Tag: finance

Bank Bail-Ins Pose Risks To Depositors, Investors & Economies

Bank bail-ins pose risks to retail investors and especially savers throughout the western world. The new bail-in rules have been made operational since the beginning of this year in the EU and in many other countries yet the risks and ramifications of bail ins have been largely ignored in most of the media.

The Financial Times covers bail-ins today with a focus on the risk to investors while continuing to ignore that posed to savers and depositors including small and medium size enterprises.

From the FT today:

When Ignazio Visco, governor of the Bank of Italy, spoke in Florence this month, his focus turned to regulation of bail-ins.

At a sensitive moment for Italian lenders, whose shares had collapsed over recent months, the governor chose to address what he called “regulatory uncertainty” in the wake of new European wide rules for failing banks.

“We must strike the right balance,” he said. “We should not rule out the possibility of temporary public support in the event of systemic bank crises, when the use of a bail­in is not sufficient.”

Taxpayer support for banks, however, was precisely what the new European rules introduced at the start of this year aimed to avoid. To protect taxpayers, investors in bank bonds — mostly untouched during the bailouts of the last crisis — now face losses, or “bail­ins”.

…

In a March paper, German academics warned of potential retail holdings of “subordinated debt”. The paper argued that existing EU regulation “insufficiently addresses mis-selling of bail-in instruments” and pushed for more clarity on exactly who holds the affected debt.

“Bail-in theoretically is a very nice concept but the legal issues are really very big,” says Martin R Götz, professor at Goethe university Frankfurt and a co-author of the paper. “It’s very important to sort these things out because subordinated debt holders, if they are retail investors, are voters.”

Sorting out the process will involve the familiar interplay between national authorities and European rulemakers intent on harmonising rules.

Alex Birry, a senior director at Standard & Poor’s, the rating agency, says “national conduct authorities need to continue to look closely at how these instruments are sold to retail investors”.

“Will there be tensions between what domestic politicians sometimes want to do and what European regulations allow?” asks Mr Birry. “Yes. That’s probably a price to pay if you want to have a banking union.”

See FT article here

A banking union in the EU is wonderful in concept but in practice is fraught with difficulties and risk. The use of bail-ins and the confiscation of deposits while protecting some tax payers in the short term, will likely destroy consumer and business confidence in the already fragile Eurozone economies and severely impact on the tax take in EU economies in the aftermath of the bail-ins and ensuing recessions or depressions.

Small and medium size businesses are the back bone of European and global economies. The confiscation of their corporate deposits, the very capital they use to fund growth – including servicing debt, paying rent and mortgages, employing staff and paying wages – would be highly deflationary and would push economies over the edge and into sharp recessions and lead to contagion in the Eurozone.

Bank bail-ins remain one of the greatest, but most poorly analysed and understood threats to depositors and savers today. The law of unintended consequences …

Read Protecting your Savings In The Coming Bail-In Era (11 pages)
Read From Bail-Outs to Bail-Ins: Risks and Ramifications (51 pages)

Gold and Silver Prices and News
Gold near 3-week low as Fed rate hike expectations boost dollar – Reuters
Gold slips after Fed minutes boost rate rise expectations – Reuters
Fed signals interest rate hike firmly on the table for June – Reuters
Gold futures drop as Fed leaves door open to rate hike in June – Marketwatch
Gold Declines as Prospects for U.S. Rate Increase Boosts Dollar – Bloomberg

Huge trend changes point to something big in the gold market – SRSrocco Report
Helicopter money is coming – but what will it do to us? Money Week
Brexit, The Movie – YouTube
China’s housing bubble so big “Goldman will need a bigger chart” – Zero Hedge
China’s debt bomb: no one really knows the payload – Visual Capitalist

Gold Prices (LBMA AM)
19 May: USD 1,253.75, EUR 1,117.74 and GBP 857.37 per ounce
18 May: USD 1,270.90, EUR 1,127.21 and GBP 882.05 per ounce
17 May: USD 1,270.10, EUR 1,121.43 and GBP 877.50 per ounce
16 May: USD 1,281.00, EUR 1,132.04 and GBP 892.87 per ounce
13 May: USD 1,275.15, EUR 1,123.51 and GBP 885.16 per ounce

Silver Prices (LBMA)
19 May: USD 16.60, EUR 14.81 and GBP 11.35 per ounce
18 May: USD 17.05, EUR 15.13 and GBP 11.77 per ounce
17 May: USD 17.08, EUR 15.09 and GBP 11.80 per ounce
16 May: USD 17.32, EUR 15.30 and GBP 12.07 per ounce
13 May: USD 17.09, EUR 15.06 and GBP 11.85 per ounce

www.GoldCore.com 

via http://ift.tt/1sC7egy GoldCore

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Destroying our ability to discover the real cost of assets, credit and risk has not just crippled the markets–it's crippled the entire economy.

