Category: zerohedge

Following the previously noted fireworks from Kuroda, who in a BBC interview said that there is “no possibility” of helicopter money (which however the WSJ quickly added was based on an interview conducted in mid-June which supposedly means there is possibility now) In under an hour the market will turn its attention to the ECB’s latest statement, where as SocGen’s Anatoli Annenkov writes, it is “time to send another dovish signal.”  The main reason for this is that as we explained yesterday, unless the ECB changes the structure of its government bond buying program, it may run out of German bonds to monetize as soon as a few months from today.

Using a UBS analysis, we presented the following matrix of what options Draghi has to remedy this situation.

 

That sentiment persists today, with most banks and analysts expecting more easing from the ECB today. This morning the consensus sentiment is best summarized by SocGen which writes that “as the dust settles and other central banks prepare for more easing, it is likely that the ECB will need to strengthen its dovish tone further. Two immediate challenges stand out: how to deal with a much reduced universe of bonds following the Brexit referendum, which at current interest rate levels causes problems for individual countries, and what to do with the March 2017 reference as a possible end-date for the APP. On the first issue, we believe there is room to increase the issue share limit already at next week’s meeting, but with increasingly complex implications for the aim to stay clear of a blocking minority in the event of restructuring. On the second issue, there is reason to extend the horizon until September 2017, probably after the summer, while still retaining the ability to start tapering (as we expect as of March next year). Next week’s press conference is also likely to focus on the state of euro area banks. While ducking the issues to the extent possible, President Draghi is unlikely to be able to straighten out all the issues as he did in January, when another ECB request caused widespread concerns over the health of Italian banks.”

* * *

Here is a quick checklist courtesy of Bloomberg of what else to expect:

• Any tweaks to the ECB’s QE program and discussion about next steps are in focus as an increasing number of government bonds trade below the deposit rate.
• Draghi’s press conference at 2:30pm CET will be watched for signals on whether further rate cuts are possible given the impact on banks and insurers

BOND SCARCITY AND THE CAPITAL KEY

• Given the pool of eligible bonds is shrinking, some governing council members favor changing the allocation of bond purchases to be more in line with levels of outstanding debt, a Bloomberg source said at the start of the month
• And the ECB has already been quietly exceeding quotas depending on where bonds are available
• However, most analysts agree that dropping the capital key altogether will be a last resort and the ECB will explore other options first

OTHER TWEAKS

• While it’s probably too soon to abandon the capital key, there’s a possibility the ECB could tweak other aspects of the program as soon as today, including dropping the maturity limits or allowing the NCBs to buy bonds with yields lower than the deposit rate

DEPOSIT RATE

• Given the impact of negative rates on bank profitability, the investment community thinks central banks are approaching the lower bound on rates and will increasingly focus on alternative forms of easing
• In June, Draghi said the governing council sees rates at current or lower levels for an extended time; central bank watchers will be looking for any change in that language

BREXIT

• Draghi reportedly told EU leaders Brexit could reduce euro growth by as much as 0.5% for the next three years and the ECB stepped up cooperation with central banks on FX movements after the vote
• Calm markets, the paucity of data on the economic impact of the vote to leave and the BOE decision to wait and see could see Draghi echoing the MPC’s approach, possibly limiting himself to reiterating that the Euro area’s central bank is monitoring the impact and is ready for all contingencies

CSPP

• More than a quarter of the corporate bonds the ECB has bought so far have negative yields
• ECB has bought low-BBB names such as RWE, Metro, EdP, Renault, as well as credits with sub-IG ratings including Telecom Italia, Lufthansa, showing it isn’t shying away from taking credit risk, BofAML says
• To date, the volume of bond buying has surpassed consensus expectations, but the ECB may explain this away as an attempt to front-load purchases given historically issuance slows over the summer
• At some point the ECB may extend the program by buying bond issued by financials but few expect any detail on that yet given the program only began last month

FISCAL POLICY

• Draghi told EU leaders fiscal policy should shift toward investment after the Brexit vote; has repeatedly said monetary policy can’t do all the heavy lifting and Peter Praet called for a concerted effort in fiscal and structural policy
• With Japan apparently readying to provide more fiscal stimulus and the U.K.’s new PM hinting the country may row back on austerity, Draghi may be pressed on how fiscal policy could be used to bolster the impact of the bank’s easy policy

* * *

And the three residual key issues outstanding: what happens after March 2017, the Italian banks, and rising inflation. Some final thoughts from SocGen

Soon time to tell markets what is going to happen beyond March 2017

As markets will demand some guidance on what can be expected beyond March 2017, we also expect the ECB to prepare to extend the horizon of the asset purchases, probably until September 2017. The ECB may well wait until September to communicate this, when new forecasts are available. Depending on how dovish the ECB would like to sound, it could either:

1. Extend the horizon without specific mention as to the volume of monthly purchases;
2. Extend the horizon but with specific mention of €80bn per month (as in the past).

As this reference is part of forward guidance, and thus a projection rather than a promise, we  don’t see any major problem with pursuing the tapering next year if the economic data support it. Indeed, we maintain our current call that the ECB will start tapering in March 2017, as headline inflation picks up towards the target (and real deflation fears ease), and end it in December 2017.

 

Italian banks remind us of the risks to financial stability following Brexit

 

For the ECB to start buying bank debt, equity or foreign assets, we believe it would have to expect a significant recession, with major risks to financial stability from high market volatility. With the OMT now having been cleared by the German Constitutional Court, the ECB will feel reassured that it still has some tools at its disposal in the event of country-specific shocks. While the OMT could be activated if a country requests financial assistance involving the ESM, the ECB will face a bigger challenge if there are bigger contagion effects in the euro area financial system. The upcoming stress tests from the EBA at the end of the month have been widely discussed in the press, and ECB President Draghi is likely to be asked lots of questions at the press conference relating to the state of Italian banks, especially against the background of the recent ECB supervisory request to reduce NPLs in one Italian bank. While Draghi may refer to the separation principle with the SSM and the fact that the ECB is not the resolution authority, he is unlikely to be able to calm fears to the extent he did in January this year, following a similar market scare relating to an ECB information request.

 

Maintaining a dovish stance as inflation rises is going to be a challenge

 

While the inflation forecasts for September can be expected to be lowered due to the Brexit vote, there are likely also some upside revisions needed linked to the surprisingly low upward revisions to inflation in June. Despite rising oil prices and the additional policy measures decided in March this year, the ECB in June only revised up inflation this year by 0.1pp, while core inflation in 2018 was revised down. In the Accounts from the June meeting, it is fairly clear that there were some expectations that the ECB action in March, which were still being implemented in June, would have some further impact on inflation, with the Governing Council even stating that there “were also upside risks” to inflation.

We expect it to be increasingly difficult for the ECB to manage expectations downwards in an environment of rising inflation in the second half of this year (see Chart 2). While there is likely to be a focus on still low core inflation and the need to see through the energy-driven rise in headline inflation, the ECB could also be perceived as not believing in its own policy measures if the inflation forecasts are very dovish. Combined with the problem of finding an ever-greater universe of assets to purchase, we believe that the improved inflation situation in 6-9 months time will allow the ECB to finally gradually lift its foot from the gas pedal, and start tapering as of March next year. In order to counter any negative market effects, we also believe it will be possible to launch a new TLTRO 3 at that time, starting in June 2017, thereby keeping the momentum on the balance sheet. In a negative economic outlook scenario, we also believe it would be possible to open up the TLTROs to mortgage loans in order to maintain consumer confidence, as was the case with the Funding for Lending scheme in the UK.

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The main catalyst that has pushed stocks to new all time highs, and sent the Yen plunging the most in the 21st century last week, were reports that Ben Bernanke was urging Japan to unleash helicopter money. Indeed, just yesterday, the USDJPY hit new two month highs on reports Japan was considering doubling the previously rumored fiscal stimulus of JPY10 trillion to 20, with the implication that the BOJ would provide the funds. It appeared that Japan had found just the jawboning tagline to keep stocks levitating and the Yen dropped: just hint every other day that more helicopter-funded stimulus is coming and jawbone assets, the same way verbal hints of more BOJ QE worked in 2015.

Which is why we were surprised to read this morning that BOJ governor Kuroda had shut down Bernanke, saying there is no need and no possibility of helicopter money in Japan, increasing speculation about the course of monetary and fiscal policy in the world’s third-largest economy. Given the current institutional setting, there is “no need and no possibility for helicopter money,” Kuroda said in a BBC Radio 4 program that was broadcast Thursday. “At this moment, the Bank of Japan has three options with quantitative and qualitative easing with negative interest rates.”

These current policies can be expanded, he said. Kuroda also repeated that he is determined to rid Japan of its deflationary mindset, and that there are no significant limitations to further monetary stimulus if needed by the BOJ.

Which, however, is not true: like the ECB, the BOJ is rapidly running out of willing bond sellers as its universe of eligible bonds gets smaller, while NIRP has proven to be far more deflationary than anyone had expected. In fact, the only way the BOJ’s policies can continue is if the government opens the debt issuance spigot, which is all that helicopter money really is. We are confident that Kuroda gets this, and we are confident that despite his reverse-jawboning today, helicopter money is precisely what will happen.

But first there needs to be a crisis. As BofA’s Athanasios Vamvakidis said, “markets had run ahead of themselves, expecting too much. Helicopter money is the inevitable end game in Japan, but we aren’t there yet, it will be the bazooka that the BOJ will use after a crisis.” So we just need the crisis. For now however, there is none, and immediately after Kuroda’s interview, the Yen soared, strengthening against all 16 of its major peers. The USDJPY tumbled more than 1% in the minutes after Kuroda’s interview was releaesed.

