Tag: finance

From Chen Long of Evergreen GaveKal

Renminbi Limbo: How Low Can It Go?

As we argued last week, the recent depreciation of the Chinese currency was engineered by the central bank—not as a competitive devaluation, but rather to rout speculators making one-way bets on renminbi appreciation. The People’s Bank of China (PBC) acted after January saw roughly US$73bn in net capital inflows, the biggest deluge of inward flows in 12 months. The question now, after a 1.4%fall in the renminbi in 10 trading days (a bigger fall, admittedly, than we anticipated), is just how far will the PBC go to prove its point? In our view, not much farther, because Beijing recognizes the risk of sparking a broader loss of confidence.

First, a quick reminder of how Chinese currency management works. Since 2005, the PBC has been managing the renminbi (RMB) gradually upward against the US dollar, at an annual rate of about 5% a year through the end of 2011 (except for a hiatus during the global financial crisis), and a slower pace of around 2-3% since 2012. The RMB is allowed to trade 1% below or above a “central parity rate” which the PBC sets daily. From September 2012 until a week ago, the spot RMB rate continuously traded above the parity rate— usually, quite close to the 1% limit. This limit-up trading reflected the view that the RMB was a one-way appreciation bet.

Two weeks ago, the PBC made an unusually large downward adjustment in its parity rate, and this triggered an even steeper selloff in the spot market. The cumulative weakening in PBC’s central parity has been 183 pips (from 6.1053 to 6.126), while the spot market adjustment has been 850 pips (from 6.0645 to 6.1495, a decline of 1.4%). In 10 trading days the RMB has erased all its gains since last May, and the spot rate has started to trade below parity for the first time in almost 18 months (see chart on page two).

How much farther will the RMB fall? At the outer limit, perhaps as low as 6.24, but probably much less. The reasoning is as follows. Right now the spot market is trading 0.4% weaker than the central parity. So without any further move by PBC to weaken the parity, the limit is 6.18. A move below that would require PBC to adjust the parity further downward. The biggest-ever downward adjustment in the parity was 685 pips, in May 2012. If the PBC matches that move (by adjusting the current parity down another 500 pips), the RMB could fall to 6.24.

But we doubt the parity will move anywhere near that far. First, the PBC has already achieved its goal of punishing speculators, as shown by the spot rate trading below parity. Second, more aggressive depreciation risks a backlash from China’s trading partners who will complain about beggar-thy-neighbor tactics. Third, the depreciation drive carries costs. Beijing’s already massive foreign exchange reserves are building up as state banks have been ordered to purchase dollars. This creates unwanted liquidity in the domestic financial market, at a time when PBC wants to keep liquidity from growing too fast.

The final reason is the risk that a controlled depreciation could morph into uncontrolled capital outflows. Most emerging markets have experienced significant outflows since Ben Bernanke’s tapering hint last May, and China has not proven itself immune: it had outflows in the first three quarters of 2012 (between QE2 and 3) and then again briefly last summer. China’s economic fundamentals are weaker now than in 2012. While it is true that Chinese authorities have enough ammunition to prevent a Turkeystyle meltdown (capital controls and US$3.7 trillion in reserves), sustained outflows can make management of domestic liquidity much more difficult (see [China] Who’s Afraid Of Capital Outflows). At the end of the day, the currency moves are about giving the PBC more room to maneuver in the domestic market, and that aim has been largely achieved.

via Zero Hedge http://ift.tt/1doxgIY Tyler Durden

Jefferies, Deutsche Bank, and now Citi and JPMorgan are all facing a collapse in trading volumes as Bloomberg reports the two banks brace for a fourth straight drop in first-quarter trading revenues – a period of the year when the largest investment banks typically earn the most from that business. “It sounds like more bloodletting on Wall Street,” warns one analyst, as Citi expects trading revenue to drop by a “high mid-teens” percentage.

