Month: June 2016

As noted early this morning, overnight Japanes bond yields tumbled to new all time record lows, with the move sending even the longest maturity, 40Y bond, to below 0.1% on its way to negative territory.

That move, sparked largely as a risk-off kneejerk reaction to the global post-Brexit volatility, coupled with expectations of more BOJ easing – one of the catalysts for the overnight spike in risk assets – has effectively put a lid on any further BOJ intervention and easing for the foreseeable future.

Below, Bloomberg’s Daniel Kruger explains why.

The Brexit vote has dumped extra unwanted deflationary drag on a country that has seen inflation well under 1% for more than a year and has pushed the yen toward 100 per dollar.

While the BOJ is reportedly meeting with the government today, it’s going to be addressing a situation that just got more difficult with a poor menu of policy options. It can purchase more assets and lower interest rates, but it can’t change a world economy that’s running out of inflationary gas.

Brexit now makes it almost impossible for BOJ policy to stand out. Not only did the U.K. referendum take a Fed rate increase off the table, it pulls the Bank of England to the table with its easing options.

The situation has been made worse by the country’s haven status. Treasuries have gained 5.8% this year, while JGBs are up 7% despite their microscopic interest payments. And the currency is up 18% this year versus the dollar.

The 40-year JGB yields less than 0.1% and at about 103 per dollar, the yen is securely above levels where Japan’s exporters suffer and analysts hyperventilate. It won’t take much more bad news, or monetary stimulus, to push the entire yield curve below zero. Barclays forecasts the yen could reach 83 in the next year.

Consider the potential havoc that Brexit may still cause: a U.K. recession, additional EU exit votes, and protracted trade negotiations adding to the confusion.

The market steamrolled Haruhiko Kuroda’s installation of negative rates in January. It’s difficult to imagine he could come up with a more effective tonic this time around.

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From the very beginning of Vancouver’s housing boom episode courtesy of an invasion of shady Chinese hot-money laundering home buyers, which has now officially driven the average list price of Vancouver single homes above $4 million…

For the first time ever, the average list price of a single family house in the City of Vancouver is now over $4,000,000.

— Vancouver Market (@vancouvermrkt) June 25, 2016

… we have wondered how long before the Chinese government and financial institutions, if not Canada’s local authorities which apparently have no problem with a soaring housing bubble in their midst, finally crack down on these flagrant violators of China’s capital controls, whose children have been so openly flaunting their parent’s illicit wealth as reported in “My Daddy’s Rich And My Lamborghini’s Good-Looking”: Meet The Rich Chinese Kids Of Vancouver.”

We now have the answer.

According to the Globe and Mail, China CITIC Bank has filed a lawsuit in Canada to try to seize the assets of a Chinese citizen the bank claims took out a $10 million loan in China then fled to Canada.

In a first of its kind attempt at intercontinental repossession, the bank is looking to seize numerous Vancouver-area homes, valued at at least $7.3-million, along with other assets, according to the lawsuit, which was filed in the Supreme Court of British Columbia in Vancouver on Friday.

This $3.5 million home in Surrey B.C. is one of four homes a Chinese bank
claims are owned by a fugitive who defaulted on a $10 million loan.

The defendant, Shibiao Yan, owns three multimillion-dollar properties in a Vancouver suburb and lives in a $3-million Vancouver home owned by his wife, according to court documents, the Globe and Mail reports.

China has been in the midst of a major corruption crackdown and has stepped up efforts to find fugitives it says are hiding stolen assets abroad. In which case it will have lots of fruitful leads in Vancouver where virtually all real-estate purchases over the past year by Chinese “figutivies.” The lawsuit comes amid a debate about the role foreign money, particularly from China, has played in Vancouver’s property boom.

“The person involved left China with a large debt owed,” said Christine Duhaime, a lawyer who represents China CITIC Bank in the case, adding that she was not aware of any criminal charges against the man. Yan has not yet filed a response to the lawsuit and the claims have not been proven in court. We doubt he will appear.

Duhaime  would not comment on the proceedings, but tweeted that the case was of “global significance for China”. The reason is clear: it sets a precedent for many future such lawsuits, and confiscations.

As CBC adds, last week, Justice Gregory Bowden issued a temporary Mareva injunction against Yan, freezing his assets as the bank tries to make good on an arbitration ruling it claims to have obtained in March, ordering Yan to pay RMB 50 million plus RMB 2 million interest. According to the court documents, Yan incorporated a company in B.C. called TYMY Investments in March 2014, and his 36-year-old wife paid $2.5 million for a house in Vancouver a month later.

