Month: April 2016

Submitted by Mike “Mish” Shedlock of Mishtalk

Italy’s Interior minister Angelino Alfano warns the refugee “system is at risk of collapse” following an 80 per cent spike in the number of arrivals to Italy across the central Mediterranean Sea in the first quarter of this year compared to 2015.

Alfano fears that Syrians headed for Turkey will inetead head for Libya for an even more hazardous Mediterranean Sea crossing to Italy.

How many tens of thousands of people can you keep, year after year? Without returns, either you organize real prisons, or it’s obvious that the system will collapse,” Mr Alfano said. “It doesn’t take a prophet to glimpse the future”.

Costs are about to soar. Alfano wants to secure new deals with African nations, offering economic aid in exchange for taking back their citizens. Here’s a picture that explains everything.

Refugee Crisis in a Single Picture

Taking into consideration fences and walls, boat lifts, airlifts, increase security, border checks, prisons, crime, retention centers, and bribes to countries for taking back refugees: what’s this going to cost?

Italy Seeks Greek-Style Solution

The Financial Times reports Italy Pleads for Greek-Style Push to Return its Migrants.

In an interview with the FT, Angelino Alfano, Italy’s interior minister, says the EU should move to secure deals with African nations, which are the source of the vast majority of migrants arriving in Italy, offering economic aid in exchange for taking back their citizens and preventing new flows.

 

Mr Alfano’s request reflects renewed nervousness in Rome about the migration crisis following an 80 per cent spike in the number of arrivals to Italy across the central Mediterranean Sea in the first quarter of this year compared to 2015.

 

If that increase holds through the warmer spring and summer months, it would smash the record 170,000 migrants who arrived in Italy in 2014, straining resources and creating a political problem for the centre-left government led by Matteo Renzi.

 

“If Syrians don’t want to stay in Turkey but want to try the trip to Europe, they will go around and try to get here from Libya,” Mr Alfano said. “We still don’t have any evidence that this is happening, but we are monitoring.”

 

“Irregular [migrants] have to be kept in closed camps from where they cannot escape. So how many tens of thousands of people can you keep, year after year? Without returns, either you organise real prisons, or it’s obvious that the system will collapse,” Mr Alfano said. “It doesn’t take a prophet to glimpse the future”.

Cost Analysis

Apparently it does take a prophet because Chancellor Merkel still doesn’t get it. And I have yet to see a complete analysis of the cost of these schemes, from anyone.

New and Proposed Processes

• Greece will return refugees to Turkey
• On a one-for-one basis, Turkey will take those refugees and send them to Germany.
• Turkey, (off the record as the EI looks the other way), will send refugees back to Syria in violation of international law.
• Seeking news ways to get to the EU, Syrian refugees will attempt to get to Italy instead of Greece.
• Italy will send those refugees back to Turkey where they presumably will be part of the existing one-for-one swap with the coalition of the willing (Germany).
• Italy will return non-Syrians to Tunisia, Libya, and Egypt after bribing those countries with money.
• In an effort to spread around the refugees monetary bribes go out to at least 10 countries.

One country stands out in these preposterous scheme. Saudi Arabia, where art thou?

via Zero Hedge http://ift.tt/1Sx6PkF Tyler Durden

Cast your mind back to Friday – when payrolls confirmed everything for everyone and enabled more crowing from an establishment clinging to smoke and mirrors. It appears The Fed disagrees with the 'awesome' jobs market that BLS proposes as today's Labor Market Conditions Index continues to push to its weakest since 2009, drastically divergent from the seemingly all-impotrant non-farm payrolls data.

The 19-factor labor market conditions index developed by The Fed is not singing from the same Koombaya "everything is awesome" hymn-sheet that The White House would prefer…

 

This kind of divergence has not been seen before in the lifetime of this data series… so what exactly is going on?

