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With a government intent on growing its entitlements, welfare state, and implicitly it’s debt load… what could be more terrifying than the future debt-serfs refusing to be born into existence. As the birth rate in the US tumbles to yet another multi-decade low, one has to ask how confident the young adult of today is and how, again, the Japanization of America continues to indicate a dark future ahead…
(h/t @Not_Jim_Cramer)
via Zero Hedge http://ift.tt/1mD84lE Tyler Durden
With all eyes gloating over Ireland’s recent ability to issue debt in the capital markets once again (and now with 10Y trading only 40bps above US Treasuries), Europe’s game of distraction continues. However, while spreads (and yields) tumble in all the PIIGS, with Italian yields at almost 7-year lows, it is perhaps surprising to some that Italian bad loan rates are at their highest on record. Having risen at a stunning 23% year-over-year – its fastest in 2 years, Italian gross non-performing loans (EUR149.6 billion) as a proportion of total lending rose to 7.8% in November (up from 6.1% a year earlier). As the Italian Banking Association admits in a statement today, deposits are declining (-1.9% YoY) and bonds sold to clients (-9.4% YoY) as Italy’s bank clients with bad loans have more than doubled since 2008.
Italian bad loans continue to soar – entirely ignored by the nation’s bond market particpants (why worry!?)
and if that chart does not make you rub your chin in utter delerium…
Ireland or US?
Charts: Bloomberg
via Zero Hedge http://ift.tt/1jwuQJg Tyler Durden
Submitted by Michael Snyder of The Economic Collapse blog,
Did you know that financial institutions all over the world are warning that we could see a "mega default" on a very prominent high-yield investment product in China on January 31st? We are being told that this could lead to a cascading collapse of the shadow banking system in China which could potentially result in "sky-high interest rates" and "a precipitous plunge in credit". In other words, it could be a "Lehman Brothers moment" for Asia. And since the global financial system is more interconnected today than ever before, that would be very bad news for the United States as well. Since Lehman Brothers collapsed in 2008, the level of private domestic credit in China has risen from $9 trillion to an astounding $23 trillion. That is an increase of $14 trillion in just a little bit more than 5 years. Much of that "hot money" has flowed into stocks, bonds and real estate in the United States. So what do you think is going to happen when that bubble collapses?
The bubble of private debt that we have seen inflate in China since the Lehman crisis is unlike anything that the world has ever seen. Never before has so much private debt been accumulated in such a short period of time. All of this debt has helped fuel tremendous economic growth in China, but now a whole bunch of Chinese companies are realizing that they have gotten in way, way over their heads. In fact, it is being projected that Chinese companies will pay out the equivalent of approximately a trillion dollars in interest payments this year alone. That is more than twice the amount that the U.S. government will pay in interest in 2014.
Over the past several years, the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England have all been criticized for creating too much money. But the truth is that what has been happening in China surpasses all of their efforts combined. You can see an incredible chart which graphically illustrates this point right here. As the Telegraph pointed out a while back, the Chinese have essentially "replicated the entire U.S. commercial banking system" in just five years…
Overall credit has jumped from $9 trillion to $23 trillion since the Lehman crisis. "They have replicated the entire U.S. commercial banking system in five years," she said.
The ratio of credit to GDP has jumped by 75 percentage points to 200pc of GDP, compared to roughly 40 points in the US over five years leading up to the subprime bubble, or in Japan before the Nikkei bubble burst in 1990. "This is beyond anything we have ever seen before in a large economy. We don't know how this will play out. The next six months will be crucial," she said.
As with all other things in the financial world, what goes up must eventually come down.
And right now January 31st is shaping up to be a particularly important day for the Chinese financial system. The following is from a Reuters article…
The trust firm responsible for a troubled high-yield investment product sold through China's largest banks has warned investors they may not be repaid when the 3 billion-yuan ($496 million)product matures on Jan. 31, state media reported on Friday.
Investors are closely watching the case to see if it will shatter assumptions that the government and state-owned banks will always protect investors from losses on risky off-balance-sheet investment products sold through a murky shadow banking system.