China has been working with Canada for years to finalize a deal on the return of ill-gotten assets seized from those suspected of economic crimes. The agreement was originally announced in July 2013 and has not yet been ratified.

But, as G&M notes, it is rare for Chinese banks to use Canadian courts to pursue those who have left the country. Chinese Foreign Ministry spokesman Hong Lei said the bank was protecting its rights in accordance with the law.

“This is a normal thing to do internationally,” Hong told reporters in Beijing.

According to the lawsuit, China CITIC Bank is seeking repayment for a line of credit worth 50 million yuan, or roughly $7.5-million, taken out by a Chinese lumber company and personally guaranteed by Yan, who was the company’s majority shareholder at the time.

Just like this website, Vancouver residents have questioned the legitimacy of foreign funds invested in the city’s real estate market and have urged authorities to do more to scrutinize their origin.

So far Vancouver authorities have done a terrible job of responding to these requests, and as a result housing prices in the west coast city have jumped 30 per cent in the last year, in the process pricing out virtually all local buyers, especially since in recent weeks local banks have clamped down on the issuance of mortgages for the luxury sectory, well aware that the bubble is about to burst.

And since Canada would do nothing to hinder the parking of hot Chinese money locally, China decided to take matters into its own hands. If successful, and it will be as we doubt Mr. Yan will dare to appear in court resulting in a prompt confiscation of his assets, the action will have a chilling effect on all future purchases, and will most likely lead to a selling avalanche as the Chinese elite in Vancouver scramble to offload its domestic assets and find a new safe haven where it can park its money for the next few years.

In other words, with CITIC’s lawsuit, the beginning of the end of Vancouver’s housing bubble has officially begun.

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Submitted by Alex Pietrowski via WakingTimes.com,

With admiration, many have been observing Iceland’s handling of the banking crisis that jolted the entire world in recent years. Now experiencing a unique economic recovery, the Icelandic public became aware in 2008 that the nation’s private banks had borrowed some $120 billion dollars, ten times the size of Iceland’s economy, creating an economic bubble which forced housing prices to double, and saddled the nation’s people with debt.

While other Western nations initiated bank bailouts in 2008, a popular uprising in Iceland led to a peaceful revolution against corrupt government and banks, and has since become the example for the global movement for liberation from central banking and unaccountable government.

“In the duration of five months, the main bank of Iceland was nationalized, government officials were forced to resign, the old government was liquidated, and a new government was put in its place.” [Source]

The resolve of Iceland’s people to correct the systemic problems in their government and economy was again demonstrated in 2015 when dozens of high-level financial executives were jailed for their involvement in manipulating Iceland’s financial markets after financial deregulation in 2001.

“After Iceland suffered a heavy hit in the 2008-2009 financial crisis, which famously resulted in convictions and jail terms for a number of top banking executives, the IMF now says the country has managed to achieve economic recovery—“without compromising its welfare model,” which includes universal healthcare and education. In fact, Iceland is on track to become the first European country that suffered in the financial meltdown to “surpass its pre-crisis peak of economic output”—essentially proving to the U.S. that bailing out “too big to fail” banks wasn’t the way to go.” – Claire Bernish

Following the resignation of Icleand’s former prime minister, Sigmundur Davíð Gunnlaugsson, who quit after being implicated in fraud by the release of the Panama Papers in April of 2016, the public has again grown impatient with the political class. While another US presidential election enters the severe mud-slinging phase, this time between a career politician with an alleged lengthy criminal past, and an arrogant celebrity businessman, Iceland has just demonstrated that a true political outsider and common person can be elected to the office of president.

Guðni Jóhannesson, a professor of history, has just been elected president of Iceland, ousting the 20 year incumbent, Ólafur Ragnar Grímsson, with 39% of the popular vote. The political newcomer also beat chief opponent, businesswoman Halla Tómasdóttir, meaning that the office of president will not be held by a career politician or businessperson.

President elect Jóhannesson, a scholastic expert on political history, diplomacy and the Iceland constitution, has never been a member of a political party, is a husband and father, and reportedly chose to run for president after the release of the Panama Papers,

The global struggle for honest money will only heat up in the coming years when the next financial bubble bursts. Sovereign, anti-globalist movements to correct systemic issues will be more common, such as we have just seen with Brexit. Recently, Switzerland also made overtures against the current banking model by seeking a referendum to ban commercial banks from printing money.

Iceland again sets a unique example of leadership for populist movements around the world who are eager for an end to corrupt politics, central reserve-banking tyranny and the takeover of government by corporate interests.