It appears the market is starting to agree…

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

Submitted by MN Gordon via EconomicPrism.com,

Nearly 7 years have elapsed since the official end of the Great Recession.  By now it’s painfully obvious the rising tide of economic recovery has failed to lift all boats.  In fact, many boats bottomed out on the rocks in early 2009 and have been taking on water ever since.

Last week, for instance, it was reported that U.S. credit card debt topped $714 billion in the third quarter of 2015.  That’s up $34 billion from the year before.  Shouldn’t the economic recovery allow consumers to pay down their debts?

Indeed, it should, if only the economic recovery was the result of real, economic growth.  To the contrary, the recovery has been faux growth driven by cheap Fed credit and financial engineering.  Mutual increases in prosperity haven’t occurred.

In particular, those outside the financial services business, and other bubble industries, like government lobbyists, have largely missed out on any increase in income or living standard.  Good paying professional jobs that vaporized during the downturn have been replaced with low paying service jobs.  Consumers have used credit card debt to pick up the slack.

Unfortunately, this short term solution sets up consumers for pain in the future.  At some point, as debt increases faster than incomes, the ability to pay down the principle becomes near impossible.  Even making the minimum payment becomes more and more difficult as new debt is added to the burden each month.

Playing with Fire

“We’re playing with fire now,” said Odysseas Papadimitriou, chief executive of credit statistics and analysis site CardHub.  “Either an unexpected economic downtown or the continuation of current spending and payment trends could be enough to unleash an avalanche of defaults.”

Papadimitriou is correct in his assertion we are playing with fire and that the continuation of current trends could unleash an avalanche of defaults.  But his statement that there could be an “unexpected” economic downturn doesn’t appreciate the natural rhythms of an economy.  Specifically, economic downturns are normal occurrences – they should be expected, not unexpected.

From what we gather there has been roughly 12 recessions (assuming the 1980 and 1981-82 recessions were two distinct events) in the United States in the post-World War II era.  The average interval between these recessions has been about 58 months.  Based on the official end date of the Great Recession of June 2009, we are currently 82 months into the current recovery.  In other words, we are due for a downturn.  What’s more, we may presently be entering one.

According the Atlanta Fed’s March 28 GDPNow model forecast, real GDP growth in the first quarter of 2016 is estimated to be 0.6 percent.  By the time you read this, the April 1 update will likely have been posted.  You can take a look at the Atlanta Fed’s latest forecast here.

The point is, GDP is meager.  Moreover, present credit card debt is unsustainable.  The potential for an avalanche of defaults is already high, regardless of if there’s a recession.  Yet, at this point in the recovery, the looming potential for a recession is highly likely.  Hence, an avalanche of credit card defaults is practically certain.  But that’s not all…

The Other Problem with Debt No One is Talking About

The other problem with expanding consumer debt that is rarely, if ever, mentioned is that it accompanies expanding waste lines.  You can chart the strength of the relationship over time with a near perfect +1.0 positive correlation.  Why is this?

We don’t know for sure.  We haven’t studied the data.  Nor have we researched the causation.  But gut feel tells us it has something to do with discipline.  More precisely lack of discipline.

For example, the inclination to charge the purchase of a new flat screen TV complements the proclivity to jumbo size a mega gulp soda pop.  Both are entirely unnecessary.  But they go hand in hand.

Saving up for a flat screen and resisting the jumbo size option takes the sort of self-restraint that’s absent from our debt saturated society.  Of course, the federal government is the worst offender.  Even with their bloated budgets they still need a half trillion dollar annual deficit to keep the machine humming along.

No doubt, the promises politicians have made to voters for a comfortable retirement and free drugs are at the heart of matter.  Similar to credit card debt, the promises stack up each month and each year like dead wood in the Angeles National Forest.  At some point all it takes is the strike of a single match and the whole mountain conflagrates in a blazing inferno.

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

Last July, the United States entered into an agreement with Iran with the hopes of limiting their nuclear ability. At a high level, the US would lead the way in lifting oil and financial sanctions imposed due to Iran’s nuclear programs; in return Iran would reduce their stockpile of enriched uranium, storage facilities and centrifuges. What was not negotiated, however, were sanctions on missile technologies and conventional weapons.