If there is a major default on January 31st, the effects could ripple throughout the entire Chinese financial system very rapidly. A recent Forbes article explained why this is the case…
A WMP default, whether relating to Liansheng or Zhenfu, could devastate the Chinese banking system and the larger economy as well. In short, China’s growth since the end of 2008 has been dependent on ultra-loose credit first channeled through state banks, like ICBC and Construction Bank, and then through the WMPs, which permitted the state banks to avoid credit risk. Any disruption in the flow of cash from investors to dodgy borrowers through WMPs would rock China with sky-high interest rates or a precipitous plunge in credit, probably both. The result? The best outcome would be decades of misery, what we saw in Japan after its bubble burst in the early 1990s.
The big underlying problem is the fact that private debt and the money supply have both been growing far too rapidly in China. According to Forbes, M2 in China increased by 13.6 percent last year…
And at the same time China’s money supply and credit are still expanding. Last year, the closely watched M2 increased by only 13.6%, down from 2012’s 13.8% growth. Optimists say China is getting its credit addiction under control, but that’s not correct. In fact, credit expanded by at least 20% last year as money poured into new channels not measured by traditional statistics.
Overall, M2 in China is up by about 1000 percent since 1999. That is absolutely insane.
And of course China is not the only place in the world where financial trouble signs are erupting. Things in Europe just keep getting worse, and we have just learned that the largest bank in Germany just suffered " a surprise fourth-quarter loss"…
Deutsche Bank shares tumbled on Monday following a surprise fourth-quarter loss due to a steep drop in debt trading revenues and heavy litigation and restructuring costs that prompted the bank to warn of a challenging 2014.
Germany's biggest bank said revenue at its important debt-trading division, fell 31 percent in the quarter, a much bigger drop than at U.S. rivals, which have also suffered from sluggish fixed-income trading.
If current trends continue, many other big banks will soon be experiencing a "bond headache" as well. At this point, Treasury Bond sentiment is about the lowest that it has been in about 20 years. Investors overwhelmingly believe that yields are heading higher.
If that does indeed turn out to be the case, interest rates throughout our economy are going to be rising, economic activity will start slowing down significantly and it could set up the "nightmare scenario" that I keep talking about.
But I am not the only one talking about it.
In fact, the World Economic Forum is warning about the exact same thing…
Fiscal crises triggered by ballooning debt levels in advanced economies pose the biggest threat to the global economy in 2014, a report by the World Economic Forum has warned.
Ahead of next week's WEF annual meeting in Davos, Switzerland, the forum's annual assessment of global dangers said high levels of debt in advanced economies, including Japan and America, could lead to an investor backlash.
This would create a "vicious cycle" of ballooning interest payments, rising debt piles and investor doubt that would force interest rates up further.
So will a default event in China on January 31st be the next "Lehman Brothers moment" or will it be something else?
In the end, it doesn't really matter. The truth is that what has been going on in the global financial system is completely and totally unsustainable, and it is inevitable that it is all going to come horribly crashing down at some point during the next few years.
It is just a matter of time.
via Zero Hedge http://ift.tt/1mq5lca Tyler Durden
Monsignor Nunzio Scarano – dubbed “Monsignor 500” after his favorite bank-note – who is already on trial for allegedly plotting to smuggle 20 million euros from Switzerland to Italy, was arrested Tuesday in a separate case for allegedly using his Vatican accounts to launder a further 7 million euros. As AP reports, police said they seized 6.5 million euros in real estate and bank accounts Tuesday, including Scarano’s luxurious Salerno apartment, filled with gilt-framed oil paintings, ceramic vases and other fancy antiques. A local priest was also placed under house arrest and a notary public was suspended for alleged involvement in the money-laundering plot. Police said in all, 52 people were under investigation. Have no fear though, for his lawyer, “has good faith that the money came from legitimate donations.”
Scarano’s lawyer, Silverio Sica, said his client merely took donations from people he thought were acting in good faith to fund a home for the terminally ill. He conceded, however, that Scarano used the money to pay off a mortgage.
