Category: zerohedge

Things are going from bad to worse for the efficacy of the grand – and failed from the beginning – experiment known as Abenomics. As Bloomberg reports, Larry Fink’s Blackrock has changed its stance on investing in Japan, and joins Citigroup, Credit Suisse, and LGT Capital Partners, the $50 billion asset manager based in Switzerland in their decision to head for the exits.

Ironically, Blackrock’s decision comes only a few months after blogging about “The Case for Investing in Japan”, in which they explicitly cited increased demand for Japanese stocks.

INCREASED DEMAND FOR JAPANESE STOCKS

 

The BOJ and other large institutions have increased their investments in Japanese equities. Meanwhile, the recent successful Japan Post initial public offering has renewed domestic interest in equities and likely increased demand for Japanese equities by investors around the globe.

This is the latest in a long list of setbacks for Japan in their quest to inflate consumer prices and their stock market. Foreign investors have been getting out of the market all year long, as concerns about the global economy and a strenthening yen continue to be at the forefront. So far they’ve dumped $46 billion in shares according to Bloomberg.

 

Meanwhile, Japan is doing all it can (according to the Abenomics playbook). NIRP, Japan’s latest central bank tool form the proverbial “toolbox” has been fully implemented, with a negative 10Y bond auctioned just last month. So far it is not enough.

It has also apparently done enough damage on the fixed income side to sway the worlds biggest state investor, their very own Government Pension Investment Fund, to move more into equities. However with other major players not wanting to be invested in Japan, the BoJ may very well have to increase their ETF holdings to roughly 100%.

 

But most entertaining would be Peter Panic’s reaction. A photographer’s s rendering of Kuroda’s face upon hearing that even his most devoted supporters are now giving up on him would probably look like the change from this…

 

… To this

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

One of the biggest unconfirmed secrets of recent market action was whether or not there was a Shanghai Accord in February, in which the G20 and central bankers decided to push the dollar lower to benefit China at the expense of Japan and Europe, both of whom have suffered substantially in recent weeks as a result of their own currencies surging, pushing local stock markets lower (and sending European banks sliding).

Earlier today, Japan’s government spokesman Suga came as close as possible to admitting that there was in fact a tacit “Shanghai Accord” agreement when he said that the Group of 20’s agreement to avoid competitive currency devaluation “does not mean Japan cannot intervene in response to one-sided currency moves.”

It got better: in an interview with Reuters Suga added that Japanese Prime Minister Shinzo Abe’s comment to the Wall Street Journal last week that countries should avoid “arbitrary intervention,” was misunderstood and does not rule out intervention for Japan, Suga said.

And yet it did rule out intervention until now? He clarified. “What the G20 is talking about is arbitrary intervention, which is different from responding to a one-sided move,” Suga told Reuters in an interview on Saturday.

So arbitrary is not really arbitrary if as a result of other arbitrary devaluations the market decides to focus on Japan… which sound oddly like Obama defending Hillary and explaining how confidential is not confidential.

As Reuters notes, some traders have said Japan cannot sell its own currency now, because the G20 warned countries in February to refrain from competitive devaluation. Suga, who coordinates other ministers in Abe’s cabinet, rejected this idea outright and said Abe’s remarks about arbitrary intervention in a Wall Street Journal interview last week were misunderstood.

“The prime minister’s comments were based on the G20 understanding that long-term manipulation of currencies is undesirable.”

As a reminder, the last time Japanese authorities intervened directly in the market was in 2011, when Tokyo got an explicit G7 consent to stem a yen spike driven by speculation that a devastating earthquake and nuclear disaster in March would force Japanese insurers to repatriate funds to pay claims.

What is fascinating is how weak even Japan’s attempts at verbal intervention have become.

The attempts at posturing continued:

Suga also rejected the argument that the adoption of negative rates was a sign the BOJ’s attempts to meet its 2-percent price target had reached a limit.

 

Abe is meeting foreign economists to prepare to host a summit of G7 finance ministers and central bank governors in May, where he will urge other countries to coordinate policies to accelerate global growth.

 

“The prime minister strongly believes G7 should lead the global economy with sustainable growth,” Suga said.

At this point Japan has become such a joke in trader circles, the nickname which we penned for Kuroda aka “Peter Panic”, appears to have stuck.

Of course, there is a quick way to find out just how much leeway Japan actually has: if at the next BOJ meeting, one which have taken place after a tremendous surge in the Yen which is up over 10% YTD, Kuroda does nothing, then as expected all of the above will have been merely the latest bout of ridiculous posturing, and the Shanghai Accord indeed made it so that only the USD is allowed to weaken.

Meanwhile, keep an eye on the USDJPY downside. As we reported last week, this is where various banks expect the BOJ will have no choice but to intervene:

•     Bank of Singapore: 100
•     BofAML: 105
•     CBA: 100
•     Daiwa Securities: 100
•     JPMorgan: 95
•     Julius Baer: 100-105
•     Macquarie: 100
•     Mitsubishi UFJ Morgan Stanley: 99
•     NAB: 100
•     Nomura: 105
•     RBS: 105-110
•     Societe Generale: 104
•     Swissquote Bank: 100
•     Westpac: 106.5

Finally, here is SocGen chiming in on the matter with a note released this afternoon.

We do not believe in a “secret” currency agreement reached at the February G20 meeting in Shanghai. We do, however, believe that the official statement places certain limitations of what policymakers can do with the sentence ”we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes”. Interestingly, Chief Cabinet Secretary Suga noted in a Reuters interview on Saturday that the G20 statement does not exclude intervention against “one-sided” currency moves.