Per the White House:

 

Then, in March 2016, Iran launched a series of ballistic missile tests early in the month that got the world’s attention.

 

As we reported then, In a testament to the “success” of Washington’s foreign policy towards Iran, Iran’s Brigadier General Hossein Salami, deputy commander of the IRGC said the following: “The missiles fired today are the results of sanctions. The sanctions helped Iran develop its missile program.” Furthermore, the rockets had a quite clear message written on their side:

The message printed on #IRGC missiles tested recently in #Hebrew :????? ????? ?????? ???
“#Israel must be wiped off the face of the earth”

— H.Soleimani (@MashreghNews_ir) March 9, 2016

 

President Obama’s response? He said Iran was “not following the spirit of the deal.”

This is what he said according to The Hill:

“Iran so far has followed the letter of the agreement, but the spirit of the agreement involves Iran also sending signals to the world community and businesses that it is not going to be engaging in a range of provocative actions that are going to scare businesses off”

While we’re sure Iran didn’t bat an eyelid at the latest hollow rhetoric from the White House, it did seem to get irritated when the Treasury then implemented fresh sanctions. The thought is that as the missiles become even more capable of hitting long range targets, they could eventually be equipped to carry nuclear warheads as well, immediately putting various neighboring countries in danger.

Fast forward to today, when Iranian Deputy Chief of Staff Brig-Gen Maassoud Jazzayeri was quoted by the Fars News Agency as saying:

“The White House should know that defense capacities and missile power, specially at the present juncture where plots and threats are galore, is among the Iranian nation’s red lines and a backup for the country’s national security and we don’t allow anyone to violate it”

Clearly, the Iranian Revolutionay Guard was not particularly concerned how Obama evaluates the “spirit” of the deal as long as he remains utterly helpless to change it, something which Iran is absolutely convinced of at this moment.

And then the moment of truth: Iran actually used Obama’s infamous “red line” phrase… against him, when “Iran warned the US on Monday that any attempt to encroach on the Islamic Republic’s ballistic missile program would constitute the crossing of a “red line.”

“The US calculations about the Islamic Republic and the Iranian nation are fully incorrect,” Iranian Deputy Chief of Staff Brig-Gen Maassoud Jazzayeri was quoted by the Fars News Agency as saying.

Jazzayeri accused US President Barack Obama of making vows and breaking them by saying removal of sanctions on Iran would be conditioned on the Islamic Republic halting its ballistic missile program.

And with that, the farce was complete.

* * *

Incidentally, this latest slapdown back and forth but mostly back didn’t escape the GOP Presidential hopeful Donald Trump, who promptly called Obama a baby for thinking Iran was going to adhere to our guidelines: “I hate seeing President Obama today saying that Iran has violated our agreement. I mean, what did he think? He’s now complaining about Iran violating the agreement. What the hell did he think? He’s like a baby. He’s like a baby.“

via Zero Hedge http://ift.tt/1V5rToq Tyler Durden

Authored by Bill Bonner via Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

A Witless Tool of the Deep State?

Finance or politics? We don’t know which is jollier. The Republican presidential primary and Fed monetary policies seem to compete for headlines. Which can be most absurd? Which can be most outrageous? Which can get more page views?

Politics, led by Donald J. Trump, was clearly in the lead… until Wednesday. Then, the money world, with Janet L. Yellen wearing the yellow jersey, spurted ahead in the Hilarity Run.

 

A coo-coo for the stock market…

 

“Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.

At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.

But it wasn’t so much what Ms. Yellen said that sent stocks racing ahead. It was what she hasn’t done. And she hasn’t done exactly what we thought she wouldn’t do. That is, so far this year, she has not taken a single step in the direction of a “normal” monetary policy; our guess is that she never will.