“We continue to strongly maintain the good faith of Don Nunzio Scarano and his absolute certainty that the money came from legitimate donations,” Sica told The Associated Press.
The Salerno investigation was already under way when Scarano was arrested in June in Rome on the smuggling accusations.
…
Police and Sica described the laundering plot as follows: Scarano allegedly withdrew 555,248 euros from his Vatican account in cash in 2009 and brought it into Italy. Since he couldn’t deposit it in an Italian bank without drawing suspicion, he selected 50 friends to accept 10,000 euros apiece in cash in exchange for a check or wire transfer in that same amount.
The money then went to pay off a mortgage on a Salerno property held in the name of a company Scarano partly owned.
…
The Vatican’s top prosecutor said last week that the Holy See had responded to two official requests from Italy for information about Scarano’s accounts, while making its own request to Italian authorities for help in its own money-laundering investigation of him.
The Vatican’s own investigation into Scarano’s banking activity showed that some 7 million euros had come into and out of his Vatican accounts over the past decade.
The Vatican’s documentation arrived on Salerno prosecutors desks in recent weeks, leading to his re-arrest on Tuesday, Italian media reported.
…
Scarano’s initial arrest in the smuggling case was reduced to house arrest because of his ailing health. Sica said the prelate would serve the new arrest warrant also under house arrest.
In the Rome smuggling case, prosecutors say Scarano, a financier and a carabinieri officer devised an elaborate plot to transport 20 million euros in a private jet from Switzerland to Italy avoid paying customs duties. The plot fell apart because the financier reneged at the last minute.
Sica has said Scarano in that case was merely acting as a middleman.
So now we are losing faith and trust in our priests? Wht next – losing faith in central bankers?
via Zero Hedge http://ift.tt/1aJeo2E Tyler Durden
Monsignor Nunzio Scarano – dubbed “Monsignor 500” after his favorite bank-note – who is already on trial for allegedly plotting to smuggle 20 million euros from Switzerland to Italy, was arrested Tuesday in a separate case for allegedly using his Vatican accounts to launder a further 7 million euros. As AP reports, police said they seized 6.5 million euros in real estate and bank accounts Tuesday, including Scarano’s luxurious Salerno apartment, filled with gilt-framed oil paintings, ceramic vases and other fancy antiques. A local priest was also placed under house arrest and a notary public was suspended for alleged involvement in the money-laundering plot. Police said in all, 52 people were under investigation. Have no fear though, for his lawyer, “has good faith that the money came from legitimate donations.”
Scarano’s lawyer, Silverio Sica, said his client merely took donations from people he thought were acting in good faith to fund a home for the terminally ill. He conceded, however, that Scarano used the money to pay off a mortgage.
“We continue to strongly maintain the good faith of Don Nunzio Scarano and his absolute certainty that the money came from legitimate donations,” Sica told The Associated Press.
The Salerno investigation was already under way when Scarano was arrested in June in Rome on the smuggling accusations.
…
Police and Sica described the laundering plot as follows: Scarano allegedly withdrew 555,248 euros from his Vatican account in cash in 2009 and brought it into Italy. Since he couldn’t deposit it in an Italian bank without drawing suspicion, he selected 50 friends to accept 10,000 euros apiece in cash in exchange for a check or wire transfer in that same amount.
The money then went to pay off a mortgage on a Salerno property held in the name of a company Scarano partly owned.
…
The Vatican’s top prosecutor said last week that the Holy See had responded to two official requests from Italy for information about Scarano’s accounts, while making its own request to Italian authorities for help in its own money-laundering investigation of him.
The Vatican’s own investigation into Scarano’s banking activity showed that some 7 million euros had come into and out of his Vatican accounts over the past decade.
The Vatican’s documentation arrived on Salerno prosecutors desks in recent weeks, leading to his re-arrest on Tuesday, Italian media reported.
…
Scarano’s initial arrest in the smuggling case was reduced to house arrest because of his ailing health. Sica said the prelate would serve the new arrest warrant also under house arrest.
