing structure of the international financial institutions should reflect the changes in the world economy, increasing the voice and representation of emerging economies and developing countries,” it said.
- Officials say the disaster has placed pressures on exports, production and consumption
- More than 28,000 people are dead or missing since a massive earthquake last month
- Despite problems, professional baseball starts in Japan this week
The European Central Bank (ECB) should not rush to hike interest rates and allow the banking system in the eurozone to repair itself without the hurting the region’s recovery, said the International Monetary Fund (IMF)
ECB encouraged Portugal on bailout says Trichet
Price pressures were rising in Asia’s emerging economies — which had been the catalyst for the world’s recovery from the financial crisis — and were unlikely to subside soon, the Asian Development Bank cautioned.
“High and volatile oil and food prices will, in particular, reverberate through the world economy, and they are likely to stay that way in 2011-2012,” the ADB said. “They will thus be a significant source of global inflation, especially in developing countries where recovery is firmly under way,” the Manila-based agency said in a report.
The Reuters-Jefferies CRB index, a global benchmark for commodities, hit a one-month high, responding to the broad rally in the 19 markets it tracks, including oil and gold.
Gold has become more of a currency than a commodity these days, acting as a hedge against a weaker dollar and political troubles that weigh on currency values.
A World Bank economist in Thailand is warning even if tensions ease in the Middle East, oil prices will remain high due to high demand from China, India and other industrialized countries High oil and commodity prices are contributing to inflation, which is now seen as a key concern in Thailand and throughout the region.
In a monitoring report on the Thai economy, the World Bank says global oil prices, now near $110 a barrel, combined with inflation, pose a threat to the global economic recovery.
International oil prices remain close to their highest levels since 2008. Global oil prices peaked at $147 a barrel in July 2007, before falling below $50 in late 2008.
The economies of the United States and the major industrialized countries in Europe are edging forward in what is still a fragile recovery after the 2008 – 2009 financial crisis. But World Bank country economist for Thailand, Frederico Gil Sander, says further increases in oil prices threaten recovery and spur inflation.
“Inflation has become a key concern for policy markers both in Thailand and overseas,” noted Sander. “And the concerns about inflation are clearly related to the recent spike in oil prices. [And] we should not expect that oil prices are going to start declining very rapidly even if the situation in the Middle East is resolved. So the key message here is that we probably should not expect oil prices to decline very much – In fact they are likely to remain at relatively high levels.”
Sander said higher fuel prices were also due to growing demand from newly industrializing nations such as India and China. The rise in oil costs also coincides with higher agricultural commodity prices, although those increases boost economies in countries such as Thailand by lifting farm incomes and wage rates.
Oil prices are also likely to be kept at high levels by increased demand from Japan, where damage from the March 11 earthquake and tsunami has led to the shutdown of one nuclear power facility. Around 30 percent of Japan’s energy needs are normally met by nuclear energy. The quake aftermath is likely to result in increasing demand for oil in Japan in the medium term.
Economist Sander said further gains in oil prices could pose a real risk for the global economy and, by extension, the Thai economy. European economies, still recovering from the sovereign debt crisis, could have confidence undermined if economic adjustments again became more difficult.
“If oil prices continue to increase that would have very negative implications for the global economy. The recovery in advanced economies is still relatively fragile,” Sander said. “Things seem to be getting better, but certainly if they are not hit by another very large spoke in oil prices the kind of positive developments in unemployment rates in the U.S. could be reversed.”
But the World Bank says Thailand is likely to weather concerns over higher prices for food and fuel during 2011. Growth is forecast at 3.7 percent, an upward revision due to demand for Thai exports and domestic consumption driven by higher incomes.
But Sander says some foreign investors are staying on the sidelines to await the outcome of Thailand’s general election, expected in July, before making a final decision on new Thai-based investments.
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Geithner says exchange rates key to global monetary problems
NANJING, China (Reuters) – Inconsistency in exchange rate policies is the most important problem in the international monetary system, with some countries running tightly managed currency regimes that harm the global economy, US Treasury Secretary …
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Oil prices hit a two and a half-year high on Tuesday as turmoil mounted in Libya
As widespread, bloody revolt and army defections threaten Muammar Qaddafi’s four-decade grip on power, global stock markets are reeling and the price of oil is soaring, hitting a two and a half-year high on Tuesday. Why has the uprising in Libya affected oil the way it has, and how worried should we be? Here’s a quick FAQ to shed light on the situation:
Nymex Oil Hits $100; Swiss Franc Surges
NEW YORK (Dow Jones)–Oil prices, along with safe-haven assets like the Swiss franc, surged Wednesday while U.S. stocks fell as concerns about turmoil in Libya and the Middle East continued to grow.
Oil for April delivery traded on the New York Mercantile Exchange briefly touched $100 a barrel for the first time since October 2008.
“As people see [oil] hit that psychological level, it’s more of a reason to drive into safety,” said Justin Lederer, a senior analyst of interest rates at Cantor Fitzgerald LP in New York.
The Swiss franc, considered among the safest currencies during times of geopolitical risk, approached a new record high against the dollar. Major stock indexes were down nearly 1%.
“What’s going on in Libya has raised concerns generally about the geopolitical risks out there,” and the potential for unrest to spread throughout the Middle East and North Africa, said Adam Gould, senior vice president at Direxion Shares. “Until we get some idea of how things in Libya will get resolved, we could see this (pressure on stocks) continue for the next few days.”
China has currency issues and America treasury issues yet both want peace in the neighborhood
As the U.S. Federal Reserve grappled with the aftershocks of financial crisis, the Chinese, like many others, suffered huge losses from their investments in American financial firms — from Lehman Brothers to the Primary Reserve Fund, the money market fund that broke the buck.
The cables, obtained by WikiLeaks, show that escalating Chinese pressure prompted a procession of soothing visits from the U.S.Treasury Department. In one striking instance, a top Chinese money manager directly asked U.S. Treasury Secretary Timothy Geithner for a favor.
In June, 2009, the head of China’s powerful sovereign wealth fund met with Geithner and requested that he lean on regulators at the U.S. Federal Reserve to speed up the approval of its $1.2 billion investment in Morgan Stanley, according to the cables, which were provided to Reuters by a third party.
Although the cables do not mention if Geithner took any action, China’s deal to buy Morgan Stanley shares was announced the very next day.
The two Treasury officials to whom the cables were addressed, Deputy Assistant Secretary for Asia Robert Dohner and Deputy Assistant Secretary for International Monetary and Financial Policy Mark Sobel, declined through a spokesperson to comment for this story. The State Department also declined to comment.
China is America’s biggest foreign lender, playing a crucial role in the U.S.Treasury auctions that allow Washington to borrow what it needs to keep its government running. At the same time, the United States is China’s top export destination: America’s trade deficit with the nation reached a record $273.1 billion in 2010. Most economists describe the two economies as co-dependent.