Tag: news

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

What’s so amusing about this week’s article from the New York Times titled, At Dinner Tables, Restless President Finds Intellectual Escape, is that the author appears to be quite sympathetic to Obama. She seems to want to portray the President as a real statesman; one who is so far above politics and the pedestrian task of being Commander in Chief that he finds it necessary to flee his responsibilities in order to find intellectual escape while dining extravagantly with “elites” in Europe. In contrast, he merely comes across as the arrogant, disconnected, oligarch coddler he is.

The article also seems to say something important about the New York Times’ own disconnectedness, particularly considering the paper’s Pentagon correspondent recently referred to the American public as children, with the government and mainstream media playing the role of parents.

 

While none of the statements within this article are quotes from Obama, you have to wonder if he is voicing these sentiments to the people who surround around him “off the record.” If so, it appears he is indeed what many have suspected. A community organizer desperately leveraging the Presidency in order to reach that final rung on the ladder to oligarchy.

Now from the New York Times. Read it and weep serfs:

WASHINGTON — President Obama had just disembarked from Air Force One and was still on the tarmac in Rome when he turned to his host, John R. Phillips, the American ambassador to Italy, with an unexpected request: How about a dinner party tomorrow night?

Nice to see he has his priorities straight. When he’s not golfing or trying to start another war, he throws dinner parties at 15th Century Italian estates.

In a summer when the president is traveling across the country meeting with “ordinary Americans” under highly choreographed conditions, the Rome dinner shows another side of Mr. Obama. As one of an increasing number of late-night dinners in his second term, it offers a glimpse into a president who prefers intellectuals to politicians, and into the rarefied company Mr. Obama may keep after he leaves the White House.

No, more accurately, he prefers “intellectuals” to the people he was actually elected to serve.

Sometimes stretching into the small hours of the morning, the dinners reflect a restless president weary of the obligations of the White House and less concerned about the appearance of partying with the rich and celebrated. Freewheeling, with conversation touching on art, architecture and literature, the gatherings are a world away from the stilted meals Mr. Obama had last year with Senate Republican leaders at the Jefferson Hotel in Washington.

This probably wouldn’t read much differently from a hypothetical press release issued by the court of King Louis XVI in the 1780′s

One Saturday night in May, Mr. Obama was up well past midnight at the White House for a dinner that included Ken Burns, the documentary filmmaker, and his wife, Julie; Anne Wojcicki, the chief executive and a co-founder of the personal genome testing company 23andMe, who brought her sister, Susan, the chief executive of YouTube; and Tom Steyer, the billionaire hedge fund manager and Democratic donor. Mrs. Obama was also there, but was not on the trip to Rome. The dinner there was first reported by Politico.

 

The dinners often carry over into Mr. Obama’s day job — and his fund-raising. At a White House meeting on working families last month, Mr. Obama included Ms. Wojcicki — who has two young children with her husband, the Google co-founder Sergey Brin, from whom she is separated — in a discussion of workplace policies with other chief executives. Less than two weeks before, Ms. Wojcicki hosted a technology forum and fund-raiser for the Democratic National Committee at her home in Los Altos, Calif., which was attended by Mr. Obama and 25 guests who paid $34,200 each.

 

In Paris, the president was up again until nearly midnight enjoying, among other things, Drappier Champagne.

This sounds like a President who has simply given up. Then again, he may see the past six years as an unqualified success. He protected and further enriched the thieving oligarch class, while polishing up his resume in anticipation of the hundreds of millions he will chase like the Clintons after leaving office. Michelle in 2032? Why not.

It just goes to show. Nero was a piker. Instead of wasting his time fiddling, Obama protects Wall Street with one hand, while washing down ribeye steaks and Drappier Champagne with the other.

