Tag: news

• Russia faces new U.S., EU sanctions over Ukraine crisis (Reuters)
• Glasgow pulls no punches in welcome to ‘Save the Union Express’ (Guardian)
• Pound Seen Tumbling Up to 10% on Scottish Yes Vote (BBG)
• Moscow stifles dissent as soldiers return in coffins (Reuters)
• Ukraine’s leader sees no military solution of crisis, eyes reforms (Reuters)
• Venezuela Threatens Harvard Professor for Default Comment (BBG)
• Australia Raises Terror Alert to Highest Level in a Decade (BBG)
• Activist Investors Build Up Their War Chests (WSJ)
• Russians Skip Riviera Jaunt as Sanctions Ground Private Jets (BBG)
• Yahoo Faced Big U.S. Fines Over User Data (BBG)
• Why Musk Is Building Batteries in a Desert When No One Is Buying (BBG)
• Madoff Son Andrew Leaves More Than $15 Million in Will (BBG)
• Allies Pledge to Help U.S. Fight Islamic State (WSJ)
• Sanctions Over Ukraine Put Exxon at Risk (WSJ)
• Wall Street watchdog to pick insider as arbitration head – source (Reuters)

 

Overnight Media Digest

WSJ

* Washington’s international allies didn’t make clear how far they would go to join military operations even as they pledged their support. (http://on.wsj.com/X0Z7ts)

* Sanctions against Russia put Exxon in the middle of U.S. foreign policy and threaten to hurt one of the company’s best chances to find significant, and much needed, amounts of crude oil. (http://on.wsj.com/1rYORjN)

* The Treasury Department is monitoring U.S. banks that are shifting some trading operations overseas to avoid tough U.S. swaps rules, according to a department official. (http://on.wsj.com/YBNsTz)

* A number of the largest activists are raising billions of dollars, in an effort to take advantage of their increasing clout in boardrooms and above-average hedge-fund returns. (http://on.wsj.com/1qOCbbr)

* Starboard Value said it would take a number of steps to boost the value of Darden Restaurants, owner of Olive Garden, if the activist hedge fund wins control of the entire board. (http://on.wsj.com/1sxfDxL)

* Americans living abroad are being cut off by banks and brokerages as financial institutions seek to steer clear of a U.S. crackdown on money laundering and tax evasion. (http://on.wsj.com/1rQVPRV)

* Verizon Communications Inc could launch a digital video service over the Internet by the middle of next year, Chief Executive Lowell McAdam said at an investor conference on Thursday. (http://on.wsj.com/1uqrXAp)

 

FT

Savings and insurance firm Engage Mutual said it plans to merge with Family Investments, provider of child trust funds. The combined business is expected to have 2 million customers and 6 billion stg ($9.74 billion) of assets.

Banco Espirito Santo SA secretly loaned money to its 25 percent shareholder, Espirito Santo International, through ES Bank Panama for two years.

Air France KLM SA’s chief executive threatened to stop the development of the Franco-Dutch airline group’s budget carrier in France and its expansion in Europe, if Transavia France does not reach an agreement with the French pilots, before the strike next week.

German taxi drivers hired a driver from Uber, the app-enabled car service, as a part of the sting operation, to serve an injunction backed by threat of six month jail sentence or a fine of 25000 euros.

Manufacturing company Weir Group PLC said it would consider relocating its headquarters in the event of a “yes” vote in the Scotland independence referendum next week.

 

NYT

* The U.S. government was so determined to collect the Internet communications of foreign Yahoo customers in 2008 that it threatened the company with fines of $250,000 a day if it did not immediately comply with a secret court order to turn over the data. The threat, which was made public Thursday as part of about 1,500 pages of previously classified documents that were unsealed by a federal court, adds new details to the public history of a fight that unfolded in secret at the time. (http://nyti.ms/WQtemY)

* RadioShack Corp, the struggling electronics retailer that is quickly running out of cash, said on Thursday that it might have to file for bankruptcy protection, or even liquidate, if it cannot arrange a lifeline. (http://nyti.ms/1uyuqbo)

* Chinese regulators fined Volkswagen AG and Fiat’s Chrysler for violating antitrust laws, announcing on Thursday the first monetary penalties against large multinational carmakers swept up in a broad investigation. The fines, which totaled $46 million, were the latest in a series of tough measures by China against what it considers monopolistic practices. (http://nyti.ms/1tOxwdm)

* Subprime lenders have surprised everyone in recent years by churning out billions of dollars in loans that have not led to a pileup of bad debts. But this month, some signs have appeared that suggest subprime lenders are pushing this spree to the limit. The problems are occurring when they extend credit to particularly risky borrowers or make loans that are harder to repay. (http://nyti.ms/YC2o40)

* For the banks and credit card networks, Apple Pay could threaten some revenue streams, as the technology giant looks to assume a more central role in the financial universe. But the eager participation of banks and card companies suggests both Apple Inc’s clout, and the recognition among financial institutions that they face broader challenges from upstart technology ventures, many of which are not as eager or willing as Apple to work with the incumbent financial industry. (http://nyti.ms/1AEL8Xt)

 

Canada

THE GLOBE AND MAIL

** World oil prices sank to their lowest intraday level in more than two years on Thursday after the West’s energy security watchdog cut its forecast for demand growth, threatening the earnings momentum that had returned to the Canadian oil patch. The International Energy Agency said in its September oil market report that economic weakness in Europe and China prompted it to temper its outlook for global oil demand in 2014 and 2015. (http://bit.ly/1nPUidE)

** It could be as long as a week before Toronto Mayor Rob Ford has a diagnosis for the tumor in his abdomen and a course of treatment is determined, news that continues to leave his political future in question. Zane Cohen, a colorectal surgeon and director of the Zane Cohen Centre for Digestive Diseases at Toronto’s Mount Sinai Hospital, said Ford had a mass in his lower abdomen and would continue to undergo tests Friday. (http://bit.ly/1qMm9Pn)

** The roughly 70 special forces soldiers Canada is deploying to Iraq have yet to start their mission, but these elite troops would be able to teach Kurdish fighters everything from marking targets for air strikes to operating high-tech communications gear. Stephen Harper has committed Canadian soldiers to Iraq for a 30-day assignment, although it is widely believed Ottawa will ultimately extend what the government insists is not a combat mission. (http://bit.ly/1uqPwt2)

NATIONAL POST

** If there are worries about falling oil prices, Canadian companies aren’t showing it. At a panel discussion about the oil sands at an energy conference this week in Toronto, companies seemed more concerned about pipeline shortages and acquiring ‘social licenses’ than the weakening price of a barrel of crude. “Commodity price remains the largest risk overall, but we are generally mostly bullish on the price of oil given the growth and demand outside of North America,” Ivor Ruste, chief financial officer at Cenovus Energy Inc, said in an interview. (http://bit.ly/1qMyYdY)

** The Canadian government proposes to slash public servants’ paid sick leave to five days a year and introduce an unpaid seven-day waiting period before they qualify for new short-term disability benefits. Treasury Board negotiators presented the government’s long-awaited bargaining position on a new sick-leave regime late Wednesday at closed-door talks with the giant Public Service Alliance of Canada. (http://bit.ly/1xQh5jb)

** At 4 a.m. Tuesday, a ring of police officers roused Antonio Coluccio from slumber inside a house in Siderno, a village on Italy’s picturesque coast that has stubbornly remained a stronghold for the Mafia, arresting him – again – and putting another dent in his hope of returning to his home and family in Canada. Coluccio, 44, lived in Richmond Hill, north of Toronto, until he was pressured to leave in 2010 by Canada’s immigration authorities who said he was involved in organized crime, accusations he denied. (http://bit.ly/1syxrIR)

 

China

CHINA SECURITIES JOURNAL

– The combined daily transaction volume at the Shanghai and Shenzhen stock exchanges increased to 431.4 billion yuan ($70.38 billion) on Thursday, the highest level in nearly four years, on the back of a running rally.