Why not? Is it because she is a witless tool of Deep State cronies? Is it because her economic theory is silly, superficial, and simpleminded? Or is it because she and her predecessor, Ben Bernanke, have done so much damage to the normal world that there is nothing to go back to?

 

US monetary base and the effective federal funds rate – the “new normal”. It’s the new normal, because any serious change toward a normal state of affairs as it used to be understood will implode the credit and asset bubble – click to enlarge.

 

They have burned our bridges… our factories… our savings… and everything else behind them. Now, it is better just to pack up, move out… and keep on going. That is more or less what Charlie Munger sees coming.

 

Prepare for the Worst

Asked whether the Fed would reduce its balance sheet to pre-Great Recession levels (by selling back to the private sector the $4 trillion worth of bonds it bought over the last eight years), Warren Buffett’s long-time business partner had this to say:

I remember coffee for 5 cents and brand new automobiles for $600. The value of money will continue to go down. Over the past 50 years, we lived through the best time of human history. It is likely to get worse. I recommend you prepare for worse because pleasant surprises are easy to handle.

The “normal” financial world is no longer habitable. Ms. Yellen went on to say that these soupçons of recklessness – her hints about not returning to normal – provided an “automatic stabilizer,” to the global financial system. That’s right (and here is where we begin to laugh uncontrollably).

Not only does outrageously easy credit help “stabilize” the system, so does the anticipation of more of it! Maybe giving out the news that she will NOT even try to get back to normal helps to settle investors’ nerves. Maybe normal wasn’t all that great anyway.

Either way, speculators can continue whatever perverted hustles they have going… free from the fear that “normal” will walk around the corner and catch them in the act.

But what’s this? A complicating factor, the “outlook for inflation,” is “uncertain,” says Ms. Yellen. The Financial Times clarifies: “[I]nflation could take longer to return to the Fed’s 2% target.”

 

5 year inflation breakeven rate – Ms. Yellen sees one thing, but the market apparently sees something different… – click to enlarge.

 

Ms. Yellen is worried about a lack of inflation in much the same way primitive farmers worried about a lack of rain. Her response is to do more of the ritual dances… and say more of the magic incantations… that have so far only produced more drought conditions.

 

A Quarter Century of Voodoo

In Japan, they’ve been doing this voodoo for 26 years. We’ve had our eye on Japan since the mid-‘80s, when everyone was sure that Japan Inc. was the hottest thing in the econosphere.

The miracle economy blew up in 1989, and liquidity disappeared. Since then, Japan Inc. has been the Sahara of the developed world. QE, ZIRP, NIRP, monumental deficits, Abe’s Arrows… nothing worked to make it rain.

 

Data from the island of the parched: the Nikkei remains nearly 60% below its highs of 26 years ago. Meanwhile, the BoJ’s balance sheet has gone into orbit, in the latest ploy that’s not working – click to enlarge.

 

Negative interest rates, announced late last year, were supposed do the job. Savers were supposed to throw up their hands, open up their wallets… and spend, spend, spend to avoid paying the tax on saving.

Instead, savers saved more. What else could they do? With negative rates they needed more savings to get the same financial bang per buck. Result: In January, Japan’s retail sales fell 2.3% over the previous month.

But the Japanese feds aren’t giving up. And now they turn to two of the world’s most celebrated witchdoctors – Paul Krugman and Joseph Stiglitz – for advice on what to do next.

 

Krugstitz – the closest equivalent the modern world has to witchdoctors and voodoo practitioners. You might call them quacks to the powerful. Nothing of what these geniuses have prescribed over the years has worked, so obviously the Japanese asked them for more advice, which predictably turned out to be “do more of what hasn’t worked”. As snake oil selling goes, these guys are brilliant.

 

Japan has famously run huge fiscal deficits in an effort to get the economy moving. Thanks to a quarter century of these loose budgets, the island now has gross government debt equal to 240% of GDP and nearly nine times tax revenues.

