Tag: news

Submitted by John Rubino via DollarCollapse.com,

Critics of today’s fiat currency/fractional reserve banking world have (for what seems like forever) made the common sense point that when debt rises faster than cash flow, bad things are bound to happen. In every cycle since 1980 this has been dismissed by the vast majority who benefit from inflating bubbles — until the bubble bursts.

And here we go again. The following chart from Stock Traders Daily shows the relationship between margin debt (money borrowed by investors against existing stock positions in order to buy more stock) and cash on hand in brokerage accounts. The idea is that when investors hold lots of cash they’re pessimistic, and when they borrow a lot they’re optimisitc. Extremes of either tend to signal changes in market direction. At the end of 2015 investors were even more excited than at the peak of the housing bubble, indicating that there’s not much retail money left to be tossed at US stocks.

 

China, being a little more bubbly than the US, is a good indicator of where US margin debt might be headed:

Another red flag is being waved by corporate debt, much of which is being taken on to fund share repurchase programs. These tend to benefit shareholders in the moment but at the cost of higher leverage and less flexibility in the future. Where in the past net debt has tended to track EBITDA (a broad measure of earnings). starting in 2014 the former has soared beyond the latter. Just as a spike in margin debt implies a lack of retail stock buying in the future, soaring corporate debt implies limited borrowing power and a scale-back of share repurchases going forward.

Based on both history and common sense, we should expect not just a slowdown, but a cratering of equity demand from both individuals and corporations in the year ahead. What happens then? Either the market crashes and prices go back to levels that attract wiser capital, or a new source of dumb money emerges.

And that would be government. Already, the Bank of Japan owns more than half of the Japanese stock market. And now China — displaying its customary cluelessness about what markets are and how they work — is countering the recent bear market with public (which is to say borrowed) funds:

China Vice President Vows to ‘Look After’ Stock Market Investors

 

(Bloomberg) – China is willing to keep intervening in the stock market to make sure a few speculators don’t benefit at the expense of regular investors, China’s vice president said in an interview.alling the country’s market “not yet mature,” Vice President Li Yuanchao said the government would boost regulation in an effort to limit volatility.

 

“An excessively fluctuating market is a market of speculation where only the few will gain the most benefit when most people suffer,” Li told Bloomberg News after arriving at the World Economic Forum’s annual meeting in Davos, Switzerland. “The Chinese government is going to look after the interests of most of the people, most of the investors.”

 

Li, 65, is the most senior Chinese official yet to underline the government’s readiness to intervene should the market turmoil of last summer and the start of 2016 continue. So far this year, the Shanghai Composite and the Hang Seng China indexes have both lost more than 15 percent, even as the central bank injects cashinto the system to drive down borrowing costs and boost the economy.

Companies exchanging long term bonds for equities and individuals using equities as collateral to buy more tend to distort equity valuations, but only temporarily, as the players’ finite borrowing capacity is eventually maxed out and the buying has to stop.

Governments are a different story, since they can create trillions of dollars with a mouse click. Their ignorance is thus a lot more dangerous because it short-circuits price disclosure on a vast, potentially open-ended scale.

When a central bank buys equities, it doesn’t have teams of analysts running valuation studies and creating model portfolios. Presumably it just makes across-the-board purchases, which tends to float all boats. So the wheat doesn’t get separated from the chaff and capital has no idea where to flow. Malinvestment becomes rampant and the result is, well, what we have today: Chinese ghost cities, Japanese zombie companies and US tech unicorns worth billions before generating their first dollar of earnings. And that’s before the Fed and European Central Bank really get going.

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With European markets increasingly jittery on Italian bank concerns, now that after 7 years of build up those staggering Italian non-performing loans were finally noticed by traders, resulting in speculation that the creation of an Italian bad bank is imminent, overnight Citi’s Azzurra Guelfi released a note trying to qualify just how exposed Italian banks are to rising bad loans, and quantify which banks have the most exposure.

As Citi writes, “Italian banks’ share prices have been volatile YTD, given the market’s renewed fears over asset quality and potential developments on a possible bad bank creation. Asset quality is a central discussion point for investors on Italian banks. Italian banks have challenging asset quality metrics compared with European peers, but some of the difference can be explained by lack of state-driven clean-up in the past, NPL mix, longer recovery time, high level of collateral (eg lower coverage), capital effect, etc. The resolution of 4 smaller Italian banks has increased questions about system asset quality and M&A.”