SHANGHAI SECURITIES NEWS

– CNOOC Ltd is trying to offload its 50 percent stake in AEGON-CNOOC Life Insurance Co Ltd for auction to potential buyer Tsinghua Tongfang Co Ltd. AEGON-CNOOC posted a net loss of 92.5 million yuan ($15.09 million) in 2013.

CHINA DAILY

– President Xi Jinping said China and Russia should begin early work on a natural gas pipeline project and increase bilateral energy cooperation when he met his Russian counterpart, Vladimir Putin on the sidelines of the summit of the Shanghai Cooperation Organization on Thursday.

– More than 100 internet companies in Beijing signed a pledge to identify and prevent the transmission of illegal and improper information online.

SHANGHAI DAILY

– China’s bank-card consumer confidence index hit the lowest level since the beginning of 2013 in August amid the country’s sluggish macro-economic situation, China UnionPay Co said in a report on Thursday.

PEOPLE’S DAILY

– President Xi Jinping proposed to build an economic corridor linking China, Mongolia and Russia during a meeting of the three heads of state on the sidelines of the 14th summit of the Shanghai Cooperation Organization Thursday.

 

Britain

The Times

NORTH KOREA COMES OUT FOR SCOTLAND’S SALMOND

The Yes campaign in Scotland received an unlikely ally yesterday when it emerged that North Korea was quietly backing the independence movement. The country often described as the hermit kingdom is allegedly keen to increase trade with an independent Scotland, according to officials of the Pyongyang regime. (thetim.es/Ziqcty)

NEW RUSSIA SANCTIONS SET TO HIT BP AND EXXONMOBIL

BP and ExxonMobil could be caught up in the escalating trade war between Russia and the West today when a fresh round of economic sanctions are announced. (thetim.es/1pUeZ7S)

The Guardian

‘POISON PILL’ PRIVATISATION CONTRACTS COULD COST 300 MLN STG-400 MLN STG TO CANCEL

Taxpayers will face a 300 million stg ($487.56 million) to 400 million stg penalty if controversial probation privatisation contracts are cancelled after next May’s general election under an “unprecedented” clause that guarantees bidders their expected profits over the 10-year life of the contract. (bit.ly/1sv6SUP)

INDEPENDENT SCOTLAND ‘FACES DOUBLING OF BBC LICENCE FEE

The BBC is under political pressure to reveal details of a highly charged internal study which found that viewers in an independent Scotland would have to pay almost double their current licence fee if they wanted to continue watching and listening to the same BBC shows. (bit.ly/YBmtHH)

The Telegraph

JUDGE THOKOZILE MASIPA RIPS APART PROSECUTION CASE AGAINST OSCAR PISTORIUS FOR MURDER OF REEVA STEENKAMP

Judge Thokozile Masipa, who tried the Oscar Pistorius case without a jury, said prosecutors had failed to prove beyond reasonable doubt that Pistorius intended to kill his girlfriend at his Pretoria home on Valentine’s Day last year. (bit.ly/1tO5xu8)

SCOTLAND’S ALEX SALMOND GOES TO WAR WITH BBC OVER RBS ‘LEAK’

An irate Alex Salmond today declared war on the BBC after the Corporation disclosed Royal Bank of Scotland Group’s decision to move its headquarters to England if there is a Yes vote. (bit.ly/X3ePEr)

Sky News

NEW POLL GIVES ‘NO’ SMALL LEAD IN SCOTLAND VOTE

The Better Together campaign in Scotland is retaining a marginal lead, according to a new poll that puts No on 52 percent and Yes on 48 percent. The YouGov poll of 1,300 people on the issue of Scottish independence for The Sun and The Times was taken over Tuesday to Thursday. (bit.ly/1tDOlnz)

AMAZON TO CREATE THOUSANDS OF JOBS IN LONDON

Amazon has announced plans to open a new London office with the potential for more than 3,000 extra jobs. The online retailer, which already employs 1,700 people in its existing UK offices, said its main corporate office would switch to a building in Shoreditch in 2017. (bit.ly/WZhlLT)

The Independent

SCOTTISH INDEPENDENCE: PRICES WILL RISE WITH YES VOTE, JOHN LEWIS BOSS WARNS

Prices in Scottish branches of John Lewis, Waitrose and Next are likely to be higher than in the rest of the UK if the country votes to become independent next week. (ind.pn/1pUs29f)

SPORTS DIRECT TO BE SUED BY ZERO-HOUR WORKERS AFTER THEY MISS OUT ON A £160M BONUS

Workers at the Sports Direct chain of stores who were left out of a 160 million stg bonus scheme because they are on zero-hour contracts are preparing to take legal action. (ind.pn/1paomAl)

 

 

Fly On The Wall Pre-market Buzz

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Retail sales for August at 8:30–consensus up 0.6%
Import prices for August at 8:30–consensus down 0.9%
University of Michigan consumer confidence for September–consensus 83.3
Business inventories for July at 10:00–consensus up 0.4%

ANALYST RESEARCH

Upgrades

Cedar Realty Trust (CDR) upgraded to Buy from Hold at KeyBanc
Genuine Parts (GPC) upgraded to Buy from Hold at BB&T
Inland Real Estate (IRC) upgraded to Buy from Hold at KeyBanc
Littelfuse (LFUS) upgraded to Outperform from Perform at Oppenheimer
Netflix (NFLX) upgraded to Equal Weight from Underweight at Barclays
Noranda Aluminum (NOR) upgraded to Buy from Neutral at Goldman
OCI Partners (OCIP) upgraded to Buy from Neutral at Citigroup
Ramco-Gershenson (RPT) upgraded to Buy from Hold at KeyBanc
Sprint (S) upgraded to Market Perform from Underperform at Cowen
The Advisory Board (ABCO) upgraded to Outperform from Market Perform at Wells Fargo

Downgrades

Annie’s (BNNY) downgraded to Sector Perform from Outperform at RBC Capital
DDR Corp. (DDR) downgraded to Neutral from Buy at UBS
Investors Real Estate (IRET) downgraded to Underperform at RBC Capital
OCI Resources (OCIR) downgraded to Neutral from Buy at Citigroup
PMFG (PMFG) downgraded to Market Perform from Outperform at William Blair

