Tag: news

Despite the ratings agencies (Moody’s Dec 5th and S&P Nov 22nd) seemingly premature raising of the outlook for the nation’s sovereign credit rating (from negative to stable), economic hardship in Spain looks likely to continue as loan defaults surge and the unemployment rate remains the second highest in the EU.

 

25% of Working Population to Stay Unemployed

The IMF predicts Spain’s unemployment rate will remain at 25 percent or higher until 2018 even after the nation exited its recession in the third quarter. Spanish households’ average income fell to 23,123 euros per year in 2012, compared with 25,556 euros in 2008, the National Statistics Institute said on Nov. 20. That leaves 22.2 percent of the population at risk of poverty, according to Eurostat.

Bad Debts at Record High

Record bad loans may restrain the economic recovery. Spanish banks’ bad debt as a proportion of total lending rose to a record 12.68 percent in September, according to Bank of Spain data that began in 1962. Missed payments on mortgages are rising and defaults as a proportion of total mortgages jumped to 5.2 percent in the second quarter from 3.2 percent a year earlier.

House Prices May Fall Further

Banks are likely to remain under pressure as real estate values fall. House prices are down 28.2 percent from their peak. Fewer than 15,000 mortgages were granted in September, compared with about 129,000 at the September 2005 peak, according to the National Statistics Institute, pointing to more price declines. House prices may drop a further 13 percent by the end of 2014, S&P forecasts.

Corruption Levels Rise Most in Europe

Spain’s levels of perceived corruption rose the most in Europe last year, Transparency International’s annual rankings show. Spain fell six points to 59, ranking it 40th in the world. Only Syria fell by more. The so-called gray economy represents 18.6 percent of GDP according to analysis by Friedrich Schneider for the Institute of Economic Affairs. That is equivalent to about 183 billion euros.

But apart from that… it’s all good in Spain…

 

Source: Bloomberg Briefs

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Look in my eyes, what do you see?

The cult of personality 

I know your anger, I know your dreams 

I’ve been everything you want to be 

I’m the cult of personality 

Like Mussolini and Kennedy 

I’m the cult of personality 

The cult of personality 

The cult of personality 

“Cult of Personality”

Living Color/ Muzzy Skillings, Corey Glover, Vernon Reid, Will Calhoun

 

The implementation of the new regulatory stricture on big banks known as the “Volcker Rule” after former Federal Reserve Board Chairman Paul Volcker (1979-1987) is nearing completion today.  The New York Times reports: “Five years after the financial crisis, federal regulators are poised to approve the so-called Volcker Rule, the keystone of the most sweeping overhaul of financial regulation since the Depression. The rule, a copy of which was reviewed by The New York Times, imposes some requirements that are tougher than the banks had hoped. 

http://tinyurl.com/musbv5l

Like the construction of the pyramids in ancient Egypt, the Volcker Rule is a monument, a memorial to Chairman Volcker erected by an American populace and media whose collective memory is somewhat shorter than that of the average hamster. The Times reports that Volcker “proposed limits on banks’ activities when he was chairman of the Federal Reserve.”  Really?  This is odd because the Paul Volcker that I know has always and everywhere been the friendly enabler of the depredations of the big banks.   We discussed this in the February 2012 post on Zero Hedge, “The Trouble with the Volcker Rule.”

http://www.zerohedge.com/contributed/trouble-volcker-rule

I called Volcker “the father of too big to fail” in my 2010 book, “Inflated: How Money & Debt Built the American Dream,” but frankly watching the American media fawn over Chairman Volcker today suggests that this description was too generous.  Just as FDR is remembered for his famous statement that “we have nothing to fear but fear itself,” and not for actively making the terrible deflation and banking crisis of 1932 far worse, Volcker is lionized as the great inflation fighter and financial reformer for fixing problems that he himself caused.  

The Volcker aura begins with the heroic battle against inflation in the late 1970s.  Who can forget the image of Tall Paul standing before Congress, mumbling in barely intelligible tones about the need for high interest rates to wage the fight against inflation.  By his own words, Volcker became a “practical monetarist” when the situation required it, adopting the latest style in policy to fit the political situation.

http://www.econbrowser.com/archives/2007/02/how_paul_volcke.html

But how many people recall that it was Volcker, then a young Treasury official, who engineered the closing of the gold window by President Nixon?  By breaking the formal price link between the dollar and gold that had governed the post-WWII monetary world, Volcker and then Treasury Secretary John Connally loosed the US Treasury from the bounds of earth.  As James Rickards notes in his new book, “The Death of Money,” the decision to abandon the gold standard by Volcker set in motion a decade of uncertainty and economic malaise that led to wage and price controls.  The closing of the gold window more than four decades ago set the stage for the madness of zero interest rates and “quantitative easing” that we see today from the Federal Open Market Committee.  Yet no one in the media ever questions Volcker about this reckless act.  