In other words, while the rest of Europe, and especially Spain, was proactive in sweeping as much of the NPL exposure under the rug (where it still remains), Italy has been far less prompt in addressing this issue which is suddenly plaguing its banking sector leading to dramatic losses for stocks of local banks.

So here is Citi’s take on the severity of the problem:

Total gross NPLs in Italy has increased by c160% since 2009 and now represents c18% of loans (vs c8% in 2009). Gross Sofferenze (eg the worst category of NPLs) are c60% of this or c€200bn. While new inflows of NPLs have decreased, there have been limited disposals, possibly due to pricing difference. Banks suffer in multiple ways due to the high stock of NPLs (profitability, capital, funding, lending, etc). The government implemented reforms last summer to improve recovery procedures (Government Proposes NPL Measures), but there is limited evidence so far of the benefit.

 

Next, Citi attempts to quantify what the hit to the banks’ bottom line would be if NPL levels were to be normalized to 2009, or base-case, levels:

While at this stage it is difficult to estimate what the final solution could be, we run some sensitivity analysis on banks’ Sofferenze. As of 3Q 2015, for our universe, Gross Sofferenze were c11% of banks’ loans. We simulate that the ratio will decrease back to 2009 level (c5%).

 

What Citi concludes is the following: ISP and MDBI are the less affected Italian banks, while BP/BPER and UCI have the most at risk.

We run 3 scenarios based on different coverage levels for the
disposals (70%, 75% and 80%) and calculate the potential impact of the
additional provisions on TBV and capital.  Our central scenario (c75% coverage or 25% net book value) shows an average 7% negative impact to TBV. MDBI and ISP are the banks less impacted, while BP and BPER are the most affected. BP and UCI seem more vulnerable on capital metrics, based on the simulated impact on current capital level. The analysis is simplified as we cannot fully assess the different quality of the NPL books with available information, as there are differences given collateral value, NPLs vintage, sector/geo breakdown and provisioning of the portfolio. We also simulate the potential impact of the potential guarantee cost, on average c3/9% on 2016E net profit.

More details on the various scenarios:

Our scenario analysis is based on the assumption that post government potential intervention, the ratio Sofferenze on loans will come back to the 2009 level. This is the starting point of our analysis and if this were significantly different from the final outcome post potential disposal, the end results would be different from our scenario analysis. We use 2009 as it could be a normalized year before the level of NPLs started to increase significantly in the system.

 

Also, our analysis only focused on Sofferenze; if any actions were taken also on other NPL categories (eg unlikely to pay), the impact could be different.

 

For Unicredit, given the group’s large international presence, and the fact that c80% of group NPLs relate to Italy (c12% in core unit and c65% of total are in non-core), we have run simulation only on potential developments in the non-core operation (all Italy related). As for non-core divisions we do not have data since 2008, we have simulated that the stock of Sofferenze will decrease by 85% from current level. This is a higher level than peers (c65% average simulated decrease) but in our view it is coherent with the status of non-core NPLs unit. All Non-core Sofferenze simulated impacts are then related to the group data for capital, TBV, loans, etc.

 

 

We have run 3 different scenarios depending on the potential coverage ratio (range from 70% to 80%) that could be required to transfer the Sofferenze to the private buyer or the special purpose vehicle (in case of securitization). The lower the required coverage ratio, the lower the potential additional provisions needed to transfer the assets, the smaller the impact on both tangible book value and capital ratio.

 

Our analysis is based on static data as of 3Q 2015, excluding further potential NPLs increase or disposals, as well as no additional actions on coverage or capital generation/consumption. Only for the guarantee costs simulation have we used our 2016 forecasted earnings.

 

Intesa is the bank least affected (aside MDBI), while BP and BPER the most. Capital wise, BP and UCI seem the most sensitive to this, given that both BPM and BPER have the potential benefit from the migration to IRB in coming quarters. We have included Mediobanca in the analysis for completeness, but given the small amount of Sofferenze, the peculiar business mix of the bank and the different  loan book composition/concentration, the potential impact is minimal. On the other side, Mediobanca could benefit from additional revenues in advisory for structuring the potential single bank bad bank/securitization.