Most of the spending is used to fund programs for old people – health care and pensions – making it hard to cut back. Japan’s government finances are nothing more than a huge, compulsory, unfunded, old-age benefit program… one that is sure to go broke.

But don’t worry, Japan. According to the Financial Times, the two Nobel Laureates went to Tokyo and argued – if you can believe it – that Japan needs more liquidity, that is, “a looser fiscal policy.”

Yes, like New Orleans needed a shower after Hurricane Katrina.

via Zero Hedge http://ift.tt/1S5bPMX Tyler Durden

Over the weekend we reported some shocking gun crime statistics in Chicago: according to a CNN report, gun violence in the windy city is on track to post its worst year in the 21st century, the result of an unprecedented surge in gun deaths in the first three months of the year.  By March 31, 141 people had been killed. Last Thursday, eight were shot and two of them died in one hour alone, Chicago Police said.

The 141 deaths in the first three months of the year mark a 71.9% jump from the same period in 2015, when 82 people were killed. It’s the worst start to a year since 1999, when 136 people died in the first three months the year, according to the Chicago Tribune.

At that pace – an average of three killings every two days – Chicago would have 564 homicides by the end of the year. That would eclipse the 468 killings recorded in 2015 and 416 in 2014.

 

However, nothing prepared us for this jarring example of just how bad gun violence in Chicago truly is.

The following graphic footage shows a Chicago resident gunned down Thursday while live-streaming the entire event on Facebook, as he stood on a street corner. The man falls to the ground as the suspect stands over him continuing to fire shots.

 

Viewer discretion strongly advised.

 

This was one of nine shootings across the city on Thursday that left at least two people dead.

Cited by BuzzFeed, Chicago Police Officer Thomas Sweeny said that the shooting occurred just before 5:00 p.m. in the 5800 block of South Hoyne Avenue. A suspect approached the 31-year-old man, shot him multiple times, then fled in a vehicle, Sweeney said.

After the shooting stops, another man can be heard talking about taking the individual to a hospital as a woman wails in the background.

The New York Daily News reported the victim was in critical condition Thursday night and had sustained multiple gun shot wounds.

via Zero Hedge http://ift.tt/1YcaY1A Tyler Durden

As if a million M&A arbs suddenly cried out in terror, and were suddenly silenced.

 

Moments ago the stock of Allergan imploded, crashing by 20%, plunging to $225 or the lowest level since late 2014, in the process blowing up countless M&A arb deals which were hoping the recently blowing out spread, which as of Friday hit a post announcement wide of $61, is attractive enough to take the risk of a Treasury crackdown on tax inversion deal.

Alternatively, maybe someone knew something.

Something, such as what the Treasury announced 5pm this afternoon in a release titled “Treasury Announces Additional Action to Curb Inversions, Address Earnings Stripping“

As the title implies, the Treasury has just made it quite clear that any and all tax inversions, of which the Pfizer-Allergan deal is most notable, are no longer welcome. This is what it said.

Treasury Announces Additional Action to Curb Inversions, Address Earnings Stripping

 

Today, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued temporary and proposed regulations to further reduce the benefits of and limit the number of corporate tax inversions, including by addressing earnings stripping. By undertaking an inversion transaction, companies move their tax residence overseas to avoid U.S. taxes without making significant changes in their business operations. After an inversion, many of these companies continue to take advantage of the benefits of being based in the United States, while shifting a greater tax burden to other businesses and American families.

 

“Treasury has taken action twice to make it harder for companies to invert. These actions took away some of the economic benefits of inverting and helped slow the pace of these transactions, but we know companies will continue to seek new and creative ways to relocate their tax residence to avoid paying taxes here at home,” said Treasury Secretary Jacob J. Lew. “Today, we are announcing additional actions to further rein in inversions and reduce the ability of companies to avoid taxes through earnings stripping. This will have an important effect, but we cannot stop these transactions without new legislation. I urge Congress to move forward with anti-inversion legislation this year. Ultimately, the best way to address inversions is to reform our business tax system, which is why Treasury is releasing an updated framework on business tax reform, outlining the administration’s proposals to date as a guide for future reform. While that work goes on, Congress should not wait to act as inversions continue to erode our tax base.”