 

“Kuroda has just given investors a bit of a disappointment,” said Peter Garnry, head of equity strategy at Saxo Bank A/S in Hellerup, Denmark. “The market had actually changed its sentiment and pricing based on the assumption that we would get something big on the fiscal stimulus side, and that Japan would be the first wave.”

Meanwhile, almost $5 trillion has been added to the value of global equities since June 27 amid signs central banks including the BOJ will boost stimulus to shore up economies after the U.K. voted to leave the European Union.

Elsewhere, the euro hovered near a three-week low amid speculation the European Central Bank will leave rates unchanged and signal further easing for later in the year when Mario Draghi speaks in two hours.

The Stoxx Europe 600 Index slipped 0.4%, with share of airlines sliding after Deutsche Lufthansa AG cut its earnings forecast. Lufthansa tumbled 8.4 percent, and EasyJet Plc slid 5 percent after posting a drop in quarterly revenue. Tele2 AB lost 6.4 percent as its earnings missed estimates. Hermes International SCA gained 3.4 percent as the luxury clothing and handbag maker said its profitability improved. Miners in the Stoxx 600 advanced for the first time in three days.

Turkish stocks fell the most worldwide after the president called for a state of emergency and S&P Global Ratings cut the country’s credit score. S&P 500 futures expiring in September lost 0.2 percent, while the MSCI All-Country World Index gained 0.1 percent, trading at its highest level since November. In the U.S., Intel Corp. slipped 2.8 percent in early New York trading after reporting slower growth in its server-chip division, while Qualcomm Inc. gained 6.5 percent as its results showed the chipmaker is overcoming hurdles in China. Joy Global Inc. rallied 20 percent after Japan’s Komatsu Ltd., the world’s second-biggest mining and construction equipment maker, agreed to buy it. Komatsu added 2.3 percent.

The Borsa Istanbul 100 Index slumped 3.8 percent. Turkey imposed a three-month state of emergency as the government pursues those responsible for last week’s failed military coup, detaining thousands of army officers, judges and prosecutors. A wider purge is under way that encompasses universities, schools and the civil service. The country won’t be under military rule, with army units taking orders from provincial governors, President Recep Tayyip Erdogan said in Ankara on Wednesday.

Germany’s 10-year bond was little changed, with the yield at minus 0.005 percent. The yield on similar-maturity U.S. Treasuries was 1.58 percent. It sank to a record 1.32 percent on July 6 and analysts see it ending the year at 1.74 percent, a Bloomberg survey shows.

Market Snapshot

• S&P 500 futures down 0.2% to 2164
• Stoxx 600 down 0.4% to 340
• FTSE 100 down 0.4% to 6703
• DAX down 0.2% to 10117
• German 10Yr yield up less than 1bp to -0.01%
• Italian 10Yr yield up less than 1bp to 1.25%
• Spanish 10Yr yield down 2bps to 1.14%
• S&P GSCI Index up 0.1% to 355.4
• MSCI Asia Pacific up 0.9% to 135
• Nikkei 225 up 0.8% to 16810
• Hang Seng up 0.9% to 22090
• Shanghai Composite up 0.3% to 3036
• S&P/ASX 200 up 0.4% to 5512
• US 10-yr yield down less than 1bp to 1.58%
• Dollar Index down 0.28% to 96.93
• WTI Crude futures up less than 0.1% to $45.79
• Brent Futures unchanged at 47.17
• Gold spot up 0.5% to $1,322
• Silver spot up 0.4% to $19.48

Global Headline News

• Kuroda Says No Need and No Possibility for Helicopter Money: Central bank Governor Haruhiko Kuroda spoke in BBC Radio 4 program
• Japan’s Komatsu to Buy U.S. Joy Global for $2.89b: Komatsu to pay $28.30 a share in cash, 20% premium to close
• Tesla’s Musk Sees Building Semi Truck in New ‘Master Plan’: CEO plans business expansion to include ride-sharing, buses
• Singapore Seizes S$240m in Assets Related to 1MDB Probe: U.S. seeks also to seize assets linked to 1MDB
• Shenhua Said to Seek CGN Merger to Form $204b Giant: China’s top coal miner said to submit proposal to regulators
• Exxon in Catbird’s Seat for InterOil as Oil Search Drops Out: Exxon bid values Papua New Guinea gas explorer at $2.5b
• Qualcomm Shows China Progress While Intel Stokes Server Fears: Intel’s data center business lags behind growth target, Qualcomm gets catch-up licensing payments, more chip orders
• Oil Extends Gains as U.S. Stockpiles Fall, Refinery Rates Rise: September futures added 0.5% in New York after gaining 0.7% Wednesday
• Trump Chooses War With Cruz at Convention Aimed at Unification
• LVMH Said to Be in Talks to Sell DKNY, DKI: New York Post

* * *

Looking at regional markets, we start in Asia where a positive picture was observed, following the latest record advance seen on Wall Street after a rally in WTI and strong financials led US higher. Nikkei 225 (+0.8%) was catapulted back into positive territory by reports that the government are preparing an additional JPY 9trl in fiscal spending to accompany the earlier reported JPY 10TRN package, however after the close Kuroda dashed Nikkei futures with his statement that helicopter money is “not possible.” ASX 200 (+0.6%) extended on its progress from yesterday’s session with widespread gains seen across sectors, although materials still lagged behind. Elsewhere, Chinese markets conformed to the upbeat tone with the Hang Seng (+0.5%) in the green, while new measures to boost the economy in China bolstered the Shanghai Comp (+0.4%). 10yr JGBs trade flat as the benefits from the BoJ entering the market to acquire JPY 1.135tr1 of government debt was capped by the bullish pressure in Japanese equities. According to sources, the Japanese government is said to be preparing an additional JPY 9trl in fiscal spending to accompany the reported JPY 10trl package and could be given the green light before the August 2nd cabinet is approved.

Top Asian News

• China Factory Gauge Suspended Again, This Time ‘Indefinitely’: Two indicators of Chinese economy have been discontinued
• PBOC Strengthens Yuan Fix Most in Three Weeks Amid Support Bets: Yuan trade-weighted basket advances most since February
• Yen Collapse Seen by Kuroda Critic Pitching Perpetual Bond Plan: Japan addicted to stimulus that isn’t working, Mitsuru Iwamura says
• Chinese-Owned Key Safety Systems Said to Plan Bid for Takata: Japanese co. is seeking buyers to tide over record air-bag recall
• RBNZ Says Likely That Further Policy Easing Will Be Required: Reserve Bank of New Zealand says decline in exchange rate is needed

Comments from BoJ’s Kuroda have shaped the European morning, with the central bank head stating that there is no need or possibility for helicopter money. In terms of a sector breakdown, airlines were among the worst performers in Europe after downbeat updates from both EasyJet and Lufthansa, while energy names also softened. Although USTs saw upside in the wake of Kuroda’s comments to head into mid-morning outperforming their European counterparts, with Bunds remaining relatively stable as participants await the ECB rate decision. Some have speculated that the ECB could alter the makeup of their asset purchases given the recent increase of bond yields slipping lower.

Top European News

• Draghi May Flag Action Ahead for ECB Under Brexit’s Shadow: President will likely address fallout from U.K. referendum
• Brexit to Halt U.K. Growth Streak With Mild Recession Seen: Survey of economists shows economy shrinking from this quarter
• Lufthansa Cuts Profit Forecast After European Terror Attacks: Terror fears depress demand for long-haul trips to Europe
• Publicis Chief Levy Sees Clear Improvement in 2017; Shares Rise: 30 years at the helm of ad firm, Levy plans to step down
• U.K. Retail Sales Fall 0.9% in Month of Brexit Referendum: Monthly survey captures week following shock vote to leave EU
• Daimler’s Mercedes Sustains Margins and Sees Boost From E- Class: Adjusted profit margin was 10% at Mercedes-Benz Cars division

In FX, the yen jumped 1.3 percent to 105.54 per dollar after Kuroda’s no helicopter money remarks. Speaking in a BBC Radio 4 program broadcast Thursday, Kuroda also repeated that he is determined to rid Japan of its deflationary mindset and that there are no significant limitations to further monetary easing if needed by the Bank of Japan. The euro was little changed at $1.1020. ECB President Mario Draghi has predicted that euro-area growth will slow as a result of Brexit, suggesting a response is needed. “Draghi will keep his options open for further easing,” helping fuel a gradual decline in the euro amid broad dollar strength, said David Forrester, a foreign-exchange strategist at Credit Agricole SA’s corporate and investment-banking unit in Hong Kong. “The yen has already sold off a lot in anticipation of the government’s fiscal stimulus package and next week’s BOJ meeting. We’re looking for it to continue tracking lower.” The Bloomberg Dollar Spot Index fell 0.2 percent, after four days of gains. A Citigroup gauge that tracks the degree to which American economic data are exceeding projections is at an 18-month high and futures put the chance of a Federal Reserve interest-rate increase this year at 47 percent, up from 9 percent at the end of June.

In commodities, oil for September delivery was little changed at $45.78 a barrel in New York after weekly U.S. government data showed crude stockpiles fell for a record ninth week and refining activity climbed to a 2016 high. Gold rose 0.5 percent to $1,322.34 an ounce

On today’s US calendar we have initial jobless claims as well as Philly Fed manufacturing survey for July. Existing home sales data and the FHFA house price index reading are also due out, along with the Conference Board’s leading index for June. In terms of corporate earnings we’re due to hear from 35 S&P 500 companies including General Motors (before market), AT&T (after market) and Schlumberger (after market).