*  *  *

It seems once again that having dictated to the citizenry – "Do not get cynical. Hope is the better choice," this week, we thought the following cartoon was particularly appropriate… 

 

via Zero Hedge http://ift.tt/1nGq4Nj Tyler Durden

Having glimpsed the ugly reality of the under-belly of the Chinese economy last week, and the divergence between that and the government’s PMI survey fallacy, it is no surprise that by the magic of excel, GDP and Industrial Production modestly beat expectations (+7.5% YoY vs 7.4% exp and +9.2% YoY vs +9.0% exp respectively). However, despite epic credit injections, home prices tumbled 9.2% YoY and Retail Sales missed expectations rising only 12.4% YoY. Even as it is self-evident that re-flating the next chosen bubble, or attempting to socialize losses, is not sustainable in the long-run, it is clear (given the surge in deposit creation in recent months) that China has chosen the path of short-term easy-street as opposed to the reform-based hard-street they had promised.

GDP jumps for the first time in a year as coal demand collapses…

 

and Industrial Production surged… Its biggest jump in 13 months and first beat in 7 months

 

and then there’s real estate…

• *CHINA JAN.-JUNE HOME SALES VALUE FALLS 9.2% Y/Y
• *CHINA JAN.-JUNE HOME SALES AREA FALLS 7.8% Y/Y
• *CHINA JAN.-JUNE NEW PROPERTY CONSTRUCTION FALLS 16.4% Y/Y

and retail sales missed…

 

Smells like a massive inventory build to us…

• *CHINA UNLIKELY TO CUT INTEREST RATES THIS YEAR: SEC. JOURNAL

*  *  *

The question is – where will the hot money inflation-prone printing of the PBOC flood now that CCTV has exposed the US-real-estate channel?

*  *  *

The market’s reaction to all this ‘great’ news… +4 pips in USDJPY! lol

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No, it’s not all suicidal workers and robots… Bloomberg’s Christine Hah takes a look inside the world’s largest consumer electronics producer, Foxconn, as it unveiled a new campus in the relatively-undeveloped city of Guiyang last week.

 

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Submitted by Ben Hunt of Salient Partners Epsilon Theory blog,

We’re all familiar with the Queen of Hearts from Alice in Wonderland, less so with the Red King. He’s sleeping all the while, and when Alice goes to wake him up she’s warned off by Tweedledee and Tweedledum, who tell her that everything in Wonderland – including Alice herself – is perhaps just the dream of the Red King. Wake him up and maybe, just maybe, everything goes … poof!

Europe is once again nearing a potential Red King moment, something last seen in the summer of 2012. Then the wake-up call was a series of national elections, particularly in Greece. Today it’s a restructuring of the European financial system, a process started in 2012 with the recapitalization of Spanish banks, continued with the depositor bail-in of Cypriot banks, and now at a tipping point with the imminent ECB regulatory control over all large EU banks.

Mario Draghi is Alice, and the dream is a unified European identity triumphant over individual national identities, symbolized and crystalized in a single currency, the Euro.

The Red King? Well, that’s us.

A quick recap of our story so far. The European sovereign debt crisis of both the summer of 2011 and the summer of 2012 was also a banking system crisis. In fact, you really can’t separate the two. European sovereigns in the South and the periphery are, as a general rule, poorly capitalized and highly levered, and so are their banks. The massive spike in sovereign rates we all witnessed in countries like Portugal, Spain, Italy, and Greece was exactly like a run on the bank, just on a national scale. It’s a collapse in confidence in the solvency of the sovereign, manifested as a liquidity crisis. This is the Red King having a nightmare.

Front and center in this nightmare are the actual banks in countries like Portugal, Spain, Italy, and Greece, which suffer actual runs and massive deposit outflows. These banks must be recapitalized to survive, but who exactly should be on the hook for this recapitalization if it ultimately fails? It’s all well and good to say that Europe as a whole should create a common fund to accomplish these recapitalizations, but is it really fair for German taxpayers to pay the price for a Spanish bank’s insolvency, particularly when those taxpayers (or their representatives) have zero insight into how bad the mess really is and zero oversight over efforts to get out of the mess? But if you make the Spanish government a guarantor of the Spanish bank’s recapitalization, all you’re doing is adding to the debt burden of the Spanish sovereign, which just makes the nightmare worse.