In the Rome smuggling case, prosecutors say Scarano, a financier and a carabinieri officer devised an elaborate plot to transport 20 million euros in a private jet from Switzerland to Italy avoid paying customs duties. The plot fell apart because the financier reneged at the last minute.
Sica has said Scarano in that case was merely acting as a middleman.
So now we are losing faith and trust in our priests? Wht next – losing faith in central bankers?
via Zero Hedge http://ift.tt/1aJeo2E Tyler Durden
Submitted by mickeyman via The World Complex blog,
In the broadest sense, there are three types of systems in the world.
The first are simple systems which are characterized by only a few variables or agents, and which can be described by perhaps a handful of equations (or even one).
The second are systems which are characterized by disorganized complexity. These may consist of huge numbers of agents or variables, and their interactions cannot be described by simple equations; yet the overall system is well-described statistically through averages and can be described as being stochastic. Such systems are typically characterized by a stable equilibrium, provided there are no external shocks to the system. They are incapable of generating internal shocks or surprises. For example, you might consider the distribution of air molecules in a room. You may not be able to predict the motion of any particular air molecule, but you can be reasonable certain that the global population won't do anything unexpected (like all move into one side of the room leaving a vacuum on the other side).
The third type of system is characterized by organized complexity. As the systems above, one may consist of many variables or agents, each of which is simple, but the system's behaviour does not lend itself to statistical description because instead of the activities of each component dissolving into a background equilibrium, large-scale (even global scale) structure "emerges" instead of seething chaos. Along with these "emergent properties", common features of such a system include multiple equilibria, adaptive behaviour, and feedbacks. There is no simple way to describe its behaviour, as much of the system's history is bound up in its behaviour (what economists call "long memory").
Complex systems, for all their unpredictability are remarkably resilient. The resilience arises from the way in which this type of system interacts with its environment–through the individual actions of its simple components, the system is able to gather information about its environment and modify its operations to adapt. Yet this adaptation and evolution all occur in the absence of central control.
The above descriptions–and characterizations of three types of systems–go back to 1948. Unfortunately it appears that Dr. Weaver was too optimistic when he recommended science develop an understanding of the third type of system "over the next 50 years". Here we are 65 years later and we have made only basic improvements in our understanding of such systems.
What has gone wrong? I think it is partly due to the limitations of the Newtonian paradigm on which science has rested over the past few hundred years.
Back to Weaver. He asks,
How can currency be wisely and effectively stabilized? To what extent is it safe to depend on the free interplay of such forces as supply and demand? To what extent must systems of economic control be employed to prevent the wide swings from prosperity to depression? These are also obviously complex problems, and they too involve analyzing systems which are organic wholes, with their parts in close interrelation.
The Fed has answered.
Sixty-five years ago, economics was known to be a complex, organized system. Yet today, the Fed continues to set policy as if the economy were a stochastic system that could be sledgehammered into whatever equilibrium state is deemed politically expedient. I would further argue that the Fed has not managed to succeed even in hammering the economy into a desirable equilibrium, but rather has mastered the ability to create artificial statistics to "justify" its actions.
The system is doomed to fail, because the resilience of natural complex systems requires freedom of action for its individual components. We do not observe resilient complex systems with central control. Yet central control is the dominant ideology of our present political and economic systems. Total control, with a vanishingly thin veneer of democracy, ephemeral as the morning dew.
via Zero Hedge http://ift.tt/KB4LNc Tyler Durden
It’s extremely amusing to observe the welfare baby, bailout dependent, “Too Big to Jail,” parasitic legacy banking system squirm in the face of advancements in peer-to-peer financial technologies; whether they be Bitcoin, P2P lending or crowdfunding. It is becoming increasingly clear that humanity would do much better without this gigantic cancerous tumor on our backs, and we finally have the tools to move on.
In fact, the largest bank in the U.S. is so concerned about peer-to-peer lending, it has banned its staff from participating.
We find out from CNBC that:
Wells Fargo has banned its employees from lending their own money through peer-to-peer loan platforms, in a sign of growing tensions between new “P2P” lenders and the largest U.S. bank by market value.