* * *

Bulletin Headline Summary from RanSquawk and Bloomberg

• There is no need and no possibility of helicopter money in Japan,
  central bank Governor Haruhiko Kuroda said; An increasing number of
  officials at the Bank of Japan are concerned about the sustainability of
  the current framework for massive monetary stimulus, according to
  people familiar with the discussions
• Treasuries little changed in overnight trading as Asian equities rise on Koruda’s dismissal of “helicopter money,” European stocks fall prior to ECB policy meeting.
• While action isn’t seen as likely straight away, when Draghi addresses reporters after the ECB meeting he might signal more stimulus to be deployed in September
• BOE’s Kristin Forbes said there’s no need to hurry to add stimulus after the U.K.’S vote to exit the European Union, citing a moderation of the immediate market turmoil, calm consumers and “quite solid” growth before the referendum
• More Fed officials are making it clear with greater urgency that they need help from elected lawmakers. In June, Fed Chair Janet Yellen told the Senate Banking Committee that fiscal policy had “not played a supportive role”
• Goldman Sachs, JPMorgan Chase and Morgan Stanley collectively reduced the amount of money they set aside for employee pay in the first and second quarters by 17%, the most in at least four years, to $19 billion
• Terrorism in France, Brexit in Britain, a coup in Turkey — political convulsions everywhere. So where’s the hot money going? It’s going to the world’s riskiest markets, where at least investors are getting paid for the risks
• Singapore vowed to take action against four banks for what it called serious lapses in their anti-money laundering controls and seized S$240 million ($177 million) in assets linked to the financial institution known as 1MDB
• The political instability in Turkey threatens to add to an already difficult year for the nation’s banks as they contend with a 33% surge in bad loans and soaring bankruptcy filings

Event Calendar

• 8:30am: Chicago Fed Nat Activity Index, June, est. -0.2 (prior -0.51)
• 8:30am: Initial Jobless Claims, July 16, est. 265k (prior 254k); Continuing Claims, July 9, est. 2.137m (prior 2.149m)
• 8:30am: Philadelphia Fed Business Outlook, July, est. 4.5 (prior 4.7)
• 9:00am: FHFA House Price Index m/m, May, est. 0.4% (prior 0.2%)
• 9:45am: Bloomberg Economic Expectations, July (prior 41); Bloomberg Consumer Comfort, July 17 (prior 44.7)
• 10:00am: Existing Home Sales, June, est. 5.48m (prior 5.53m); Existing Home Sales m/m, June, est. -0.9% (prior 1.8%)
• 10:00am: Leading Index, June, est. 0.2% (prior -0.2%)

Central Banks

• 7:45am: ECB Main Refinancing Rate, est. 0% (prior 0%)

DB’s Jim Reid concludes the overnight wrap

With little else to feed off, a steady stream of better than expected corporate earnings results continues to keep the tone in markets on the positive side for now. Reports out of Microsoft (post Tuesday’s close) and Morgan Stanley (prior to the open yesterday) kept the train chugging yesterday and once again helped Wall Street and the S&P 500 (+0.43%) and Dow (+0.19%) to new record highs. That said the actual intraday moves have been incredibly small recently – perhaps also reflecting a bit of early summer fatigue – with the intraday high to low range for the S&P 500 yesterday just 0.50%. In fact since the 11th July the average daily intraday range has been just 0.51% despite the index closing up in six of the eight sessions. This month the index has actually only had a daily range above 1% on two occasions. Compare that to the excitement in June where the average daily range over the entire month was 1.06%.

The ECB has the potential to shake things up today though when we’ll get the outcome of their policy meeting at 12.45pm BST. In a nutshell our European economists believe that it’s a close call, but on balance the ECB will wait until the September meeting before easing again, with the focus on extending QE. A few factors lead them to this. Firstly, they note that based on press reports, the ECB sees a smaller impact from Brexit than they do and that it would require negative data surprises if the ECB is to converge to our economists view, for which the data generally hasn’t been available since the Brexit vote. Secondly, the ECB is confident about the benefits of the policies it has implemented and believes the benefits from recent policy announcements like the TLTRO2 and CSPP will be slow to accrue. Thirdly, by waiting until September the ECB will have the benefit of additional information on the Brexit impact and the benefits of its new policies. It will also have the benefit of updated staff forecasts. They note that the ECB dislikes being under pressure to reconsider the policy stance at every meeting and has a tendency to coordinate action with the analysis accompanying new staff forecasts.

That said the scale of the Brexit impact is uncertain but negative. The ECB’s room for manoeuvre on policy is constrained by the political nature of the Brexit shock and the side-effects of further easing. In that case, the sooner the ECB acts the better. On top of this, the decline in European bank equity is a concern and another important factor to consider. So this makes the call a bit of a closer one.

Staying on this subject, yesterday our strategists published a note taking a look at the potential technical changes in QE purchases which could be introduced alongside an extension, including increasing issuer limits, removing the yield floor and deviating from capital keys. They assess how this could impact bund and peripheral spreads in particular should Draghi provide some meaningful indication at the press conference.

Elsewhere, the fallout from the failed coup in Turkey on the weekend continues. Yesterday evening President Erdogan declared a three-month state of emergency in the country. According to the FT officials in Turkey have said that this will allow the government to pass laws rapidly, however there will be no financial or commercial activity restrictions. Meanwhile the Turkish Lira weakened another -1.56% yesterday and to a fresh historic low after S&P cut the sovereign’s rating by one notch to BB with a negative outlook. The start of the week also saw Moody’s put Turkey’s Baa3 rating on review for downgrade. With Fitch (BBB-/Stable) still at IG that Moody’s move is the most important development given the possibility now of Turkey losing its IG status (with most global indices/index trackers requiring at least 2 IG ratings for a credit to be classified as IG). DB’s Seb Barker published an interesting note yesterday discussing the implications for the credit following this news.

Switching over to the latest in Asia this morning where bourses are generally following the lead from Wall Street last night. The Nikkei (+0.71%) in particular has bounced back, with a weaker Yen (-0.50%) this morning helping. Meanwhile the Hang Seng (+0.75%), Shanghai Comp (+0.69%) and ASX (+0.60%) are also up. US equity index futures are also a smidgen higher, helped by eBay’s better than expected results after the closing bell last night which saw shares climb as much as 8% in extended trading. In the FX space the Kiwi Dollar is down half a percent or so after the RBNZ strengthened its easing bias in an economic update overnight.

Moving on. In terms of the rest of markets yesterday, European equities also had a decent day yesterday with some corporate earnings results there also helping. German software maker SAP stood out while Volkswagen also provided some positive earnings guidance which helped sentiment to remain fairly positive. The Stoxx 600 closed up +1.03% while sovereign bond markets eased off, with yields edging up a few basis points.

Meanwhile, in what was another fairly quiet day for data yesterday the notable release was the European Commission’s flash consumer confidence report for July which weakened 0.7pts to -7.9 and more or less in line with expectations. Unlike the German ZEW survey from earlier in the week it’s hard to argue that the Brexit result has had a material detrimental impact on confidence given that data. Indeed the absolute value of the index was weaker in February-April earlier in the year. Elsewhere there was also some data out of the UK, albeit pre-Brexit. The ILO unemployment rate was reported as nudging down one-tenth to 4.9% (expectations had been for no change). The last time unemployment was this low was in 2005. Average weekly earnings including bonuses rose +2.3% yoy in the three months to May (from +2.0%) however ex bonus earnings were down one-tenth to +2.2%.

Before we look at the day ahead, there was a bit more chatter out of the BoE yesterday too. In an article on the Telegraph website, policy maker Kristin Forbes said that ‘given the substantial uncertainty and likelihood that growth slows, there is a valid case to ease monetary policy to support demand’. She did however go on to say that ‘but until more hard data is available, I believe this is a good time to keep calm and carry on’.

Looking at today’s calendar, this morning we’re kicking things off in France where we’ll get the latest confidence indicators for July. The UK will then report June retail sales data before focus of course turns to the ECB meeting just after midday, with Draghi scheduled to speak after at 1.30pm BST. Meanwhile there’s a bit of data to highlight out of the US this afternoon. Initial jobless claims is the early release along with the Philly Fed manufacturing survey for July. Existing home sales data and the FHFA house price index reading are also due out, along with the Conference Board’s leading index for June. In terms of corporate earnings we’re due to hear from 35 S&P 500 companies including General Motors (before market), AT&T (after market) and Schlumberger (after market). We’ll also get reports from 12 Stoxx 600 companies.

via http://ift.tt/29VB6N5 Tyler Durden

By Danielle DiMartino-Booth

 

Having spent a chunk of his youth “shopping” them, Jim Croce came to know a thing or two about junkyards. In those youthful days, should his clunker de jour be missing some vital part or parts, a trolling expedition through South Philly’s scrap heaps was always the enterprising Croce’s preferred method of procurement.

Amid all of Croce’s parts foraging, it was a universal joint for a ‘57 Chevy and a ‘51 Dodge transmission, two must have and must-be-cheap or, better yet, free, parts that the legendary folk singer still recalled. He also reminisced that junkyards could and would provide a no frills, but highly motivated and easy way to get in some cardio, as in running for your life.