Is anyone else fed up with the Federal Reserve? To paraphrase Irving Fisher's famous quote about the stock market just before it crashed in 1929, we've reached a permanently high plateau of Fed mismanagement, Fed worship and Fed failure.

The only legitimate role for a central bank is to provide emergency liquidity in financial panics to creditworthy borrowers. Once the bad debt (credit extended to failed enterprises and uncreditworthy borrowers) is written off, the system resets as asset valuations adjust to reality–how ever unpleasant that might be for the credulous participants who believed the ever-present permanently high plateau shuck and jive.

Just to state the obvious: Fed policies are not just insane, they're destructive:

— Bringing future sales/demand forward by lowering interest rates to zero just digs a gigantic hole in future sales/demand. Funny thing, the future eventually becomes the present, and instead of a brief recession of low demand we get an extended recession of weak demand and over-indebted households and enterprises.

— Enabling massive systemic speculation by those closest to the Fed's money spigot is insane and destructive, as capital is no longer allocated on productive returns and risk but on the speculative gains to be reaped with the Fed's free money for financiers

— Buying assets to artificially prop up markets completely distorts the markets' ability to price assets based on real returns and real risk.

Manipulating interest rates creates a hall of mirrors economy in which nobody can possibly discover the real price and risk of borrowing money. What would mortgage rates be without the Fed and the federal housing agencies (Freddie and Fannie Mac and the FHA) pumping trillions of dollars of federally backed mortgages into the housing market?

Nobody knows, because the mortgage market in America has been effectively taken over by the central bank and state.

The Fed's entire policy boils down to obscuring the real price of assets, credit and risk with a tsunami of debt. The Fed's "solution" to the economy's structural ills is: don't worry about risk, valuation or costs–just borrow more money for whatever you want: new houses, vehicles, stock buy-backs, Brazilian bonds, worthless college degrees, it doesn't matter: there's plenty of credit for everything.

The only thing that matters is your proximity to the Fed money spigot. If you're a poor student, you get a high-cost student loan from the Fed's flood of credit. If you're a corporation or financier, well, the sky's the limit: how many billions do you want to borrow or skim for stock buybacks or speculative carry trades?

The Fed's control of the machinery of obfuscating price and risk has made us all members of the Keynesian Cargo Cult. Now we all dance around the Fed's idols, beseeching the Fed the save us from our financial sins. We study the tea leaves of the Fed's announcements, and hold our breath lest the worst happen–gasp–the Fed might push interest rates up a quarter of a percent.

This is of course totally insane.

Destroying our ability to discover the real cost of assets, credit and risk has not just crippled the markets–it's crippled the entire economy. Wake up, America, and stop worshiping the false gods of the Fed. The sooner we smash the Fed's idols and strip away their power to enrich the few at the expense of the many, the better off we'll be.

via http://ift.tt/23YyEIK Tyler Durden

Something has changed according to Jeff Gundlach.  After claiming that a rate hike is “inconceivable” as recently as a month ago, a stance which he softened somewhat in recent days, Gundlach said that the Fed has changed the conditions required for a potential interest-rate hike this year.

Cited by Bloomberg, Gundlach believes that the Fed’s thinking has shifted from, ‘if the data pattern improves we will have the green light to hike,’ to ‘unless the data pattern weakens we have the green light to hike.'”

Perhaps, but surely only as long as the S&P, pardon the “economy” remains above 2,000. The second the S&P, pardon the “economy” slides back under that critical for the Fed level, one can forget all about any rate hike for the foreseeable future as the Fed will never risk crushing the wealth effect it has built up over 8 years of careful micromanagement and market manipulation.

And that is precisely what the market, which understand the reflexive relationship with the Fed much better than the group of career academics locked up in the Marriner Eccles building ever could, is going for: pushing the S&P, pardon the “economy” back under 2,000 so that any hiking ambitions Yellen may have are promptly pushed back by another three months.

In minutes of an April Federal Open Market Committee meeting released Wednesday, officials used the word June six times, signaling the possibility of a rate hike next month. Odds of a move in June, which would be the second in a decade following December’s quarter-percentage-point increase, climbed to 28 percent, according to Bloomberg data.

Gundlach, whose $60 billion DoubleLine Total Return Bond Fund has outperformed 98 percent of its Bloomberg peers over the past five years, said May 12 that the odds were about 50-50 for an increase this year.

Bloomberg also reminds us that Gundlach previously criticized Fed board members who signaled intentions to increase rates as many as four times this year as “a suicide mission,” given signs of weakness, such as slowing U.S. corporate earnings and negative interest rate policies pursued by central bankers in Japan and Europe.