 

To our minds, intervention is likely to remain verbal for now given not only the poor track record of one sided intervention and the fact that politically the situation is challenging for Japan as it prepares to host the G7 summit in May. Japan last intervened unilaterally in October 2011; the impact proved short-lived and back then USD/JPY was below 80 when the intervention took place. The March 2011 intervention was more successful, but this one enjoyed the blessing of the G7 post the Fukushima disaster. Then too, USD/JPY was below 80 when the intervention began.

 

Turning to the BoJ, the recent move in the yen has not changed our probability of 30% for additional easing. Our Chief Japan Economist, Takuji Aida, would increase this to 40% if USD/JPY breaks 105. The problem of effective BoJ tools remains, however. Given the poor public image of negative rates, PM Abe would be amongst those disappointed to see it used again and not least ahead of the Upper House elections in July.  

 

More likely to our minds is that PM Abe will use the current situation to further build the case to delay the consumption tax hike (due next April) as part of a new fiscal package that we expect will be released in the course of May. Ironically, such a policy could be argued to favour further yen strength – at least in the short-term.

Perhaps, although Abe has made it repeatedly clear that Japan’s sales tax will be raised to 10% from 8% in April 2017  unless there is a”barring a crisis like the one caused by the collapse of Lehman Brothers.“

So Perhaps all Japan needs to send its Yen crashing again is another Lehman-like crisis? Surely that too can be arranged.

 

via Zero Hedge http://ift.tt/25TBXEX Tyler Durden

One day after reprorting that British military information services Janes, had found confirmation of several shipments amounting to 3,000 tons of weapons and ammo to Al-Qaeda linked Syrian rebels in a transport solicitation on the U.S. government website FedBizOps.gov, today Veterans Today goes deeper into the rabbit hole and reports that several Iraqi policemen claim to have seen US aircraft dropping weapons and munitions for ISIS terrorists in a region west of the Anbar province on Friday.

According to VT, in a video posted on Iraq’s al-Maaloomah news website on Sunday, the policemen are purportedly heard saying that the American plane had also jammed their communication devices in the Hadisah Island district.

“There is an American aircraft seen at four o’clock in the morning on Friday over the Hadisah Island district of the Anbar province, delivering weapons and munitions to ISIS criminals,” one of the policemen says.

“The plane proceeded to jam radar devices of the police regiment stationed in Hadisah Island to prevent contact between the affiliates and the headquarters of the regiment,” he added.

The man said they had seen a military vehicle of ISIS arriving in the region a few minutes later and transferring the weapons to the place the group controlled.

In the video, the man and his associates are heard appealing to Iraqi Prime Minister Haidar al-Abadi to follow up the issue.

VT adds that the Iraqi army and the volunteer Hashd al-Shaabi forces liberated the district from ISIS terrorists just last month. The US may have different plans, however.

Ironically, this took place just hours after US SecState John Kerry visited Baghdad on Frday, where he said ISIS was losing ground, including more than 40 percent of the territory that they once controlled in the country.

President Barack Obama is reportedly weighing an increase in the number of American troops in Iraq but Kerry said there had been no formal request from the Iraqis and the issue had not been raised on Friday.

Even more curiously, the Daily Beast reported last week that there are at least 12 U.S. generals in Iraq, “a stunningly high number for a war that, if you believe the White House talking points, doesn’t involve American troops in combat. And that number is, if anything, a conservative estimate, not taking into account the flag officers running the U.S. air war, the admirals helping wage the war from the sea, or their superiors back at the Pentagon.”

For now any additional deployments are being kept under the curtain of fighting ISIS: the US, officials said, looked to “accelerate recent gains” against ISIS.

Further to that, recall that as reported this morning, the US Air Force deployed B-52 bombers to Qatar, the first time they have been based in the Middle East since the end of the Persian Gulf War in 1991.

“The B-52 demonstrates our continued resolve to apply persistent pressure on Daesh and defend the region in any future contingency,” said Charles Brown, commander of US Air Forces Central Command.

Contingecy such as carpet bombing and paradropping supplies to unknown recipients?

But back to the alleged US delivery of weapons for ISIS – it would not be the first time this has happened. In October 2014, ISIS released a new video in which it bragged it recovered weapons and supplies that the US military intended to deliver to Kurdish fighters in the Syrian city of Kobani.

Some Iraqi MPs have also accused the US of deliberately arming ISIS, citing an arms air-drop case in Tikrit, but government officials have rejected it.

In Syria, the US military has airdropped tons of ammunition to Al Qaeda-linked rebels and militants.

If all this US weaponry is indeed ending up in Al Nusra and/or ISIS’ hands, it remains to be seen where just it will be used.

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

Following Hillary’s recent interview with Matt Lauer, in which she very boldly declared she’ll never be seen in handcuffs, none other than President Obama weighed in on the topic.

In an interview with Chris Wallace, the President discussed his thoughts around Hillary Clinton’s email debacle.

On this subject, Obama has gone from categorically denying any wrongdoing, to a slightly different tone. Be that as it may, the President wants the American public to feel fine about Hillary’s unsecured server and blackberry, because, well, he’s handled a lot of confidential information.

And then he goes on to explain that “there’s classified, and there’s classified. There’s stuff that’s really top secret, top secret, and then there’s just stuff being presented to the President or Secretary of State.” 

Another quote worth noting is how the President responded when Wallace asked him if he could direct the DOJ to ensure the investigation into Hillary Clinton will be handled based on fact, and it’s to to go where the evidence leads. That Hillary won’t be in any way protected.

I can guarantee that. I guarantee that there is no political influence in any investigation conducted by the Justice Department. Full stop, period.