“I got to know many junkyards well, and they all have dogs in them,” the late Croce said in a 1973 interview. “They all have either an axle tied around their necks or an old lawnmower to keep ‘em at least slowed down a bit, so you have a decent chance of getting away from them.”

So was born the junkyard dog yardstick by which to measure the meanness of one Bad, Bad Leroy Brown, Croce’s hit which landed at the top of the charts 42 years ago this week.

As for high yield bond analysts, they aren’t exactly known for catchy turns of phrase. However, in recent weeks, they’ve shed the dry and donned the dramatic, as you’ll soon see. Such is the overheated state of the junk bond market this sweltering summer.

In his latest missive, Deutsche Bank’s Oleg Melentyev, arguably the best in class high yield analyst among his sell-side peers, warned of the perils of investing in this “frenzied market.”

Legendary high yield investor Marty Fridson shares Melentyev’s concerns and has for some time. By his best estimate, high yield was already in “extreme overvaluation” territory on June 30^th, defined as being one standard deviation above fair value. Flash forward two weeks, and he calculates that the standard deviation has doubled.

(A quick Statistics 101 refresher: standard deviation tells you how tightly clustered or wide-of-the-center individual components of a given data set are from their mean. Remember the grade bell curve the engineering undergrads blew in business school? When all of the test scores came in on top of each other, the bell curve was super steep; when there was vast divergence, the bell curve was low and wide.)

Defining bond valuation also requires one employ “spreads,” which compare the prevailing yields on a given credit to a supposedly risk-free Treasury of a comparable maturity. And that means you have to get down to the nitty-gritty of measuring risk in basis points (bps), or hundredths of a percentage point.

In the event your eyes have rolled into the back of your head, listen up! This is important folks, your sweet grandparents could well own junk bonds in their desperate need to generate yield on their atrophying retirement funds!

With that preamble posited, on July 15^th the option-adjusted spread on Bank of America Merrill Lynch’s High Yield Index was 542 basis points. That compares to 621 bps on June 30^th. The lower the spread, the less extra compensation investors are demanding for taking on the added risk of being exposed to, well, junky bonds.

Of the compression in spreads, an incredulous Fridson could only characterize the overvaluation which begat more overvaluation as, “more staggering.”

Now in light of this, just how did mom & pop investors react to the price increase? Well how else? They poured $4.4 billion into high yield mutual funds, the second highest weekly inflow on record after March 2^nd’s $5.3 billion inflow.

Bloomberg caught up with yet another stunned strategist:  “They’re out there scrounging through the dumpster looking for yield,” worried Karyn Cavanaugh of Voya Capital Management. “When you have artificially low rates, you force people to go out and look for things they normally wouldn’t.”

The question is, will investor insouciance ever come back to haunt them? They, as in investors, certainly don’t seem to think so.

The Daily Shot is a must-read email proffering just about every graph that’s important for investors in one succinct one-stop shop, and it’s free. The Shot’s editor, the estimable Dr. Lev Borodovsky, is notoriously judicious with his editorial additives. So when he adds a quip, his readers understandably sit up and take note.

In Tuesday’s Shot, Borodovsky featured a graph of the VIX Index, the so-called ‘fear gauge,’ which depicts the perceived risk of owning stocks, which have traditionally moved in lockstep with junk bonds. Reflecting extreme complacency, the VIX is sitting at the lowest level since last August. “In the equity markets,” Borodovsky recapped, “the VIX hits a multi-month low. All is well.”

Or not. The Shot goes on to depict the price-to-earnings ratio on the S&P 500 at the highest level since at least 2006. “These valuations rely on extremely low long-term rates,” Borodovsky cautioned.

As a punctuation mark, as in exclamation, Borodovsky features two charts on the high yield market. At the risk of over-paraphrasing, the high yield market is apparently no longer concerned about energy prices, which have yet to stage the oft-predicted blistering rebound. How so?

Despite the defaults that continue to emanate from the oil patch, the performance of high yield bonds has completely divorced itself from that of still-depressed crude prices. The mirror image of this nonchalance is that investors are no longer demanding a premium level of compensation for owning high yield energy issuers vis-à-vis their non-energy brethren.

In priceless understatement, Borodovsky concludes that, “High yield is definitely starting to look frothy.”

As for Deutsche’s Melentyev, he isn’t bothering to wait for the ink to dry on the clear message written on the wall. In his latest note to clients, he ratchets up his expectations for HY (high yield) defaults to rise this year beyond his worst case initial scenario – and it ain’t just an energy story.

“At this point, we have little doubt that our original forecast of a 4% ex-commodity HY default rate will be met by late 2016/early 2017. Moreover, we think there are now enough reasons to believe that defaults could rise to 5%, ex-commodities, sometime over the next year or so. Coupled with our 20% commodity HY default rate forecast, we are looking at 7.25% aggregate default rate sometime around mid-2017.”

In the event you’ve fallen off Planet Earth in recent weeks, the global corporate default count, as in companies reneging on their promises to make good on those coupon payments, is at the highest level since 2009. And if your memory’s eye has erased 2009 to prevent permanent scarring, the economy was in a full meltdown state back then.

Let’s get this straight. Defaults are going through the roof and investors are flocking to the sector in record numbers? And how.

Moody’s Tiina Siilaberg keeps an eagle’s eye on the concessions investors give to issuers in the form of protections they don’t demand. They’re called ‘covenants,’ which Investopedia defines as, “designed to protect the interests of both parties. Restrictive covenants forbid the issuer from undertaking certain activities; positive covenants require the issuer to meet specific requirements.”

By Siilaberg’s latest tally, covenant protections are at their weakest level in recorded history. To translate, investors’ collective interests are as vulnerable as they’ve ever been. Though the leveraged loan market remains open for business, Siilaberg is apprehensive about what’s just over the horizon given stretched valuations.

“Issuance in the high yield bond market is still relatively weak compared to historic levels,” Siilaberg said. “I worry, though, because refinancing risk for many lower-rated issuers is close to an all-time high.”

The culprit? That would be a delusional reliance on what Melentyev refers to as, “the new narrative,” and “its apparent reliance on (a) strong monetary response.” Unconventional monetary policy is delivering, “little tangible benefit.”

Overreaching central bankers are in fact doing more harm than good at this juncture. Though small investors may not be wise to the damage being wrought, veterans of financial market warfare are weary to the point of exhaustion.

The endless waiting for Godot has apparently worn their resolve down to near nothing…with good reason. For all of central bankers’ Herculean efforts, expectations that U.S. job losses will accelerate are at a two-year high while households’ prospects for the economy over the next year have fallen to a two-year low.

Pride will surely precede the fall of the orthodoxy of today’s accepted monetary policy framework. But at what cost?

“Everyone in the world needs yield and nothing else matters,” Melentyev laments. “This has never ended in any sort of a problem before, so we can all go back to sleep.” And what happens when we’re abruptly shaken from our slumber?

Recognizing the painfully obvious, Voya’s Cavanaugh observed,

Thank you Chair Yellen & Co. for rendering snarling, lawn mower toting junk bond dogs cute and cuddly critters to retirees on fixed incomes.

via http://ift.tt/2a17foX Tyler Durden

“It’s unclear why this hasn’t been a significant driver of markets across the board… maybe we just haven’t hit the threshold,” exhorts $234 billion bond fund Invesco’s Ray Yu. The head of the firm’s macro research told Bloomberg that a general theme of political risks increasing or political risk premium has been prevailing for the last few years and we are now seeing tension between established political regimes and populist movements.

But it appears Mr. Yu has had his lightbulb moment, as he adds:

“Investors are still dealing with aftermath of negative rates, super-accommodative monetary policy globally and structural need for income, which is mobilizing capital flows in unprecedented ways; “maybe that’s what we’re seeing overcome some of the concerns.”

In his view, the safest strategy in a world of this much uncertainty is to buy American, noting that post-Brexit and other risks, “we’ve gotten a lot more constructive on the dollar.”

 Yu added that a Fed hike later this year would likely be warranted and the market is probably underpricing chance of a move sooner than expected…

“Everyone’s sort of gotten too comfortable with developments in China,” warning that “that story is not over.”

 

Investors “really need to stay atop what policy makers are thinking or where they think they are in terms of executing structural plan,” warning that this is “not an area investors should get too complacent about.”

Which is ironic as not only is the Yuan tumbling to fresh cycle lows but rate-hike odds are quietly resurgent… 

via http://ift.tt/29WxYyu Tyler Durden

Submitted by Judith Bergmann via The Gatestone Institute,

After the television documentary, "Sharia in Denmark", embarrassed Danish authorities by revealing how widespread the preaching of sharia is in mosques in Denmark; the Danish government, in May, concluded a political agreement about "initiatives directed against religious preachers who seek to undermine Danish laws and values and who support parallel legal systems."

"We are doing everything we can without compromising the constitution and international agreements," Bertel Haarder, the Minister for Culture and Church, said about the political agreement.

The agreement centers on a number of initiatives, which are supposed to compensate for the detrimental effects of all the years in which sharia was allowed to spread in Denmark while most authorities paid only scant attention to what was happening. Part of the new effort, therefore, will be the mapping of all existing mosques in Denmark.

It will now be obligatory, according to the agreement, for all priests, imams and others who are not part of the Church of Denmark, and who wish to be able to perform weddings — as well as for foreign preachers who apply for residence permits — to learn about Danish family law, freedom and democracy. At the end of the course, all will have to sign a statement that they will accept Danish law, including freedom of speech and religion, gender equality, freedom of sexual orientation, non-discrimination and women's rights.

