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While Italy scrambles to conclude a private sector rescue of ailing Monte Paschi, which hopes to raise €5 billion in the form a share sale to anchor and retail investors, while at the same time the bank is underoing a debt for equity swap, moments ago Reuters reported that Italy’s cabinet will meet later on Monday to authorise an increase to the national debt to cover the cost of saving Monte dei Paschi di Siena, should a public bailout be unavoidable, as well as other ailing banks, government sources said cited by Reuters.

As reported yesterday, Monte dei Paschi has launched a 5-billion-euro (4.2 billion pounds) capital increase and must raise the money by the end of the year or face being wound down. If it cannot find takers in the private sector, the government will be forced to step in.

Sources told Reuters last week that the government was ready to pump €15 billion euros – just under one percentage point of gross domestic product – into Monte dei Paschi and other ailing banks. Before it can do that, it needs authorisation to lift national debt levels, which it will do tonight at 7:30pm CET when the cabinet will meet with the Italian parliament to discuss increasing Italy’s public debt to fund bank bailouts.

Meanwhile, after having soared in the early part of December following the failed Renzi referendum, Italian banks slid today on concerns over the successful conclusion of the Monte Paschi bailout.

The reason for today’s selloff may be that, as Reuters also reports in a separate note, Monte Paschi is trying to resolve differences with a key investor over the 5 billion euro rescue plan.  Monte dei Paschi has failed to find buyers for its shares so far Reuters notes, adding that on Monday, it shook the market again with a warning that Italian bank industry bailout fund Atlante was rethinking its 1.5 billion euro purchase of bad loans from the lender.

Atlante had expressed “deep reservations” in a Dec. 17 letter over the terms of a bridge loan that Monte dei Paschi had secured as part of the sale of bad loans, the bank said. Monte dei Paschi shares extended losses on the news, erasing a week’s gains to trade down 7.7 percent at 19.3 euros each.

“If issues raised by (Atlante’s manager) Quaestio cannot be solved, the operation could not be concluded by Dec. 31, 2016 as requested by the European Central Bank,” the bank said in a statement.

However, Carlo Messina, chief executive of Intesa Sanpaolo one of Atlante’s top contributors, said he believed the investment fund should go ahead with the deal and that it would reach a decision by Tuesday at the latest.

What makes the rescue problematic is that there are many moving parts, including not only the share sale and the debt-for-equity swap, but also a successfully executed bridge loan as well as the securitization, and sale of its nonperforming loans to third party investors.

As part of its own faltering rescue plan, Monte dei Paschi has taken out a 4.7 billion euro bridge loan with JPMorgan, Mediobanca (MDBI.MI), Credit Suisse and HSBC.

JPMorgan and Mediobanca have been working on the bank’s rescue plan and have already come under fire from opposition politicians who object to them earning fees in the event of a state bailout, especially fees accruing on the bridge loan. Monte dei Paschi needs the loan to help complete the sale of bad debts, which are to be repackaged as debt securities worth 9 billion euros. The loan is worth around half of that, but it is secured against all the securities — which is the source of concern for Atlante, said a source familiar with the matter.

Atlante, whose shareholders include Italy’s top banks and insurers as well as state-owned entities, is due to buy a 1.5 billion euro tranche of the securities. It could see its notes claimed by the four banks if the bridge loan is not repaid.

A worst case scenario, should the private bailout fail, a state rescue would require many investors, including ordinary Italians, to bear losses and would risk provoking a political backlash.

via http://ift.tt/2i7Msjm Tyler Durden

Janet Yellen will deliver a keynote address during the University of Baltimore commencement ceremony this afternoon (when she will receive am honorary Doctor of Laws degree). The speech is expected to focus on the state of the jobs market and traders are watching for any hints on the Fed's direction heading into 2017.