Initiations

Acuity Brands (AYI) initiated with an Outperform at Cowen
Aerohive Networks (HIVE) initiated with an Equal Weight at Morgan Stanley
Alibaba (BABA) initiated with an Outperform at Wedbush
Allison Transmission (ALSN) initiated with a Positive at Susquehanna
AmSurg (AMSG) initiated with a Buy at KeyBanc
Aruba Networks (ARUN) initiated with an Equal Weight at Morgan Stanley
Aviv REIT (AVIV) initiated with a Buy at Stifel
CareTrust REIT (CTRE) initiated with a Hold at Stifel
Chart Industries (GTLS) initiated with a Market Perform at Cowen
Community Health (CYH) initiated with an Outperform at Leerink
Cree (CREE) initiated with a Market Perform at Cowen
Dollar General (DG) initiated with a Buy at UBS
Dollar Tree (DLTR) initiated with a Buy at UBS
Epizyme (EPZM) initiated with a Buy at Mizuho
Family Dollar (FDO) initiated with a Neutral at UBS
HCA Holdings (HCA) initiated with an Outperform at Leerink
Hanesbrands (HBI) initiated with a Buy at Wunderlich
Itron (ITRI) initiated with a Market Perform at Cowen
L Brands (LB) initiated with a Buy at Wunderlich
LifePoint Hospitals (LPNT) initiated with a Market Perform at Leerink
Maxwell (MXWL) initiated with an Outperform at Cowen
Methanex (MEOH) initiated with a Buy at Citigroup
NewLink Genetics (NLNK) initiated with a Buy at Mizuho
PVH Corp. (PVH) initiated with a Buy at Wunderlich
Pacific Ethanol (PEIX) initiated with an Outperform at Cowen
Performance Sports Group (PSG) initiated with an Outperform at Imperial Capital
Perry Ellis (PERY) initiated with a Buy at Wunderlich
Polypore (PPO) initiated with an Outperform at Cowen
Ruckus Wireless (RKUS) initiated with an Underweight at Morgan Stanley
Salix (SLXP) initiated with an Underperform at Credit Suisse
Silver Spring Network (SSNI) initiated with an Outperform at Cowen
Streamline Health (STRM) initiated with a Market Perform at Cowen
Synchrony Financial (SYF) initiated with a Neutral at UBS
Tenet (THC) initiated with a Market Perform at Leerink
Ubiquiti Networks (UBNT) initiated with an Equal Weight at Morgan Stanley
Universal Health (UHS) initiated with an Outperform at Leerink
Vitesse (VTSS) initiated with a Buy at Ascendiant
Volaris (VLRS) initiated with an Equal Weight at Barclays

COMPANY NEWS

Hertz (HTZ) reached an agreement-in-principle with Carl Icahn to add three directors to its board
Alliance Data (ADS) to acquire Conversant (CNVR) for $35 per share, or $2.3B
Starboard releases detailed transformation plan for Darden (DRI), which includes a company-wide operational improvements designed to generate more than $300M in EBITDA improvements; a turnaround plan for Olive Garden; a value enhancing strategy for Darden’s real estate assets; a separation of concepts into the most logical groupings; and a new franchising program believes transformation plan can unlock $19-$38 per share in value
U.S. had threatened Yahoo (YHOO) with $250,000/day fine over not providing user data
Barclays (BCS) said John McFarlane to succeed David Walker as chairman
Lexicon’s (LXRX) publication of Phase 2b study showed LX4211 provides a meaningful benefit for patients with type 2 diabetes

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Sportsman’s Warehouse (SPWH), Ulta Salon (ULTA)

Companies that missed consensus earnings expectations include:
Intrawest Resorts (SNOW)

Companies that matched consensus earnings expectations include:
Green Bancorp (GNBC)

NEWSPAPERS/WEBSITES

Dollar General (DG) waiting on FTC feedback for Family Dollar (FDO) deal, NY Post reports (DLTR)
Verizon (VZ) could launch digital video service by mid-2015, WSJ reports
Applied Materials (AMAT)/Tokyo Electron filing doesn’t satisfy MofCom, Bloomberg says
General Motors (GM) issues ‘stop delivery’ order for new Corvettes, WSJ reports
Citi’s (C) Diners Club attracts attention of banks in Japan, Bloomberg reports
Apple’s (AAPL) website crashes as users look to pre-order iPhone 6, BI reports
Sprint (S) CEO says looking for partnerships to broaden scale, Reuters reports
Sell lululemon (LULU) during rally, Barron’s says

SYNDICATE

HD Supply (HDS) announces sale of 20M shares by holders
Health Care REIT (HCN) files to sell 15.5M shares of common stock
Inventure Foods (SNAK) 3.59M share Secondary priced at $12.85
TriNet (TNET) 12M share Secondary priced at $25.50

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

While today’s key news event will be the preannounced latest, third, round of anti-Russian sanctions and the Russian retaliation, the reality as DB notes, is that the market seems to be seeing “some fatigue” in this story with the ECB, Scotland and next week’s Fed meeting taking center stage. As a result, and ahead of expectations of change in Fed language which should carry a more hawkish tone, the dollar has been bid up some more overnight, leading to fresh multi-year highs in the USDJPY, and the now-paired TSY trade, with 10Y yields up to 2.57%, although this may now be in short-term oversold territory. The latest Scottish poll appears to have dented some of the “Yes” momentum, with 52% of the polled saying they would vote No in the referendum, although right now neither side has a clear majority when factoring in the undecideds: which means it will come down to the wire next week, with clear implications for Europe’s secessionist movements if the Yes vote still manages to prevail, not to mention massive ramifications for the UK.

Overnight in Asia, China’s latest lending data was released. China’s credit growth rebounded sharply in August following a weak July. New loans in August came in at RMB702.5bn up from RMB385.2bn in July and was around market consensus. M2 was up 12.8pct yoy, lower than the 13.5yoy growth in July (and consensus) but this was previewed by Premier Li’s speech earlier this week. Markets are range bound in the Asia with the Nikkei up +0.4% and the Shanghai Composite up +0.2% although the Hang Seng is down -0.3%. MSCI Asia Pacific down 0.2% to 146. Nikkei 225 up 0.2%, Hang Seng down 0.3%, Kospi up 0.4%, Shanghai Composite up 0.9%, ASX down 0.3%, Sensex up 0%

European equities trade mixed, with minor outperformance in both the FTSE-100 and the IBEX-35 as recent independence campaigns from Scotland and Catalonia lose some steam. Yesterday’s YouGov poll showed Salmond’s Independence bid only briefly holding the lead over the ‘No’ vote, as unionists reclaimed the top spot just six days away from referendum polling. Nonetheless, Spain’s IBEX-35 has suffered throughout the week on Catalonia’s break-up bid, with today’s upside only trimming the weekly losses to 2.2%.  14 out of 19 Stoxx 600 sectors rise. 55.7% of Stoxx 600 members gain, 41.2% decline. Eurostoxx 50 -0.1%, FTSE 100 +0.2%, CAC 40 -0.2%, DAX -0.3%, IBEX +0.3%, FTSEMIB +0%, SMI -0.3%.