The government will examine how to create more transparency in foreign donations to faith communities in Denmark, including controlling and, if necessary, preventing such donations. As part of this work, on May 4 the government presented a law making it a crime to receive funding from a terror organization to establish or run an institution in Denmark, including schools and mosques.

Another element in the political agreement is the establishment of national lists with the names of traveling foreign (non-EU) religious preachers who will be excluded from entry into Denmark on the grounds that they are a threat to public order in Denmark. These named preachers will not be granted an entry visa and will be denied entry at the border. In addition, a non-public list, containing the names of such preachers who are EU citizens, will be established. The purpose of this list is to create awareness of the existence of these preachers, as, due to EU rules on free movement, they cannot be denied entry.

The final component of the agreement is the criminalization of certain speech. According to the agreement, it will become illegal explicitly to support terrorism, murder, rape, violence, incest, pedophilia, the use of force and polygamy as part of religious training, and whether or not the speech was made in private or in public. Both the activities of religious preachers and the activities of others, who speak as part of religious training, are included in the criminalization.

The political agreement is expected to become law when the Danish parliament reconvenes after the summer vacation.

Danish parliamentarians are aware that it will be difficult to measure whether these initiatives have any effect — how do you measure whether religious preachers are indeed not explicitly supporting terrorism, murder, rape and pedophilia, unless you place them under constant surveillance? But lawmakers are nevertheless confident that the new initiatives will have an effect. "This will have an impact on what people put up with from their religious leaders." Culture and Church Minister Bertel Haarder says.

Another parliamentarian, Naser Khader, who appears more realistic, says,

"We are well aware that more initiatives are needed. But this stops hate preachers from coming to Denmark, preachers who only want to come here in order to sow discord between population groups and who encourage violence, incest and pedophilia."

After the documentary "Sharia in Denmark" embarrassed Danish authorities, the government reached a new a political agreement, which Danish Member of Parliament Naser Khader supported, saying, "this stops hate preachers from coming to Denmark, preachers who only want to come here in order to sow discord between population groups and who encourage violence, incest and pedophilia."

While Danish politicians have taken yet another step on an uncertain road that may or may not succeed in stemming the rise of sharia in Denmark, other problems abound, which compound the impression that this initiative will not amount to much more than a symbolic band-aid.

A recent Ph.D. dissertation by Jalal El Derbas, as reported by the Danish newspaper, Berlingske Tidende, shows that in several Danish schools with Arab students, the latter, mainly boys, use Arabic as a means to sexually and racially harass and bully other students as well as their teachers, especially girls, Somalis and ethnically Danish teachers, who do not understand the insults hurled at them in Arabic.

According to the article, El Derbas was shocked when he went through the video footage of 12- and 13-year-olds in two different Danish public schools with a majority of pupils with minority background. The purpose of his Ph.D. was to examine the possible causes of why bilingual boys — who speak both Danish and Arabic — continue to lag behind other Danish students. He wanted to see what those bilingual boys actually do in the classroom. The footage was taken over five months and it displayed a world characterized by hierarchy, sexual and religious harassment, bullying and racism, in which the first language of the students, Arabic, played a central and leading role. According to El Derbas:

"I could see that the students used Arabic as a secret code and they only used it negatively to disturb the schoolwork. If they did not want to do the work, they simply shifted to Arabic. The schools were very flexible and allowed the students to use Arabic both inside and outside the classroom. But all that this freedom accomplished was that the students shifted from Danish to Arabic if they were getting into a fight and if there was a teacher nearby whom they did not want to understand what they were saying."

The video footage also revealed a hierarchy consisting of sexual harassment and racism, because the Arab boys consider themselves higher-ranking than girls and Somali students.

"All the bullying happens in Arabic. All the ugly and mean words are uttered in Arabic. The hierarchy of the Arab boys creates a very violent environment. I have video footage of severe sexual harassment against Arab girls and I have filmed the particularly vile bullying of a Somali boy. You can see the tears in his eyes. They are destroying him; it is very violent."

According to El Derbas, Sunni and Shia Muslim strife is also imported into the grounds of these Danish schools. With the majority of the boys being Sunni Muslims, they look down on the Shia Muslim students and a teacher who is a Shia Muslim is called "Satan" or "witch", whereas a Sunni Muslim teacher is addressed courteously as "uncle" or "aunt". Danish teachers are the least respected, and are spoken of in denigrating and humiliating terms.

El Derbas, stressed that the pupils come from ghetto areas, saying:

"Many of the teachers have given up on engaging the parents in any way, but if this is to change it has to happen through the parents. Maybe it would help if the parents took turns of being present in the classroom to see how their children behave. Most of them [the parents] are not working or studying anyway. I think that could lead to an improvement. Because no parents will accept that their children behave in this manner".

The results of the dissertation come as no surprise to Lise Egholm, now retired, but who for 18 years, until 2013, was the head of Copenhagen's Rådmandsgade school, which has many Arab students.

"I am not saying that all the Arab children did ugly things," says Egholm, "but we witnessed on a regular basis exactly the phenomenon of using derogatory Arabic language towards Somalis and girls… Back then the biggest group of children in the school was Arabic speaking, and the words which in Arabic mean 'whore' and 'f— your mother' they all knew."

In a written statement to Berlingske Tidende, Minister of Education, Ellen Trane Nørby, wrote,

"It is never all right to bully, whether this happens in Danish, Arabic, or in a third language. That is why I have initiated a large initiative, which has as its purpose to prevent and combat bullying. The teachers have to signal very strongly that there has to be room for all children and that you have to treat other pupils with respect. If some pupils do not understand this and speak in 'code language' or use a language that excludes and bullies other pupils, the schools must intervene. Danish is the language used for teaching in Denmark, and pupils should not be excluded or bullied because of parallel languages in school".

However, what the minister of education fails to mention is that the problems with this kind of behavior are not likely to remain inside the school, but will inevitably spill into the streets. Then what? No amount of lists of radical religious preachers and laws is going to change that fact.

Whether Danish parliamentarians wish to acknowledge this problem or not, they are up against far wider issues than that of religious incitement in mosques by radical preachers. Notably, El Derbas's findings have not caused any debate remotely resembling that, which was caused by the "Sharia in Denmark" documentary. They should.

via http://ift.tt/2awmAex Tyler Durden

Those who had predicted that the third day of the RNC would unveil with yet another scandal, they were right.

Moments ago, Donald Trump’s former rival, Ted Cruz was roundly booed after failing to endorse Trump during an address to the Republican National Convention, an obvious jab from the Texas lawmaker at the real estate mogul, who tormented him as “Lyin’ Ted” during the primary.

Instead of urging the crowd to vote for Tump, Cruz instead told delegates and voters to “vote your conscience” in November and never specifically said that people should cast their ballots for the Republican nominee. During the course of his speech, Cruz only mentioned Trump once, to congratulate him on getting the nomination.

“To those listening, please, don’t stay home in November. If you love our country, and love your children as much as I know you do, stand, and speak, and vote your conscience, vote for candidates up and down the ticket who you trust to defend our freedom and to be faithful to the Constitution,” Cruz said. As he continued speaking, and the crowd began to realize that an endorsement seemed less likely, the cheers that marked the early part of the speech became boos.

“I appreciate the enthusiasm of the New York delegation,” Cruz said to the vocal Trump home-state supporters who were placed right in front of the stage. They were yelling “We want Trump! We want Trump!”

One reason why Cruz’ speech was among the most anticipated, is due to the level of vitriol that enveloped the closing days of the GOP primary campaign. Trump labeled Cruz “Lyin’ Ted,” falsely accused his father of being involved in the assassination of President Kennedy, and threatened to “spill the beans” on Cruz’s wife, Heidi. In turn, Cruz called Trump a “sniveling coward,” a “pathological liar” and a “narcissist at a level that I don’t think this country has ever seen.”

Cruz’s wife, Heidi, was seen leaving the arena when the booing started getting very loud. Former Virginia Attorney General Ken Cuccinelli told ABC News that he escorted Heidi Cruz out of the convention hall because “it was volatile and the Trump folks were physically approaching and confrontationally yelling,” he said via text.

According to CNN’s Manu Raju, as Heidi was being escorted out, one angry Trump supporter was shouting “Goldman Sachs” at her.

Angry Ken Cuccinelli escorting Heidi Cruz out as Trump supporters yell at her http://pic.twitter.com/G6USuhoSx2

— Graham Moomaw (@gmoomaw) July 21, 2016

HEIDI CRUZ escorted out by security as crowd gets angry at Cruz for his speech. One Trump supporter shouting “Goldman Sachs!” at her

— Manu Raju (@mkraju) July 21, 2016

 

After leaving the floor, Heidi Cruz also reportedly got into a verbal altercation with the head of the Washington delegation, who had berated Ted Cruz following his speech.

Or perhaps it was all intentional, and yet another dramatic sequence orchestrated to provide the next speaker, Trump’s son Eric, with a crowd that needed an outlet for affirmation.

According to Mashable, reports before Cruz spoke indicated that he did not plan to endorse Trump, although he did congratulate the nominee and admonished the crowd to vote for the candidate that will be “faithful to the constitution.” That wasn’t enough for the crowd, which loudly booed Cruz and chanted for Trump.

CRUZ gets lots of boos on convention floor after refusing to endorse Trump. Woman gives thumbs down #RNCinCLE http://pic.twitter.com/zVkvB6Yreg

— Scott Wong (@scottwongDC) July 21, 2016

As ABC writes, the fact that Cruz spoke at all came as a surprise to some considering how bitter the primary campaign became towards the end. At one point, Trump insinuated that Cruz’s wife Heidi was less attractive than his own wife Melania, and later he made suggestions that Cruz’s Cuban father was somehow connected to the assassination of President John F. Kennedy.