 

Via Bloomberg,

Citigroup finance chief John Gerspach said yesterday his firm expects trading revenue to drop by a “high mid-teens” percentage, less than a week after JPMorgan Chief Executive Officer Jamie Dimon said revenue from equities and fixed income was down about 15 percent.

 

If trading at the nine largest firms slumps that much, it would extend the slide from 2010’s first quarter to 36 percent.

 

“It sounds like more bloodletting on Wall Street,” said Jeff Davis, a managing director for the financial-institutions group at advisory firm Mercer Capital in Nashville, Tennessee.

 

…

 

Trading results have been hurt by a slowdown in the fixed-income business, which accounts for an average 80 percent of markets revenue at Citigroup, Chief Financial Officer Gerspach, 60, said yesterday at a presentation in Orlando, Florida.

 

…

 

Lower levels of client activity in a similar business pressured JPMorgan’s results, said Dimon, 57.

 

…

 

Jefferies Group LLC, the Wall Street firm owned by Leucadia National Corp., said today that trading revenue for the three months ended Feb. 28 was $450 million. That was 11 percent less than what it reported a year earlier.

 

…

 

In the past four years, those firms have generated an average 37 percent of their annual trading revenue during the first three months.

So who is buying this market up at new highs? Well, if CNBC is to be believed, the retail investor is back… Howard Marks warns:

“When things are rollicking and the market is permitting low-quality issuers to issue debt, that’s when you need a lot of caution,” Marks said in a telephone interview. “You have to apply a lot of discernment.”
 

via Zero Hedge http://ift.tt/1eTxCZ8 Tyler Durden

Now that Ben Bernanke is no longer the head of the Fed, he can finally tell the truth about what caused the financial crash. At least that’s what a packed auditorium of over 1000 people as part of the financial conference staged by National Bank of Abu Dhabi, the UAE’s largest bank, was hoping for earlier today when they paid an unknown amount of money to hear the former chairman talk.

Bernanke confirmed as much when he said he could now speak more freely about the crisis than he could while at the Fed – “I can say whatever I want.”

So what was the reason, according to the man who was easily the most powerful person in the world for nearly a decade?

Ready?

“Overconfidence.”

Yup. That’s it.

The United States became “overconfident”, he said of the period before the September 2008 collapse of U.S. investment bank Lehman Brothers. That triggered a crash from which parts of the world, including the U.S. economy, have not fully recovered.

 

“This is going to sound very obvious but the first thing we learned is that the U.S. is not invulnerable to financial crises,” Bernanke said.

Actually what is going to sound even more obvious, is that subprime was not contained.

But going back to Bernanke’s explanation, brought to us by Reuters, we wonder: did he perhaps get into the reason for the overconfidence? Maybe such as the Fed’s endless hubris in believing it knew what it was doing, when time after time and especially over the past 30 years, the US central bank has shown that all it now does is lead the nation from bubble to bubble, from crisis to crisis, and replaces one asset bubble, first the dot com, then the housing, with another, even bigger one, until we get to the biggest bubble of all time – the stock market as you see it currently, where the S&P 500 soars to all time highs and when news of an ICBM launch can barely cause a dent in a ridiculous upward ramp driven by, you guessed it, overconfidence.

Only this time it’s different, because the Fed really know what it is doing. Or maybe this time is no different than any other market mania unwinding before our eyes, with the careful nurturing of the the Fed and its chairmanwoman, be it Greenspan, Bernanke or Yellen.

But has Bernanke at least learned something? After all he is supposedly a very smart man from Princeton? Why yes:

He also said he found it hard to find the right way to communicate with investors when every word was closely scrutinised. “That was actually very hard for me to get adjusted to that situation where your words have such effect. I came from the academic background and I was used to making hypothetical examples and … I learned I can’t do that because the markets do not understand hypotheticals.“

 

He concluded that he should “try to simplify the message, but not simplify too much”.