 

Our simulation is on 4 main levels:

 

Additional provisions needed to reach the potential required coverage ratio:

 

 

Impact on group tangible book value of the additional provisions required ( net of tax effect):

 

Impact on group capital ratio of the additional provisions required (net of tax effect), also considering the potential shortfall already deducted from capital (proforma the percentage decrease of Sofferenze, mainly an offsetting factor for UBI):

 

 

Potential effect of the cost of the guarantees on 2016 P&L:

 

Citi’s conclusion: “We would encourage banks to  increase disclosure on the NPLs portfolio, in order to provide the market with additional information.” That, however, may be the worst possible outcome for a European banking regime which ever since “whatever it takes” if not before, has been shrouded in secrecy and bailed out with billions in front- and back-door debt monetizations courtesy of the ECB.

This is perhaps most evident when looking at the recent plunge in Italian bank stocks, which after staging an aggresive comeback last week on hopes of a backstopped “bad banks” are once again on the back foot as questions about full exposure and hits to both the balance sheet and income statement grow louder.

Chart: Bloomberg

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For the 13th month in a row, The Dallas Fed Manufacturing Outlook was contractionary with a stunning -34.6 print following December's already disastrous collapse back to -20.1, post-crisis lows. With "hope" having plunged back into negative territory (-2.2) in December, January saw a complete collapse to -24.0 as one respondent exclaimed, "we expect the continued depression in the oil and gas industry to negatively impact our customer base and result in significant demand reduction."

Bloodbath…

 

And its across the board with production, employment, and shipments all collapsing…

 

As hope is crushed…

Chart: Bloomberg

But the punchline was the respondents, virtually all of whom confirm the recession, and one even casually tossed in the "D"(epression) word:

Primary Metal Manufacturing

• The impact of the continued decline in the energy sector, compounded with several new regulations from both the Environmental Protection Agency and Occupational Safety and Health Administration, is depressing economic conditions even further from 2015. Our top 10 customers continue to indicate declines in manufacturing and new capital expenditures for 2016. Outlooks continue to be adjusted down from six months ago, and we are seeing several foundry closings in our industry due to the state of our industry and strong offshoring projects.
• Our projected increase in business is related to market-share gains at the expense of our main competitor (foreign owned) who is having service problems.

Fabricated Metal Product Manufacturing

• We expect the continued depression in the oil and gas industry to negatively impact our customer base and result in significant demand reduction.
• I believe that if the stock market continues to deteriorate, spending on housing replacement products will decrease. Large purchases on housing seem to parallel consumers’ 401k performance.
• It is getting pretty ugly, and the strength of the dollar is really making us noncompetitive.

Machinery Manufacturing

• The continued downturn in the energy sector and its impact on oilfield services companies is brutal and financially punishing, leading to significant reductions in our labor force and facility closures.
• Seasonally, it is a slower time of the year currently. There aren’t any indicators of any big change in the next six months.
• Our increases in volume do not stem as much from ideal economic conditions as much as from breadth of development in multiple states. Brand expansion and awareness are more of the catalyst than the typical industry indicators. Our customers in Texas are experiencing significant decreases in business volume. As a whole, I would rate the economic conditions in Texas and many other parts of the country as poor.
• Oil and gas prices and their impact on capital spending by our customers continue to be our biggest concern.
  I expect the Fed to recognize the weakness in the economy and the fact that we are in recession and drop interest rates again.

Computer and Electronic Product Manufacturing

• Demand slowed more quickly than is typical in December. Early demand is weaker in January, leading to the belief that growth in 2016 may be elusive.
• It is time for Congress and the president to work on tax reform. Small businesses, especially in manufacturing, are suffering due to the high dollar, high taxes, and regulations.

Transportation Equipment Manufacturing

• The drop in offshore oil production globally affects helicopter flight activity, reducing equipment turnover from large fleet operators.
• Our outlook is contingent on the energy sector not completely ruining budgeting activity for most Texas municipalities. If that happens, the six-month outlook may turn negative.
• Our business is cyclical, with our main selling season happening in March through June. Our production will increase during the winter months in anticipation of the spring selling season.