So there we have it. As far as national security concerns around Hillary’s unsecured communications, don’t be alarmed because there’s classified, and then there’s classified. As far as whether or not justice will be served if it is determined that Hillary broke the law, everyone can also rest assured that the outcome of the FBI’s investigation will be solely based on evidence, and nothing more – just as the process is supposed to work.

At this juncture, we’re still trying to wrap our minds around what the difference between classified and classified is, but it’s something Edward Snowden certainly wishes he knew about.

If only I had known. https://t.co/yrPg8uxiQO

— Edward Snowden (@Snowden) April 10, 2016

We want to also quickly point out that the following comment from this interview came literally less than 24 hours after we learned the US is sending B-52 bombers in order to help fight against ISIS.

I hear some candidates say we should carpet bomb innocent civilians, that is not a productive approach to defeating terrorism. Our approach has to be smart.

You can view the full interview here

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

Not a day passes without the Vancouver real estate market succeeding to amaze us all over again.

Just over a month ago we were amazed to learn that, in confirmation of the local buying frenzy, the Vancouver home shown on the photo below sold for $735,000 above asking.

As Vancity Buzz wrote, “The house at 3555 West 1st Avenue was built in 1912, is 3,400 square feet and sits on a standard 33 x 120 foot lot without a view. The selling price of $4.23 million is about $1.6 million above the lot’s assessed property value.”

For his part, real estate agent Brandan Price is incredulous. “For it to go over $4 million is remarkable. I had five offers,” he said. “These were local buyers just looking to make a shift who wanted to move into this area.”

 

“They were willing to sacrifice lot size to move into this area.” Maybe, but things seem to be getting out of hand and part of the “problem” may indeed be demand from investors attempting to find a home for capital they’ve moved out of China. As Thomas Davidoff with UBC’s Sauder School of Business told Vancity Buzz: “These prices are getting pretty freaking nuts in my opinion.”

Which led us to observe that in Canada, an interesting paradox is visible. On the one hand, the country’s oil patch in Alberta is mired in a painful depression, where the worst 12 months for job losses in 34 years is contributing to rising property crime, higher food bank usage, and a rash of unsold condos and empty office space in Calgary.

On the other hand, if simply looking at real estate in Vancouver and Ontario you’d think you were looking at home prices for an economy that is thriving. In fact, prices in Vancouver have reached nosebleed levels. In January for instance, the average selling price of detached homes was an astronomical $1.82 million.

According to a recent report by Knight Frank, prime residential property prices in Vancouver increased by 25% in 2015 “due to lack of supply, foreign demand and weaker Canadian dollar.” But mostly foreign demand as Chinese buyers scramble to launder their money in this Canadian city.

Vancouver’s soaring home prices posted nearly double the growth rate of the next few residential markets of Syndey (14.8% Y/Y), Shanghai (14.1%), Istanbul (13.0%) and Munich (12.0%).

And while there has been some speculation the government may crackdown on this runaway home price inflation, this has yet to happen. In the meantime, the horror stories of Vancouver’s houing market persist.

According to the National Post, another west side Vancouver home has sold for more than $1 million above the asking price. The Dunbar area bungalow was listed for $3.188 million and sold earlier this week for $4.19 million.

SunThis Dunbar area house sold for $1 million over the asking price this week.

This is the second time in just one month when a Vancouver home sells more than $1 million above asking. Just over a month ago, a Point Grey home with a view sold for $1.172 million more than the asking price. The sale price for the house on Bellevue Drive was more than $9 million and the new owner planned to rent it out then tear it down and rebuild in a couple of years, according to the realtor. The house had not been updated.

SunThe house has a new roof, updated bathrooms and a gourmet kitchen.

But the 71-year-old Dunbar house has been fully renovated, according to the MLS listing. It sits on a 44 by 122-foot lot and has a view from the back of the North Shore mountains. The house has a new roof, updated bathrooms and a gourmet kitchen as well as a one-bedroom basement suite.

“Perfect for families,” says the listing. Or, “hold and build.” 

SunThe bungalow was listed for $3.188 million and sold for $4.19 million

University of B.C. real estate professor Tsur Somerville said the Dunbar home may have been listed low. “That is one third more than the asking price,” he said. “It looks a whole lot like a realtor playing games.”

That or the panic buying frenzy is getting bigger by the day.

Getting the right listing price for a property in Metro Vancouver’s overheated market is difficult, Somerville acknowledged.

“Because prices are going up so rapidly, so out of control, it’s hard to know what the price is,” he said. “The rate of price increases is reaching hysteria levels. It’s not sustainable.”

This is what is known as a bubble, and while everyone admits it, the frenzy goes on.

SunThe house sits on a 44 by 122-foot lot and has a view from the back of the North Shore mountains.

Homes sales in Metro Vancouver surpassed 5,000 last month, making it a record-breaking month according to statistics from the Real Estate Board of Greater Vancouver. The benchmark price for detached properties in the region increased 27.4 per cent to $1,342,500 in March 2016 compared to the same month last year.

Something else everyone can agree on: the Vancouver housing bubble will eventually burst. The question is when, and how much longer will the government ignore this ridiculous surge in prices while pretending everything is perfectly normal. Naturally, when it does burst leading to a collapse in the local economy and crushed living standards for everyone, the excuse will be a well-known one: “nobody could have seen it coming.“

via Zero Hedge http://ift.tt/1VL3vaN Tyler Durden

Submitted by $hane Obata

USD: Return Of The King

Falling oil prices, China growth fears, submerging markets, Brexit and Italian banks. All of those risks have one thing in common: They have not derailed the US economy. Despite concerns about a recession, it continues to grow at a steady pace. According to the Atlanta Fed, real GDP is expected to grow by 0.7% in Q1’16. That is not a great number; however, the series is extremely volatile.

sources: Bloomberg, @Not_Jim_Cramer

It would not be surprising to see growth rebound to 2% or more in the coming quarters.