“Reserve banking is the policy that guarantees insurmountable debt as the outcome of all financial transactions.” [Source]

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“We’re moving into a global recession that has nothing to do with Brexit,” warns Marc Faber stressing that Britain leaving the EU would not be disastrous, saying that if Switzerland can operate in a “single” market and outside of the EU so can Britain.

 “Brexit is a victory of ordinary people, common sense and people who are prepared to take responsibility for the sake of freedom against a political and financial elite that only cares if stocks go up or down and does not care about the interests of the average British citizen.“

 

“We can only hope that more countries will opt out of the failed EU monster. I see only a good contagion.“

 

When asked why the markets and polls got it so wrong, the editor of the Gloom, Boom & Doom Report, told CNBC, “They were conducted or paid by the elite.”

As CNBC further noted, Faber agreed with presumptive Republican presidential nominee Donald Trump that a Brexit is a benefit to his campaign. He said the U.S. could also see a revolt against the political establishment with the election of Trump to the presidency,

“It is already well underway. Brexit is a huge boon for Trump and a wake-up call to Hillary that ordinary people are sick and tired of being lied to and cheated by the crony capitalistic system.”

Finally, as FOX Business reports, the Swiss investor compared the current situation between the U.K. and the EU to Switzerland’s historic fight for its own freedom…

“In the 13th century we fought the Habsburg Empire to be free and not to have foreign justice and foreign laws and not to pay taxes to foreign overlords,” he explained.

 

“This is precisely what the EU does with all the countries. They want to impose courts of justice, taxes, regulations, new laws and most of which inhibit economic growth. This is a victory for freedom and for people, the Brits.”

Finally, Faber also said, confirming our earlier persepctive, that the Brexit will be the “perfect excuse” for global central banks to “coordinate the monetary policies to print even more money.”

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Submitted by Michael Krieger via Liberty Blitzkrieg blog,

To make things even worse, we often outright mock anyone who can’t keep up, or doesn’t fit in with the new order. We call them dumb. Idiots. Religious freaks. Rednecks. Thugs. Hoodlums. Ghetto trash. White trash.

 

The language we use to talk about those who have been left behind is rife with nasty attempts to turn them into lesser humans. We use the tactics of racism, and apply it to economic losers.

 

If you hate racism, then you really really really should hate any economic and social system that creates and rewards massive inequality. Because when you get that. You get racism.

 

And that is the system we have built and now have. That is the system that most everyone screaming about the dumb racists is part of, usually supports, and wins from.

 

– From the post: Thoughts on Brexit from Someone Who Spends Time in the “Forgotten Places”

In order to prevent people from mischaracterizing my point of view, I want to once again make something completely clear. I do not support Hillary Clinton or Donald Trump, and will not be voting for either in 2016. My intent had been to once again vote for Libertarian candidate Gary Johnson, but recent comments to Politico about how he would support the TPP have prompted me to pull back. I don’t know if there’s anyone I can vote for in November. Nevertheless, the purpose of this article is to provide some political analysis for those interested in that sort of thing.

Trump experienced a horrible period from mid-May to mid-June, which culminated in the dismissal of campaign manager Corey Lewandowski. Based on my Twitter feed, Trump is finished. I’ve been incessantly bombarded with articles highlighting an ever widening lead for Hillary Clinton nationally in the polls. So is Trump finished? Not by a long shot.

First off, let’s discuss the macro environment. As the Brexit vote demonstrated in spades, people are not in a cheery mood and appear willing to suffer negative consequences in the short-term in order to blow up the status quo. This is hugely important and a huge part of the Trump phenomenon. I also think the arrogant, dismissive, undemocratic and paternalistic attitude of so-called “elites” in the aftermath of Brexit will not be lost on U.S. voters. For example, Felix Salmon apparently expressed the following all too common sentiment during a recent conference in California:

Yesterday at the IMN Global Indexing and ETFs Conference, Felix Salmon delivered an opening keynote that was both brilliant and ballsy. Felix explained his view that governing by referendum is insane, and that democracy done properly requires “attenuation” by a technocratic class that understands policy implications and can shepherd the will of the people into a a more feasible version of what they want.

This sort of attitude will only serve to confirm the suspicions of Donald Trump supporters and bring more into the fold. It will also further erode the rapidly disintegrating credibility of the status quo and its ever eager sycophants. As I tweeted earlier today:

Equally interesting, is how incredibly close the race between Clinton and Trump is in a wide variety of swing states, as well as states that typically lean one way or the other. The reason this is happening is we essentially have a race between a nativist populist versus a Wall Street neocon for the first time in recent memory. As such, anyone claiming they know how this will play out is full of…

To give you a sense of just how crazy the whole electoral map has gone, check out these excerpts from a recent Hill article:

Battleground state polls show Donald Trump and Hillary Clinton locked in a tight race for the White House with just more than four months to go before Election Day.