But the biggest threat is how China will respond not so much to another rate hike but to the surge in the USD that will precede it. Ovenright Beijing already launched the warning salvo, when the PBOC not only devalued the Yuan by the most since the infamous August devaluation, but also pushed the Yuan to 2016 lows against the USD – a precursor to the market swoon observed at the start of the year.

And as even the Fed has admitted by now, once the emerging market starts turmoiling, then all bets, and certainly of a rate hike, are off.

via http://ift.tt/27EerMX Tyler Durden

Some abnormally amusing market commentary from everyone’s favorite “commodity guru”, Dennis Gartman.

[W]e are reminded of a day many, many years ago when as a member of the Chicago Board of Trade we had come home, beaten and thoroughly exhausted as the bond futures had traded both limit up and limit down only to have closed the day unchanged. The trading activity was violent; random and huge, and our wife at the time… with whom we are still very good friends… having seen on the television that the bond market had closed unchanged on the day greeted us at the door by saying “It must have been a boring day.” It was anything but boring! It was almost life changing. To many on the floor with us, it was life threatening; to very, very few it was life affirming. To everyone it was frightening.

 

Yesterday was that day relived, except this time it was in the equities market. Having been 150 Dow points higher and then only moments later to have traded down to where the Dow was suddenly 150 lower, the market finished effectively unchanged, with the Bulls and the Bears left scratching their heads and wondering aloud, “What the hell just happened?”

 

* * *

 

Yesterday was our worst day of the year thus far, as that which we were long of fell and that which we were short of closed unchanged. Long ago we learned that when things go awry and do so as “majestically” as they did yesterday it is best to simplify, simplify and to simplify again. Getting smaller; getting less involved; curtailing positions in numbers and sizes is the only proper way to respond and so we did exactly that. We exited everything other than our positions in GEUR, GYEN and our short derivatives position… and even that we cut back upon to leave ourselves net short of equities but only rather modestly so.

 

Yesterday was a disaster which we wish to put behind us, and by getting smaller and less widely involved we are in the process of doing so. We are still profitable for the year-to-date, but only marginally so. Defense is the better offense for the moment. There will be better times ahead if we stick by our rules of trading. Of that we are certain.

“Oddly” enough, there was no update of Gartman’s YTD “performance” in retirement fund terms, an unaudited number which Gartman has been very proud of in recent weeks.

via http://ift.tt/1YFNAde Tyler Durden

Over a decade ago, the US cracked down on Marth Stewart as an example of all that is wrong with the US financial system. The same US which did not put any  bankers in prison after the financial crisis. We now get a repeat. The United States Attorney for the Southern District of New York Preet Bharara announces charges against William “Billy” Walters and Thomas Davis, the former Chairman of the Board of Directors of Dean Foods Company, for insider trading.

Meanwhile, the real criminals, the real central banks, the HFTs, all continue to rig and manipulate markets day after day…

via http://ift.tt/1W4sHuD Tyler Durden

Early this morning, following news of the tragic crash of yet another airplane, Donald Trump was the first to suggest that the catastrophe was the result of “yet another terrorist attack”…

Looks like yet another terrorist attack. Airplane departed from Paris. When will we get tough, smart and vigilant? Great hate and sickness!

— Donald J. Trump (@realDonaldTrump) May 19, 2016

… a statement which was promptly vilified in the media, most promintnly from the New York Times, but many others as well:

His post on Twitter drew criticism from Robert M. Gates, a former secretary of defense and director of the C.I.A., who was asked about it during an interview on MSNBC’s “Morning Joe.”

 

“Well, I think it prejudges the outcome,” Mr. Gates said. “Let’s just suppose that it turns out not to be a terrorist event. Then what’s the — then what do you say, having made these allegations.”

 

He continued, “It’s always better to wait until you actually know what the facts are before you open up.

And, as usual, Trump is about to have the final laugh, because as CNN reported moments ago:

U.S. government officials are operating on an initial theory that EgyptAir Flight 804 was taken down by a bomb, two U.S. officials told CNN on Thursday. Officials said the theory could change, with one senior administration official cautioning it is not yet supported by a “smoking gun.”

Or bomb as the case may be. For the official confirmation we will probably have to wait for ISIS to claim the attack and perhaps release a video clip as it did in November when it was ISIS again that blew up a Russian passenger airplane deparing the Sinai penninsula.

However, a bigger question will emerge then: while the November terrorist attack was orchestrated by an ISIS supporter at the Egyptian airport, in this case there would have to be even more ISIS participation, only on the side of the departing city, in this case Paris. It would also mean that more terrorist attacks in Europe are likely to come as this would confirm there is at least one more active cell in the French capital.

via http://ift.tt/1W4qY8v Tyler Durden

With the Fed’s Lacker intimating there could be as many as four rate hikes this year, the already floundering small-business-economy could see an increase in SBA loan rates.