When it comes to the big banks, the cult of personality surrounding Chairman Volcker is even more deluded and bizarre.  When the Times talks about Chairman Volcker wanting to impose greater restraints on the largest banks, was this before or after he proposed the government bailout of Penn Square Bank?  Along with his sidekick William Issac, who was then the Chairman of the FDIC in the 1980s, Volcker advocated allowing the largest banks to use off balance sheet Structured Investment Vehicles (SIVs) to increase leverage and profits.  As with the closing of the gold window in 1971, Volcker was the enabler of a problem that would cause enormous damage to the US markets.  Yet no one in the media knows the financial history of the US well enough to call him out on decisions and positions that are easily visible in the public record.    

In all of the 450 pages of “Volcker: The Triumph of Persistence,” William Silber never mentions the fact that former Chairman Volcker set into motion the process at the Fed that would eventually encourage bank entry into areas such as off-balance-sheet financial vehicles and over-the-counter derivatives.  After the debt crisis of the 1980s, Fed officials led by Volcker began to understand that the core operations of the big banks were unprofitable.  Banks argued that the need to loosen regulatory restrictions such as Glass-Steagall was driven by the need for global competitiveness, but in fact they big bank were destroying investor capital.  Along with Volcker, another key enabler of this period of financial deregulation, Rodgin Cohen, chairman of Sullivan & Cromwell LLP, likewise receives almost no critical attention from the media as he argues that repealing Glass Steagall had no impact on the 2007 financial crisis. 

http://tinyurl.com/mb5vy2c

Later on, of course, Volcker would argue that the banks needed more capital to prevent the bad acts that led to the accumulation of some $60 trillion in toxic waste by 2007.  But for some reason, nobody in the financial media is able to ask Volcker just why it was that he believed back in the 1980s that large banks could manage the financial, legal and reputational risk of off-balance sheet financial vehicles that were completely unsupported by capital.  

In 1982, under the chairmanship of William Isaac, the FDIC issued a “policy statement” that state chartered non-Federal Reserve member banks could establish subsidiaries to underwrite and deal in securities.   Also in 1982 the OCC, under Comptroller C. Todd Conover, approved the mutual fund company Dreyfus Corporation and the retailer Sears establishing “nonbank bank” subsidiaries t
hat were not covered by the Bank Holding Company Act.  While the Federal Reserve Board under Volcker did ask Congress to overrule both the FDIC’s and the OCC’s actions, the Fed quietly supported the idea that banks should have broader securities powers and use SIVs to increase their effective leverage.  

By 1987, just as Volcker’s term was ending, the Fed approved regulations allowing bank holding companies to underwrite and deal in residential mortgage-backed securities, municipal revenue bonds, and commercial paper. Glass–Steagall’s Section 20 prohibited a bank from affiliating with a firm “primarily engaged” in underwriting and dealing in securities.  Half a century later, Citigroup, Lehman Brothers, Washington Mutual, Countrywide and other banks would fail because of acts of financial fraud related to underwriting bad securities, securities which were “sold” to SIVs that were in fact controlled by the sponsoring banks.  These transaction violated the dictum established by Supreme Court Justice Louis Brandeis in 1925 that failure to release control over an asset that was ostensibly being sold was “fraud on its face.”

http://blogs.reuters.com/christopher-whalen/2011/05/17/putting-trust-bac…

When we look at the Volcker Rule being approved by the Fed today, what is apparent is that the key issues which caused the subprime crisis – securities fraud and off-balance-sheet financial vehicles of banks — remain unaddressed.  The Volcker Rule places limits on the principal trading activities of large banks, essentially sequestering the bank’s capital from the market, but does nothing to reign in the creation of bad assets by banks for sale to customers.  One could argue that the Volcker Rule is a canard, a diversion to prevent the public from focusing on the real problem, namely financial fraud by the officers and directors of the largest banks.  Since principal trading had little or nothing to do with the crisis, it seems reasonable to ask why we are even bothering with the Volcker Rule. Nobody in the media ever asks this question.  