Looking to the day ahead, in Europe we have the Spanish August inflation read (expected in at +0.1% MoM), Italian and euro area July Industrial Production (expected in at -0.2% and +0.7% MoM). In the US we have August Retail Sales reads with the advanced MoM expected in at +0.6%, the September UoM Confidence read (expected at 83.3) and July Business Inventories data (expected in at 0.4%). In geopolitics, today sees the strengthened EU sanctions on Russia take effect. Implementation had been delayed in light of the ceasefire announcements last week but yesterday leaders and diplomats agreed to now bring them in. The US looks set  to follow suit and President Obama yesterday said he would provide more details today. We seem to be seeing some fatigue in this story with the ECB, Scotland and next week’s Fed meeting taking center stage. However the regions problems are clearly yet to be resolved and the aim of bringing in the new sanctions today is to keep up pressure on Russia (BBC). Russia has said it is preparing its own sanctions in response.

Market Wrap

• S&P 500 futures up 0% to 1988.3
• Stoxx 600 up 0.1% to 344.6
• US 10Yr yield up 1bps to 2.56%
• German 10Yr yield up 3bps to 1.07%
• MSCI Asia Pacific down 0.2% to 146
• Gold spot down 0.3% to $1237.7/oz

Bulletin Headline Summary from RanSquawk and Bloomberg

• T-Notes and Bund futures remain close to weekly lows, as traders look ahead to next week’s FOMC meeting, where consensus is growing that the Fed could revise their statement
• AUD and JPY remain the week’s two poorest performing currencies, as carry trade unwind continues to benefit the USD over most others
• Treasuries lower, head for second consecutive weekly loss, amid speculation Fed may next week amend statement language and signal rate increase next year.
• BofAML now sees first rate hike in June 2015, previously expected September; economist Ethan Harris cites stronger than forecast growth data, inflation in line with Fed forecast
• China’s broadest measure of new credit trailed analyst estimates in August, adding to the government’s challenge to meet its economic-growth target amid a slumping property market and a pullback in manufacturing
• U.S. House and Senate leaders are backing Obama’s call to train and equip Syrian rebels even as Republicans’ demand for a broader offensive to defeat Islamic State extremists may delay congressional action
• Scotland’s nationalists suffered a second straight setback in the polls after YouGov Plc showed them trailing less than a week after overtaking the anti-independence campaign for the first time
• GBP/USD has the potential to tumble 10% should the Scots vote for independence from the U.K., according to economists surveyed by Bloomberg
• Russia threatened retaliation against a U.S./EU decision to stiffen sanctions against Moscow because of Ukraine and may ban some imports including clothing and used cars
• Abe will need a JPY5t ($47b) fiscal stimulus package to cushion the impact of a further increase in Japan’s sales tax, a survey by Bloomberg News show
• Sovereign yields higher. Asian stocks mostly lower, European stocks mostly higher, U.S. equity-index futures gain. WTI crude higher, gold higher, copper little changed
• Attention turns to a slew of tier 1 US data, with August Retail Sales due at 1330BST/0730CDT and prelim University of Michigan Confidence due to follow at 1455BST/0855CDT

US Economic Calendar

• 8:30am: Retail Sales Advance, Aug., est. 0.6% (prior 0%)
• Retail Sales Ex Auto, Aug., est. 0.3% (prior 0.1%)
• Retail Sales Ex Auto and Gasoline, Aug., est. 0.5% (prior 0.1%)
• Retail Sales Control Group, Aug., est. 0.5% (prior 0.1%)
• 8:30am: Import Price Index, Aug., est. -1.0% (prior -0.2%)
• Import Price Index y/y, Aug., est. -0.6% (prior 0.8%)
• 9:55am: UofMich Confidence, Sept. preliminary, est. 83.3 (prior 82.5)
• 10:00am: Business Inventories, July, est. 0.4% (prior 0.4%)

FIXED INCOME

Both T-notes and Bund futures fell throughout the morning, as traders hesitantly look ahead to next week’s FOMC meeting, where expectations of a hawkish turn from the Fed continue to grow. As such, peripheral European yield spreads are generally tighter against Germany, however Dec-14 Bund futures have found some support at the weekly lows of 148.02.

EQUITIES

European equities trade mixed, with minor outperformance in both the FTSE-100 and the IBEX-35 as recent independence campaigns from Scotland and Catalonia lose some steam. Yesterday’s YouGov poll showed Salmond’s Independence bid only briefly holding the lead over the ‘No’ vote, as unionists reclaimed the top spot just six days away from referendum polling. Nonetheless, Spain’s IBEX-35 has suffered throughout the week on Catalonia’s break-up bid, with today’s upside only trimming the weekly losses to 2.2%.

The French utilities sector (GDF Suez, EDF) sharply underperforms after the French state council ruled out any increase in power prices, despite an industry-wide call for the French regulators to do so.

FX

GBP only briefly benefited from yesterday’s YouGov poll as long liquidation and the continued jitters over Edinburgh’s bid for separation keeps traders from committing to longer-term position. 1-week GBP/USD implied vols now at 4yr highs as independence vote and forthcoming polls promote uncertainty for the GBP. AUD and JPY remain the week’s two weakest currencies, with AUD down another 65 pips today (weekly losses now stand at approx. 325 pips) and JPY down 30 pips (weekly losses of approx. 215 pips) as the carry trade unwind continues to benefit the USD.

COMMODITIES

WTI and Brent crude futures trade higher, as the energy complex recovers from recent multi-month and multi-year lows. Nonetheless, the WTI-Brent spread remains close to the tightest levels of the week as Brent’s upside is capped by looming Libyan supply, dwindling Chinese demand and OPEC’s comfort with falling crude prices. Precious metals remains under pressure, with gold touching late January lows at USD 1,232.33 as silver tumbles to June 2013 lows at USD 18.47 on a stronger USD and expectations of a hawkish Fed meeting next week.

* * *

DB’s Jim Reid concludes the overnight recap

Indeed this time next week we’ll know the state of the union in the UK. Virtually every new day now sees a new poll ahead of next week’s big vote. Yesterday was no different with last night’s YouGov poll (which excluded don’t know’s) confirming this week’s bounce in the NO vote with 52% of the vote vs the Yes campaign’s 48%. It marks the first You Gov polling gain by the No campaign since early August although with just a 4% gap the vote still looks set to be close. There was a small +0.2% gain in Sterling vs the Dollar post the release but the damage from the weekend’s YES votes has yet to be corrected.

Next we have an update on the latest HY fund flow data. This week saw outflows across the HY world, especially from North American funds which saw funds lose -0.4% of NAV. It’s fair to say that the past two weeks of outflows have been nowhere near the scale we saw in the weeks leading up to early August and outside of Western Europe the 4 week flows moving average remained in positive territory. This is certainly a story to continue to keep an eye on. If we did get a more hawkish Fed next week it could upset a market that hasn’t regained its pre-summer swagger. In the PDF today we include the chart of North American fund flows as % of NAV.