Everyone agrees on the best recapitalization solution – an EU banking union, where all the big banks, regardless of nationality, are guaranteed by the entire EU – but you can’t just go straight to a banking union in one fell swoop. First you need an EU banking regulator, someone who the German taxpayer trusts to take a hard look at the Spanish bank’s books, to force changes in the Spanish bank’s management and balance sheet if warranted, and to watch the Spanish bank like a hawk to make sure that this new German money doesn’t fall into the old Spanish rat hole of bad loans and highly questionable banking practices. This super-regulator is the ECB, or at least that’s what Draghi promised as part of his “whatever it takes” pledge in 2012, and now here we are, two years later, and it’s time for Draghi to make good on that promise.

So what makes the summer of 2014 different from the summer of 2012? If Draghi sang a lullaby to the fitful Red King two years ago with his “whatever it takes” pledge, why won’t he do the same today by following through with a no-muss-no-fuss ECB regulatory take-over of major EU banks?

Odds are he will. But what’s different today is that it’s his own institution on the line. What’s different today is that a heartfelt speech and a mythical OMT program – pure Narratives, in other words – are not sufficient. The ECB actually has to assume responsibility for these banks if Draghi is to move forward with the next step of the Grand Plan, and there’s nothing intangible or mythic about that.

I think that the best way to understand the recent spate of write-downs and default notifications from European banks (Erste Bank on July 4th, Espirito Santo on July 10th) is in the context of this regulatory unification of big EU banks. For the first time in decades these banks are being examined for real. No more patsy national regulators with their revolving doors and inherited culpability, but a highly professional independent banking bureaucracy looking carefully at every bottle and tin in the pantry because they’re scared to death of swallowing some poisonous balance sheet. 

The problem for the ECB, of course, is that Espirito Santo and Erste are not isolated incidents, any more than Laiki and Fortis and Anglo Irish and WestLB and BMPS and … should I go on? … were isolated incidents. The problem is that no amount of public scrubbing and show trials can change the fact that the entire European banking system has been an enthusiastic accomplice to domestic political interests for the past 30+ years, stuffing their collective balance sheets to the gills with loans in direct or indirect service to domestic political demands. What? You mean that 6 billion euros lent to politically-connected business interests in Angola (a Portuguese colony until 1975) were maybe not such a good idea for Espirito Santo? I’m shocked! But precisely because the politically-inspired rot is so widespread, taking a bank like Espirito Santo into the street and shooting it in the head no more solves Europe’s systemic banking crisis than executing Bear Stearns in March 2008 solved the US systemic banking crisis. As Dorothy Parker once wrote, “beauty is only skin deep, but ugly goes clear to the bone.” That’s the European financial system: politically ugly, clear to the bone.

No one understands this sad state of affairs better than Draghi. I mean … the guy was the head of the Italian central bank, for god’s sake. You don’t think he was there for the initial unmasking of BMPS? You don’t think he is only too aware of the tentacles, excuse me … I mean board seats, that private companies like Mediobanca have throughout the sector? But this is just the skin-deep stuff. The ugly that goes clear to the bone is the manner in which the modern Italian banking system was designed to carry out political missions. This was the entire idea behind Berlusconi’s successful privatization of the banking system in the early ‘90’s: he and his pals got control of the really big banks – Unicredit, Intesa, etc. – in order to fund the Italian State, and the Left got control of the next tier of banks – the credit unions – in order to fund their local politically-connected small-to-medium businesses. It might not be crony capitalism at an African level of expertise, which certainly remains the global gold standard, but it’s not too shabby, either.

So with apologies to Lewis Carroll, here’s the choice facing our modern-day Alice – does she sing a lullaby that keeps the Red King sleeping for a few more years, albeit at the cost of drinking a terrible potion that will turn her into a hideous giant … or does she let the Red King wake up, shattering the dream and risking the existence of everything, herself included, but preserving the story of her beautiful face and form?