The answer, sadly, goes back to the point about monuments.  The Volcker Rule is a monument to Paul Volcker the man.  It is a memorial to the idea that members of the media and the public, in their ignorance and naïveté, want to believe in, but the proposal does little to address the true causes of the subprime financial crisis.  Just as the Sarbanes-Oxley law was a monument to my friend Charles Bowsher, the former Arthur Anderson partner and head of the General Accounting Office (1981-1996), the Volcker Rule is a pyramid erected to honor Volcker the man, Volcker the idea, but has nothing to do with financial reform.  Like the quote from FDR, the cult of personality which surrounds Paul Volcker illustrates the superficial and puerile nature of American society when it comes to matters of economics and finance.  

Sarbanes Oxley, which was enacted in the wake of the securities fraud perpetrated by Enron and Worldcom (using off-balance sheet vehicles, please note) did nothing to address the issue of financial fraud using SIVs.   Likewise, the Volcker Rule limits the trading by banks for their own account, but does absolutely nothing to prevent banks from engaging in wanton acts of securities fraud against their customers.  Indeed, by limiting the ability of banks to deploy capital in the financial markets, the Volcker Rule arguably limits market liquidity and creates the circumstances for future financial contagion.   

Just look at the rout in the bond market after the June 19, 2013 press conference by Fed Chairman Ben Bernanke and you start to appreciate how the implementation of the Volcker Rule has added volatility and instability to the US markets.   One must wonder whether even Volcker himself understands how his eponymous rule will really impact financial institutions and markets in the months and years ahead.  But such is life in a democracy.  As the last line of the Living Color song “Cult of Personality” reminds us, “The only thing we have to fear is fear itself.”

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As the world mourns the death of Nelson Mandela; following his oration, it seems President Obama has taken the opportunity to seek advice from world leaders on better managing his nation…

 

President Obama meets Cuba’s Raul Castro…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/5UzBSogvZFY/story01.htm Tyler Durden

GM has named Mary Barra to succeed Dan Akerson as CEO, making her the first female CEO in global auto industry:

• *GM SAID TO NAME BARRA AS FIRST FEMALE CEO, SUCCEEDING AKERSON
• *GM’S AKERSON SAID TO STEP DOWN IN JANUARY

 

 

 

 

Mary Barra was named Senior Vice President, Global Product Development effective February 1, 2011, responsible for the design, engineering, program management and quality of General Motors vehicles around the world. On August 1, 2013, she assumed responsibility for GM’s Global Purchasing and Supply Chain organization and was named Executive Vice President, Global Product Development & Global Purchasing and Supply Chain. She is a member of the GM Executive Operations Committee and serves on the Adam Opel AG Supervisory Board.

Barra had previously been Vice President, Global Human Resources.

She has also served as GM Vice President, Global Manufacturing Engineering; Plant Manager, Detroit Hamtramck Assembly; Executive Director of Competitive Operations Engineering; and has held several engineering and staff positions.
 
In 1990, Barra graduated with a Masters in Business Administration from the Stanford Graduate School of Business after receiving a GM fellowship in 1988.

Barra began her career with GM in 1980 as a General Motors Institute (Kettering University) co-op student at the Pontiac Motor Division. She graduated with a Bachelor of Science degree in electrical engineering.

She serves on the General Dynamics and Barbara Ann Karmanos Cancer Institute Board of Directors.  Barra is also a member of the Kettering University Board of Trustees and is GM’s Key Executive for Stanford University and University of California-Berkeley.

Barra is married with two children and was born December 24, 1961.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/2-4uw9Umehs/story01.htm Tyler Durden

Yesterday, we pointed out that according to the latest Bloomberg survey of economists, roughly 70% of respondents now believe that a taper is coming in either December or January, further accentuated by the recent flipflopping of Fed “bellwether” James Bullard who after holding out for a much delayed reduction in the Fed’s monthly flow, admitted that the “probability of a taper had risen “. Today, some additional thoughts on what now seems the consensus from Credit Suisse: “With the labor market looking to be on a more sustained recovery trend following a late summer set-back we think tapering is now virtually inevitable with the decision between a Dec or Jan taper a virtual toss-up that may come down to Fed perceptions of market liquidity in the latter part of December.” And just to add fuel to the flame here comes CNBC’s own staff “Fed expert” Steve Liesman with “get ready, here it comes: A December taper.“

It increasingly appears that tapering is coming at the Fed’s meeting next week.

 

While forecasting the central bank’s moves has been an uncertain proposition for most of the past several months—with the conventional wisdom having it wrong in June and September—several of the Fed’s own financial tests for reducing its asset purchases look to have been met as it heads into the Dec. 17 meeting. Those include confidence in the outlook, an easing of fiscal drag and uncertainty, and what the Fed sees as more appropriate interest rates.