Oh you mean something like this, uttered literally moments ago:

• LACKER SAYS UNEMPLOYMENT THRESHOLD CLOSE TO OBSOLETE

Thank you Fed for admitting the whole premise behind the injection of over $1 trillion in the capital markets, the Fed’s “target” of 6.5% unemployment, was really a bizarro bullshit joke perpetrated on the common man, when in reality the threshold was 1900 on the S&P. Or 2000. Or 3000. Or pick some arbitrary nominal number, where people confuse paper assets inflation with real wealth.

But don’t worry, it’s the “overconfidence” that did us in…

And then, on to regrets – because Bernanke has a few:

“We could have done some things on the margin to mitigate somewhat the crisis.”

 

“Although we have been very aggressive, I think on the monetary policy front we could have been even more aggressive.”

You heard that, the $4.1 trillion balance sheet is nowhere near enough. The Fed could have blown up the final bubble even more! Because that’s what you are taught on Clown Keynesian school.

But wait, because the punchline beckons:

“My natural inclinations, even if it weren’t for the legal mandate, would be to try to help the average person,” Bernanke said today in his first public remarks since leaving the Fed in January, referring to the central bank’s mandate from Congress to ensure full employment and stable prices. “The complexity though arises because in order to help the average person, you have to do things — very distasteful things — like try to prevent some large financial companies from collapsing.”

 

“The result was there are still many people after the crisis who still feel that it was unfair that some companies got helped and small banks and small business and average families didn’t get direct help,” Bernanke said. “It’s a hard perception to break.”

So there it is: the system crashed because we were “overconfident” – nothing to do with system merely having gorged on the reactionary excess to the popping of the dot com bubble – but Bernanke is 100% certain he could have done more to help the average person, because the Fed’s balance sheet trickle down eventually works. And let’s not forget the “overconfidence” about containing inflation in 15 minutes or less. That one will be hilarious to watch unwind.

* * *

So how much does such profound brilliance cost?

Bernanke received at least $250,000 for his appearance.

Or, in other words, more than he was paid for one full year as Fed chairman.

And that, ladies and gentlemen, is a wrap.

via Zero Hedge http://ift.tt/1i5QWB1 Tyler Durden

Submitted by William L. Anderson via the Ludwig von Mises Institute,

American political culture always seems to be “celebrating” the anniversary of something, be it JFK’s assassination (we just passed the 50th anniversary of that sad event) or the signing of some (mostly bad) legislation. The latest political activity to be enshrined with an anniversary is the so-called stimulus, the $800 billion monstrosity passed five years ago ostensibly to “put America back to work.”

Not surprisingly, the New York Times has editorialized that any criticism of the spending bill — at least any criticism which says “too much” was spent — is a Republican “myth and falsehood.” Not only was the “Stimulus” a legitimate piece of legislation, sniffed the NYT, but it also:

prevented a second recession that could have turned into a depression. It created or saved an average of 1.6 million jobs a year for four years. (Where are the jobs, Mr. Boehner.) It raised the nation’s economic output by 2 to 3 percent from 2009 to 2011. It prevented a significant increase in poverty — without it, 5.3 million additional people would have become poor in 2010.

Like all examples of the Broken Window Fallacy, the spirited defense of this spending bill is based upon “accounting” methods that count the people hired through “stimulus” spending as “new jobs” but fail to note how others might have lost their own means of employment. Now, this was a bill that, among other things, had workers rolling sod into the grass median of I-68 (which is near my home) in an area where runoff collected from tons of salt thrown onto roads by state highway crews (our area receives a lot of snowfall). Not surprisingly, within a year, all of the new grass was dead.

I liken the “stimulus” to throwing a bit of lighter fluid onto a pile of soaking wet wood. The flames pop up for a few seconds, but then disappear as the effects from the fluid go away. (No, repeated douses of “stimulus” fluid do not ultimately gain traction and then lead to a miraculous economic recovery.)