Food Manufacturing

• Domestic sales have softened across our channels and category. The strong dollar remains a challenge to our export business. Agricultural raw material costs have decreased, helping with other cost challenges.

Apparel Manufacturing

• July will be when we start getting busy for our Christmas shipments.

Paper Manufacturing

• We see a slight downward bias at this point.

Printing and Related Support Activities

• We are part of a company with four separate, very different businesses. They are all business to business, and they have all struggled with sales growth the past year. We’ve been able to improve profitability on a 1 percent sales increase, but sales have just stalled. Our old customers have shrunk, and we’ve managed that meager 1 percent only by on-boarding a lot of new business.

And now cue to the career Goldman banker recently put in charge of the Dallas Fed…

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It’s midnight in Japan – so it makes perfect sense that this headline – SOME BOJ OFFICIALS ARE SAID TO VIEW MORE STIMULUS AS CLOSE CALL – would drop and spark a spike in USDJPY which in turn drives Crude oil and stocks surging higher…

 

 

Once again, as we detailed over the weekend, fundamentals are simply irrelevant:

with the current magnitude of EM outflows seemingly entirely offsetting ongoing ECB and BoJ QE, it seems fair to wonder whether the sorts of increases likely from the BoJ next week and the ECB in March will have as great an effect as investors seem to be hoping.  

It appears we may need more headlines.

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When last we checked in on Spain, the country was struggling to make sense of largely inconclusive elections held in late December.

Mariano Rajoy’s PP managed to secure the most seats in parliament, but when the electoral smoke cleared it was apparent that Spanish voters were no longer content with the political status quo.

The combined vote share of PP and PSOE sank to its lowest level since the eighties as Podemos and Citizens capitalized on widespread disaffection with Rajoy’s handling of the economy (among other things) to capture 69 and 40 seats respectively. Here’s a look at the official results:

Fast forward one month and the country is struggling to form a government.

On Friday, Rajoy delayed a confidence vote saying he didn’t have “the support that is needed” to move ahead after Socialist leader Pedro Sanchez indicated PSOE would seek to form a “progressive” government with Pablo Iglesias’ Podemos, which many equate with Syriza in Greece. “We made a serious offer for a government and Rajoy has taken a step back,” Iglesias said last week. “Change is possible [and] I hope the socialists will rise to the challenge,” he added.

As Reuters notes, “the Spanish constitution sets no deadline for a prime ministerial investiture vote to take place, but once a candidate seeks the confidence of parliament a two-month deadline for the formation of a government comes into effect.” If a government isn’t in place within two months, new national elections are held.

“An early election in the short or medium term seems the most likely outcome,” Deutsche Bank said, the day after last month’s vote.

Whether or not PSOE will ultimately be willing to align with Podemos remains to be seen, but if the coalition does indeed come to fruition, it would be bad news for Berlin and the eurocrats in Brussels. A leftist government would move quickly to roll back austerity (or “fauxsterity” as we call it, given that the country’s debt-to-GDP has actually risen since the debt crisis) and adopt fiscal policies that bear little resemblance to what Wolfgang Schaueble would consider prudent.

In other words: what happened in Portugal is about to happen in Spain. Brussels’ preferred PM is about to be ousted by a coalition of leftist parties, and that, in turn, suggests that the idea of fiscal retrenchment will be thrown out, along with anything that even looks like austerity. That could trigger a showdown between Madrid and Brussels over Spain’s intention to adhere to EU deficit targets. The threat of Catalonia moving ahead with an independence bid only complicates things, as secession would add some 25 percentage points to Spain’s debt-to-GDP ratio (as a reminder, Podemos would vote to allow a secession referendum to move forward).

Below, find some commentary from various sellside desks on where things are headed in Spain and what it means for markets.