And while the market has been beyond complacent, and is confident that “this time is different”, all it will take for a “tightening of financial conditions” is for one big seller to decide the time has come to take profits, and to ruin the Fed’s latest carefully laid plan to make it seem that Tapering (which the Fed will not tire of repeating is not tightening even though even the Fed has now admitted it is the Flow and not the Stock) is priced in, and make a mockery of all “consensus” forecasts yet again.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Lm46ntJ1NTg/story01.htm Tyler Durden

Yesterday, we pointed out that according to the latest Bloomberg survey of economists, roughly 70% of respondents now believe that a taper is coming in either December or January, further accentuated by the recent flipflopping of Fed “bellwether” James Bullard who after holding out for a much delayed reduction in the Fed’s monthly flow, admitted that the “probability of a taper had risen “. Today, some additional thoughts on what now seems the consensus from Credit Suisse: “With the labor market looking to be on a more sustained recovery trend following a late summer set-back we think tapering is now virtually inevitable with the decision between a Dec or Jan taper a virtual toss-up that may come down to Fed perceptions of market liquidity in the latter part of December.” And just to add fuel to the flame here comes CNBC’s own staff “Fed expert” Steve Liesman with “get ready, here it comes: A December taper.“

It increasingly appears that tapering is coming at the Fed’s meeting next week.

 

While forecasting the central bank’s moves has been an uncertain proposition for most of the past several months—with the conventional wisdom having it wrong in June and September—several of the Fed’s own financial tests for reducing its asset purchases look to have been met as it heads into the Dec. 17 meeting. Those include confidence in the outlook, an easing of fiscal drag and uncertainty, and what the Fed sees as more appropriate interest rates.

And while the market has been beyond complacent, and is confident that “this time is different”, all it will take for a “tightening of financial conditions” is for one big seller to decide the time has come to take profits, and to ruin the Fed’s latest carefully laid plan to make it seem that Tapering (which the Fed will not tire of repeating is not tightening even though even the Fed has now admitted it is the Flow and not the Stock) is priced in, and make a mockery of all “consensus” forecasts yet again.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Lm46ntJ1NTg/story01.htm Tyler Durden

Today’s AM fix was USD 1,245.75, EUR 906.13 and GBP 757.76 per ounce.
Yesterday’s AM fix was USD 1,228.50, EUR 895.60 and GBP 749.95 per ounce.

Gold rose $11.90 or 0.97% yesterday, closing at $1,240.60/oz. Silver soared $0.39 or 2% closing at $19.87/oz. Platinum climbed $19.49, or 1.4%, to $1,372.74/oz and palladium edged up $2 or 0.3%, to $733.50/oz.

Gold in U.S. Dollars, 5 Day – (Bloomberg)

Gold edged up to a near one week high today as the dollar weakened and technical support held again prompting funds and investors to allocate funds togold. Given the poor fiscal and monetary state of the U.S., we expect the dollar to weaken in 2014 which should contribute to higher gold prices.

Trading was subdued on the COMEX yesterday as hedge funds and banks turned their attention to the Fed’s policy meeting next week. Volumes in the futures market and the physical market are thin due to little price movement, a lack of news and the wind down in the run up to Christmas.

COMEX Net Long Position – Jan 2006 to Dec, 2013 – (Bloomberg)

There is a risk of a sizeable short covering squeeze after last Friday’s U.S. Commodity Futures Trading Commission (CFTC) data showed hedge funds had cut their bullish bets on gold to the lowest since July 2007. This means that the speculative hot money is the least bullish on gold since 2007.

This suggests that recent heavy selling in gold might have run its course and that speculators and weak hand investors have liquidated their positions which are now being held by stronger hands.

The CFTC data showed that hedge funds also raised their bearish bets in gold to near a 7 and a 1/2 year high. This heightens the risk of a short covering rally. The majority of hedge funds are momentum and trend driven and therefore they tend to often get market bottoms and tops wrong.

They frequently go long at market tops and go short at market bottoms and are therefore considered a good contrarian signal.

Where Are Bail-Ins Likely To Take Place
Bail-ins are likely to happen at banks that are close to failure in countries that have adopted the FSB bail-in conventions and or do not have financial resources to bail-out their banks. Thus, deposits in failing banks in G20 nations may be subject to bail-ins.

The total debt to GDP ratios, household, corporate, financial and sovereign debt, in Japan, the UK and the U.S. are all at very high levels. All three countries have banks whose outlook is far from positive.

Many analysts warn that many Wall Street and City of London banks are bigger now than they were prior to the collapse of Lehman.