If Beltway political culture permits any criticism of the Holy Stimulus, it is this: “the stimulus wasn’t big enough.” Intones the NYT: “The stimulus could have done more good had it been bigger and more carefully constructed.”

The rest of the editorial is a compilation of near-plagiarism from Paul Krugman’s columns and blog posts, and it reflects how Keynesian anti-logic works. The “logical” narrative goes as follows:

• “Enough” government spending during a recession will bring the economy to “full employment.”
• The economy is not at full employment.
• Therefore, there wasn’t enough government spending.

Should one question the Keynesian premises of this awful syllogism, the standard answer is: America had “full employment” during World War II. (Robert Higgs has thoroughly debunked this enduring myth.) But, then, so did Germany and the U.S.S.R., according to Keynesian standards, but no one envies what people there experienced!

The problem that occurs when one wishes to interpret the results of the Stimulus is not due to bad politics. To put it another way, Stimulus spending always will confer political benefits, given that the money is transferred from taxpayers to preferred political constituents. Those footing the bill include both present and future taxpayers, since they will have to pay later for the public debt incurred to pay for present stimulus spending.

I make this point because the stimulus always has been presented as a government action that improved general or overall economic conditions, as opposed to being a political wealth-transfer scheme. The NYT editorial drips with what only can be a religious faith in the whole system, as though politicians seeking votes are going to “carefully” construct a process that is aimed at making certain political constituencies better off — but at the expense of other constituencies.

In reality, the government-based stimulus is based upon bad economics or, to be more specific, one of bad economic logic. To a Keynesian, an economy is a homogeneous mass into which the government stirs new batches of currency. The more currency thrown into the mix, the better the economy operates. One only needs to read Krugman’s writings to see that belief in full bloom.

Austrian economists, on the other hand, recognize the relationships within the economy, including relationships of factors of production to one another, and how those factors can be directed to their highest-valued uses, according to consumer choices. The U.S. economy remains mired in the mix of low output and high unemployment not because governments are failing to spend enough money but rather because governments are blocking the free flow of both consumers’ and producers’ goods and preventing the real economic relationships to take place and trying to force artificial relationships, instead. (Green energy and ethanol, anyone?)

Simply put, the stimulus could work only if it were directing factors of production from lower-valued uses to higher-valued uses as determined ultimately by consumer choice. If that actually were the case, then the government would not have to force consumers to use stimulus-funded ethanol and electricity created by wind power.

Austrians arrive at their position through logic, but logic that is based in what we already know about human action. Unlike Keynesian “logic,” the premises of Austrian economics are sound, so the conclusions derived from them also are sound. No wonder the Austrian position is banned from the NYT editorial page!

via Zero Hedge http://ift.tt/1kWjPBr Tyler Durden

Just six brief days after we discussed the somewhat stunning fact that none other than Fabrice "Fabulous Fab" Tourre was set to each an economics course at the University of Chicago, it appears the prestigious school has had second thoughts. As WSJ reports, a university spokesman explained, "as preparations continue for the Spring Quarter, Fabrice Tourre will no longer be assigned as an instructor for Honors Elements of Economic Analysis," decling to comment on the specifics of the sudden change. We are sure there is an 'ethics' course that needs a TA.

Via WSJ,

Mr. Tourre, the former Goldman Sachs trader found liable for defrauding investors, will no longer teach an honors economics course to undergraduate students at the University of Chicago. The move is an abrupt change, considering Mr. Tourre , nicknamed as the “Fabulous Fab,” had been slated to begin teaching the course during the spring quarter, which begins later this month.

 

“As preparations continue for the Spring Quarter, Fabrice Tourre will no longer be assigned as an instructor for Honors Elements of Economic Analysis in the College,” Jeremy Manier, a university spokesman, said in an email to MoneyBeat. “Instead he will be able to fulfill the teaching requirements for his Ph.D. program through opportunities in his department’s graduate-level curriculum.”