If I were a betting man (and I am), I’d wager on Draghi drinking the potion and keeping the dream alive, no matter how complicit it makes him in preserving a very ugly and very politically-driven status quo. But there’s a non-trivial chance that it’s just too much to swallow, that becoming the public face of a European banking system that will ultimately come undone in national political elections over the next cycle or two establishes a personal and professional legacy Draghi is unwilling to accept. There are no easy choices here. Does Draghi postpone what I believe is an inevitable day of reckoning over the politically bloated balance sheets of the European banking sector? Or does he accelerate that time table so that he can (perhaps) better control its unwinding? I suspect he’ll take the former course and choose delay. But maybe not. This is one of those unlikely events that no one will anticipate in advance and everyone will claim was obvious in retrospect, which makes it a perfect item to examine through an Epsilon Theory looking glass. Curiouser and curiouser …

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Submitted by Nanex

Market Rigging Explained

We received trade execution reports from an active trader who wanted to know why his larger orders almost never completely filled, even when the amount of stock advertised exceeded the number of shares wanted. For example, if 25,000 shares were at the best offer, and he sent in a limit order at the best offer price for 20,000 shares, the trade would, more likely than not, come back partially filled. In some cases, more than half of the amount of stock advertised (quoted) would disappear immediately before his order arrived at the exchange. This was the case, even in deeply liquid stocks such as Ford Motor Co (symbol F, market cap: $70 Billion). The trader sent us his trade execution reports, and we matched up his trades with our detailed consolidated quote and trade data to discover that the mechanism described in Michael Lewis’s “Flash Boys” was alive and well on Wall Street.

Let’s take a look at what we found from analyzing 5 large trades executed at different times over a 4 minute period in Ford Motor Co. Before each of these trades, the activity in the stock was whisper quiet. Here’s a chart showing millisecond by millisecond trade and quote counts in Ford leading up to one of these 5 trades:

You can clearly tell when the trade hits: activity explodes to over 80 quotes in 1 millisecond (this is equivalent to 80K messages/second as far as network/system latency goes). But the point here is that nothing was going on in this stock in the immediate period before this trade hits the market.

In this particular example, there were a total of 24,800 shares advertised for sale at $17.38 (all trades and offered liquidity will be at this same price) from 8 exchanges. The trader wanted 20,000 of these shares. What he got was only 12,133 shares and 600 of these were on a dark pool (which wasn’t part of the 24,800 shares of liquidity on the lit exchanges)! Worse, someone ELSE was filled for 1,570 shares during these same milliseconds! Remember, nothing was happening in Ford until his order came into the market. Based on the other 4 examples, we are sure that no trades would have occurred during these few milliseconds of time if it wasn’t for this trader’s order.

What happened to the 24,800 shares offered and why couldn’t he get at least 20,000 of them? How is it that others were able to get shares during this time? This is especially disturbing when you consider these other traders (HFT) only bought shares in reaction to the original trader’s order.

Detailed Analysis of a Trade

To answer these questions, let’s take a look at the individual order executions and cancellations at the $17.38 limit price. In the table below, there are 7 columns. The number in the 1st column we’ll use to reference a record. The 2nd column is the timestamp of the event – this is from CQS/CTA, the consolidated quote and trade SIP (Securities Information Processor). The 3rd column shows which reporting exchange sent the information in this record. The 4th column shows the total number of shares offered at $17.38 among the exchanges that trade this stock (Ford) and the 5th column (Add/Cancel) shows the number of shares added to, or removed from the total offered. If the 5th column is blank, it’s because this record represents a trade execution.

The 6th and 7th columns show information about one order execution resulting in a trade at $17.38 (these columns are blank if the record is a quote update). The 6th column shows the number of shares executed, and the 7th column contains either a number which corresponds to the trade report # received by our trader, or an “X” which indicates someone else got this trade execution.

Note that other than the first entry (which is a reference to how long the 24,800 shares was sitting in the books waiting for execution), there is only 3 milliseconds of time shown here! The entire trade is reported in about 15 milliseconds (but 82% completes in 5 milliseconds).

Looking at the table data, we note the first trade is 100 shares on BOST (NQ-OMX Boston) and belongs to our trader. Note, however, it was the 4th trade reported back to him (“4” in the last column).

The next trade is 67 shares at EDGE (New Bats Edge-A), and that someone else bought those shares (“X”). How does that happen?

Lines 4 and 5 are order cancellations of 100 shares and 600 shares from ARCA and NYSE respectively – all in the same millisecond!

Lines 6, 7 and 8 are trade executions from EDGE and belong to our trader – note the first trade (line 3) was also from this exchange but went to someone else. This also means that the order cancellations from NYSE and ARCA happened before any size appeared.

