Tag: news

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.

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

When Americans talk about immigration, they picture those they want to keep out: undocumented people sneaking across the southern border. But, as Bloomberg’s Kathleen Hunter reports, when U.S. businesses talk about immigration, they picture people they’d like to bring in: ones with science, math or technology skills, notable artists or those willing to pick tomatoes. The U.S. wants these immigrants. The ‘other’ immigration problem, then, is in deciding who and how many should be admitted.

 

Both U.S. tech and agriculture employers say there are not enough Americans able to fill all the available jobs.

As Bloomberg adds,

Facebook, Google, Intel and Cisco Systems are among the companies lobbying Congress to increase the number of technology workers, who enter the U.S. on H-1B visas. In fiscal 2014, it took just six days for the federal government to reach the 85,000 allotted petitions for H-1B visas for the year.

 

…

 

U.S. businesses bring in seasonal agriculture workers under the H-2A visa program; these are limited to 66,000 per fiscal year.

 

Meanwhile, movie stars, distinguished academics and professional athletes face less trouble getting special U.S. work visas set aside for those with “extraordinary ability.”

 

Extraordinary bank accounts allow the rich to receive visas if they’re willing to invest at least $500,000 in the U.S. and create at least 10 jobs within two years.

 

…

 

The U.S. Senate immigration reform bill passed in 2013 initially would raise the annual H-1B visa limit to 135,000 from 85,000; it could increase in later years to 180,000. Some House Republicans didn’t like the sweep of the Senate bill, which included a pathway to citizenship for undocumented immigrants, and instead want to move separate legislation for the expansion of technology worker visas. Democrats who control the Senate have resisted that approach; they want to use the promise of more H-1Bs as the sweetener to help get broader immigration reform legislation enacted. So Congress stands at an impasse.

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so much for “slack”

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Via Scotiabank’s Guy Haselmann,

Draghi’s Difficult Dance

Draghi’s clever Jackson Hole speech unleashed financial market expectations of additional stimulus measures at Thursday’s meeting.  However, the situation is complicated.  Thus, numerous interpretations have unfolded on what he signaled (or didn’t signal) and on what types of ECB-led solutions are possible. Some pundits have argued that large-scale QE for Europe would do more harm than good.  Regardless, markets are likely to be disappointed as the October meeting seems to be a more practical time for any announcement.

Draghi further complicated quarrels by saying that such a program would ultimately not be effective without action that occurs in parallel with fiscal changes. In his concluding remarks, for example, he said that “a coherent strategy to reduce unemployment has to involve both demand and supply side policies, at both the Euro area and the national levels.”  (some have referred to this as Draghi’s three arrows)

He was basically telling politicians that the stance of Eurozone fiscal policy needed to be re-examined.  His New-Keynesian framework probably did not go over well in Berlin.  It was leaked in the German press that Merkel called Draghi after his speech.  He might have chosen to lecture politicians, because of his tacit acknowledgement that the economy is facing a liquidity trap;  implied by his comment, “due to the zero lower bound constraint, there is a real risk that monetary policy loses some effectiveness in generating aggregate demand”.

Draghi is a savvy political operator.  He is fully aware of the limitations and consequences of a sovereign debt QE program.  He knows that a central bank’s willingness to purchase a country’s debt (in ‘whatever –it-takes’ quantities), basically places an implicit cap on the price of a country’s funding.  Such a program rids a government of fiscal discipline, while simultaneously eliminating the spikes in yields that would normally result.  Complacency or fiscal stalemate ensues; enabled specifically by monetary actions.

Could this offer a partial explanation why Portuguese 10 year yields have fallen from 15% in 2012 to 3.22% today, while its Debt-to-GDP has steadily risen (64% in 2007, 84% in 2010, 108% in 2012, and 129% in 2014)?

After many failed years of trying to attain fiscal reforms in Brussels and at the Nationals’ level, the ECB is unlikely to receive any near-term fiscal help (due to austerity-drive and fiscal targets).  Therefore, the ECB will ultimately have to go-it-alone, despite questionably effective tools.   Europe is in dreadful and deteriorating shape, so the ECB does not want to be viewed as not doing enough: Draghi said, the risks of ‘doing too little’, outweigh those of ‘doing too much’.  Consequently, when the ECB reaches the point of desperation, its key objective will become to merely ‘buy time’.

It could easily be argued that markets have already taken yield levels to record lows; so markets have already done the job for the ECB.  An effort to lower them further would have little, if any, impact on aggregate demand (a classic liquidity trap).  However, the critical channel at this point for the ECB (to glean economic benefits) is through the weakening of the Euro.  Therefore, the ideal time to expand its balance sheet may be at the same time that the Fed’s balance sheet flat lines, i.e. at the ECB’s Oct 2nd meeting.  

Draghi noted in his speech how inflationary expectations had become unanchored; a condition previously identified as a potential catalyst for a broad-based QE program.   This extemporaneous part of his speech might have been directed at the Bundesbank in an attempt to gain its support.