 

Mr. Manier declined to comment on the sudden change.

Shame really… Still, who needs an economics class anyway?

via Zero Hedge http://ift.tt/1c6oLnr Tyler Durden

Click here to follow ZeroHedge in Real-time on FinancialJuice

Thank your lucky stars that you don’t live in some places around the world. If you think you are having a rough time getting by, finding enough money to make ends meet and you constantly talk over the increase in prices, then think again. You probably don’t live in one of the most expensive cities in the world.

According to a new survey that has just been carried out by the Economist Intelligence Unit (EIU) it’s now Singapore that is the most expensive place to live in the world; that’s no saving race for the rest of us that thing that we are also actually living in the most expensive city in the world; It’s always in your own back yard that you are worried about how much things cost, never anywhere else. I wonder if there will ever be a limit to the cost of living or if the sky’s the limit. When do things stop getting more expensive? Even when things went pear-shaped after the financial bubble exploded, things still continued to get more expensive in the scramble to stop going under. We ended up with less money and higher prices.

Even in 2011, just three years after the 2008 financial crisis global food prices for example still remained very high. Despite the fact that they were not quite at the extreme record levels of 2008, they were gradually creeping higher, making the position of some in the global economy even more of a struggle. Lower demand should have, in theory, pushed prices down and a slow recovery should have brought about easier times for those that were already struggling to get by. But, the food-price crisis and the financial explosion of the stock market were very much linked to each other. While the housing bubble was expanding, the emerging economies and those that were dependent in Africa on commodity exports also fuelled the increase in food prices. The ensuing financial crisis meant that food stocks and production dropped dramatically in those commodity-producing countries and as a consequence prices increased. We can’t deal with the financial crisis and food-reform policies as separate entities. Nothing is separate these days, is it?

Where’s the limit to just how expensive things can get then? 
The Worldwide Cost of Living Survey for 2014 has just been published and it’s as follows:

• Singapore
• Paris
• Oslo
• Zurich
• Sydney
• Caracas
• Geneva
• Melbourne
• Tokyo
• Copenhagen

The majority of those cities come as no surprise to anyone of us. But, it’s interesting to note that despite the apparent woes of Asia and South America, they are the most present cities in the list. The French have always prided themselves on asking for a lot for a little and they are past masters at conspicuous consumption. The Swiss come as no surprise either in their bank-fuelled world of economics.

But, just a decade ago and Singapore was right down in 18th position. But, now, thanks to utility bills soaring out of control and the strength of the currency they have shot to the top.

Check out and compare how much it costs where you live in comparison with Singapore averages:

• Gas, Water and Electricity could cost an average of S$600 (US$472) per month 
• Internet works out to about S$50 (US$39.41) per month. 
• Mobile telephone connection will cost you S$100 (US$78.81) a month.
• Sending your kids to an international school will cost S$3, 000 (US$2,364.44) per month. 
• Local government school will set you back S$772 (US$608.45) per month. 
• Owning and running a car means paying out (before you actually get the car) a tax called the Certificate of Entitlement (COE) which stands at roughly S$57, 009 (US$44931.42). 
• An apartment in the city fringe will set you back about S$7, 000 per month (US$5517.02) in rent.

Singapore transport costs work out at something like three times more than in New York City for example. New York is the world’s 26th most-expensive city in the world these days, but it is still used as the base rate for comparison. The Japanese Yen fell by 20% last year and Tokyo was ousted from its number one position. Mumbai is the least expensive city in the world to live in according to the survey. That leaves plenty of room for it to grow, increase in price and rise to the dizzy heights of the Singapore-s and the Paris-es of this world.

Originally posted: Singapore Tops Tokyo

 

via Zero Hedge http://ift.tt/1kW9ENn Pivotfarm

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Scrape away the media sensationalism and geopolitical posturing and it boils down to a simple dynamic: follow the energy.