Global investors are counting on the US because of lackluster growth elsewhere. Europe is doing fine; however, deflation remains a concern and bank credit growth is turning down. Japan continues to fall in and out of recession. In the emerging world, the BRICs are crumbling. Brazil & Russia are suffering due to falling commodity prices while China continues to decelerate. Going forward, rate differentials, relative economic strength and divergent monetary policies should provide support for the USD.

Sentiment & Positioning

With all that said, as of Mar29’16, the net speculative long position in the USD was 7% of open interest, the lowest it has been since Q2’14. This indicates that speculators are the least bullish they have been in nearly two years.

The US Dollar Index is sitting at 94.62, just above a critical support zone at 93-94. Meanwhile, the Trade-Weighted Dollar Index has pulled back ~3.4% from its high on Jan20’16. It is hard to tell that long USD is a consensus trade because investors have lost their conviction.

FX, Rates & Monetary Policy

USDCAD: Has fallen to 1.3011 from a high of 1.4692 on Jan20’16. This is a direct result of the relief rally in oil, which has risen to $36.79 from a low of $26.05 on Feb11’16. These moves have not been driven by improving fundamentals. Rather, they are mostly attributable to short covering.

via @Ole_S_Hansen

Rate differentials (see the following chart), relative economic strength and divergent monetary policies should support USDCAD in the near term. Also, it is unlikely that the bear market in commodities is over.

sources: Bloomberg, @sobata416

EURUSD & USDJPY: In Europe and Japan, easy monetary policy will be present for an extended period of time. The ECB and BOJ have made it clear that they will do “whatever it takes” to protect their countries from deflation. The ECB recently announced a set of new measures intended to support the Euro Zone. Equities have responded positively but the Euro has not. EURUSD is trading at 1.1389, up from a low of 1.0538 on Dec3’15. Japan is facing the same issue. Even though Japanese equities are up since oil bottomed on February 11^th, the Yen is the strongest it has been since Q4’14. It is unlikely EUR and JPY strength will persist for the same reasons mentioned in the previous paragraph.

World Reserve Currency

The USD is the most widely held reserve currency in the world. It represented 64% of official foreign exchange reserves at the end of Q3’15. Countries tend to hold Dollar-denominated assets because they are relatively stable. Foreign central banks also use the USD as collateral for loans and to protect their currencies. For example, if the ECB feels as though the EUR is too strong, it can sell Euros to buy Dollars, thereby reducing the amount of USD in circulation. In theory, this would weaken the Euro.

The foreign exchange market also speaks to the structural importance of the USD. According to the BIS’ Triennial Central Bank Survey, “FX deals with the US Dollar on one side of the transaction represented 87% of all deals initiated in April 2013.”

Lastly, it is important to recognize that many commodities are priced in USD. Therefore, people who want to buy or sell them are required to hold Dollars.

These facts help to explain why demand for the USD will persist. It is still the world reserve currency and that will not change in the near future.

Major Risks

The two major risks to the USD are a dovish Fed and slowing US economic growth.

The Fed is the world’s central bank. Even though both of its mandates are domestic, the Fed has become increasingly concerned about the global economy. This is evident when we look at the rising number of times the Fed has mentioned key terms such as “Global” and “Dollar” in recent meetings.

A strong USD is good for US consumers and bad for commodities & exporters. The Fed is well aware of this relationship; however, it alone does not guarantee dovish monetary policy. Not long ago, market participants thought that 4 rate hikes in 2016 was a possibility. Now, it is unclear whether or not we will see 1. As of Mar29’16, the probability of a hike in December was just 65%. The market is positioned for easy US monetary policy. As such, positive surprises from the US or negative surprises out of Europe or Japan will force investors to reassess their outlooks. If that happens then the Fed may turn more hawkish, which would be positive for the US Dollar.

2) Slowing US Growth

The US economy continues to muddle along, backed by steady employment and consumption growth. The Eurozone is doing fine but most of its gains are attributable to Germany. Other major players such as France and Italy have not fared as well. Moreover, Japan continues to tread water. Canada has rebounded. That said, its economy is dependent on commodity prices, which may roll over in the short run.

All in all, the US still looks good on a relative basis. Especially versus developed market peers.

Return of the King

Rate differentials, relative economic strength and divergent monetary policies should provide support for the USD. In addition, it will likely benefit from safe haven flows when global risks return to the headlines.

If the Dollar resumes its uptrend then commodities will suffer.

via @NickatFP

Oversupply in many industries such as oil, iron ore and coal remains an issue. On the demand side, China’s deceleration is not helping. The emerging markets are inextricably linked to commodities. If prices fall then the EMs will underperform.

There can only be one king.

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

When we previewed Venezuela’s upcoming hyperinflation, which in January was predicted to be 720% and as of this moment is likely far higher…

 

… we said “This Is What The Death Of A Nation Looks Like” and said “there is no good news in any of the above for the long-suffering citizens of this “socialist paradise” which any minute now will be downgraded to its fair value of “socialist hell.“

Subsequent news that Venezuela was now openly liquidating its gold reserves while its president, in an amusing twist, announced last week, that henceforth every Friday will be a holiday, (the term there was a slightly different meaning) to cut down on electricity usage (while blaming El Nino for its electricity rationing) merely confirmed that the end if nigh for this once flourishing Latin American nation.

Sadly, while we have been warning for years about Venezuela’s inevitable, economic devastation, we said it was only a matter of time before the chaos spreads to broader society and leads to total collapse.