*  *  *

From Barclays

Following a round of meetings with the King of Spain, the leader of the Podemos party, Pablo Iglesias (radical left), has made a formal offer to the PSOE party (centre-left) to form a left-coalition government. Iglesias delivered the message to the King, who in turn informed the leader of PSOE. Both parties together have a total of 159 votes (90+69 respectively). It is likely, we believe, that the conservative nationalist Basque party, PNV, which has six MPs, and the radical left IU with two MPs would also join the coalition, taking the total to 167 MPs. This would still leave the coalition needing nine MPs to achieve an absolute majority in the 350-seat parliament. Therefore, it would need some MPs from other parties to abstain in the parliamentary vote.

We don’t rule out other parties, such as PP and Ciudadanos, submitting proposals in the coming days, so a PSOE-Podemos led government is not a certainty. We are still of the view that a coalition government is more likely than holding new general elections in Q2 16. 

A PSOE-Podemos coalition: a mild negative for markets

We think that a PSOE-Podemos outcome would be a mild negative for markets for two main reasons. First, it would be a minority government, unlikely to find much support from the other groups. Second, in the past Podemos has put forward a series of reforms that would entail rolling back various reforms enacted by the previous government. While PSOE will limit the potential tail risks on the policy side, depending on the final outcome of the policy agenda agreed between PSOE and Podemos and the negotiations with nationalist parties, there could be some risks of non-growth-friendly policy changes.

Overall, as the left-coalition would lack an absolute majority, we think that the scope for any material policy change that does not have wide parliamentary support is very limited. Therefore, we strongly believe that the downside policy risks are limited. As Spain has experienced four years of important reforms, mainly the restructuring of the banking system, a new fiscal compact to control regional deficits and some notable labour market reforms, we would caution against an overly gloomy outlook for Spain. Nonetheless, the political uncertainty and the presence of some radical left members in a government would justify comparatively wider sovereign spreads, for example, versus Italy.

Next steps:

1)  The King will continue to hold discussions with the parties to hear which ones will offer some likelihood of a parliamentary approval vote. There is no specific deadline for these talks, even if it is in the interest of all involved parties to minimise the period of uncertainty. We think PP will get the first chance to form a government. After the King’s approval, PP will need to submit its government proposal to a parliamentary vote. From the time of this vote, the parliament has up to two months to nominate a government. Failure to do so would automatically lead to elections in Q2 16.

2)  If PP does not secure an absolute majority of MPs in the parliamentary vote (ie, at least 176 votes), which appears most likely, in our opinion, then two days later there would be a second vote in which a simple majority would suffice for PP to form a government.

3)  If PP fails to win sufficient support, the King would need to decide which party gets the mandate to try to form government. The would most likely be PSOE, the second most-voted party. PSOE will need to follow a similar procedure to the one described above for PP.

4)  If this process, which can last up to two months after the first vote, does not result in a government being nominated, it would mean new general elections eight weeks later in April/May 2016.

From Citi

The socialist PSOE remains the kingmaker for any possible government in Spain, following the inconclusive December 20 elections. By declining the King’s appointment, we reckon Mr. Rajoy may have tried to gain some time for finding potential support from the socialists. Rajoy’s move shifts the focus to the socialist leader Sánchez, who now has to prove his ability to assemble an alternative and credible government coalition. We believe that failure to secure such a left-wing alliance is likely to eventually push PSOE to allow a PP-led minority administration. According to Spain’s Constitution, a new round of elections would take place if no candidate is elected in Congress after two months of the first parliamentary vote to elect a PM.

We reckon at the margin, Iglesias’ comments make a left-wing alliance more likely, although by no means certain. To secure such a left-wing alliance, Mr. Sánchez would not only need support from both Podemos and United Left (jointly adding to 161 seats, i.e. 15 seats short of an absolute majority), but also a commitment from other regional parties (including the Basque and Catalan pro-independence parties) to at least abstain in the parliamentary vote to form a government. Furthermore, Mr. Sánchez would also need to tame tensions from regional factions within his own party who oppose joining forces with the far-left Podemos. In our view, A left-wing PSOE/Podemos/IU government would probably represent a significant shift in Spain’s fiscal policy towards more loosening, with Podemos calling for an end to fiscal austerity and no particular commitment to the Stability and Growth Pact targets.