Though many seem to believe that internal politics and geopolitical posturing in Ukraine are definitive dynamics, I tend to think the one that really counts is energy: not only who has it and who needs it, but where the consumers can get it from.

Let's cut to the chase and declare a partition along long-standing linguistic and loyalty lines a done deal. Let's also dispense with any notions that either side can impose a military solution in the other's territory.

Media reports on the weakness of Ukrainian military forces abound (for example, Ukraine Finds Its Forces Are Ill Equipped to Take Crimea Back From Russia), but Russia's ability to project power and hold territory isn't so hot, either.

A knowledgeable correspondent submitted these observations:

RE: Russian Army. Effective draft evasion is running 80%. Morale is low, training is very poor and poorly funded. The Russian army has also gone through 22 years of near continuous contraction.

And this standing army has heavy commitments in the Caucasus and Far East Siberia. Moreover, at least half of these Russian ground troops are short term 12 month conscripts. I don't think these kids will produce many usable and motivated troops. The low morale recently seen in the Ukrainian Berkut and other police will be multiplied by at least 10x.

 

Russian speaking Ukrainian bands are rumored to already be crossing the borders into Russia territory. They're to be ready to sabotage bridges and infrastructure and generally retaliate. Fluent Russian speakers with many years experience of living in Russia. Who can say for sure if this has already happened or is just being threatened? We can say this is a very real danger. These people look just like "Russians."

 

And we can also say this threat will seriously complicate Russian rear area security and logistics. And speaking of logistics, the distances in south Ossetia and Abkhazia were very short and the populations were entirely friendly. Neither condition prevails in the Ukraine outside the Crimea.

 

Supplying moving armored units over hundreds of miles of occupied country is very difficult logistically. The logistics for air assault helicopter units are just as bad. These helo units look mobile but they're a lot like a yoyo being twirled around your head on the string. They only go fast within a fixed radius anchored by logistics that are about as heavy to move as an armored division's supply columns. That is years in the 101st Airborne Division talking. The fuel consumption rates are immense. Stuff starts breaking down fast.

Conclusion: a de facto partition is already baked in because neither side can force a re-unification. Various jockeying and posturing will undoubtedly continue for some time, but the basic end-game is already visible: de facto partition.

Let's move on to correspondent A.C.'s observations about energy.

This map rounds out the European energy Rosetta Stone. When they hear that Italian fighter jets are over Tripoli, or that the French Foreign Legion has returned to the deep Sahara Desert, they can can better understand the reasons and real objectives of such operations.

source:

 

Many have noted that the Russia economy is critically dependent on oil and gas exports to the EU. It should be noted that the converse is less true every day about EU dependence on Russian oil and gas. The Wall Street Journal even had a line about an EU proposal to push natural gas EAST to the Ukraine. It's hard to understand that passage or where the natural gas could come from unless one understands the North Africa to southern Europe gas pipelines.

 

The factors bringing the conflict in Ukraine to a head are:

 

1. The natural gas discoveries in eastern Poland and western Ukraine played the largest role.

 

2. The reduced importance of the gas pipeline running through the Ukraine to Europe as compared to 2009. Since that time the Nordstream lines have been finished and Gazprom acquired commercial control of the Belarus pipeline. The South Stream lines are well along in development.

 

3. Fast developing liquid natural gas (LNG) seaport terminal infrastructure.

 

Events in Libya, Mali and Algeria are not hermetically isolated from this. They are part of a comprehensive energy policy problem being dealt with by the same leaderships. It increasingly looks like a series of peripheral Energy Wars that are being fought out for control of Europe.

LNG exports are going to become a weapon in the struggle for geopolitical influence and control.