That may have arrived because as even the FT now admits, after visiting the main Caracas morgue, Venezuela risks a descent into chaos.

But back to the morgue of central Caracas, where FT correspondent Andres Schipani writes that the stench forces everyone to cover their nostrils. “Now things are worse than ever,” says Yuli Sánchez. “They kill people and no one is punished while families have to keep their pain to themselves.”

Ms Sánchez’s 14-year-old nephew, Oliver, was shot five times by malandros, or thugs, while riding on the back of a friend’s motorcycle. His uncle, Luis Mejía, remarked that in a fortnight three members of their family had been shot, including two youths who were shot by police.

Sounds a little like Chicago on a Friday… only in Venezuela things are even worse: “an economic, social and political crisis facing Nicolás Maduro, Venezuela’s unpopular president, is being aggravated by a rise in violence which is prompting fears that this oil-rich country risks becoming a failed state.”

Even the morgue employees are asking if they should give up.

“What can we do?” Mr Mejía asks. “Give up.” The morgue employee in charge of handling the corpses notes that a decade ago he received seven or eight bodies every weekend. These days, he says, that number has risen to between 40 and 50: “This is now wilder than the wild west.”

Critics say that the Venezuelan government is increasingly unable to provide citizens with water, electricity, health or a functioning economy which can supply basic food staples or indispensable medicines, let alone personal safety.

In other words, total socioeconomic collapse. This is what it looks like:

Last month alone, Venezuelans learned of the summary execution of at least 17 gold miners supposedly by a mining Mafia, the killing of two police officers allegedly by a group of students who drove a bus into a barricade, and a hostage drama inside a prison at the hands of a grenade-wielding criminal gang. On Wednesday, three policemen were killed when an armed gang busted a member out of a lock-up in the capital.

 

At least 10 were killed in a Caracas shanty town after a confrontation between local thugs armed with assault rifles, while a local mayor was gunned down outside his home in Trujillo state last month. There are widespread reports of lynchings.

 

All this is creating a broad unease that Mr Maduro is unable to maintain order… There is a lack of basic goods. Analysts warn that the economic crisis risks turning in to a humanitarian one.

Some refuse to acknowledge that a state erected on so much oil wealth can be a failed state:

“Failed state is a nebulous concept often used too lightly. That’s not the case with today’s Venezuela,” says Moisés Naím a Venezuelan distinguished fellow at the Carnegie Endowment for International Peace. “The evidence of state failure is very concrete in the country that sits on top of the world’s largest oil reserves.”

Alas, a failed state is precisely what Venezuela has become: Venezuela is already one of the world’s deadliest countries. The Venezuelan Observatory of Violence, a local think-tank, says the murder rate rose last year to 92 killings per 100,000 residents. The attorney-general cites a lower figure of 58 homicides per 100,000. This is up from 19 per 100,000 in 1998, before Maduro’s predecessor Hugo Chavez took power.

It gets worse, because in addition to a soaring murder rate, the government itself is implicated.

“Venezuelans are facing one of the highest murder rates in the hemisphere and urgently need effective protection from violent crime,” said José Miguel Vivanco HRW’s Americas director. “But in multiple raids throughout the country, the security forces themselves have allegedly committed serious abuses.”

Their findings show that police and military raids in low-income and immigrant communities in Venezuela have led to widespread allegations of abuse, including extrajudicial killings, mass arbitrary detentions, maltreatment of detainees, forced evictions, the destruction of homes, and arbitrary deportations.

And like all other failed governments, Maduro’s administration is quick to deflect blame, instead accusing violence within its borders on Colombian rightwing paramilitaries “engaged in a war against its revolution.” But as David Smilde and Hugo Pérez Hernáiz of the Washington Office on Latin America, a think-tank, recently wrote: “Attributing violence in Venezuela to paramilitary activity has been a common rhetorical move used by the government over the past year, effectively making a citizen security problem into a national security problem.”

For many Venezuelans it no longer matters who is to blame. “It is a state policy of letting anarchy sink in,” says a former policeman outside the gates of a compound in Caracas.

The FT adds that the former police station now houses the Frente 5 de Marzo, one of the political groups that consider themselves the keepers of socialism’s sacred flame. The gates bear the colours of the Venezuelan flag and are marked with bullet holes. The man believes there is something akin to a civil war going on.

“Venezuela is pure chaos now. It seems to me there is no way back,” the former policeman says.  He is right.

* * *

And since words can not fully do a failed state justice, here is a video clip from Jeff Berwick showing the reality on the ground in the country where “socialism’s sacred flame” is about to go out for good.

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

Submitted by Mike “Mish” Shedlock of Mishtalk

Italy Seeks “Last Resort” Bailout Fund to “Ringfence” Troubled Banks, Meeting Monday; Italy vs. Austria

Italy’s finance minister, Pier Carlo Padoan, wants to “ringfence” its troubled banks.

Padoan called for a meeting of executive of the troubled banks in Rome on Monday. The banks allegedly will come up with a “Last Resort” bailout fund.

Last resort or first resort, is there a difference at this point in time?

Please consider Italy Pushes for Bank Rescue Fund. I highlight the key buzzwords and phrases italics.

Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions to agree final details of a “last resort” bailout plan.

 

Yet on the eve of that gathering, concerns remain as to whether the plan will be sufficient to ringfence the weakest of Italy’s large banks, Monte dei Paschi di Siena, from contagion, according to people involved in the talks.

 

Italian bank shares have lost almost half their value so far this year amid investor worries over a €360bn pile of non-performing loans — equivalent to about a fifth of GDP. Lenders’ profitability has been hit by a crippling three-year recession.