Draghi’s statement about the short fall in demand was recognition that real interest rates are still too high.  Markets need to remember however that the ECB recently announced negative deposit rates, targeted longer-term refinancing operations (TLTRO), and plans for purchases of asset-backed securities.  These programs will take time to have influence and take time to be fully implemented.

I expect Draghi to be dovish on Thursday, but it likely too presumptuous to expect any new measures.  I suspect the ECB will eventually be forced (reluctantly into the QE revelry).  The main goal will be to weaken the Euro.   Equities and periphery sovereign spreads are probably already fully-priced for a QE program.  Bund yields and inflationary expectations will likely rise on the announcement (real yields will fall).  

The US/Bund spread will likely become less negative and drop from -148 today toward -100 bps.

“I came in from the wilderness, a creature void of form.  “Come in”, she said, “I’ll give you shelter from the storm”. – Bob Dylan

via Zero Hedge http://ift.tt/WdyP78 Tyler Durden

Thanks to the ingenious combination of a camera and a drone, also known as a GoPro Camera-on-a-drone, we have the first aerial footage of Apple’s new $5bn spaceship-shaped global headquarters in Cupertino, known imaginatively as Apple Campus 2…

 

 

 

As DeZeen reports,

The eight-minute film was made using a Phantom 2 flying vehicle produced by DJI and a GoPro Hero 3 camera. Footage was sent live from the device to a pair of Carl Zeiss video goggles worn by JCMinn via a transmitter also produced by DJI, allowing him to see what was filmed as he controlled the drone.

 

The footage shows a huge circular trench, which dwarfs the nearby houses in the residential district that abuts the site.

 

Concrete foundations for the ring-shaped building by British firm Foster + Partners are visible inside the trench.

 

 

The $5 billion project is due for completion in 2016 and will include one of the largest photovoltaic arrays in the world.

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via Zero Hedge http://ift.tt/WdyP6Y Tyler Durden

Submitted by Simon Black via Sovereign Man blog,

As the world’s top central bankers gathered at their annual jamboree recently, the governor of Bank of Canada, Stephen Poloz, undoubtedly received envious comments from his fellow money magicians for Canada’s perceived status as a global financial safe haven.

This newly found perception was perhaps best exemplified during a Bloomberg interview, when the CEO of RBC Wealth Management – the biggest financial institution in Canada said that “Canada is what Switzerland was 20 years ago, and the banks in Canada are what Swiss banks were 20 years ago.”

This is the new flavor of Kool-Aid. Canada is seen as the new banking safe haven and an “island of safety and stability” because of its perceived sound fiscal position, commodity wealth and solid economic performance.

Now, anytime I see central bankers slapping each other on the back, I’m going to be skeptical. But here at Sovereign Man, our conclusions are all data driven… so we dove into the numbers.

First, the Big Daddy himself—Canada’s central bank.

Any strong, healthy banking system requires a central bank with a pristine balance sheet… specifically, substantial net equity as a percentage of assets.

So how strong is the balance sheet for Banque du Canada? Not very.

As it turns out, Banque du Canada is actually the most pitifully capitalized central bank in the western world. They’re in such bad shape they actually make the Fed look healthy.

Hong Kong’s Monetary Authority Exchange Fund is a good example of a strong balance sheet; their latest figures as of 30 June show a whopping capital reserve equal to nearly 22% of total assets.

This is a massive margin of safety for the central bank.

The US Federal Reserve, on the other hand, shows a capital reserve of just 1.27%. And Canada? A tiny 0.47%… as in less than one half of one percent.

This isn’t safety and stability. It’s a rounding error.

Moreover, Canada also has ZERO reserve requirements for its banks; this means that Canadian banks are not obliged to hold any of their customers’ deposits.

So yes, it’s legally permissible for a Canadian bank to loan out 100% of its customers’ funds.

Not to worry, though. The Canadian Deposit Insurance Corporation (CDIC) is standing by to insure bank deposits up to $100,000.

But when you look at it closely, there isn’t much there for depositors at all. There’s roughly $646 billion of eligible deposits in the Canadian banking system. Yet the CDIC only has $2.8 billion in cash available to insure it all… a ratio of just 0.43%.

Even more troubling is that Canada has legislated an actual Cyprus-style confiscation of deposits in the event that Canadian banks deplete their capital.

Buried deep into the government’s Economic Action Plan 2013 is a provision that would implement a “bail-in” regime for “systemically important banks”.

This would legally allow the banks to tap into customer deposits if the banks get into trouble… something I don’t find particularly safe.

Last, the Canada myth really starts to become apparent when you look at the country’s gold reserves.

At the beginning of this century Canada held 46.19 tonnes of gold. Now they hold only 2.99 tonnes. That’s a whopping 93.5% decline in gold reserves in just over a decade!

In other words, Canada’s monetary leadership has made a conscious decision to reject real assets in favor of paper assets that can be conjured out of thin air.

They’ve managed to run their central bank into borderline insolvency.

It’s important to look at facts and not rely on sentiment.

To anyone who rationally looks at the data, the obvious conclusion is that Canada is certainly NOT the safe-haven it’s been built up to be.

via Zero Hedge http://ift.tt/YcoPwx Tyler Durden