In terms of other newsflow yesterday, we had the French CPI August inflation read which dropped (as expected) to +0.5% YoY whilst US Initial Jobless Claims came in higher at 315k (vs 300k expected). In terms of market reaction it was a mixed day for markets yesterday with equities notably underperforming fixed income. In Europe the Stoxx 600 was down -0.2% with the UK and periphery markets leading the losses as the FTSE 100 and Ibex 35 fell -0.5%. European credit was generally more positive with a marginal widening in iTraxx Main (+0.5bps) whilst Xover, Fin Sen and Fin Sub tightened -3bps, -0.1bps and -3bps respectively. In the US the S&P 500 closed the day flat whilst CDX IG and HY widened +0.5bps and +3bps respectively.

Another interesting story yesterday was the IEA’s downward revision of its oil demand forecast for 2014 and 2015 on the back of weaker outlook for economic growth in Europe and China. The institution noted that global oil demand growth had slowed to below 500k bbl/day in Q2 which is a first in 2.5 years. We’ve flagged a few times now on how the recent decline in Crude oil is somewhat telling given the various geopolitical uncertainties globally and whilst a stronger Dollar may explain some of these moves, in reality demand weakness is difficult to ignore. Brent Futures fell over 1% yesterday morning before rallying back strongly after Russian sanctions were confirmed (see below). It’s trading around -0.2% lower overnight at around $97.80. Overall we’ve now seen a decline for seven of the last eight weeks. Whilst historically such falls in oil prices might be seen as an economic positive, with the world’s regions, most notably the Eurozone, fighting disinflation these developments will add to the downward pressure. Will this free up the ECB and slow down the Fed?

Overnight in Asia, China’s latest lending data was released. China’s credit growth rebounded sharply in August following a weak July. New loans in August came in at RMB702.5bn up from RMB385.2bn in July and was around market consensus. M2 was up 12.8pct yoy, lower than the 13.5yoy growth in July (and consensus) but this was previewed by Premier Li’s speech earlier this week. Markets are range bound in the Asia with the Nikkei up +0.4% and the Shanghai Composite up +0.2% although the Hang Seng is down -0.3%.

Looking to the day ahead, in Europe we have the Spanish August inflation read (expected in at +0.1% MoM), Italian and euro area July Industrial Production (expected in at -0.2% and +0.7% MoM). In the US we have August Retail Sales reads with the advanced MoM expected in at +0.6%, the September UoM Confidence read (expected at 83.3) and July Business Inventories data (expected in at 0.4%). In geopolitics, today sees the strengthened EU sanctions on Russia take effect. Implementation had been delayed in light of the ceasefire announcements last week but yesterday leaders and diplomats agreed to now bring them in. The US looks set  to follow suit and President Obama yesterday said he would provide more details today. We seem to be seeing some fatigue in this story with the ECB, Scotland and next week’s Fed meeting taking center stage. However the regions problems are clearly yet to be resolved and the aim of bringing in the new sanctions today is to keep up pressure on Russia (BBC). Russia has said it is preparing its own sanctions in response.

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Submitted by James E. Miller via Mises Canada blog,

Labor unions are a dying breed. According to the Pew Research Center, union membership in America “is at its lowest level since the Great Depression.” In 1983, there were approximately 17.7 million union workers. Today, that number stands at 14.5 million, with every estimate showing a continued downward trajectory. Clearly, the Norma Raes of the world are going extinct.

But as Samuel Johnson quipped, one should never dismiss the triumph of hope over experience. In celebration of Labor Day, the leftie rag New Republic recently published an interview with labor strategist Rich Yeselson defending the role of unions in the U.S. As a labor organizer, Yeselson’s bias is on full display. Instead of giving an objective view of stagnating union membership, he obfuscates to boost his own profession.

When asked if unions are dead, Yeselson rightly says “no” while pointing out that millions of Americans are still active members. Unions not only retain fairly hefty membership, but also own valuable real estate in big cities and pension funds worth billions of dollars. Despite declining membership, there is still plenty of capital left over from organized labor’s heyday.

Fancy buildings and promised retirement benefits aren’t enough to reverse the downward trend however. Public opinion about unions is also on the decline. Between Volkswagen plant workers voting against joining the United Auto Workers and the confectionary company Hostess declaring bankruptcy to rid itself of unionized employees, there is a growing perception of greed directed at labor organizers. There is also the uncomforting fact that state and local governments – the industry most heavily unionized in the country – are underwater on their pension obligations. Even politicians are starting to face the truth: there is less money in government coffers than was promised. New Jersey Governor Chris Christie recently toured his state telling voters that pension funds “will go bankrupt if we don’t make significant changes to it.” He won’t be the last to break the bad news.

Yeselson plays stupid to this fiscal reality. Throughout the interview, he defends the legacy of unions with sophistry and economic inanity. Yeselson acknowledges that unions often try to “take the wage out of competition.” But, he asserts, this is not a problem. With locked-in wages, “the quality of the product, innovation, etc. are the ways that companies, ideally, compete.”

This is patent nonsense. Wages are an integral part of running a business. Management can’t determine costs without accounting for the price of labor. Competition in wages means business can attract the best and brightest workers. An industry without workers who compete for wages is stagnant, unable to innovate to its full capacity. For someone on the side of worker well-being, Yeselson doesn’t want to see business competing for employees by offering higher wages or more generous benefits.

The biggest whopper of the Yeselson interview comes when he asserts that unions are “inherently conservative institutions which historically developed parallel with the development of capitalism itself.“ Ezra Klein backs him up on this point by claiming “you’ll find unions pretty much everywhere you’ll find capitalism.” This is a classic mistake of correlation with causality. Just because the labor movement accelerated with American economic power during the twentieth century doesn’t mean it helped in the process. If anything, unionization inhibited the ability of the entrepreneurs to succeed. Yeselson says unions “are as much a part of capitalism as Henry Ford or Apple.” That’s also incorrect; Henry Ford and Steve Jobs created products for the marketplace. Unions don’t produce anything for consumers. They leech off the profits of business.

Yeselson even has the gall to say that unions are inherently capitalist because they “use contracts…to link their members to the fortunes of the companies they contract with.” Clearly, Yeselson needs to brush up on his common law. Contracts aren’t contracts when they have the implicit use of force at their backing. Business either chooses to bargain with unions by choice or by force. The National Labor Relations Act – passed at the height of the New Deal – compels some private U.S. companies to bargain with unionized employees. Yeselson tries to say that “contracts are not unilaterally imposed at gunpoint upon terrified managers” but “are bargained between two institutions who have both common and conflicting interests.” Again, why must management bargain to begin with? Why are there deliberations over wages and benefits?

With government acting as the muscle behind unions, there is no choice. Company owners must bargain or face the threat of fines or jail time. This isn’t an amicable relationship. It’s a thuggish shakedown. Is it any wonder why Jimmy Hoffa is such an intolerable brute?