 

The plan being worked on, which could be officially announced as soon as Monday evening, recalls the Sareb bad bank created in 2012 by the Spanish government to deal with financial crisis in its smaller cajas banks, say people involved.

 

Although the details remain under discussion, it foresees the establishment of a private vehicle that will include upwards of €5bn in equity contributions — mostly from Italy’s banks, insurers and asset managers — and then a larger debt component. The fund will then mop up shares in distressed lenders.

 

A second vehicle will seek to buy non-performing loans at market prices.

 

“It is a backstop fund,” said one person involved in the talks.

 

The Italian government can provide only limited financial backing because of EU state aid rules and because it is already struggling under a public debt load that amounts to 132.5 per cent of GDP.

 

People involved in the talks question whether the plan would have the financial scope to provide a buffer of last resort for Monte dei Paschi di Siena. Italy’s third-largest bank was the worst performer in the 2014 European stress tests, with about €170bn in assets and about €50bn in bad loans. It is considered by many bankers to be the major risk to Italian financial stability and regarded as too big to fail.

 

“Monte Paschi is the elephant in the room,” says one of Italy’s top bankers.

 

Monte Paschi is already trading at zero compared with its tangible equity value if its bad debt disposal is taken into account at current prices, says Johan De Mulder of Bernstein Research. By comparison, when Lehman Brothers collapsed in 2008 it was trading at about 20 per cent of its tangible equity.

 

Berenberg analyst Eion Mullany argued that the “Italian banking sector is at a pivotal moment in its history”.

 

“We worry that a bail-in of an Italian bank may cause a chain reaction with ripple effects felt across the European banking system,” Mr Mullany added, referring to the possibility of bondholders and depositors in Italian banks being forced to participate in a rescue.

Key Buzzword and Phrases

1. Last resort
2. Ringfence
3. €360bn pile of non-performing loans
4. Sareb bad bank
5. Equity contributions, mostly from Italy’s banks, insurers and asset managers
6. Backstop fund
7. Public debt load that amounts to 132.5 per cent of GDP
8. Buffer of last resort
9. €170bn in assets and about €50bn in bad loans
10. Too big to fail
11. Elephant in the room
12. Trading at zero compared with its tangible equity
13. Lehman Brothers
14. Pivotal moment in its history
15. Bail-in of an Italian bank may cause a chain reaction with ripple effects

Those were the key buzzwords in order. Using those buzzword in the same order, let’s condense the article down to the essence with as few sentences as possible.

Mish’s Concise Summation

As a last resort to ringfence a massive €360bn pile of non-performing loans of Italian banks, Finance minister Pier Carlo Padoan has called for a meeting of minds in Rome on Monday. Padoan seeks a plan reminiscent of the Sareb bad bank structure in Spain, even though that plan blew up several times.

The bad bank will require equity contributions, mostly from Italy’s banks, insurers and asset managers to build up a backstop fund. This approach is necessary because Italy has public debt load that amounts to 132.5 per cent of GDP in gross violation of Eurozone rules.

The structure needs a buffer of last resort because Monte dei Paschi di Siena, Italy’s third-largest bank, has €170bn in assets and about €50bn in bad loans. Monte dei Paschi di Siena is regarded as too big to fail, a veritable elephant in the room, trading at zero compared with tangible equity. Lehman Brothers collapsed in 2008 it was trading at about 20 per cent of its tangible equity.

This is a pivotal moment in history because a bail-in of an Italian bank may cause a chain reaction with ripple effects that will be felt across the European banking system.

Comparisons

I used 4 paragraphs, the Financial Times used 20. I threw in bonus buzz phrases “meeting of minds” and “blew up several times”.

Italy is desperate to avoid the path Austria announced today, a 54% Haircut Of Senior Creditors In First “Bail In” Under New European Rules as commented on by Zerohedge.

• 100% bail-in for all subordinated liabilities
• 53.98% bail-in, resulting in a 46.02% quota, for all eligible preferential liabilities
• Cancellation of all interest payments from 01.03.2015, when HETA was placed into resolution pursuant to BaSAG
• Harmonization of the maturities of all eligible liabilities to 31.12.2023

In contrast, Italy is the “too big to fail”, “elephant in the room”. Should Italy try Austria’s solution, it presumably would cause a “chain reaction with ripple effects that would be felt across the European banking system.”

Instead, officials will attempt to “ringfence” the problem, hoping to “sweep it under the rug” where presumably a “€360bn pile of non-performing loans” will cure itself, eliminating the need for additional bail-ins

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

As we predicted last week when Wikileaks released an IMF transcript which suggested trubulent times may be ahead for Greece, Reuters today writes that “the leaking of a conference call of International Monetary Fund officials on Greece’s latest bailout review has further undermined mutual trust in fraught debt talks, embarrassed the European Commission and infuriated the IMF and Germany.”

At stake are many things, not the least of which is the IMF’s reputation as a stern enforcer of financial rescue programmes meant to make indebted states viable and the European Union’s determination to hold the euro zone together and avert another damaging Greek crisis.

And as Reuters adds, Greek Prime Minister Alexis Tsipras “exploited the leak at home to demonize the IMF, rally his left-wing Syriza party ahead of more painful sacrifices to secure the next slice of European loans, and try to put his conservative opponents in a corner.”

However, his efforts to drive a wedge between the EU institutions and the IMF, and isolate IMF Europe director Paul Thomsen, a veteran of six years of acrimonious negotiations with Athens, fell flat. “Each time Tsipras is going to have to compromise, he needs to create an external enemy,” said George Pagoulatos, professor of European politics and economy at Athens University. “It’s part of his old populist playbook. It’s smart domestic politics even if it is dumb diplomacy.”