 

Genuine cross-border mergers make the U.S. economy stronger by enabling U.S. companies to invest overseas and encouraging foreign investment to flow into the United States. But these transactions should be driven by genuine business strategies and economic efficiencies, not a desire to shift the tax residence of a parent entity to a low-tax jurisdiction simply to avoid U.S. taxes.

 

Today, Treasury is taking action to:

• Limit inversions by disregarding foreign parent stock attributable to recent inversions or acquisitions of U.S. companies. This will prevent a foreign company (including a recent inverter) that acquires multiple American companies in stock-based transactions from using the resulting increase in size to avoid the current inversion thresholds for a subsequent U.S. acquisition.
• Address earnings stripping by:
  • Targeting transactions that generate large interest deductions by simply increasing related-party debt without financing new investment in the United States.
  • Allowing the IRS on audit to divide debt instruments into part debt and part equity, rather than the current system that generally treats them as wholly one or the other.
  • Facilitating improved due diligence and compliance by requiring certain large corporations to do up-front due diligence and documentation with respect to the characterization of related-party financial instruments as debt.  If these requirements are not met, instruments will be treated as equity for tax purposes.
  • Formalize Treasury’s two previous actions in September 2014 and November 2015.

 Treasury will continue to explore additional ways to address inversions.
 
Treasury is also releasing an updated framework for business tax reform, which revises the framework released in 2012. This lays out the key elements of the President’s approach to reform and details the specific proposals the administration has put forward, including a comprehensive approach to reforming the international tax system.

We can’t wait to find out how many M&A arbs, who had anywhere between 2x and 5x leverage on the arb spread (of which the most notable recent arb chaser is none other than Franklin resources whose Dec 31. $1.3BN pure arb stake is now worth 20% less in an instant) just blew up after hours with just this one simple press release.

We also wonder how this will impact the broader market tomorrow.

via Zero Hedge http://ift.tt/1S4ZEjl Tyler Durden

Submitted by Jeff Thomas via InternationalMan.com,

Some years ago, when I suspected there would be a War on Cash at some point, everything in the behaviour of the central banks pointed to the idea—it fit exactly into their own informed, yet unrealistic, pattern of logic. I therefore decided that it would be a likely development and would take place at a time when they had tried everything else and had run out of other ideas. As to a date when this might happen…I had no idea.

When several countries had begun to limit the amount of money that a depositor could take out of a bank, I decided that the first shots in the War on Cash had been fired and began to publish my prognostications as to what shape it would take. First, there were the benefits to the bank (the elimination of cash transactions, which would assure that virtually all monetary transactions, large and small, would have to be passed through banks, allowing them to effectively “own” all deposits, charge for every transaction and even refuse transactions). The governments would also benefit. In approving the banks’ monopoly on monetary transactions, they’d benefit primarily through the new ability to tax people by direct debit, ending any remnant of voluntary payment of taxation.

What I didn’t anticipate at that time was that, within a few months, the War on Cash would be escalated quickly—more quickly than was safe for them to do, as it could alarm depositors. (As in the old analogy of boiling a frog, it’s always best to turn up the heat slowly, to lull the victim into complacency as he’s being done in.)

This indicated to me that the central banks had decided that they’d already waited too late and had better hurry up the programme to assure that it was in place before a currency crisis could heat up.

Since then, someone came up with an excellent name for the phenomenon, one that succinctly describes the plan in a nefarious way, as it deserves to be described—the War on Cash. Today, anyone who is paying attention is aware of the War on Cash and what it might do to him. As each new salvo by the banks and governments is uncovered, attentive observers are publishing such developments on the Internet.