Before she starts, with 3 hikes expected next year, here is the Fed Funds futures implications currently…

 

Headlines from her speech:

• *YELLEN: ECONOMIC GAINS FINALLY RAISING MOST LIVING STANDARDS
• *YELLEN SAYS PRODUCTIVITY GROWTH HAS BEEN DISAPPOINTING
• *YELLEN SAYS U.S. JOBS MARKET IS STRONGEST IN NEARLY A DECADE
• *YELLEN SAYS JOB CREATION CONTINUING AT STEADY PACE, LAYOFFS LOW

Well… here is The Fed's own Labor Market Conditions Index…

 

• *FED CHAIR YELLEN SEES INDICATIONS WAGE GROWTH IS PICKING UP

Well…

• *YELLEN: A CONCERN THAT THOSE W/O COLLEGE DEGREE FALLING BEHIND
• *YELLEN: WEEKLY EARNINGS FOR YOUNGER WORKERS MADE STRONG GAINS

Yellen is due to speak around 1330ET… (no embed, click image for link to live UB feed)

Full Speech:

Thank you, President Schmoke, for this award and for the opportunity to be here today to offer my congratulations to the members of the Class of 2016. I would also like to recognize the vital support students have received from family, friends, and others, many of whom are here to share this great occasion.

In a moment, I will explain why I am particularly proud and honored to be speaking to the new graduates of this university, but first I'd like to address students on a topic that I expect is on the minds of many of you, which is the job market.

The short version of what I have to say is that while I expect workers will continue to face some challenges in the coming years, I believe, for two reasons, that the job prospects and career opportunities for new graduates at this time are very good. First, after years of a slow economic recovery, you are entering the strongest job market in nearly a decade. The unemployment rate, at 4.6 percent, is near what it was before the recession. This is a level that has been associated with good job opportunities. Job creation is continuing at a steady pace; the layoff rate is low; and job openings are up over the past couple years, which is another sign of a healthy job market. There are also indications that wage growth is picking up, and weekly earnings for younger workers have made strong gains over the past couple of years. That is probably one reason why younger workers reported feeling significantly more optimistic about the job market compared with 2013, according to a survey published just today by the Federal Reserve.

Challenges do remain. The economy is growing more slowly than in past recoveries, and productivity growth, which is a major influence on wages, has been disappointing.

But it also looks like the economic gains of the past few years are finally raising living standards for most people. Median household income grew and poverty fell significantly in 2015, although these measures were still lagging their levels from before the recession. An improving economy may be especially important for you, as new graduates. Those who graduate and enter the workforce during a strong economy are more likely to find employment, remain employed, and enjoy persistently higher earnings.

The second reason for optimism is that you have already done the one thing that research shows is most important to a successful and stable working life: earning the degrees you will receive today. Economists are not certain about many things. But we are quite certain that a college diploma or an advanced degree is a key to economic success. Those with a college degree are more likely to find a job, keep a job, have higher job satisfaction, and earn a higher salary. The advantage in earnings is large. College grads' annual earnings last year were, on average, 70 percent higher than those with only a high school diploma. Back in 1980, the difference was only 20 percent. The gap in earnings is significant only a few years after graduation–almost $18,000 a year, according to some recent data. Beyond these advantages, research also shows that a college or graduate degree typically leads to a happier, healthier, and longer life.

One explanation for the greater advantage in recent decades conferred by higher education is that it reflects an increase in the demand for educated workers compared with others. The drivers of this increasing demand for those with college and graduate degrees are likely to continue to be important. Let me mention two of the most important factors.

First, technology. For decades, technological advances have increasingly allowed simpler, repetitive tasks to be done more cheaply and safely by machines. This kind of work in factories, stores, and offices often required only a high school education. At the same time, technological advances have increased demand for workers with the education necessary to perform the ever-growing share of jobs where technology is important. More recently, further advances are automating increasingly complex tasks and allowing workers with the ability and flexibility to use technology to be more productive. Higher education has also changed in response, and one of the most important things many of you learned at the University of Baltimore was how to learn, adapt, and succeed in the technology-rich environment of most workplaces.

The second major development in the job market is globalization, which allows goods and services to be produced wherever it is most economical. Offshoring and trade have profoundly affected the U.S. economy. No one knows which jobs and which industries will thrive as globalization continues or how each of you will be affected, but I can say that the education you have earned will provide an important advantage. Like technological change, globalization has reinforced the shift away from lower-skilled jobs that require less education to higher-skilled jobs that require college and advanced degrees. The jobs that globalization creates in the United States, serving a global economy of billions of people, are more likely to be filled by those who, like you, have secured the advantage of higher education.