“Ethics administrators” at Wells Fargo decided to forbid staff from P2P lending after concluding “that for-profit peer-to-peer lending is a competitive activity that poses a conflict of interest.”
from A Lightning War for Liberty http://ift.tt/KDZGD7
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Unlike their American counterparts in the world of “what to do with all the easy money sloshing around the market,” it appears the Chinese learned their hard lesson in the collapse of stocks in 2007/8. As the following charts make abundantly clear, the (hidden) inflation that trillions of dollars worth of central bank largesse is creating has piled into real estate markets in China and not in stocks – a problem for the central planners who know the potential for social unrest from a nation unable to afford housing (especially in light of its reform policies). Chinese stocks are -13% YoY, while Chinese real estate is +20% YoY. In the US, of course, we have an always-willing-gamble public more than happy to throw their marginal dollar at all-time high equity and real-estate prices.
2007/8 appears to have taught Chinese investors a harsher behavioral lesson…
Than Americans…
As The Chinese are piling everything into real estate…
So what next? Does the PBOC (and Fed) really think they can dis-inflate these bubbles with no untoward consequences?
via Zero Hedge http://ift.tt/1mpP2fG Tyler Durden
IBM just released results which only a mother could love.
The bottom line beat. At least on the surface that is. The company’s Non-GAAP EPS were $6.13, higher than the expected $6.00. Hurray, right? Wrong.
Because first of all, the GAAP to Non-GAAP adjustments were not something most accountants would generally give credit for, namely “$0.25 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.15 per share for retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.” The $0.15 certainly should not be added back.
Of course fudging Non-GAAP numbers is nothing new: everyone does it, even if it means that real, operating earnings for IBM (and most other companies) are substantially lower, and sure enough IBM’s real EPS was $5.73.
But this is just the tip, because one has to look deep into the income statement to find just how it is that IBM, whose pre-tax income actually declined by 11% could post a 14% increase in non-GAAP EPS.
The answer: taxes. And just like Bank of America, IBM decided to crater its Q4 tax rate, which was 25.5% in Q4 2012 and in Q4 2013 dropped to… 11.2%. Seriously IBM?
Incidentally, this epic accounting gimmick is also why one should look at IBM’s revenues which were a debacle: not only did they miss expectations of a $28.3 billion in Q4, printing at $27.7 billion, but were down 5%. And while most revenue items were weak, the piece de resistance was Systems and Tech revenue, which cratered 25%!
Is this another Cisco in the making. Judging by where the weakness was, the answer is a resounding yes.
Behold the geographic breakdown of revenues Q/Q:
It appears China isn’t done punishing US corporations for NSA transgressions. IBM can get in line to thank Snowden.
Judging by the after hours action, it looks like it took the algos a few minutes to calculate all of this.
What may have gotten ignored in the vacuum tube calculations is how else IBM generated its “profits.”
Because looking at the cash flow statement we get the full picture: in 2013 IBM spent a whopping $13.9 billion on share buybacks, of which over 40%, or $5.8 billion was spent in Q4 alone.
And since the company did not make nearly enough cash to fund all of this buyback spending and fund operations, it had to take on debt. How much?
Well, even as cash was unchanged from 2012 to 2013, debt increased from $33.3 billion to an increasingly tender $39.7 billion, a 20% increase!
Surely IBM found something to invest excess CapEx in as it was buying back billions in stock. Well, no: Capex in 2012 was $4.3 billion. Capex in 2013: $3.8 billion.
And there you have the new normal recovery in a nutshell.
So the question remains: how much longer will shareholders accept short-term gains in exchange for levered buybacks and dividends, while the company is increasingly ignoring its long-term growth, and refuses to increase spending to boost revenue, and to invest in itself.
Somehow we think we will find the answer in 2014.
via Zero Hedge http://ift.tt/LPNUqG Tyler Durden
By: Chris Tell at http://ift.tt/146186R
I recall a long time ago when I was easily excited by the unqualified love of young inebriated women, hedonistic experiences, fast cars, guns and seemingly unusual setups in financial markets, which promised fortunes if traded correctly.