He also questioned whether Cruz was eligible to run for the presidency because he was born in Canada.

Shortly after Cruz exited the stage to a growing round of boos, Trump entered the arena on the opposite side to sit with his family and watch his son Eric address the crowd.

via http://ift.tt/2adMlRA Tyler Durden

The last time we wrote about the long-running saga of the scandalous collapse and constant corruption at the Malaysian state wealth fund, 1MDB, which also happened to be an unconfirmed slush fund for president Najib, was a month ago when we learned that the NY bank regulator was looking into fundraising by the fund’s favorite bank, Goldman Sachs. Then overnight, the story which already seemed like it has every possible angle of crime and corruption covered for a series of Hollywood action-adventure blockbusters, got a new twist when the DOJ announced it would seek to seize some $1 billion in assets from individuals affiliated with the fun as part of one of the largest seizures in US history.

The expected asset seizures would be the U.S. government’s first action tied to the 1MDB investigation. Among the properties the US is looking to confiscate, are Van Gogh paintings, Beverly Hills properties, a private jet, ultra high end real estate in NYC and LA, and the rights to profits from the hit movie The Wolf of Wall Street.

The move by U.S. authorities to seize assets tied to an investment fund run by a foreign government would be a major escalation in Washington’s global efforts to fight corruption and block allegedly illegally obtained funds, facilitated by Goldman Sachs, from moving through the world’s financial system the WSJ adds.

The case represents the most detailed and sweeping allegations to be brought in the multinational probe into a global scheme to siphon more than $3.5bn from the Malaysian government fund.  As the FT adds, it is also the first time Malay prime minister, Najib Razak, has been officially tied to the scandal, and while he has not been by name in court documents the description of “Malaysian Official 1” matches his biography and job responsibilities. In what may develop into a major diplomatic row, the DOJ states that that “official” received funds misappropriated from 1MDB, prosecutors say. Najib has repeatedly denied any wrongdoing.

The actions by U.S. authorities also threaten to upend the country’s relationship with Malaysia, a moderate Muslim nation that has long been an important U.S. ally in Southeast Asia, and may force Malaysia to enter China’s sphere of influence in exchange for protection from US retaliation. Malaysia has deep ties to the Middle East and has been seen as a bulwark against China, which has increasingly asserted its power across Asia. President Barack Obama cultivated a relationship with Mr. Najib, including playing golf together in Hawaii over the Christmas holidays in 2014, something we reported at the time.

 

Amid the controversy, the Malaysian leader now was likely to focus on his domestic political survival rather than retaliate against the Obama administration, said James Keith, US ambassador to Malaysia from 2007 to 2010. Malaysia is a key regional partner for the US, backing a proposed trans-Pacific trade deal and hosting a digital centre to counter Islamic State propaganda. “I don’t think this is unexpected from Najib’s perspective,” said Mr Keith. “His approach is: batten down the hatches; we’re going to survive this, no matter what. He’ll do everything he can just to pretend this didn’t happen.”

* * *

Political fallout notwithstanding, the case reveals just how extensive money-laundering by the fund, the Malay prime minister, and a handful of affiliated individuals, often with US bank assistance, has been ever since 1MDB was created in 2009 as a government-owned vehicle to promote economic development through global partnerships and foreign investment.

Ironically, it ended up anything but as funds intended to benefit the Malaysian people were instead diverted to buy real estate, works of art and jewellery, pay casino bills and hire musicians and celebrities for the conspirators’ “lavish lifestyles”,  the complaint says. More than $200m was spent on art alone, prosecutors allege.

As part of the complaint, US authorities accuse Malaysian officials and business executives with receiving laundered 1MDB funds through banks in Singapore, Switzerland, Luxembourg and New York. The Malaysian officials “treated this public trust as a personal bank account”, said Loretta Lynch, US attorney-general. The misappropriation occurred over four years beginning shortly after Mr Najib set up the fund, according to the complaint. According to the suit, in March 2013, $681m in proceeds from a 1MDB bond offering were transferred into an account belonging to the official matching Mr Najib’s description. Five months later, $620m of that amount was shifted to a different account to which a 1MDB official was an authorised signatory.

Officials at 1MDB and others began diverting money shortly after the fund was created in September 2009 under the guise of investing in a joint venture with a private Saudi oil extraction company, PetroSaudi International. More than $1bn was transferred to a Swiss bank account held by Good Star Ltd, which was owned by Mr Low, prosecutors allege. Andrew McCabe, deputy director of the FBI, told reporters in Washington: “The Malaysian people were defrauded on an enormous scale.”

There is more in the full complaint, and it revolves around the three main players who, aside from the prime minister,  were instrumental in the perpetuation of this grand fraud, including, Riza Aziz, stepson of Malaysian Prime Minister Najib Razak; Jho Low, a Malaysian financier; and Khadem Al Qubaisi, a former Abu Dhabi managing director of a sovereign-wealth fund.

Details about their involvement can be found in the WSJ.

* * *

Much of the above was already known, or implied, however this is the first official confirmation of just how vast the money-laundering scheme was and that it stretched to the very top. What is now also confirmed, is that at the heart of the fundraising operation was none other than Goldman Sachs.

According to the complaint, in 2012, 1MDB officials and others fraudulently diverted $1.4bn in proceeds from two bond offerings arranged by Goldman Sachs, according to the complaint. Representing almost 40 per cent of the total raised, the funds were transferred to a Swiss account controlled by a British Virgin Islands entity called Aabar Investments PJS Limited. Aabar had been named to suggest a relationship with an Abu Dhabi company, Aabar Investments PJS, an investment arm of the Abu Dhabi government. But funds diverted to the Swiss account ultimately ended up in a Singapore bank account.

In 2013, several officials including those from 1MDB diverted nearly $1.3bn from another $3bn Goldman bond offering. The money was supposed to be used to finance a joint venture known as the Abu Dhabi Malaysia Investment Co but was instead funnelled into a Singapore account controlled by Mr Low’s associate, the complaint says.

Where it becomes clear that Goldman had a special arrangement with the complicit issuer and the prime minister, is that Goldman earned $192.5m or nearly 11 per cent of the principal amount on one of the 2012 bond deals, a $1.75bn offering, according to court documents, which also said that the offering circular “contained misleading statements and omitted materials facts”. Considering that a typical fee for an emerging market sovereign or quasi-sovereign bond offering between $1bn-$5bn would be between 0.1 per cent and 0.3 per cent, according to Dealogic, this is nothing short of kickback to Goldman, and raises questions about why Goldman wilfully accepted such an overblown fee for a deal which any of its competitor banks would have done for a fraction of the cost.

This being Goldman, of course, the bank was not accused of any wrongdoing in today’s action. It may be in the future as per the DOJ’s parallel prove whether Goldman violated the Bank Secrecy Act in its handling of the proceeds of the securities offerings, but somehow the FBI was unable to link the bank to any crime conducted by the same people who were paying it exorbitant fees to keep the money flowing.

* * *

So once Goldman’s fundraising skills allowed corrupt Malaysian politicians and selected shady middlemen to have access to billion which they would then embezzle, what did they spend the money on? Perhaps a better question is what did they not spend on: among the purchases were Van Gogh paintings, a private jet, the rights to profits from the hit movie The Wolf of Wall Street, and real estate. Lots and lots of ultra high end real estate.

Here are some of the details from WSJ:

The properties allegedly bought with funds misappropriated from a Malaysian investment fund would make for a stunning house tour of high-end real estate in New York and Los Angeles. Besides flashy real estate, the U.S. government alleges that money from the fund, known as 1Malaysia Development Bhd. or 1MDB, was used to buy a $35 million private jet and a stake in EMI Music Publishing.

The assets that the government is trying to seize were purchased by three men who had close ties to 1MDB: Jho Low, a Malaysian deal maker; Riza Aziz, the stepson of Malaysian Prime Minister Najib Razak, and Khadem Al Qubaisi, a former Abu Dhabi managing director of a sovereign-wealth fund, and occasionally the men sold or gave assets to one another.

The properties range from a Beverly Hills mansion with a 120-foot-long pool to a string of Manhattan condos, including a seven-bedroom, five-bathroom duplex overlooking Central Park that cost $35 million.

 The complaints paint a picture of lavish spending on casinos and private jets and a taste for high-end real estate—an asset that has been an increasingly popular place for the world’s wealthy to stash their cash outside the banking system and inside stable countries. Mr. Low declined to comment. A representative for Mr. Al Qubaisi didn’t reply to requests for comment. Red Granite Pictures, a company owned by Mr. Aziz, said it and Mr. Aziz “did nothing wrong.”

Mr. Aziz’s New York duplex is by far the most expensive property in the Park Laurel building, a prominent luxury address near Lincoln Center and overlooking Central Park. Mr. Aziz has stayed in the apartment when he visits New York, according to a doorman there.

A home bought by Mr. Low is located in the so-called Bird Streets in Los Angeles’s Hollywood Hills—a quiet enclave of narrow, twisting roads named after different types of birds. The property on Oriole Drive is a 6-bedroom, 5-bathroom home with a swimming pool, spa and wine cellar, which Mr. Low bought in 2012 for $39 million, according to records. A tall, white wall surrounds the house.