Why?

The U.S. Government sets a maximum interest rate for all of the loans it backs.  That maximum rate is composed of a base rate + a variable rate, which is negotiated between funding institutions and the businesses, and generally sits between 5.75% and 8.25%, depending on loan term and amount.

The base rate, which is non-negotiable, can get one of three rates: the prime rate, the LIBOR rate, or an optional peg rate.  The peg rate – generally less used in finance than the prime rate or LIBOR – is a weighted average of rates the federal government pays for loans with maturities similar to the average SBA loan.

While the Fed doesn’t set the prime rate, most banks base the prime rate on the federal funds rate, which the FOMC is responsible for.  In fact the correlation is nearly perfect.

While generally this news wouldn’t be a cause for concern – as interest rates remain lower than they have in recent history – these statements come on the heels of the consistent negative outlook from the Philadelphia Fed Business Outlook Survey, which measures sentiment in manufacturers in parts of the Northeast corridor.  Pair this with transition relief to the Obamacare employer mandate for small businesses ending, and SBAs are facing a 1-2 punch of a higher cost of capital and more capital outlays for employees, of which they are hiring fewer.

With an increase to the cost of capital on the horizon, a decrease in the availability of capital for spending, and lower employment numbers, the U.S.’s next President could walk into office with quite a bit on their plate with regards to the state of Small Businesses.

via http://ift.tt/1OPKHXd Fundist

Following today’s surprising SEC charge that alleged Phil Mickelson violated securities laws and illegally profited from insider trading to the tune of almost $1 million, here is the response his lawyers just sent out.

The SEC has now completed its investigation into that investment and has concluded that Phil Mickelson did not engage in any wrongdoing. The SEC has filed a civil complaint against certain individuals, including an acquaintance of Phil’s, but that complaint does not assert that Phil Mickelson violated the securities laws in any way. On that point, Phil feels vindicated. At the same time, however, Phil has no desire to benefit from any transaction that the SEC sees as questionable.

 

Accordingly, he has entered into an agreement with the SEC under which he will return all the money he made on that 2012 investment. Phil understands and deeply respects the high professional and ethical standards that the companies he represents expect of their employees, associates and of Phil himself. He subscribes to the same values and regrets any appearance that, on this occasion, he fell short. He takes full responsibility for the decisions and associations that led him to becoming part of this investigation.

 

As he moves forward, Phil remains committed to demonstrating that he fully shares the same values as the companies he represents. He very much appreciates that they have determined to continue their sponsorship agreements with him. He is pleased that this matter is over, and he will have no further comment.”

So the message here is that all it takes to avoid any prosecution in such cases is simply to repay any illegal inside trading profits and move on with your life. Oh, being a world famous golfer helps.

via http://ift.tt/1qwy8EH Tyler Durden

Submitted by Pater Tenebrarum via Acting-Man.com,

Presidential Duties

We recently stumbled upon an image in one of the more obscure corners of the intertubes which we felt we had to share with our readers. It provides us with a nice metaphor for the meaningfulness of government activity. First, here is a look at the picture – just quietly contemplate it for while and let it work its magic on you:

Yes, these two gentlemen are actually watering a tree in the middle of a downpour…

You may have noticed that the two gentlemen with the watering cans have two living umbrella-holders at their disposal. Obviously, they must be VIPs of some sort.

The tree getting victimized in the picture is actually a young fir, and one must fear that it will drown. Small firs do of course need water if they want to become big firs, but there can be too much of a good thing, and this may well be such a case.

We thought we’d never see anyone watering plants during a rainstorm while exuding such a solemn sense of duty. Normally one would expect such people to exhibit a somewhat more maniacal demeanor. This goes to show that there’s a first time for everything.

We were of course wondering who and what exactly we were looking at, and it turns out that the two gentlemen are Gurbanguly Berdimuhamedov, the president of Turkmenistan, and Belarusian president Alexander Lukashenko, in the process of planting (and evidently, right away drowning) a fir at the Alley of Honored Guests near the Palace of Independence in Minsk.

Free Advice

We want to take this opportunity to dispense some free advice to the fathers of the young fir: it is probably not necessary to water plants while it is raining, as rain is reportedly quite wet all by itself (step out from underneath the umbrella next time, and you will see what we mean).

Still, the presidents have to be commended for not shirking their planting duties in the face of inclement weather, and we want to thank them for providing us with this moving image. And of course, we wish the fir all the best.

via http://ift.tt/1U1ANRh Tyler Durden