According to a poll by Metroscopia for daily El Pais, 49% of respondents would prefer a broad government coalition between PP, PSOE, and C’s, while 36% would prefer a left-wing alliance between PSOE, Podemos, IU, and other regional parties. A separate poll conducted by GAD3showed that the centre-right PP would obtained 30.1% of support if new elections take place today, up from 28.7% in the December 20 elections, and accounting for 131 MPs (vs. 123 MPs currently). Support for the socialist PSOE would fall to 21.3% (projected at 89 MPs) from 22.0% in December 20 (90 MPs), for Podemos 20.0% (65 MPs) from 20.7% (69 MPs), and for Citizens 13.4% (38 MPs) from 13.9% (40 MPs). Separately, the EU Commission is due to publish a report on Spain in February warning over the rising risks on confidence levels from the ongoing political instability, daily El Pais reports citing unidentified sources.

From JP Morgan

At first blush, these developments seem to increase significantly the likelihood of a left government. If it transpires, this would be important for Spain. A left government would aim to reverse some of the fiscal consolidation and structural reforms implemented in recent years. This will likely lead to a conflict with the European Commission. The macro consequences are hard to gauge, but uncertainty and conflict are likely to weigh on economic performance.

At this stage, it is likely that the King will ask PSOE leader Sanchez to try to form a new government. And the most touted option is exactly a left coalition with Podemos. Podemos may be willing to drop the demand for a Catalan referendum, which is a red line for PSOE. But a PSOE-Podemos coalition would still need the support of the Basque and Catalan nationalist parties. While this would not be easy to achieve, it is possible and would likely have dire consequences in terms of governability (for details see below). However, we note that the opening from Iglesias should be primarily read as a tactical move to put pressure on PSOE, implicitly making it responsible for any failure to clinch a deal leading to a left government. The reaction from PSOE – which has rebuked Iglesias’ words as an unacceptable ultimatum – confirms this interpretation.

If the constraints surrounding a left government prove unsurmountable, PSOE leader Sanchez may try to form a moderate coalition with Ciudadanos (which in turn would hinge on PP abstention). Failing both options, a last resort alternative would be a centrist platform – i.e. a PP government in cooperation with Ciudadanos and with abstention from PSOE.

In our view, though, the chances of a new election have now risen as well. This is because the political climate has become even more conflictual, with both PP and PSOE struggling to entertain constructive talks and more engaged in the self-preservation of the incumbent leaderships. A new election would not necessarily change the current parliamentary configuration, but it could be the catalyst needed to foster a more conciliatory approach. The Constitution allows two months for government building following the first parliamentary vote on forming a new government; otherwise an election is called. In light of this exceptionally high level of uncertainty, we now expect a deterioration in the high frequency economic indicators.

Below, we briefly recap the constraints faced by a left government, in order to provide the reader with a set of key issues to monitor.

First of all, the birth of a left government involves two separate dimensions in Spain: the ability to forge a deal between the center-left PSOE and the extreme left Podemos on the one hand and the need to strike a compromise respectful of national unity with the nationalist parties on the other hand.

There are several conditions that would need to be fulfilled to see a left government in Spain. A deal between PSOE and Podemos is a necessary condition. We believe this is possible, but it would be very costly for PSOE, who would risk being marginalised by its radical coalition partner. As mentioned, Iglesias’ openings contain a strong tactical element, as an attempt to put pressure on PSOE, but they add nothing about the specifics of a viable government agreement. While Sanchez is very keen on forging a deal, several senior leaders in PSOE are very sceptical of an agreement with Podemos but have so far been cautious in voicing their opposition. It is possible that this will limit their room to manoeuvre, and we will discover more at the end of the month when a crucial PSOE summit is planned.

In conclusion, we believe much will depend on the cost-benefit analysis that the PSOE leaders will do and whether they will give the green light to an agreement that risks undermining the long-term survival of the party. Furthermore, at the time of forging a left coalition with help from the pro-independence camp, we think the PSOE leaders will have to face the pressure stemming from a predictable major backlash from the business and international community, together with higher market pressure and a likely deterioration in the high frequency economic indicators.

Overall, we acknowledge that the risks are shifting in favour of a left government compared to our earlier analysis. In the end, it is possible that PSOE will decide that the prospects of the party are fairly grim whatever choice is taken and will favour getting to power as the least costly alternative. In that case, we remark that the coexistence between PSOE and the extreme left Podemos will be challenging in itself. This obviously regards the Catalan issue but it applies more generally to the economic policy domain (including the 0.8% of GDP budget adjustment requested by the Commission).