The next 19 entries (lines 9 to 27) show a flurry of order cancellations coming in from NYSE, ARCA, BATS, NQEX and EDGX. This is before the first trade execution at any of those exchanges! This flurry of cancellations removes 10,300 shares from the number of shares offered (Shares Avail. column drop from 21,400 down to 11,100)!

Within 2 milliseconds, half of the shares have disappeared, someone else stole 67 shares, and our trader has only 13.5% (2,700 shares) of his order filled!

Let’s chart the changes to the available liquidity, the shares executed, and orders canceled to get another look at this problem.

First off, let’s start with the ideal case, which is shown in the chart on the left. The number of shares available at $17.38 is shown by the green line, which starts at 24,800 and decreases from order cancellations and trade executions (it would increase if additional sell orders were added). Note the green line is a plot of the Shares Avail. column in the table above. The cumulative number of shares executed is shown as a blue line.

In the ideal case (left chart), a trade arriving first, would execute against all the liquidity until the order was complete or liquidity (shares available) became exhausted. The blue line rises in synch with the green line, until 20,000 shares are traded.

In the real world, things are not that simple. There is another variable to account for: namely order cancellations. The cumulative number shares for sale at $17.38 that have been canceled is shown by the red line.

There is also a fourth variable – trade executions that belong to other traders, but we’ll leave that out for now for simplicity sake.

The chart on the right clearly shows that order cancellations happen far faster than trade executions (red line goes up faster than blue line). This is why our trader wasn’t able to get the advertised liquidity – the orders simply disappeared faster than exchanges processed his buy order.

In fact, more shares are canceled than executed – note the red line ends above the blue line. Also note how much of the activity takes places in about 2 milliseconds (09:47:56.571 to 09:47:56.573).

Perhaps this is just an isolated case and the order cancellations happening a fraction of a second before the trader’s order were just a coincidence?    

Not an Isolated Case

If we take the number of shares available when the order first started executing, and plot the percentage of those shares that were canceled during the trade execution, we’ll arrive at the Share Cancel % (which is simply the percentage of shares were canceled and not executed). In the first example we detailed above, the percentage was slightly more than 50%. The following chart shows the percentage of orders canceled for each of the 5 trade examples. If the chart below doesn’t sufficiently cause alarms to go off, then you might want to restudy the data up to this point. The Share Cancel %  is shockingly high:

The next (and last chart) breaks down into detail where the available shares went when our trader’s order started executing. It includes the component “HFT Shares” – which are trades that should have gone to our trader, but were instead stolen by other market participants, who only made those trades after reacting to his order. Note in some examples, the number of shares stolen is disturbingly high.

Conclusion

All this evidence points to an inescapable conclusion:

The order cancellations and trades executing just before, or during the traders order were not a coincidence. This is premeditated, programmed theft, plain and simple.

Michael Lewis probably said it best when he told 60 minutes that the stock market is rigged. To the fantastic claims made by HFT that they provide liquidity, perhaps we should ask, what kind of liquidity? To the now obviously ludicrous claim that “everyone’s order uses the same tools that HFT uses”, we’ll just say, the data shows otherwise. To Mary Jo White and other officials who claim the market isn’t rigged and that regulators need to look at the data before making any decisions, well, you made it this far – if things aren’t clear, just re-read the above, or just call us and we’ll explain it to you. Or dust off Midas and lets us show you how to work with data.

One more note to the SEC in particular – if you believe that the industry can fix these problems on their own, then we believe you are no longer fit to regulate, because that is not, and never was, how Wall Street works. Honestly, a free for all, no–holds–barred environment would be better than the current system of complicated rules which are partially enforced, but only against some participants. And make no mistake, what is shown above is as close to automatic pilfering as one can get. It probably results in a few firms showing spectacularly perfect trading records; it definitely results in people believing the market is unfair and corrupt.

And to CNBC and other financial media companies who say these problems have all been fixed – we think you might have been lied to. Probably by the ones doing the market rigging.

And finally, to our regular readers: we are taking a break. Everyone has a limit to how much corruption they can witness and digest in a given period of time and we’ve simply reached our limit.

* * *

We wish Nanex an enjoyable break.