While globalization will likely continue and technology will continue to advance, we don't know how fast the economy will grow, what new technologies will be developed, or how quickly and consistently employment will expand. What is considerably more certain, however, is that success will continue to be tied to education, in part because a good education enhances one's ability to adapt to a changing economy.

One reason for the increasing economic advantage of a college or graduate degree is the very slow growth of earnings in the last few decades for those with only a high school education. It concerns me, as it should concern all of us, that many are falling behind. Improvements in elementary and secondary education can help prepare more people for college and the opportunities college makes available, but for those who do not attend college, we must find other ways to extend economic opportunity to everyone in America.

In discussing higher education, you may have noticed that I have spoken in terms of completing your degrees. Research shows that a large share of the benefits I have described from higher education comes only to those who graduate. Even those completing three or more years of college benefit much less when they don't get a degree. For example, some of you may be worried about paying off loans you have taken out to pay for your education. The good news is that the vast majority of student borrowers who complete their degrees find work that allows them to keep up with their payments and pay off their loans.

Everything I have said so far could apply to the graduates this year of any college or university. The rest of what I have to say is about you, the 2016 graduates of the University of Baltimore. I have learned a bit about you recently, with the help of the university's staff. Let me tell you a few things about some of your classmates that you may not know.

Among you today is a full-time student who found the time each semester to volunteer with non-profit organizations, including one that helps refugees from other countries find their place in this community. Another of your fellow students, who used to doubt that she could ever afford college, has become a student leader. She made the Dean's List every semester after transferring from community college.

Like many of you, another of your fellow graduates took day and evening classes to balance work and family demands. She was forced to change jobs to accommodate this schedule. She later decided her future lay in digital communications, which required her to switch majors after taking some required classes. Today she will become the first person in her family to graduate from college.

Some of you were born in other countries. One of you lived in four other countries before coming to the University of Baltimore for a master's degree. Many of you have contributed to the sense of community at the University of Baltimore by actively participating in student life. One of you has even decided to seek a career helping other students as a student affairs professional.

These are a few of the outstanding people who will join you in walking across this stage today. Let me describe one more.

To that student, sitting in the audience, I would say: you deserve a tremendous amount of credit. Based on what I have learned, you did not have all of the advantages that can pave the way to college and graduate school. You overcame obstacles to make it here, and more obstacles to complete your degree. One of the biggest of these obstacles, in fact, was that some people doubted you could or would succeed. But others in your life believed in you. Some of them are here today. They believed in you, and you believed in yourself, and your talent and intelligence and hard work enabled you to earn the degree you are about to receive.

If this sounds like you, then you are absolutely right, because I am not describing just one member of the University of Baltimore's Class of 2016–I am trying to describe every one of you. In different ways, I expect all of you have overcome obstacles and demonstrated resilience and determination to succeed. All of you have gained knowledge and used your intelligence and talents to complete your degrees. As impressed as I am with any individual graduating today, I am more impressed with what all of you have achieved.

Let me tell you what else I have learned. More than the students of some colleges and universities, I know that many of you have deep roots in this city and in the county. Many of you will start careers, build your lives, and raise your families here. The challenges you have overcome are the challenges faced by many people in Baltimore and in communities throughout America. Your success, which we celebrate today, is also the promise of a brighter future for this city. The degrees you have worked so hard to earn and the opportunities now opening up to you represent the stubborn, earnest hope that anyone and everyone who strives to succeed still can succeed.

And that is why I consider it a rare privilege to speak to you today, and a great honor to be associated with the University of Baltimore and the members of the Class of 2016. Thank you, and congratulations.

 

via http://ift.tt/2hS9U56 Tyler Durden

Authored by Antonius Aquinas,

This December, 2016, marks the 225^th anniversary of the ratification of the first ten amendments to the US Constitution which would become known as the “Bill of Rights.”  To secure passage of the Constitution, the framers of the document (the Federalists) had to agree that it would contain explicit language on individual rights.