The Los Angeles home owned by Mr. Aziz on North Hillcrest Road— a winding street just off Sunset Boulevard—was purchased in 2010 for $17.5 million. Security guards on the site Wednesday said that they had no idea who owned the property and that no federal agents had visited.

The Viceroy L’Ermitage Beverly Hills, the hotel Mr. Low purchased in 2009 through his family’s trust, sits discreetly on a tree-lined, residential street and features a rooftop pool and 116 newly renovated suites. Hotel staff said they hadn’t noticed any unusual activity Wednesday morning.

Mr. Low owns a majority stake in the Park Lane Hotel, a trophy property overlooking New York’s Central Park. He put up about $240 million of the $400 million of equity provided by the investors who bought the 46-story property in 2013 in a deal that valued it at about $850 million.

The investor group, led by New York developer Steve Witkoff, planned at the time to continue running the Park Lane as a hotel while studying the possibility of redeveloping the hotel into condominiums or a mixed-use property. But when news broke that Mr. Low was under investigation, those plans were stymied. Such a plan would require approval from the New York state attorney general’s office, an unlikely event when the property’s majority owner was being investigated.

* * *

And that kind of magnificent organized crime, dear New Yorkers, is why real estate in Manhattan has never been more expensive.

via http://ift.tt/2adKwEi Tyler Durden

Submitted by Brandon Smith via Alt-Market.com,

We are a little over half way through 2016 and, at the current rate, it will be a miracle if the year finishes without outright catastrophe in half the nations of the world. Some might call these events “Black Swans,” some might call them completely engineered threats, others might call it all a simple “coincidence” or a tragedy of errors. I stand strictly by the position that most of the dangers we see today have been deliberately escalated, if not strategically implemented.

Here is the problem; international financiers and globalist nut-jobs are clearly operating on a timeline with the end goal of creating enough general chaos to convince the masses that complete centralized authority over every aspect of our lives is preferable to constant fear.

For a more in-depth analysis on the schemes of the elites, see my articles Are Globalists Evil Or Just Misunderstood and Globalists Are Now Openly Demanding New World Order Centralization.

In order to elicit this kind of thinking from the public, crisis events are required that will cause many human beings to act, for the most part, like rabid animals. How would this be accomplished? Well, what does history tell us about that which inspires people to sometimes sacrifice their moral code or to bow down to tyrants? Usually a loss of necessities is required — including a lack of employment, lack of production, lack of serviceable shelter, lack of ample food and clean water, lack of medical care, lack of overall security and a sense of safety, etc.

The question often arises: “Why would the elites need to create crisis at all; don’t they already have control of the world?”

The answer is no, not yet they don’t, and if you read my recent article The Reasons Why The Globalists Are Destined To Lose, you can see why they never will have total control. That said, just because the globalist plan for complete centralization is doomed to fail does not mean they will not do everything in their power to make the attempt.

Changes in mass psychology that might take decades to achieve can be accomplished in only a few short years if the public is placed under the right amount of duress. I find that younger people (and isolated people who spend all their time on the web) in particular just don’t understand how this works. Look at it this way; you may not think crisis would be all that useful in pushing the globalist agenda forward until you find your family threatened, your children at risk or your parents in dire need. Fear of losing those we love can open the door to great collective evils, even more so than the fear of harm to ourselves.

Those who have no concept of self defense or the will to prepare and fight are the easiest to manipulate in this way. Pacifists are an effortless meal for dedicated despots.  Hell, for some folks the simple threat of losing day-to-day comforts can cause them to make terrible choices and support destructive leaders and policies.

Chaos is NOT the end game, it is only a tool by which the elites gain psychological leverage over the masses so that people willingly give up their rights to self determination and hand more power to the establishment.

A perfect example would be the recent Brexit referendum, the effects of which have not even begun to rise to the economic surface yet. In light of this event, numerous political puppets and banking moguls have declared an outright need for financial centralization of all nations in order to avoid a calamity.

Investors have been lured into a false sense of safety as equities do not yet reflect the fiscal downturn taking place in every other sector of the global economy, but time grows short nonetheless. The political can negatively affect the financial and vice versa.  Here are just a few of the latest trigger events that are piling up atop an already precarious year…

Italian Banking Crisis

Globalists continue to warn that the effects of the Brexit are coming soon, and that they will bring frightening instability. The latest warning comes again from the IMF, which argues that in the wake of the Brexit a banking crisis in Italy is now imminent and will initiate a “global contagion” in markets. The IMF is not wrong – probably because it had a hand in creating the crisis in the first place.

 

Italy is the third largest economy in the EU. Current estimates project at least $400 billion in toxic debts tied to Italy’s insolvent banks (this obviously does not include the bulk of derivatives). The stock of Banca Monte dei Paschi di Siena (MPS), the world’s oldest bank and Italy’s most vulnerable lender, has dropped by a staggering 43 percent. Most of the EU is inexorably chained to Italian finance through various debt obligations, bond holdings, long term investments, etc. A breakdown in Italy would indeed be a “Lehman moment” for Europe.

 

In response, the Italian government and the Italian banking sector is seeking taxpayer bailouts from the EU under extraneous circumstances, but EU officials are questioning whether or not this is even legal under EU charter.

 

They are also hoping that international banks like JP Morgan will successfully form a bailout response for distressed Italian assets and save Italian banks from a hard landing.

 

It is doubtful that any bailout plan will be enough to stall the shock wave from an Italian bank crisis. I do not believe the elites even intend to defuse such a crisis. With Italy’s own constitutional referendum coming this fall, a political shakeup may result. If a banking disaster is mixed into this shift, the potential for Italy to exit the EU becomes more plausible. A refusal by the EU to save Italian banks would seal the deal.

 

In my pre-Brexit articles outlining why I believed the Brexit vote would pass, I predicted that numerous instabilities in the global economy would be allowed to turn volatile and that the Brexit would be blamed for nearly all of them. Not surprisingly, the Italian finance minister is already placing the blame for Italy's impending bank implosion on the Brexit vote.

 

This is the economic event that no one in the mainstream is paying much attention to. Again, as long as stocks remain in the green, the mainstream is oblivious to the underlying dangers. By the time equities begin to plummet, it will be too late for most people to do much to hedge their bets or prepare.

 

"Failed" Coup In Turkey

Maybe you thought 2016 was already getting weird, but this ugly party is just beginning. In what amounted to a half-day coup against Turkish president Recep Erdogen, Turkey went from corrupt cronyism to outright fascism overnight.

 

I am not so sure that this short lived coup actually "failed"; in fact, I think it achieved exactly what it was supposed to achieve.  I am not surprised in the slightest that some believe that Erdogen fabricated the entire conflict in order to provide an excuse to root out his political opponents. The Turkish government has targeted at least 50,000 people so far, including judges, teachers, and political opposition, all in the name of combating "treason". Erdogen has been sliding into ruin for years with failed policies and an increasing penchant for human rights and free speech violations and now he has free reign to go full totalitarian.

 

That said, I think the claims of an Erdogen false flag are missing the bigger picture.

 

First, the coup was clearly staged. Anyone who knows anything about successful coups in history knows that you either imprison or kill the existing leadership of a government before you try to take it over militarily. Reports indicate that military insurgents had Erdogen’s plane in their sights and could have easily turned him into a cloud of flaming vapor, but for some reason did not fire.

 

My instincts told me upon first hearing of the fleeting momentum of the coup that the whole event was not really about Erdogen. Rather, the event was about NATO, or a rationale for dividing NATO and weakening the West. Rather predictably, Erdogen’s government is now blaming the U.S. in particular for the coup attempt, as the Obama administration and the U.N. warn of civil rights violations by Erdogen.  John Kerry has openly suggested removing Turkey from NATO membership.

 

At this time, Erdogen has allowed U.S. military operations at Incirlik Air Base to continue, but the prospect remains that this is a temporary condition.

 

It is interesting that as the situation develops it is becoming obvious that whether the coup succeeded or failed the end result would be a rationalization for Turkey to break ranks with NATO and, in particular, America.  Turkey is a vital pivot point for NATO in dealing with the Middle East and Russia. To lose Turkish aid would mean a considerable weakening of NATO operations and open a path to more volatile confrontation between Eastern and Western powers.  Take note that no matter the ultimate outcome of the coup fiasco, the most probable result will be a Turkish break from the West.  If the latest coup is exposed as an Erdogen "false flag", this process will progress very quickly.

 

I will be watching this situation carefully over the next few weeks, but I suspect that tensions between Erdogen and the U.S. are slated to expand and that Erdogen is about to go full-despot with human rights violations of the worst kind. I also suspect that Erdogen will begin drafting proposals for greater cooperation with Russia in the near term.

 

The instability in Turkey is an advantage for the globalists. They can use it to undermine NATO operations if they wish. They can flood the EU with even MORE refugees and blame Turkey in the process. They can even help their Frankenstein monster, ISIS, by allowing Turkey to shut down U.S. operations out of Incirlik (as if the U.S. government had any intention of actually stopping ISIS anyway). This could be used as an impetus for a resurgence of ISIS activities.

 

To summarize, a crisis in Turkey is not only good for Erdogen, it is also good for the globalists. Watch for this trigger event to continue mutating.

 

Race War In The U.S.

I have covered extensively the efforts by globalists, and George Soros specifically, to create open wounds in the American social structure and divide the public along racial lines. This has been done by promoting, and in some cases funding, operations of social justice groups (cultural Marxists) and black racist organizations. Black Lives Matter has so far been the vehicle Soros has used to lure useful idiots into championing a race war that has no basis in reality.