I now find that I just enjoy a day with my kids and later a decent glass of red. Ah, simpler times! I’ve also realised that “unusual” setups in financial markets typically turn into nothing more than a loss of my capital. Betting on outcomes which seem “so damned obvious” isn’t as easy as one would think. Probabilities, as I discussed last week, are a key factor, as is risk/reward.
This is of course as it should be. The markets are there to extract money from inexperienced, gullible “traders”. OK, some are experienced and just careless, but many are newly minted dreamers, set out into the world by some seminar “guru” who convinced them they could day trade their life savings into a small fortune. You know what they say about small fortunes, right? Financial Darwinism!
Given this backdrop, I had a recent phone conversation with our friend Tres Knippa. For those that don’t know him, Tres is a broker and trader on the floor of the Chicago Mercantile Exchange (CME). Clearly not a Johnny-come-lately. Tres shared with me some numbers.
By the way, paying attention to “numbers” and trading them intelligently is far superior to chasing unqualified love from long-legged women. Traded intelligently has been known to pay for supercars and penthouses, which will inevitably attract said long-legged women, so fear not!
The numbers Tres shared with me were:
These should be very scary numbers for the folks running the Comex, but even scarier numbers for anyone not holding physical gold and trading paper!
Tres also shared the chart below with me. This is a graphical representation of the amount of paper gold versus the Registered Gold available for delivery:
Zerohedge recently posted an excerpt from a video Tres did here. Now, for those who are paying attention, the similarities between this little setup and an extended game of Jenga cannot be dismissed out of hand!
Zerohedge also posted a neat little story about the German’s only having recovered a paltry 5 Tons of gold from the US, after a year! You can read all about it here. In short they have repatriated just 37 tons of the 674 tons they have promised to repatriate. At least the Comex may get forewarning of any demand for delivery from the NSA, who is likely still monitoring Sausage Lady’s iPhone. Regardless, it’s unclear to me what they would do about it should that demand for delivery actually come down the wire.
Over 2 years ago when we put together our Japan report I mentioned to Tres that I preferred to go long Gold, short Yen. At that time his preferred trade was centered around the JGB options market, and to be long the USD short the Yen. Looking back he was right and I was wrong. The USD has indeed performed better, and likely will continue to outperform in 2014. Although up to this point it’s been more a factor of a breather in the gold bull market than USD strength.
I’m a gold bull, not a gold bug. I do believe that the long term trend for gold is bullish. This current setup clearly has the potential for some fireworks. Maybe nothing happens (doubtful), but the risk/reward setup is rather favourable from where I sit. Heads I win, tails I win.
Whatever you choose to do with the above information, I encourage readers to never ever confuse “trading for profit” with investing. I’m happy to trade futures contracts, buy gold in the FX spot markets – essentially trade paper in one form or another, but I would NEVER let that obfuscate the fact that I need to hold PHYSICAL GOLD as protection. Timing a profitable trade is like passing gas, it is largely a matter of knowing when it is inappropriate, and acting accordingly!
Grant Williams, the prolific editor of Things That Make You Go Hmmm… said it perfectly in his latest missive:
“Gold is a manipulated market. Period.“2013 was the year that manipulation finally began to unravel.“2014? Well now, THIS could be the year that true price discovery begins in the gold market. If that turns out to be the case, it will be driven by a scramble to perfect ownership of physical gold; and to do that you will be forced to pay a lot more than $1247/oz.Count on it.”
Think about this as a parting thought. Would the Comex, if under pressure for delivery, ever void your positions in order to “stabilise” the market? Or, would that just not be palatable in the Land of the Free? As Grant said above, “Count on it.”
For the traders out there, Tres shared with me another anomaly in the gold markets which he’s been trading successfully for the last couple of months. I’m in the process of translating this from “trader speak” into English, and it will be sent out to members of our currently complimentary Trade Alert service shortly. You can get access to this and more by dropping your email here.
– Chris
via Zero Hedge http://ift.tt/1eoDPui Capitalist Exploits