Ayn Rand had unions pegged best when she declared their purpose has never been to empower the average worker. “Unions and trade associations,” she wrote, “are not directed against employers or the public but against the best among their own members.” The goal has never been about “raising the weak in any way whatever, but simply forcing the strong down to the level of the moron.”

Yeselson ends his futile attempt to defend unions by bringing out the classic trope: “Unions, as the old saying goes, the folks who brought you the weekend.” This is nothing but an elementary school myth. A bunch of greasy-haired petition-gatherers didn’t create the weekend. Capital accumulation and rising productivity make it possible for people to take off work at the end of the week. Otherwise, the drop in commercial activity would render a business unprofitable, and thus unable to keep the lights on. This has always been the great secret behind unionist fiction.

With economic growth still staggering, the decline of union membership can’t come soon enough. Freed from the demands of overpaid bargainers, innovation and productivity inevitably rise. Increasing numbers of Americans are migrating to states with less strenuous union laws. When given a choice, workers go where the money is; not where there’s tough talk about bargaining rights. Labor is important; business is important; and solidarity is important. They are all no doubt conservative principles worth maintaining. But the right of every man to choose for himself takes precedent over all. You can’t build without capital; just as you can’t organize without sovereign will. Unions violate the spirit of voluntary association by the very fact they have government-backing. Yeselson is lying to himself if he sees forced collective bargaining as a necessary component of capitalism. And he is doing workers a great disservice by encouraging the formation of unions.

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How many times in the last few years have you (or any of Europe’s less-than-core leaders) said to yourselves- “EU, what’s the point?” All this ceding of sovereignty, centralization of power, relinquishment of decision-making; and for what? The answer – of course – free-er trade, a customs union enabling cross-border trade to flourish and in the great economics textbooks of the world for each member state to do what they do best (German VWs and Greek yogurt?) and maximally profit from that. That all sounds wunderbar in practice… except this rather uncomfortable truth-seeking chart shows that the last decade has seen an accelerating decline in intra-European-Union trade, especially in the last 4 years – to levels that are now below those pre-EU. So, once again, “what’s the point?”

 

Source: Bruegel

Note: The above figure shows intra-EU and intra-Eurozone shares of export on total export of the two groups respectively. Each of the two lines were constructed taking into account the changing composition of the European Union and the Euro Area over time, meaning that a given country is included in the series only by the time it joined the EU or the Euro. However, further calculations shows results do not change dramatically if considering a fixed group of countries in either series.

 

The share of the intra-EU export of the EU total export experienced a steady rise since the early 80’. In fact, the rise was up to 8 percentage points in that period. However, after stagnating from the mid-90’s until the end of the 2000’s, intra-EU saw a sharp downward trajectory in the last four years, implying global trading partners have become and are becoming more important. Interestingly, the data also show that the Euro Area has been following nearly the exact same pattern as the European Union as a whole, suggesting the common currency might not have had the expected effect on trade between Euro Area members.

*  *  *

If Barroso and his muppets can’t even get the customs union right, what hope is there for them to reform their way out of this ever-shrinking paper bag of EU fragility. Perhaps, EUR is declining, not on QE-debasement-jawboning hope; but on a realization that it’s all over again.

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Andy Hall – known as the God of Crude Oil Trading to some of his peers – has, according to Bloomberg, built his success on a simple creed: Everyone who disagrees with him is wrong. He was one of the few traders who anticipated both the run-up in and the eventual crash of oil prices in 2008. Hall has made billions for the companies for which he’s traded by placing one aggressive bet after another; and now, he is all-in again. Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less. As one industry CEO warned, "anybody who bets against Andy Hall might be making a poor bet."

As Bloomberg reports,

“When you believe something, facts become inconvenient obstacles,” Hall wrote in April, taking issue with an analyst who predicted a shale renaissance could result in $75-a-barrel oil over the next five years.

 

Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less.

 

Investing ever-larger sums of his own money, he’s buying contracts for so-called long-dated oil, to be delivered as far out as 2019, according to interviews with two dozen current and former employees and advisers who are familiar with Hall’s trading but aren’t authorized to speak on the record. To attract buyers, the sellers of these long-dated contracts — typically shale companies that have financed the boom with mounds of debt — need to offer them at a discount to existing prices.

Hall's reasoning…

…he digs deep, delving into the minutiae of how Texas discloses oil production, the tendency of some shale wells to play out quickly and the degree to which the boom has relied on debt. The simplest of his reasons, though, is that producers have already drilled in many of the best areas, or sweet spots. Hall predicts that growth in shale output will begin to moderate this year and U.S. production will peak as soon as 2016.

 

“Once those areas have been drilled out, operators will have to move to more-marginal locations and well productivity will fall,” Hall wrote in March. “Far from continuing to grow, production will start to decline.”

How Andy Long does it…

But not everyone agrees…

“We haven’t scratched the surface,” Hall’s former mentor O’Malley says. “There are massive additional shale fields in the United States. Technology does tend to move forward.”

 

…

 

Predictions of $75 oil, espoused by Citigroup oil analyst Edward Morse in a Barron’s story in March, really bug him, according to those who know his thinking.

 

“We are not sure what supports his conviction,” Hall wrote of the analyst’s theories in his June newsletter, although he didn’t identify Morse by name. “It is apparently not facts or analysis.”

 

The shale revolution faces political, environmental and technical hurdles in other parts of the world that will stall its rollout, Hall wrote. Morse, who also correctly predicted the sharp rise in crude prices in the past decade, says Hall has let his admiration of peak oil theorists cloud his judgment.

 

“It took a long time for believers in the Cold War to admit it was dead. So, too, is it taking a long time for peak oil believers to admit that it is dead,” Morse says.

So far this year, he appears to be getting confirmation…

So far this year, there are signs that he may be on the right track. In North Dakota’s Bakken and Texas’ Eagle Ford formations, which have accounted for almost all of the jump in U.S. output, the combined year-over-year growth in production in July fell below 30 percent for the first time since February 2010.

 

Two central questions about technology and shale will likely determine the outcome for Hall: how many wells producers will be able to drill in a finite amount of land that sits atop oil-bearing layers of rock and whether the U.S. renaissance will be repeatable abroad. Hall is betting no on both counts. Morse, and many in the energy world, are betting yes.

Timing is everything…

“He’s a phenomenal trader,” says David Neuhauser, a money manager at Livermore Partners who has followed Hall’s progress as an Occidental shareholder. “I believe he’s right about long-term prices; we’re in the same camp. What I don’t know is how long it will take for the market to catch up.”

*  *  *

Russia would sure be happy itf Andy Long is right… USA not so much… perhaps that is the crucial factor in this manipulated market that overpowers everything?