However, there’s another facet to the War on Cash that no one (to my knowledge) has yet addressed. The war is still new, and those who will be attacked are understandably still scrambling for their muskets and hurrying to the ramparts. (Musing on how a war will play out usually comes later, as it’s winding down and a victor seems apparent. However, in my belief, it’s wise to examine what the landscape will look like after the war is over, as it can serve to inform us as to what battle tactics should be employed.)

So, let’s have a look. First off, we know that whenever there’s a coming monetary collapse, major banks look forward to employing their political influence to assure that legislation and emergency government measures protect them in a way that results in putting upcoming competitors out of business. We can expect the same this time around. These smaller banks arise during boom times by creating many small branches—the type seen in strip malls and shopping villages. Typically, they have only 1,000 or so depositors per bank—just barely enough to create profit, but, as “convenience banks,” they can count on a steady business from those who live nearby.

Larger banks also tend to create numerous branches during good times, in order to hold down the rising competition; however, they resent the need to create endless less-profitable entities that tie up funds that could otherwise go out as directors’ bonuses. Consequently, when a monetary crisis occurs and the government steps in to help out the major banks, many of the smaller competitors are driven under, as they don’t receive the same governmental support. At such times, we see the edifices in the city remain, whilst the little banks in the strip mall disappear. The majors can now be rid of them. During a banking crisis, a country returns to 19th-century banking in terms of available institutions. Want to make a deposit? Make a trip into the city.

In keeping with the War on Cash, ATMs will also be eliminated. All transactions will be by plastic card or smartphone.

Certainly, as a result of the dangerous position the banks will already be in, we shall witness a steady increase in the charges by banks for the privilege of having them control depositors’ economic worth. Worse, we shall witness the outright confiscation of deposits (as in Cyprus in 2013) and the control of how much a depositor may debit his account in any given week (as in Greece today). It’s at this point that a universal trend to get around the banks’ control will unquestionably take hold. This, I believe, will manifest itself in two ways: top down and bottom up.

Top Down

As I write, bank branches—all of them in small towns—are already closing in “lesser” countries like Romania. This will both grow and spread eventually, to more prominent countries. Banking will be increasingly difficult for depositors, as the ability to actually talk to individuals at the bank will dry up. The bank will become more like a faceless authority that holds power over depositors’ money and will grow to be hated in a relatively short time. (Most of the people of the world have already learned to be deeply distrusting of banks and bankers; outright hatred would not be a major next step.)

Bottom Up

In the Eastern provinces of Mexico, the Campesinos already eschew banks, choosing instead to store their money privately. (Chiapas Province is in a virtual economic war with Western Mexico. They value the Libertad as East Indians value gold.) Those Mexicans who live further to the west regard their eastern brothers as somewhat lawless and uncivilised at present. However, when the Campesinos prove to be surviving the crisis better than their western neighbours are, the western provinces will, of necessity, follow their lead. Mexico will be amongst the first countries to return to precious metals as the primary (if not sole) currency, setting the stage for other countries.

Countries such as Romania and Mexico will serve as an early-warning system. The solutions they and other “fringe” countries employ will spread quickly to the larger world. In order to keep from being controlled by banks, the average person in the EU, U.S. and other “civilised” jurisdictions will learn quickly that, if other forms of trade (alternate currencies, precious metals, barter, etc.) allow him to feed his children when the banks restrict him, he’ll resort to any and all forms of black market dealing that he can find.

The Treaty of Versailles

Following World War I, the victors decided to economically cripple the losers—the Germans. The Treaty of Versailles was ruthless in its purpose—to strip Germany of all possibility of future prosperity, so that it could never rise again.

Of course, what happened was the opposite. Following an economic collapse just five years after the war, the German people, now desperate, chose to follow a new leader who promised that he would “make Germany great again.” The more arrogant he became, the more support he received. The oppression of the treaty failed, as Germans, pushed to the wall, came out fighting.