 

President Obama coasted to reelection in 2012 by defeating GOP nominee Mitt Romney in nine out of 10 battleground states — Colorado, Florida, Iowa, Nevada, New Hampshire, Ohio, Pennsylvania, Virginia and Wisconsin.

 

He lost a tenth battleground, North Carolina, which he had won four years earlier.

 

Heading into the 2016 conventions next month, polls in those 10 states show close races across the board.

 

The polling suggests Clinton has an edge because she has leads in six of the 10 states, while Trump is only consistently leading in North Carolina.

 

Clinton’s lead, however, is just a percentage point or two in most of the states.

 

Clinton’s largest lead is in Wisconsin, a state Democrats haven’t lost in a presidential election since 1984. According to a CBS News-YouGov poll released Sunday, she has a 5-percentage-point lead in the Badger State.

 

In every other state, the candidates are either tied or within 3.5 points of one another.

 

Polls suggest Clinton has a strong chance of winning Arizona, for example, and the race is also surprisingly close in Georgia and Utah.

 

States with 163 electoral votes are seen as toss-ups on the RCP map, including the nine other traditional battlegrounds as well as Arizona, Georgia and Michigan, which has been a safe Democratic state.

 

Pennsylvania is the battleground giving Democrats the most heartburn.

 

Its 20 electoral votes have not gone to the GOP nominee in almost 30 years, yet a Public Policy Polling (PPP) survey of the state released this month found Trump and Clinton tied, while a Quinnipiac University poll showed Clinton ahead by only 1 point. Analysts at the University of Virginia’s Center for Politics recently shifted Pennsylvania from “Likely Democratic” to “Leans Democratic.”

 

The contest in New Hampshire, which has gone for the Democratic candidate in five of the last six presidential cycles, is also a toss-up, with the latest poll showing the candidates are tied.

 

Even Clinton’s 5-point lead in Wisconsin is emblematic of the challenges both candidates face: Sixty-one percent of voters said they have a negative view of Clinton, against 62 percent who view Trump unfavorably.

 

Trump and Clinton are tied in Ohio, but Clinton holds a 3.4 point lead over Trump in Florida, according to the RCP average.

 

Florida, by far the biggest swing state with 29 electoral votes, was won by Obama by less than 1 point in 2012 Clinton has only a 1-point lead in Colorado, according to a CBS-YouGov poll released over the weekend. That poll found that a plurality of voters only support Clinton because they oppose Trump, and vice versa.

 

In Virginia, Clinton has a 42 to 39 lead over Trump, according to a recent PPP survey.

 

But again, there are warning signs here for the Democrat.

 

Trump leads big, 42 to 29, among independent voters.

 

And that survey found that Clinton’s lead would be larger, but that supporters of Bernie Sanders have yet to get on board with her campaign.

Indeed. If Democrats actually wanted to win, they would’ve nominated Bernie Sanders, who destroys Trump in swing states as we learned in the post: New Quinnipiac Survey – Trump and Clinton Tied in Florida, Ohio and Pennsylvania

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The following video, courtesy of Mahir Zeynalov, shows the precise moment when at least one of the two Ataturk Airport explosions took place. Viewer discretion advised.

The moment of the attack at the Istanbul airport. Horrific. http://pic.twitter.com/Npikwlloxk

— Mahir Zeynalov (@MahirZeynalov) June 28, 2016

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Last week's huge API-reported inventory draw followed by disappointing DOE-reported draw sent crude prices flip-flopping around $50 before they plunged into Brexit. Having ramped all day and beyond the NYMEX close, WTI tagged $48 and was fading into the API data. Against expectations of a 2.5mm draw, API reported a 3.86mm draw (remember they said 5.22mm draw last week before DOE said 917k). The entire complex saw inventories drawdown with Cushing more than expected, bouncing WTI back above $48.

API

• Crude -3.86mm (-2.5mm exp)
• Cushing -1.207mm (-900k exp)
• Gasoline -416k
• Distillates -832k

First distillate draw in 4 weeks, 6th weekly Creude draw in a row…

And the reaction in crude (after today's meltup and NYMEX ramp)… was to extend gains back above $48… but does not seem convinced

Charts: Bloomberg

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