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Well into the second year of Abenomics, doubts have risen about the effectiveness of Japanese Prime Minister Shinzo Abe’s approach of boosting economic growth and overcoming deflation via “three arrows” of monetary, fiscal, and structural policy. Yet another set of disappointing data recently released for July has reinforced these doubts. As several key turning points approach before year-end, whether Abenomics will succeed or stumble is at the forefront of most traders’ minds (whether they understand that or not). In the interest of some context for just how far Japan has fallen, we present 145 years of growth and XX-flation for the Japanese economy… one might argue that ‘lost decade’ or two is generous…

 

 

As one former Japanese Economic Policy cabinet member noted,

“I am very concerned [about the widening trade deficit], not about the widening of the trade deficit in itself, but about the fact that this widening is a result of a rising energy import burden. This situation cannot continue forever; we must reform our energy policies.”

 

“Monetary policy is just a placebo – it has no effect on real economic activity and certainly no effect on the longer-term growth path of the Japanese economy.”

Yukio Noguchi

 

Source: Goldman Sachs

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Submitted by Michael Snyder of End of The American Dream blog,

Has there ever been a nation more hooked on drugs than the United States?  And I am not just talking about illegal drugs – the truth is that the number of Americans addicted to legal drugs is far greater than the number of Americans addicted to illegal drugs.  As you will read about below, more than 30 million Americans are currently on antidepressants and doctors in the U.S. wrote more than 250 million prescriptions for painkillers last year.  Sadly, most people got hooked on these drugs very innocently.  They trusted that their doctors would never prescribe something for them that would be harmful, and they trusted that the federal government would never approve any drugs that were not safe.  And once the drug companies get you hooked, they often have you for life. 

You see, the reality of the matter is that some of these “legal drugs” are actually some of the most addictive substances on the entire planet.  And when they start raising the prices on those drugs, there isn’t much that the addicts can do about it.  It is a brutally efficient business model, and the pharmaceutical industry guards their territory fiercely.  Very powerful people will often do some really crazy things when there are hundreds of billions of dollars at stake.  The following are 22 facts about America’s endless pharmaceutical nightmare that everyone should know…

#1 According to the New York Times, more than 30 million Americans are currently taking antidepressants.

#2 The rate of antidepressant use among middle aged women is far higher than for the population as a whole.  At this point, one out of every four women in their 40s and 50s is taking an antidepressant medication.

#3 Americans account for about five percent of the global population, but we buy more than 50 percent of the pharmaceutical drugs.

#4 Americans also consume a whopping 80 percent of all prescription painkillers.

#5 It is hard to believe, but doctors in the United States write 259 million prescriptions for painkillers each year.  Prescription painkillers are some of the most addictive legal drugs, and our doctors are serving as enablers for millions up0n millions of Americans that find themselves hooked on drugs that they cannot kick.

#6 Overall, pharmaceutical drug use in America is at an all-time high.  According to a study conducted by the Mayo Clinic, nearly 70 percent of all Americans are on at least one prescription drug, and 20 percent of all Americans are on at least five prescription drugs.

#7 According to the CDC, approximately 9 out of every 10 Americans that are at least 60 years old say that they have taken at least one prescription drug within the last month.

#8 In 2010, the average teen in the United States was taking 1.2 central nervous system drugs.  Those are the kinds of drugs which treat conditions such as ADHD and depression.

#9 A very disturbing Government Accountability Office report found that approximately one-third of all foster children in the United States are on at least one psychiatric drug.

#10 An astounding 95 percent of the “experimental medicines” that the pharmaceutical industry produces are found not to be safe and are never approved.  Of the remaining 5 percent that are approved, we often do not find out that they are deadly to us until decades later.

#11 One study discovered that mothers that took antidepressants during pregnancy were four times more likely to have a baby that developed an autism spectrum disorder.

#12 It has been estimated that prescription drugs kill approximately 200,000 people in the United States every single year.

#13 An American dies from an unintentional prescription drug overdose every 19 minutes.  According to Dr. Sanjay Gupta, accidental prescription drug overdose is “the leading cause of acute preventable death for Americans”.

#14 In the United States today, prescription painkillers kill more Americans than heroin and cocaine combined.

#15 According to the CDC, approximately three quarters of a million people a year are rushed to emergency rooms in the United States because of adverse reactions to pharmaceutical drugs.

#16 The number of prescription drug overdose deaths in the United States is five times higher than it was back in 1980.

#17 A survey conducted for the National Institute on Drug Abuse found that more than 15 percent of all U.S. high school seniors abuse prescription drugs.

#18 More than 26 million women over the age of 25 say that they are “using prescription medications for unintended uses“.

#19 If all of these antidepressants are helping, then why are more Americans killing themselves?  The suicide rate for Americans between the ages of 35 and 64 increased by nearly 30 percent between 1999 and 2010.  The number of Americans that die by suicide is now greater than the number of Americans that die as a result of car accidents every year.

#20 Antidepressant use has been linked to mass shootings in America over and over and over again, and yet the mainstream media is eerily quiet about this. Is it because they don’t want to threaten one of their greatest sources of advertising revenue?

#21 The amount of money that the pharmaceutical industry is raking in is astronomical.  It has been reported that Americans spent more than 280 billion dollars on prescription drugs during 2013.

If many of these drugs were not so addictive, the pharmaceutical companies would make a lot less money.  And pharmaceutical drug addicts often don’t fit the profile of what we think a “drug addict” would look like.  For example, CNN shared the story of a 55-year-old grandmother named Cynthia Scudo that become addicted to prescription painkillers…

For Scudo, her addiction began — as they all do — innocently enough.

 

She sought relief from hip pain, possibly caused by scarring from cesarean sections she had delivering several of her children.

 

Her then-husband recommended a physician.

 

“There was no physical therapy offered,” she said of the doctor’s visit. “The first reaction was, let’s give you some drugs.”

 

He put her on OxyContin.

 

By the second week, she was physically addicted.

 

She was popping so much of the painkiller and other drugs such as anti-anxiety Valium that they equated to a dosage for three men.

There is lots and lots of money to be made from addiction.  In fact, if the U.S. health care system was a totally separate nation it would actually be the 6th largest economy on the entire globe.  We are talking about piles of money larger than most people would ever dare to imagine.

And with so much money floating around, it is quite easy for the pharmaceutical industry to buy the cooperation of our politicians and of the media.

Some time when you are watching television in the evening, consciously take note of how often a pharmaceutical commercial comes on.

It has gotten to the point where we are literally being inundated with these ads.

They are already making hundreds of billions of dollars, and they think that there is room for even more growth.

Will they ever be satisfied?

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A little over a week ago we wrote that in order to mitigate problems arising from record debt and soaring NPLs, the G-20 had a modest proposal for global banks: more debt. Specifically “in November said leaders will agree “that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said.” In other words, suddenly the $2.8 trillion in Fed injected excess reserves, split roughly equally between US and European banks, are no longer sufficient, and while regulators are on one hand delaying the implementation of Basel III and its tougher capital rules, on the other they are tactically admitting that whatever “generous” capital buffer banks have on their books right now will not be sufficient when the next crisis strikes.”

The proposal for the first time introduced GLACs, or bonds known as “gone concern loss absorption capacity”, seen by regulators as essential to stopping the world’s 29 biggest lenders from being “too big to fail.”