We here at Zero Hedge, on the other hand, are not only just getting started, but every new case of corruption (which inevitably 6/12/24 months prior was nothing but another ridiculous “conspiracy theory”) merely doubles our resolve to expose and chronicle this farce of a rigged market, rigged economy, and rigged political theater, as an aid to the what comes next. One can only hope that the mistakes of this time of near-terminal lunacy will be studied and, hopefully, not repeated.

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Submitted by Jeff Thomas via Doug Casey's International Man,

“A government that robs Peter to pay Paul can always depend on the support of Paul.” – George Bernard Shaw

 

“Since the beginning of recorded history, the business of government has been wealth confiscation.” – Ron Holland

 

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.” – Vladimir Lenin

On 16^th March 2013, the banks of Cyprus, with the approval of the Cyprus Government, the European Commission, the European Central Bank, and the International Monetary Fund, confiscated private savings of accounts exceeding €100,000.

At the time, there were two readings of the unanimous approval by four bodies. As the confiscation was presented to the public, the unanimous approval implied that the confiscation was above board. To those who looked a bit deeper, however, the unanimous approval meant that, not only had the four bodies clearly been working on the plan for some time, behind closed doors, but it also demonstrated that all four bodies colluded to steal a significant amount of privately owned money.

For those of us who took the latter view, the confiscation meant that there would be more to come—that Cyprus was being used as a test case. If successful—that is, if the world did not immediately express outrage over the theft—a precedent would be set whereby the EU, the IMF, and presumably any of the banks and governments of the world could assume that it was alright to confiscate private funds, so long as there was an “emergency.”

As it turned out, they got away with it. There was no great outrage—very possibly because so few people in the world were directly impacted, so they were not especially bothered.

However, the precedent had been set, and at the time, I predicted that this was a test case and that the Cyprus model would spread.

I subsequently wrote a follow-up article, when Canada wrote into its 2013 budget that the Canadian banks could perform their own bail-in, should they find themselves in a state of “emergency.”

But, in fact, this did not begin with Cyprus. It began in November of 2010 in a meeting of the G20 countries, all of whom agreed to the concept of a bail-in. Since then, under the UK Banking Act 2009, legislation allowing bail-ins was passed in the UK. The US followed with the Dodd Frank Act of 2010. Switzerland followed in 2013 with a revision of the 1934 Banking Act. Other countries followed—some having completed legislation, some still in the works.

Now, on 4^th July, Spain announced that it would impose a blanket taxation on all bank accounts at the rate of 0.03% for the purpose of “Harmonizing tax regimes and generating revenues.”

Spain may defend its decision by pointing out that it has one of the lowest tax takes in the European Union, which is true. However, what should be the issue here is not the amount of tax being imposed, but the principle upon which the tax is being taken. Let there be no doubt about this bail-in or any other—it is pure theft.

There will be those who are shortsighted, who may point to the tax rate of 0.03% being low. But history shows us that, over time, once a taxation concept is accepted by those being taxed, the rate tends to be increased over time. (All taxes start out small.)

The measure in Spain is also an advance on the concept that, as long as an emergency is perceived to exist, confiscation is justified. In Spain, no emergency situation is being pretended; they simply want the money and have decided to take it.

There are a number of points that the reader may wish to consider, even if he does not reside in Spain:

• Since the initial confiscation in Cyprus attracted the approval of the EU and the IMF, it should not come as a surprise if the EU passes bail-in legislation. (Indeed such legislation is now in the works.)

• It is unlikely that people who bank in any G20 country are safe, even if they do not as yet have bail-in legislation, as they may be next.

• Should the US and /or the EU replace their paper currencies with plastic debit cards, as has been suggested, those who live in those jurisdictions will have no choice but to rely on banks as the clearing houses for all monetary transactions, once paper currency is eliminated. This, coupled with bail-in legislation would render all personal and corporate funds open to confiscation.

It does appear as though the table is being set for the citizens of all the G20 countries to be subject to legalised theft by their banks and/or governments. The question then to be asked would be, “How can I steer clear of this outrage, either in whole or in part?”

First, it might be wise to establish banking in another jurisdiction where, at the very least, confiscation legislation does not appear to be under discussion.

 

Second, it might be wise to establish a home base of some sort in another jurisdiction, in order to further diversify your risk.