The Eurozone debt crisis has abated in recent months but many analysts and economists are concerned that it is only a matter of time before the debt crisis returns with Greece, Spain, Portugal, Italy and Ireland all remaining vulnerable.

 

European banks have been recapitalised but should the sovereign debt crisis return or a new global systemic crisis happen, à la Lehman Brothers, individual banks may again face capital shortages.

Greece, Cyprus, Spain, Italy, Portugal and Ireland all remain vulnerable. However, other countries in the EU also have risks, including the UK, the Netherlands, Switzerland, Denmark & France.

A recent paper by Eric Dor of the IESEG School of Management in France, warned how most European governments remain very exposed to their banks, especially France.

The paper computes the total recapitalisation needs of the banking sector of each European country in case of a new systemic financial crisis. It looks at ratios that would represent the increase of public debt, in percentage of GDP, that would result from a recapitalisation of the big national banks by each country.

 

France which would incur the highest cost in percentage of GDP, if the big banks in France had to be recapitalised with public monies. After France, Cyprus, the Netherlands Greece, the United Kingdom and Switzerland are the most vulnerable.

The research highlighted the vulnerability of many large European banks and the capital shortages of these banks in the event of a systemic crisis. Particularly vulnerable banks in each country, according to data compiled by the Center for Risk Management of Lausanne (CRML) and the VLAB of Stern Business School at New York University were (in no particular order):

Stor and his colleagues concluded that:
“The potential capital shortages of the banking sectors of many European countries in the event of a new systemic crisis are very high.”

When Could Bail-Ins Take Place?
The readiness for the bailin regime depends on how quickly each participating jurisdiction implements supporting legislation. Given the recent updates (see below) from a number of regulators and central banks, it appears that they are well positioned to have the necessary legal framework in place to support resolution authorities by about 2015, if not before.

The Financial Stability Board released an updated report in November 2012, titled “Recovery and Resolution Planning: Making the Key Attributes Requirements Operational” requesting input from regulators, supervisory authorities and banking institutions, in which it stated that:

“Reforms are now underway in many jurisdictions to align national resolution regimes and institutional frameworks more closely with the Key Attributes”.

In March 2013, the Reserve Bank of New Zealand stated that it had “been working closely with registered banks for the last two years to put (bail-in) functionality in place”, and intended for the pre-positioning requirements to be in place by 30 June 2013.

The FSB has a Standards Implementation Committee which is currently “reviewing progress on legislating the Key Attributes” and was expected to produce a report by the second quarter of 2013.

EU leaders plan to agree on the ‘Single Resolution Mechanism’ by the end of 2013, for adoption by the European Parliament in 2014, and implementation in January 2015.

The UK and U.S. appear to already have the supporting powers and legislation in place for bail-ins, based on powers granted in the UK Banking Act of 2009 and the Dodd Frank Act of 2010, respectively.

The exact timing of any bank rescue involving a bail-in obviously would then depend on the need for the bank to be rescued.

Emergency resolutions and legislation would be likely in many countries in the event of another Lehman Brothers collapse and another global credit and financial crisis.

Download our Bail-In Guide: Protectin
g your Savings In The Coming Bail-In Era(11 pages)

Download our Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications –
Including 60 Safest Banks In The World List  (51 pages) 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/gBkrr3oc960/story01.htm GoldCore

Gold (>$1260) and silver (>$20) are extending yesterday's gains as US markets awake this morning. The crack higher at around 8:07ET caused the futures market to be halted after 3,000 Gold Futures contracts traded in one second at 08:07:45 on December 10, 2013 sending the price up $10 and tripping circuit breakers for 10 seconds. Silver is now +4% on the week and gold +2.5% as Treasuries are also bid. Stocks are stumbling overnight, driven by the "fundamentals" of a drop in EURJPY after it tagged 142 overnight and fell back.

PMs spiking again at the US open…

And halted at 8:07 – as Nanex shows,

About 3,000 Gold Futures contracts traded in one second at 08:07:45 on December 10, 2013 sending the price up $10 and tripping circuit breakers which halted trading for 10 seconds. This sort of thing is happening far too often: see also the drops on April 12, 2013,  September 12, 2013, October 11, 2013, November 20, 2013 and November 25, 2013 which also resulted in trading halts.

1. February 2014 Gold (GC) Futures Trades.

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2. February 2014 Gold (GC) Futures Trades – Zoom.

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3. February 2014 Gold (GC) Futures Depth of Book (how to read).

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and stocks tumbling to play catch up to JPY carry…

 

and Treasuries are bid…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/HWVUJS7KURM/story01.htm Tyler Durden