Some of our thoughts at the time: “according to the G-20, instead of having to collapse liabilities to offset that scourge of the New abnormal, namely Non-Performing Loans, banks are hoping to lever up, pun intended, the current scramble for yield and instead beef if up their cash asset, even if it means increasing the liability side of the balance sheet by issuing more debt. Because really all the GLAC do is limit how the banks may use the proceeds from such bond issuance. Then again, these being banks, one can be certain that the moment the GLAC cash is wired in, the funds will be used to ramp risk instead of sitting in a drawer somewhere, awaiting rainy days. Because nobody in a bank is paid for avoiding a crisis, and everyone is paid to generate a return even if it means making the systemic bubble even bigger.”

And our summary:

in lieu of being able to actually generate and retain funds from operations, banks will once again scramble to raise epic amounts of debt, only this time, the proceeds will be retained “pinky swear” as a capital buffer, i.e., cash on the books. Cash which nobody makes a single dime in bonus on anywhere in the bank’s org chart. Would anyone wish to wager how long before the trillions in GLACs are “mysteriously” found to have funded shanty town developments in Shanghai, to buy the S&P500 at the all time high, and naturally, the purchase of a golden commode or two in various US banks? How could this possibly fail…

 

And the absolutely brilliant punchline: who do these regulators and “leaders” think will be the purchasers of said debt? Why other systemically important, TBTF banks of course! Which means that, in the by now quite familiar “daisy-chaining” of counterparties and collateral, once one bank fails, its exposure via collateral, repo and certainly, funding of other bank balance sheets, everything will promptly freeze as risk reprices, a la Lehman bonds.

Fast forward to today when, focusing solely on the US, we learned that as part of the domestic “macroprudential” effort to ensure firms don’t run out of cash in a crisis, the so-called Liquidity Coverage Ratio, US regulators said banks likely will have to raise an additional $100 billion to satisfy the new requirement, the WSJ reported.

The disclosure is part of the final draft of the so-called Liquidity Coverage Ratio, released by the Fed earlier today, and which was promptly passed on a 5-0 vote Wednesday that will subject big U.S. banks for the first time to so-called “liquidity” requirements. The Federal Deposit Insurance Corp. and the Treasury Department’s Office of the Comptroller of the Currency adopted the rules later in the day.

According to the WSJ, the thrust of the proposal remains unchanged: Banks must now maintain enough safe assets to equal their net cash outflows over about a month.

Some of the details: “The 15 largest banks – those with more than $250 billion in assets – will have to hold enough cash, government bonds and other high-quality assets to fund operations for 30 days during a time of market stress. Smaller banks – those with more than $50 billion but less than $250 billion in assets – will have to keep enough to cover 21 days. Banks with less than $50 billion in assets and nonbank financial firms deemed by regulators as posing a potential threat to the system will not be subject to the requirements.”

And some more:

Under the final version of the rule, U.S. banks with between $50 billion and $250 billion in assets will be able to calculate their liquidity positions on a monthly basis, rather than every day as proposed in the rule’s first draft last fall. Those banks also won’t have to start meeting the rule until January 1, 2016, giving them an extra year to comply.

 

Banks with more than $250 billion in assets will have to comply starting this coming January but will have until July 2015 before they must calculate the liquidity ratio on a daily basis.

 

…

 

Staff at the Fed estimated that the rule under consideration Wednesday would require big U.S. banks to raise an additional $100 billion of high-quality liquid assets, for a total of about $2.5 trillion.

 

Fed officials didn’t make changes in response to the industry’s concerns about the rule’s treatment of municipal debt securities, which weren’t classified as safe “high-quality liquid assets” that could count toward a bank’s compliance. But Fed Gov. Dan Tarullo said staff would reconsider that point in the future and “develop some criteria for determining which such bonds fall into this category and thus might be considered for inclusion” as a high-quality liquid asset.

The shortfall as illustrated visually by the WSJ:

On the surface, this is all great macroprudential news: forcing banks to hold even more “high quality collateral” is a great idea, to minimize the amount of money taxpayers will have to fork over when the system crashes once again as it certainly will thanks to the unprecedented Fed micromanaging interventions over the past6 years.

There are just three problems.

• First, when it comes to high quality collateral, there just isn’t enough, a complaint the TBAC made loud and clear in early 2013 and which served as the basis for our assessment that Tapering will have to take place at least until such time as the US once again is forced to plug massive deficit funding holes, and thus the Fed can monetize copious amounts of debt once more.
• Second, when one considers that the last time the financial system imploded it took not the paltry $700 billion TARP widely trumpeted as the “total” bailout cost, but closer to $14.4 trillion to keep the system from collapsing. As such, $100 billion – if and when the banks’ funding mechanisms lock up again in the absence of a perpetual Fed backstop – is nothing but pocket change, even if added to an existing pool of some $2.5 trillion in “high-quality liquid” assets. Furthermore, when the system is locked up in a funding spasm, the last thing any counterparty will bother with is purchasing liquid securities from insolvent competitors at par or even 50 cents on the dollar. In fact, due to the systemic interconnectedness, the only possible buyer of these liquid assets will once again be… you guessed it… the Fed.
• Third, and this is where this whole “macroprudential” scheme crashes under the weight of its own illogic, is when one considers that the source of the funding of any one bank’s debt issuance proceeds, are other banks and financial intermediaries, all part of the same group of chain-linked counterparties, which hold on their shoulders over $200 trillion in notional derivatives, and where even one collateral chain breach means net becomes gross and the derivative exposure collapes into the singularity of the next bailout. Basically stated, banks X will be selling debt to bank Y in exchange for cash, thus boosting bank X’ capital line item, while depleting bank Y’s. And when the moment comes to rescue the liquidity depleted bank Y, what then?

In other words, not only is this latest window dressing too little to make a dent, or that there simply isn’t enough of the high quality, liquid collateral needed to prefund a disaster fund, but at the end of the day, all that is happening is a circular pickpocketing where liquidity is simply rotated in a circle without any exogenous funds entering or leaving the banking sector. And as everyone knows, it isn’t any one banks that is insolvent: it is the entire banking sector in total, confirmed quickly when one recalls that Hank Paulson “forced” all the banks to accept TARP funding to restore confidence in the US banking system: not a piecemeal bailout.

Which is why we appreciate both the attempt to pull the wool in front of everyone’s eyes, and the humor behind it – the sad truth is that all of the above is not only meaningless, but it will likely further concentrate collateral and liquidity shortfalls away into the weakest banks whose failure will just make the TBTFs even bigger and even more systematically important.

What is worst of all, is that this example clearly indicates that when it comes to macroprudential policy, all the Fed really has, is an attempt to reallocate liabilities among the banking sector, in the process further obfuscation each bank’s total exposure. As to the most important issue, collateral chains and counterparty exposure should the “weakest link” in said chain fall, the Fed’s weapons are the same two it had during the last crisis: a printer and a prayer.

Everything else is still nothing but smoke and mirrors.

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