Diplomatic pandering aside, Tsipras rebuke undercut months of patient efforts by Tsipras himself and Finance Minister Euclid Tsakalotos to rebuild lenders’ trust following last summer’s turbulent events which culminated with a bank run, capital controls and a banking system that relies on the ECB for its daily existence.

As Reuters writes, it also shone a light on a complex, three-dimensional chess game the IMF is playing to try to make Greece accept painful reforms of pensions, taxation and bad loans while pressuring Germany and its allies to grant Athens substantial debt relief.

“Put simply, the IMF’s position is that the Greek economy is in worse shape than rosy EU forecasts suggest, and that a necessary relaxation of fiscal targets must be balanced by greater debt relief from euro zone lenders.” 

Because apparently it is news to someone that while Europe was pretending it was helping Greece (when it was merely making sure none of the bond held by the ECB were defaulted on), Greece was pretending to reform.

Of course, since Greek reform in any measurable way is unachievable, there was the question of whether it makes sense to chop off some of the debt it can never repay, as a confirmation of what a great job Greece had been doing (or perhaps as impetus to force it to actually do something). By antagonizing the IMF – the only part of the Troika that was pushing for a haircut – that also is now off the table.

Germany, the biggest creditor, is the most reluctant about major debt restructuring. Its parliament insists on a continued IMF presence to enforce budget savings and minimize the need for stretching out loans and freezing interest payments.

“The bottom line is the debt will not be repaid in our lifetime,” said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington.

Or ever.

“The IMF is gearing up for new clients in the emerging economies. That is not best done by being soft on Greece. They won’t go to the (IMF) board to approve participation in a third Greek bailout without something they think is tough and credible,” he said.

Brussels contends that both the economy and Greek compliance with the bailout programme are better than the IMF thinks, hence the first review should be concluded soon, allowing Athens to access the next 5 billion euros ($5.70 billion) of loans.

Reuters conclusion: “How the three-way tug-of-war between the IMF, Greece and Berlin will play out remains uncertain. The sequencing will be tricky, but no side seems to have an interest in walking away.”

Ironically, Greece finally has some true leverage over Germany as Merkel is more dependent now on Greece to act as Europe’s gatekeeper than she was during last year’s crisis over a possible “Grexit” from the euro zone. Berlin needs Athens’ cooperation to process and detain migrants and refugees until they can be send back to Turkey. If Greece really wants to flex its muscles, it will simply demand a debt haircut in exchange for keeping refugees within its borders.

Then again, now that the Western Balkan route has been closed, with Austria now openly sending migrants back, Greece may have lost what little leverage it had…

As for the IMF, it too does not want to abandon Greece as a black mark on its record. “Four of the five euro zone bailouts have gone pretty well – an 80 percent success rate. Yet if the IMF walks away from Greece now, everything they’ve done in Europe will be remembered as a failure,” said Kirkegaard.

* * *

Which brings us to point #2: also last week, we warned “it may be another turbulent summer in Europe” and on Thursday Barclays seems to have agreed with this assessment. This is what Francois Cabau said in a note titled “Greece – Back To The Fore” in which he says that we do not rule out the prospect of “Grexit” returning.

Here are the highlights:

We continue to think Greece has the potential to return to the headlines, and we do not rule out the prospect of “Grexit” returning. Our baseline remains that the current government will ultimately remain in power, managing to pass the creditors’ required reforms through Parliament.

 

We nonetheless note the more fragile European political environment (Dutch referendum, UK’s EU referendum, likely snap elections in Spain, key elections in France and Germany in 2017) compared to previous episodes, and the possibility that the increased noise around Greece could potentially influence the UK referendum on EU membership. Furthermore, the ongoing migration crisis in which Greece plays a central role is exacerbating tensions at both domestic and European levels.

 

Market-wise, we believe the escalation of the situation in Greece in conjunction with the UK referendum on EU membership could drive further peripheral spreads. On the FX front, Greece’s large projected repayments in June and July, which coincide with the impending UK EU Referendum, could result in heightened volatility and EUR depreciation as redenomination fears re-emerge, in our view.

Here is an interesting tangent on the wildcard in this summer’s Greek events: “Migration”

We believe that the migration crisis has entered Greece’s programme review through the back door. It is our belief that Greece has most likely looked to extend the talks and attempted to bargain with EU leaders on completing the programme review and achieving OSI, by exerting pressure given its crucial role on the migrant crisis, before the EU referendum takes place on 23 June in the UK. Now that the Western Balkan route is effectively closed to migrants, and that the EU has decided on an action plan (agreement with Turkey), we think Greece is likely to have less bargaining power than earlier this year; however, we still expect it to play a major role in addressing the crisis. Further delay in the programme negotiations has only been possible due to a relatively light repayment calendar (see below).

Finally, the key timing choke point, which as always when dealing with Greece has to do with when the money runs out. The answer: late June.

Looking ahead, IMF redemptions totalling €0.46bn are due to take place on 30 April, while ECB bonds of c.€50mn fall due on 11 April (a c.€2.171bn outstanding bond due on 24 April was issued purely to provide funding for Greek banks at the ECB and so should not be considered as part of funding needs, in our view). Thereafter, the next significant outflows are due in June and July with €750mn due to the IMF and then c.€2.3bn due to the ECB. Therefore, we think Greece is likely to be able to negotiate payments up until June (albeit narrowly and with likely recourse to allowing arrears to rise again). However, the July repayments appear more challenging should further ESM disbursements not be forthcoming.

Will another “Greek summer” ruin the vacation plans for numerous bond trading algos? Find out in three short months.