 

While there is in fact a legitimate cause for concern over the militarization of state police, police abuses are in no way limited to any single race. I wrote about the best possible solution to constitutional violations by police organizations in my article The ‘Thin Blue Line’ Serves No Purpose. In it, I outlined why state police, funded by federal cash, should not exist all and that their duties should be by taken over by elected sheriff’s offices and neighborhood watches. This removes the gasoline from the fire and undermines attempts by cultural Marxists to incite race violence.

 

Of course, this will never happen. Both Republicans and Democrats are calling for even MORE federalization of police in response to the continued shootings of random LEO’s by black activists. The Democrats want more federalization because they think it will reign in violent cops. The Republicans want more federalization because they think it will reign in violent BLM activists. Notice that no other solution is being offered other than more federal presence on American streets.

 

Keep in mind that the shooting of random police officers is becoming an active trend and it is only going to get worse as we close in on the November elections. Watch for officers to be killed not only while on duty, but also while off duty, perhaps even in their homes.

 

The goal here is to create an excuse for martial law without necessarily declaring martial law outright. That is to say, the government will enact the conditions of martial law incrementally. This will likely include anonymity of LEO identities — meaning ski masks, hidden badge numbers and zero public accountability, all in the name of “protecting police lives.” Groups like BLM and the social justice cultists that exploit them as a weapon are not a real threat to the public overall and could be crushed in an instant by an angry white majority and militarized police unrestrained by the constitution. But this is not the point.

 

The militarization and federalization of the police will end in totalitarianism in the U.S. if it receives wide support by conservatives, or widespread civil war if it does not. Police need to refuse to act in an unconstitutional manner even in the face of violence directed against them, otherwise, they risk starting a fight with liberty groups as well. Black Lives Matter would be the least of their worries at that point.

 

Quick Mention – 28 Page 9/11 Report Release: If you want my in-depth look at the growing rift between Saudi Arabia and the U.S., read my article 'One More Casualty Of The 9/11 Farce – The Petrodollar'.  I am giving this a quick mention because we have yet to hear the full Saudi response to the release of this report.  The original threat was that they would dump their U.S. treasury holdings and depeg their currency from the dollar.  This would officially end the petro-status of the dollar and eventually end the dollar's world reserve status as well.  I believe that if the Saudi's do take this action, they will do it quietly before bond markets and oil markets realize what is happening.  It is likely that a Saudi break from the U.S. will occur quickly in the event of a Trump presidency.

 

Quick Mention – South China Sea Build Up: A prelude to WWIII?  Maybe, maybe not.  China and the U.S. have been sparring politically over the South China Sea for some time.   An international ruling has argued that China has no legitimate claims to the waters nor any territorial history.  This has led to greater tensions.  The latest build up of naval units in the region is concerning, but there has not yet been a true catalyst to instigate a war.  This is another scenario which may not materialize until next year, if it materializes at all.

The overall purpose of these events, I believe, is first to conjure mass confusion. The globalists are turning up the heat on the citizenry much faster than ever before, and it is time to take stock of our position and response. The best defense, as I have always stated, is personal preparedness and self sufficiency, organization with friends and family, then organization of the like-minded within your neighborhood and if possible your town. Most people are self-isolated and thus weak in their defensive position. Anyone effectively organized will have far reaching advantages in the midst of social breakdown. Anyone who is organized with solid planning will become the point to which everyone else gravitates. You can either be a pillar of strength or a victim, it is your choice.

Rest assured, there is more shock and awe to come in 2016. Now is the time to prepare if you have not done so already.

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Crude oil is the world’s most actively traded commodity (and today’s chaos evidenced that perfectly), and oil-related markets are a staple for traders, hedgers, investors around the globe. The below infographic, put together by Aspect, covers the history of crude oil trading, while also highlighting the major events that have shaped the landscape of the oil market as we know it today.

As VisualCapitalist’s Jeff Desjardins points out, the infographic serves as the perfect primer for all the questions about oil that you had, yet were afraid to ask. It also illustrates the impact that unexpected geopolitical events can have on the oil price – and how this volatility can be contagious to other global markets.

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Seemingly doubling down on his comments in April (following what he called Europe’s “flawed asylum policy”), George Soros has expanded his demands from four to seven fundamental pillars on how to prevent the collapse of the European Union. In an article penned for Foreign Policy titled “This Is Europe’s Last Chance to Fix Its Refugee Policy,” Soros details his plan (over-riding the current “piecemeal approach”) for rescuing Europe before it is too late. Simply put, the billionaire says the EU must take in hundreds of thousands of refugees a year, spend at least 30 billion euros (a minor sum, since he believes it can all be financed by debt and taxes) or Europe faces an “existential threat.”

Soros begins ominously: The EU’s piecemeal solutions are coming apart. Only a surge of financial and political creativity can avoid a catastrophe.

The refugee crisis was already leading to the slow disintegration of the European Union. Then, on June 23, it contributed to an even greater calamity — Brexit. Both of these crises have reinforced xenophobic, nationalist movements across the continent. They will try to win a series of key votes in the coming year — including national elections in France, the Netherlands, and Germany in 2017, a referendum in Hungary on EU refugee policy on Oct. 2, a rerun of the Austrian presidential election on the same day, and a constitutional referendum in Italy in October or November of this year.

 

Rather than uniting to resist this threat, EU member states have become increasingly unwilling to cooperate with one another. They pursue self-serving, discordant migration policies, often to the detriment of their neighbors. In these circumstances, a comprehensive and coherent European asylum policy is not possible in the short term, despite the efforts of the EU’s governing body, the European Commission. The trust needed for cooperation is lacking. It will have to be rebuilt through a long and laborious process.

 

This is unfortunate, because a comprehensive policy ought to remain the highest priority for European leaders; the union cannot survive without it. The refugee crisis is not a one-off event; it augurs a period of higher migration pressures for the foreseeable future, due to a variety of causes including demographic and economic imbalances between Europe and Africa, unending conflicts in the broader region, and climate change. Beggar-thy-neighbor migration policies, such as building border fences, will not only further fragment the union; they also seriously damage European economies and subvert global human rights standards.

 

What would a comprehensive approach look like? It would establish a guaranteed target of at least 300,000 refugees each year who would be securely resettled directly to Europe from the Middle East — a total that hopefully would be matched by countries elsewhere in the world. That target should be large enough to persuade genuine asylum-seekers not to risk their lives by crossing the Mediterranean Sea, especially if reaching Europe by irregular means would disqualify them from being considered genuine asylum-seekers.

 

This could serve as the basis for Europe to provide sufficient funds for major refugee-hosting countries outside Europe and establish processing centers in those countries; create a potent EU border and coast guard; set common standards for processing and integrating asylum-seekers (and for returning those who do not qualify); and renegotiate the Dublin III Regulation in order to more fairly share the asylum burden across the EU.

And, as ValueWalk’s Jacob Wolinksy notes, specifically Soros thinks the seven points below are key…

First, the EU and the rest of the world must take in a substantial number of refugees directly from front-line countries in a secure and orderly manner, which would be far more acceptable to the public than the current disorder…

 

Second, the EU must regain control of its borders. There is little that alienates and scares publics more than scenes of chaos…

 

Third, the EU needs to develop financial tools that can provide sufficient funds for the long-term challenges it faces and not limp from episode to episode…

 

Fourth, the crisis must be used to build common European mechanisms for protecting borders, determining asylum claims, and relocating refugees…

 

Fifth, once refugees have been recognized, there needs to be a mechanism for relocating them within Europe in an agreed way…

 

Sixth, the European Union, together with the international community, must support foreign refugee-hosting countries far more generously than it currently does…

 

The seventh and final pillar is that, given its aging population, Europe must eventually create an environment in which economic migration is welcome.

Soros concludes as follows:

The benefits brought by migration far outweigh the costs of integrating immigrants. Skilled economic immigrants improve productivity, generate growth, and raise the absorptive capacity of the recipient country. Different populations bring different skills, but the contributions come as much from the innovations they introduce as from their specific skills — in both their countries of origin and their countries of destination. There is plenty of anecdotal evidence for this, starting with the Huguenots’ contribution to the first industrial revolution by bringing both weaving and banking to England. All the evidence supports the conclusion that migrants have a high potential to contribute to innovation and development if they are given a chance to do so.

 

Pursuing these seven principles is essential in order to calm public fears, reduce chaotic flows of asylum-seekers, ensure that newcomers are fully integrated, establish mutually beneficial relations with countries in the Middle East and Africa, and meet Europe’s international humanitarian obligations.

 

The refugee crisis is not the only crisis Europe has to face, but it is the most pressing. And if significant progress could be made on the refugee issue, it would make the other issues — from the continuing Greek debt crisis to the fallout from Brexit to the challenge posed by Russia — easier to tackle. All the pieces need to fit together, and the chances of success remain slim. But as long as there is a strategy that might succeed, all the people who want the European Union to survive should rally behind it.

Interestingly, Soros goes back hundreds of years to give us the examples Huguenots and not fifty years to when France starting letting in migrants from Algeria and Morocco – so far the much recent plan has been a failure most would agree even before the recent terror attack in Nice. While hope continues to spring eternal (for many establishmentarians) that the EU stays together, we can’t help but suspect that spending 30 billion euros a year (funded by taxing or indebting EU citizens more) and letting in ‘even’ 300,000 refugees a year when the social fabric of the looming super-state is near collapse, terrorist attacks are increasing, and unemployment in many European countries is in double digits – will likely be a non-starter.

Soros’ full treatise can be found here…

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