I believe that the War on Cash will end without such an extreme, but, just as with the Treaty of Versailles, will be stopped by the people of the world as a result of a monetary stricture that is simply too oppressive to be tolerated. This will by no means be a pleasant historical period to travel through. Many people will have their savings wiped out. Many will literally starve. But the anger that’s created in them will reveal the banks as the clear “enemy” in this drama, and those citizens who are presently respectful of the laws of their country will increasingly defy the enemy. They will resort to an alternate system. This is historically what has always occurred when people have been squeezed to this degree, and it will repeat itself this time around.

via Zero Hedge http://ift.tt/1S4ZGaO Tyler Durden

Two weeks ago, the catalyst that pushed Valeant CDS to record wide levels implying a 55% probability of default over 5 years, while sending the company’s stock plunging, was news that Valeant was scrambling to engage its lenders to obtain a default waiver to its bank credit agreement to eliminate a technical default that arose when it didn’t file its 10-K before March 15.

As we reported then, “in anticipation of those meetings, owners of Valeant’s senior bank loans are reaching out to investment banks, including Barclays, who will help mediate the negotiations, the sources said. Barclays did not immediately respond for comment.”    

As was explicitly warned, the lenders’ demands include higher interest payments and a pledge to pay a larger amount of the bank loans from the proceeds of any Valeant asset sales.

Since then the stock bounced modestly because apparently the algos forgot that when lenders smell blood and a potential default from a debtor without any other recourse, they will demand a pound of flesh. Or maybe two.

Well, moments ago the market got a harsh reminder that Valeant is effectively negotiating default compliance with a group of banks who realize they are dealing with a company that has a $9 billion market cap and can thus ask for anything and management and shareholders have no choice but to say yes unless that $9 billion to quickly go to $0.

According to Bloomberg, Valeant, just as predicted,  “is facing push back from some of its lenders as it seeks to waive a default and loosen restrictions on its debt, according to people with knowledge of the matter.”

The resistance may complicate Valeant’s efforts to win the support it needs before the Wednesday deadline for lenders to respond. The company, which has about $32 billion in total debt, must gain approval from more than half of the investors holding its more than $11 billion of secured loans. Those that are balking are demanding a higher interest rate and a better fee, said the people, who asked not to be identified because the discussions are private. They also want to impose some restrictions on the terms the company is offering on the proposal, they said.

Also known as a pound of flesh. Or maybe two.

Bloomberg reports that the initial Valeant “bid” is a 50 basis-point fee and a 0.5 percentage point boost on the interest it pays on its term loans, people with knowledge of the matter said at the time.  Banks, however, want more: “Some lenders might see it as an opportunity to extract better pricing or other terms,” Justin Forlenza, an analyst at independent credit-research firm Covenant Review, said in an interview. “They can meet at a certain point that lenders and the company can get comfortable with.”

Now this is only for the default waiver. Additionally, as a result of its collapsing business Valeant has to cure a key negative covenant limiting its interest coverage ratio to just 2.25x. Valeant’s coverage is about to jump to at least 3.00x and here again the banks want moar.

Under the current proposal, the drug maker is also seeking to loosen restrictions on its credit pact that govern a measure of earnings the company needs to maintain relative to its annual interest expense, Valeant said in a statement on March 30. The interest-coverage ratio was set to jump to three times from 2.25 times, with that level set to be tested before the end of June, according to its current agreement with lenders.

 

Asking lenders to relax loan covenants suggests Valeant may not be able to repay debt as quickly or generate projected earnings, according to Bloomberg Intelligence analyst Elizabeth Krutoholow.

The good news for the banks is that Valeant still has lots of spare cash to pay out, and more importantly zero leverage. And since there are virtually no recent comps for such covenant waiver deals, the banks know that they can demand anything they want and will get it, since management has no choice but to concede to any demand, as the alternative is an outright default and complete collapse in the equity value of the company.

This perhaps explains why after jumping into the $30 range last week, VRX stock is once again back just north of its multi year lows.

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