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Submitted by Charles Hugh Smith from Of Two Minds

Japan Desperately Needs A Stronger Dollar, China Desperately Wants A Weaker Dollar: The Fed Can’t Please Both

The FX market is about to blow up in the Fed’s face, and there’s nothing they can do about it.

Foreign exchange (FX) is a zero-sum game: if one currency weakens, another must strengthen. Since the value of a currency is relative to other currencies, all currencies can’t weaken together: at least one currency must strengthen as others weaken.

That one strengthening currency has been the U.S. dollar (USD) since mid-2014. The USD has strengthened by 20%, while the Japanese yen and the euro weakened by 20%. Many developing-economy currencies (rand, peso, real, etc.) have fallen off a cliff, suffering 40% to 50% (or even more) declines against the U.S. dollar.

Why does any of this matter? Simply put, the stock market is a monkey on a leash held by central banks–just give the leash a little tug, and the monkey jumps. Bonds are a gorilla–harder to control, but still manageable–but foreign exchange is King Kong, trading $5 trillion a day and impossible to control beyond short-term manipulations.

Currencies set the underlying trend, not just for bonds and stocks, but for entire economies. A weakening currency makes a nation’s exports cheaper in other countries, and the theory is that expanding exports will boost the overall economy–especially if that economy is stagnating or in recession.

A weakening currency also makes imports more expensive in the domestic economy, pushing inflation higher–precisely what every central bank in the world desires, on the theory that inflation will make people spend more (since their money is losing value) and reduce the costs of borrowing (which is presumed to stimulate more borrowing and spending).

This is why everybody seems to want a weaker currency. But as noted above, every currency can’t go down; if some weaken, others have to strengthen.

Which brings us to the current brewing crisis: beneath the propaganda that all is well in the world, the soaring dollar has destabilized the global economy in subtle ways: carry trades have been thrown over, capital flows have reversed, commodities priced in dollars have tanked, and so on.

The typical econo-pundit has welcomed the recent weakening of the USD, a reversal of the strong-USD trend:

 

Japan sought to weaken the yen to boost its exports and inflation. Now the weakening dollar is crushing those plans, as the yen is soaring:

As the yen soars, Japan is being pushed into a self-reinforcing recession. After 20+ years of borrowing to fund fiscal stimulus, money-printing, bond-buying, etc., Japan has run out of options. Weakening the yen was the last best hope to boost exports and inflation.

The strengthening yen is an economic crisis for Japan.

Meanwhile, the strengthening dollar pushed China into its own crisis. China’s currency, the renminbi (RMB, a.k.a. yuan), is a special case because its relative value is pegged to the USD by Chinese monetary authorities. The peg was about 9 to the USD in 2005, and in the following decade China pushed the yuan up to 6 to the dollar.

A currency peg means the pegged currency goes up and down with the master currency. As the dollar soared, it dragged the yuan higher, making China’s exports more expensive. Given the stagnation of China’s debt-bubble dependent economy, the last thing chinese authorities wanted to see was a faltering export sector.

As the USD rose, the pressure to devalue the yuan also rose. If you think your money is about to lose 20% of its value due to a devaluation, what can you do to protect your wealth? Get your cash out of the currency that’s being devalued and into a currency that’s strengthening.

Just the possibility of a yuan devaluation has sparked an unprecedented capital flight of cash flooding out of China into USD and assets such as homes in British Columbia and chateaux in France. Capital flight is not a sign of a flourishing economy or evidence that the monied class trusts the currency or the economy.

Recently, China has taken baby-steps to devalue the yuan: not enough to trigger global panic but more than enough to trigger capital flight and deep unease.

As a result, China desperately wants a weaker dollar, as a weaker dollar will weaken the yuan and relieve the pressure on Chinese exports and demands for devaluation.

Many savvy observers have concluded that the recent G20 meeting in Shanghai led to an informal accord to weaken the dollar to prop up the global economy’s shaky foundations–and most acutely, to relieve the pressure on China’s yuan, which threatened to destabilize the faltering global economy.

But now the world faces the consequences of a weakening USD: a crisis triggered by a stronger yen. The USD has been yo-yoing in a trading range for a year, as the Federal Reserve has yo-yoed between hawkish declarations of rising rates (which make the USD more attractive and thus stronger) and dovish backtracking (we’re never going to raise rates), which then push the USD lower.

No wonder the Fed is wobbling: it can’t please both Japan and China. If the dollar plummets, China is delighted but Japan is pushed into crisis. If the USD continues its march higher, Japan is “saved” but China will be forced to devalue the yuan or watch its export sector decline.

As I often note, no nation or empire ever devalued its way to dominance or even prosperity. Rather, the devaluation of one’s currency is the kiss of death, as everyone quickly learns your money is a ball that can quickly lose air or go flat.

Here’s my take: Japan has no options left. China, on the other hand, can devalue the yuan as the USD strengthens. Indeed, a very good case can be made that China should devalue the yuan, as a practical adjustment to new global realities.

The Fed has a stark choice, and the 2-minute warning just sounded. It can break the informal Shanghai Accord to weaken the USD to save Japan from the slow-moving catastrophe of a soaring yen, or it can let the USD weaken further to placate China and the commodity-dependent economies.

What it can’t do is please everybody. This is the evitable consequence of manipulating markets: you end up being unable to please anyone, because your constant manipulation has created unsustainable carry trades and speculative gambles.

The FX market is about to blow up in the Fed’s face, and there’s nothing they can do about it. What central banks fear most are markets that are not tightly controlled by central banks. The world’s central banks are about to sit down to a banquet of consequences arising from seven long years of relentless manipulation.

via Zero Hedge http://ift.tt/25TjfgF Tyler Durden