 

This highlights another problem for Russia/Gazprom. Its present natural gas advantage in Europe now rests mainly on its pipeline infrastructure. This advantage is fading due to the current and proposed pipeline projects running through Turkey to Europe, plus LPG terminal & ship developments, plus the five trans-Mediterranean pipelines from Libya, Algeria and Morocco to southern Europe, plus local shale gas plays…

 

The Ukraine is not the only country becoming less systemically important to Europe for natural gas supply. So is Russia. Current events will only accelerate everyone's efforts to diversify away from such an unstable and apparently dangerous supplier.

 

I think the long-term fallout from the Ukrainian Crisis will be similar to China's attempt to exploit its temporary low price monopoly position in rare earth metals a few years ago. The result is rare earth metals are becoming less rare by the day as alternate mines outside China are opened and reopened.

Thank you, A.C. Scrape away the media sensationalism and geopolitical posturing and it boils down to a simple dynamic: follow the energy.

via Zero Hedge http://ift.tt/1kW9EwW Tyler Durden

Today’s AM fix was USD 1,339.50, EUR 973.90 and GBP 802.87 per ounce.                                                  

Yesterday’s AM fix was USD 1,344.25, EUR 975.58 and GBP 803.50 per ounce.     

Gold climbed $26.80 or 2.02% yesterday to $1,351.40/oz. Silver rose $0.26 or 1.23% at $21.43/oz.

U.S. Dollar Index, 1968-March 4, 2014 – (Bloomberg)

Gold dropped 0.8% today as equities bounced higher after reports that Russian President Vladimir

Putin had ordered troops engaged in exercises in an area which borders Ukraine to return to their base.

Gold rallied to a four-month high yesterday after investors sold risk assets following Russia’s military intervention, which prompted the United States to look at a series of economic and diplomatic sanctions to isolate Moscow.

As ever, it is always difficult to be prescriptive and pinpoint price movements on specific events. It is arguable, that gold could have risen over 1.5% yesterday even if events in Ukraine were not leading to a deterioration in relations between Russia and the West.

This is because gold still has strong fundamentals which is leading to robust global demand – especially from China.

However, the situation in the Ukraine is potentially one of the greatest geopolitical risks since the end of the Cold War.

A senior adviser to Putin said this morning that if the United States were to impose sanctions on Russia over Ukraine, Moscow might be forced to drop the dollar as a reserve currency and refuse to pay off loans to U.S. banks.

As newswires reported the comments from Putin’s senior aide Glazyev, the USD Index fell marginally to session lows and broke below 80.00 before recovering.

Russia could reduce to zero its economic dependency on the United States if Washington agreed sanctions against Moscow over Ukraine, politician and economist Glazyev said, warning that the American financial system faced a “crash” if this happened.

Sergei Glazyev, a senior adviser to President Putin, added that if Washington froze the accounts of Russian businesses and individuals, Moscow will recommend to all holders of U.S. treasuries to sell their U.S. government debt.

Glazyev is often used by the authorities to stake out a hardline stance. He does not make policy but has the ear of Putin and would be aligned with the more hawkish elements in the Russian government and military.

 

“We would find a way not just to reduce our dependency on the United States to zero but to emerge from those sanctions with great benefits for ourselves,” said Kremlin economic aide Sergei Glazyev.

He told the RIA Novosti news agency Russia could stop using dollars for international transactions and create its own payment system using its “wonderful trade and economic relations with our partners in the East and South.”

Russian firms and banks would also not return loans from American financial institutions, he said.

“An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system,” he added.

Late Monday, U.S. President Barack Obama said the U.S. plans to impose penalties on Russia unless it withdraws its military forces, and on Tuesday, Russia reportedly called troops on military exercises back to their bases.

Glasyev’s comments were likely sanctioned by the Kremlin and by Putin himself. They would appear to be a warning to the U.S. regarding isolating Russia politically and imposing economic sanctions.

If diplomacy does not prevail, then trade wars and currency wars will ensue with attendant consequences for the already vulnerable financial system and global economy.