 

Third, should you choose to remain in your present jurisdiction either full or part time, it might be wise to retain only three months expense money in banks in that jurisdiction, to minimise the possible loss-level.

 

Fourth, it might be wise to move a significant portion of your cash into investments that would be difficult, if not impossible, to confiscate. (Those who advise on internationalisation tend to recommend real property and precious metals as the two safest choices. Such investments should be outside of the endangered jurisdictions.)

 

Fifth, other types of confiscation are planned by some jurisdictions—notably with regard to retirement funds, through the demand that retirement funds be invested in government treasuries and/or bank debt. (It might be wise to move these funds elsewhere internationally as well.)

 

Sixth, it might be wise to resolve all of the above issues as soon as possible. Once legislation is in place, exiting from confiscatory laws may become impossible. Certainly, as in Spain, there will be no warning offered by governments. One day, you will own your deposit, the next day you may not.

One last note: In robbing Peter, the individuals performing the robbery will not be dressed like the individual in the photo below.

They will be wearing suits, and they will present themselves as legitimate authorities, carrying out the law. Unlike a customary robbery, there will be no authority to complain to; there will be no means of recourse. Your wealth, however large or small, will be lost.

Editor’s Note: This story is not surprising. In fact, we predicted it here. And don’t expect this to be the end of bank deposit “taxes” (i.e. confiscations) either. This is only the very beginning. As governments in the EU and throughout the world sink deeper into bankruptcy expect measures like this to increase in frequency and intensity. This is yet another great illustration why you need to have a bank account in a jurisdiction with sound finances. More on that here.

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

With the Q2 US reporting season upon us, SocGen's quant research team focuses on the deteriorating state of corporate balance sheets in the US. Despite Intel going full retard on forecast buybacks, as we remarked numerous times, US firms are starting to show the strains of having to buy back $500bn of shares every year, whilst cash flows were under pressure. Leverage, SocGen argues, is starting to become an issue… and with it the ability to fund ever more expensive buybacks to maintain the illusion of EPS growth

 

Authored by Andrew Lapthorne of Societe Generale,

Companies are cash flow positive after investing and paying dividends (see above), but have a deficit when buybacks are taken into account. We estimate that non-financial S&P 1500 companies need to raise around $250bn per annum to make up the difference, which is what they are indeed doing – see below.

Of course as equities continue to rise, buying back shares becomes ever more expensive, so corporates will need to raise more and more debt at a time when the Federal Reverse is removing the punch bowl that is QE. Corporates, on aggregate, have shown little apparent regard to the actual execution price of their share buybacks, and the pro-cyclical availability of credit only exasperates the problem, i.e. credit is widely available when markets are at peak but hard to come by when markets are distressed and equity prices cheaper.

We do however find it somewhat ironic that, on the one hand, companies have been increasingly willing to divest assets (we assume because they can get a good price for them) and yet, on the other hand, continue to buy back their shares at an increasing rate with the proceeds. As we show below, whilst capital expenditure is barely growing, sales of investments is accelerating at 20% per annum. As a result net investment & acquisitions is falling at around 10% per annum.

The final point to make is that not all of these share buybacks are discretionary. As we show below, out of the $480bn spent on non-financial share buybacks over the last year, $180bn appears to have been spent on stopping the dilution from maturing stock options, i.e. the share count only came down by $300bn. The implication is that this $180bn is an ongoing cost for the firms in terms of staffing costs.

We’ve always struggled with the US accounting for stock options. As far as I can tell, option grants are accounted for in the income statement based on the option price at the time of the grant. However it is not clear if the firm then hedges this position by actually buying an option in the open market. Given the open declarations from companies that they are buying back stock to soak up the effect of options maturing, we’d suggest that in large part they do not. Investors are then on the hook for any future share price rises. So whilst the cost of these maturing options is recorded on the balance sheet and cash flow statement, it is not accounted for on the income statement. Please someone correct me if I’ve misunderstood.

Yet operating profit margin is defined as the proportion of a company’s revenue that is left after paying for variables costs of production such as wages etc. With that in mind we deduct the actual cost of maturing buy backs from US operating margins; they are nearly 200bp lower and look rather like European profit margins. Go figure.

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