*  *  *

We wonder if the ratings agencies will immediately pull a Poland and move to downgrade Spain in the event an “undesirable” government takes power and ruffles Berlin’s feathers. 

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Amid the so-called "ceasefire" in Ukraine, yet ongoing shelling in many regions, the Donbass news agency reports that more than 20 Ukrainian solders have died and over 200 soldiers are hospitalized after an apparent leak of a deadly virus called "California Flu" from a US lab near the city of Kharkov.

 

As Donbass News International reports,

More than 20 Ukrainian soldiers have died and over 200 soldiers are hospitalized in a short period of time because of new and deadly virus, which is immune to all medicines. Donetsk People's Republic intelligence has reported that Californian Flu is leaked from the same place where research of this virus has been carried out.

 

The laboratory is located near the city of Kharkov and its base for US military experts.

 

Information from threatening epidemic is announced by Vice-Commander of Donetsk Army, Eduard Basurin.

 

Leak of deadly virus in Ukrainian side was published first time on 12.1.2016:

 

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While not as dire as his Davos forecast, in which he warned that “if assets remain correlated and things continue to move in the “wrong” direction, “there’ll be a depression”, earlier today Ray Dalio released a new Op-Ed in the FT in which the manager of the world’s largest hedge fund (excluding Apple’s Breitburn of course), once again implores the Fed and other central banks to stop tightening and boost global easing.

The reason for this is what while Dalio admits the U.S. business cycle, now in its seventh year, reflects a need to tighten monetary conditions and hike rates, the bigger threat is the long-term debt supercycle, as according to Dalio we are “near the end of the expansion phase of a long-term debt cycle, which typically lasts about 50 to 75 years.”

The irony of Dalio’s Op-Ed  admits that QE has reached its limits…

What I am contending is that there are limits to spending growth financed by a combination of debt and money. When these limits are reached, it marks the end of the upward phase of the long-term debt cycle. In 1935, this scenario was dubbed “pushing on a string”. This scenario reflects the reduced ability of the world’s reserve currency central banks to be effective at easing when both interest can’t be lowered and risk premia are too low to have quantitative easing be effective.

 

* * *

[Now] the expected returns of bonds (and most asset classes) are relatively low in relation to the expected returns of cash.

 

As a result, it is difficult to push the prices of these assets up and it is easy to have them fall. And when they fall, there is a negative impact on economic growth.

 

When this configuration exists — and it is also the case that debt and debt service costs are high in relation to income, so that debt levels cannot be increased without reducing spending — stimulating demand is more difficult, and restraining demand is easier, than is normally the case.

… he urges the Fed and its peers to do more:

It is because of the long-term debt cycle dynamics that we are seeing global weakness and deflationary pressures that warrant global easing rather than tightening.

 

At such times the risks are asymmetric on the downside and it behoves central banks to err on the side of waiting until they see the whites of the eyes of inflation before tightening.

 

Since the dollar is the world’s most important currency, the Fed is the most important central bank for the world as well as the central bank for Americans, and as the risks are asymmetric on the downside, it is best for the world and for the US for the Fed not to tighten.

It is “best for the US”, or best for the world’s biggest hedge fund?

All of this, of course, has previously duly explained in the latest Matt King letter, in which he observes that we have now entered a liquidationist regime where thanks to EM selling of reserve assets, the global markets are collectively seeing asset prices decline while liquidity exits. However, unlike Dalio, King has the intellectual honesty to admit that the centrally-planned farce is effectively over, and that any can-kicking will only make the final rout that much more destructive.

For Dalio, whose career is to manage assets while piggybacking on a 75 year supercycle of central bank generosity, continued asset declines are a career killer and he knows it.

So what explains Dalio’s disingenuous appeal to the US central bank?

This: “Hedge fund billionaire Ray Dalio’s key All Weather Fund, which aims to perform well in both good and bad markets, suffered annual losses for the second time in three years in 2015. The All Weather Fund returned -7% in 2015.”

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