The 7 Key Gold Storage Must Haves
A diversification into gold remains prudent and will again protect investors, both retail and institutional, pensions owners and savers, over the medium and long term. However, this is only the case if the gold owned is physical bullion coins and bars and not digital gold, pooled gold or paper gold. Fully segregated and fully allocated gold coin and bar storage remains the safest way to own gold.

Download your copy of 7 Key Allocated Gold Storage Must Haves here

via Zero Hedge http://ift.tt/1kW9Egd GoldCore

Earlier today we were surprised when none other than uber central-planning skeptic, not to mention bond fund manager, Bill Gross threw in the towel and in his latest letter advocated the purchase of risk assets – and Bill Gross is the last person needing reminding that in a day and age when the 10 Year yields just barely over 2.5%, this means not bonds but stocks. The surprise, however, promptly disappeared when we realized that PIMCO is merely the  latest entrant in the scramble for yield game following, with a substantial delay to all of its other “alternative” asset management peers, right into ground zero: European toxic debt.

WSJ reports that Pimco quietly has raised $5.5 billion to buy bank assets in the U.S. and Europe and has closed the fund to new investors, according to a person familiar with the fundraising. The Bank Recapitalization and Value Opportunities II fund, or Bravo II, is being led by deputy chief investment officer Dan Ivascyn and will target a range of unwanted assets on the balance sheets of banks, including residential and commercial real-estate assets.

In other words: toxic, non-performing debt, which is something Europe’s bank certainly have a lot of. How much? Recall that it was the IMF itself which said in October of 2012 that European banks needs to sell $4.5 trillion in assets until 2014.  Naturally, they are way behind schedule, which means vulture investors will have a buyer’s market in setting the price as banks have crossed the desperation point in finding buyers.

But it’s toxic debt? How are non-performing loans, on which the obligor has most likely defaulted several times over, a good investment under any price? Well, the hope here, of course, is that as those tens of millions of unemployed workers find their way back into the work force, that the debt will be “worked out” and that recoveries on the said debt will make the purchase at deep distressed levels profitable.

WSJ adds:

Investors are lining up to snap up the unwanted loan portfolios and real-estate assets. Many of the targets lie in Europe, where banks have been busy shrinking their balance sheets primarily to meet stricter capital requirements.

The good news is that PIMCO will not have difficult finding willing sellers of such debt:

Last month, The Wall Street Journal reported that two of Italy’s biggest banks, Intesa Sanpaolo and UniCredit were in talks with U.S. private-equity firm KKR regarding the sale of some of their restructured loans.

 

Commerzbank said in February that it had sold €710 million of Spanish commercial real-estate loans to investors. In the U.K. late last year, the Royal Bank of Scotland sold its first portfolio of U.K. commercial property assets to hedge fund Varde Partners, and in August, Spain’s ‘bad bank’—set up to house assets from the country’s bailed out banks—sold its first real-estate assets to private equity group HIG.

Why is PIMCO doing this? Simple – following consecutive months of outflows, even the biggest bond manager in the world has finally “yielded” to the chase for yield, or as we described it last May – FOMO, aka Fear of Missing Out.

Pimco’s new Chief Executive Douglas Hodge told Financial News last month that he wants to broaden the firm’s equity expertise, including backing the hiring of teams by equity chief Virginie Maisonneuve. The firm offers products in derivatives, multi-asset, real estate, private equity, real return and emerging markets, but is still 90% exposed to fixed income

So as PIMCO too joins the great flood of one time skeptics who dare not look at themselves in the mirror and are willing to blindly follow the herd, one wonders: just how much more incremental dollars are out there left to chase assets that others are already selling. Because readers certainly remember that while algos, retail and momo speculators, not to mention TV pundit that invest with monopoly money, are rushing into the parabolic blow off top phase of the market, the smart money can’t wait to get out, and its advice as of last August was simple: “sell now.”

They can now also count PIMCO among the FOMO buyers.

via Zero Hedge http://ift.tt/1f3Fwun Tyler Durden