Ever since its ratification, the Bill of Rights and the Constitution in which it is a part, has been hailed as one of the seminal achievements in the annals of human history while the political arrangements prior to it (primarily monarchy and aristocratic rule) have been sneered at and belittled by the Constitution’s hagiographers.   Moreover, the American Constitution has provided a model for the emergence of the nation state which came into its own after the French Revolution and the tragic breakup of Christendom.

History, however, if looked at outside the Anglo-American perspective has shown that far from a protector of individual liberty, the Bill of Rights has been mostly useless in defense of basic freedoms while the Constitution, that it is a part of, has been a vehicle for the expansion of state power to an unfathomable degree.

Despite the supposed guarantees of individual liberty within the Bill of Rights and the supposed limited nature of the Constitution itself, there has never been a more intrusive state in world history both domestically and in its myriad of interventions across the globe than the Leviathan that rests on the shores of the Potomac River.  And, the rise of American totalitarianism did not begin with the revelations of Edward Snowden and the other courageous whistle blowers of the recent past, but started soon after the new “federal” state came into existence with the passage of the Alien & Sedition Acts.  Each year since has witnessed the growth of state power at the expense of individual rights where now domestic spying and surveillance are part of the nation’s social fabric.

The primary reason why the Bill of Rights has been unable to secure basic liberties is because the federal government and its courts are the ultimate interpreters of the Constitution and its amendments as explicitly stated in Article VI, section 2, subtitled, Supreme Law of the Land:

This Constitution and the laws of the United States which shall be made in pursuance thereof, and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding.

Since the central government is the final arbitrator of the document, any ruling or decision on particular laws or regulations which would impinge on individual rights will, for the most part, be favorable to the government itself.  And, due to man’s fallen nature, any such power will be abused.

The ratification of the Constitution in 1789 made in essence the individual states mere appendages of the central government.  While the Constitution’s sycophants boast of its “checks and balances,” a far superior bulwark against political repression is that of people “voting with their feet.”  Under the Articles of Confederation, when the national government was not the supreme law of the land, if a certain state became too tyrannical, at least in theory, and had the much neglected Articles remained in place, those persecuted could simply move to a more friendlier jurisdiction.

This would also hold true in the realm of taxation and regulatory policy.  Those political authorities who became too confiscatory in their taxing or enacted burdensome regulations could also see population outflows.  Similar activity goes on all the time currently as people flee high tax municipalities and states like California and New York to lower tax regions such as Florida and Texas.

For voting with one’s feet to be most successful, there needs to be a multitude of states and political jurisdictions.  In the current political climate, this would mean the breakup of the nation state.

Secession and political decentralization should thus be the goals of those who prize individual liberty and prosperity, not the celebration of constitutionalism and the supposed guarantees of personal freedoms under ideas such as the Bill of Rights.

via http://ift.tt/2hMqJ1q Tyler Durden

Following the shooting death of the Russian ambassador to Turkey, The US State Department has issued a travel ‘Security message’ warning US citizens to avoid the area near the Embassy compound “due to an ongoing security incident.”

Ankara, #Turkey – ongoing security incident near US Embassy. All US citizens should avoid area near Embassy compound until further notice. http://pic.twitter.com/5EABdgBO4o

— Travel – State Dept (@TravelGov) December 19, 2016

via http://ift.tt/2i7xRV5 Tyler Durden

From Morgan Stanley’s Elga Baartsch, Chief European Economist

The Lessons of 2016

As we are entering the finishing stretch towards the festive season, financial market activity and economic newsflow are likely to slow this coming week. Away from procuring last-minute presents for loved ones and posting belated holiday greetings to far away ones, these calmer days offer a good time to reflect on the year that is about to end and think about what the next year might bring. This reflection about the accuracy of our key calls and the major surprises we encountered form an essential part of the forecasting process, for we aim to constantly improve by learning from our mistakes, reviewing our priors and engaging in a robust debate with our colleagues and clients.

So, here is how our forecasts fared over the last 12 months and what this implies for 2017.

In our 2016 outlook, where we pegged global GDP growth at 3.3%Y, the MS macro team was too optimistic about growth. At about a quarter of a percent, the forecast miss was relatively small though and almost equally due to misses in DM and EM. Our inflation forecasts, by contrast, did less well, in particular in DM, where headline inflation, at 0.8%Y on average, ended up half as high as we projected in November 2015. Our EM teams did a much better job collectively, projecting headline inflation a touch below 4%Y. A considerable part of the inflation forecast error can be attributed to an unexpected fall in commodity prices in early 2016, which the oil futures we base our forecasts on did not reflect. But in some countries, e.g., Japan and the UK, we also had material misses on core inflation.

As a result of the downward revisions to the growth and inflation outlook in the course of 2016, we also had to amend our monetary policy forecasts, taking out two Fed rate hikes, pushing the ECB depo rate deeper into negative territory and adding to the ECB’s QE programme. Like the market, we did not see the BoJ’s U-turn on negative interest rates coming in early 2016. However, our Tokyo team had given the idea of yield curve control some thought already in 2015. In the UK, Brexit caught us and the BoE wrong-footed and forced a prospective tightening cycle to be replaced by additional monetary policy easing. The key EM central banks, on average, kept policy tighter than we had thought, especially the PBOC and the CBR. At the same time, the RBI and the BCB reduced rates more than expected.

In the middle of the year, we got too cautious on growth in the wake of Brexit, which, contrary to our and most other forecasters’ expectations, did not push the UK into recession or dent euro area growth. The other big political surprise of the year, the election of Donald Trump in the US, caused us to revise up our growth forecast on the expectation of a material fiscal stimulus. The US equity market did better than we had expected in 2016, while European and Japanese equities were trailing behind. We would expect this relative performance to reverse in 2017 and currently prefer Japanese and European equities over the US. EURUSD did not hit parity in 2016, but is expected to break below this key level in the course of 2017. JPY strengthened more than expected in 2016, but is now likely to weaken materially in 2017. Bond yields experienced much more of a rollercoaster ride than we had anticipated in 2016, first falling further and then bouncing back faster. While UST yields are likely to end 2016 not that far away from our original target of 2.70%, yields on Bunds, JGBs and gilts are far lower than we had anticipated a year ago in our 2016 outlook.

The biggest surprises in 2016 were clearly political – notably Brexit and the US presidential election. As a result, we will be keeping a close eye on political developments in 2017, notably in Europe, where not just Germany, France and Italy are heading to the polls in 2017, but also the Netherlands and possibly also Greece. Political discontent in Europe could once again cause investors to question the long-term viability of the euro. One major pivot for financial markets in early 2016 was investor concern about capital outflows from China. We expect this issue to remain in focus in 2017 and acknowledge that it – together with the vibrant credit dynamics – could call into question our call for a PBOC rate cut. Ongoing pressures on the capital account could also reignite the debate about the benefits of a large, one-off RMB devaluation – something that our China team does not deem to be likely though. In 2016, the Fed was much more dovish than we and the market projected initially – a development that our US economists took on board much faster than the consensus. In 2017, barring a complete U-turn on the part of the Trump camp on the desirable monetary stance, there seems to be to a risk of a hawkish tilt at the Fed.

While we don’t exactly know what 2017 will bring, we believe that 2017 will be another year of interesting and intense macro debates where reflation has further to run before the sparkle in risk assets will start to fade. We are already very much looking forward to actively engaging in the debates on the fatter tails of the distribution of the likely macro outcomes next year.

via http://ift.tt/2i7oF30 Tyler Durden

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

The fog of war, coupled with the output from multiple propaganda machines, makes it difficult to determine which side has the upper hand in any conflict. After the fall of Aleppo, it appears that President Bashar al-Assad’s forces are getting the upper hand. But are they?

The best objective way to determine the course of a conflict is to observe black market (read: free market) exchange rates, and to translate changes in those rates via purchasing power parity into implied inflation rates. We, at the Johns Hopkins-Cato Institute Troubled Currencies Project, have been doing that for Syria since 2013.

The two accompanying charts – one for the Syrian pound and another for Syria’s implied annual inflation rate – plot the course of the war. It is clear that Assad and his allies are getting the upper hand. With their recent victory in Aleppo, the black-market exchange rate has moved in Assad’s favor and, likewise, inflation has continued to fall.

via http://ift.tt/2h2RwI8 Steve H. Hanke