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Archive for February, 2016

With All Eyes Again On Draghi, This Is What Remains In The ECB’s Toolbox

As Eurostat surprisingly reported earlier today, Europe has once again descended into deflation, and not just due to sliding energy prices but also in the core inflation rate, which strips out the volatile items of energy, food, alcohol and tobacco, and which was also weak falling to 0.8% from 1%.

 

Still, as Reuters observes, “although consumer spending, virtually the only engine of growth, is holding up relatively well, an array of weak business sentiment surveys and poor PMI data indicate that the 19-member currency bloc is increasingly suffering from the emerging markets slowdown.”

As a result, today’s deflationary report, the worst since the start of Europe’s QE, virtually assures another substantial round of policy easing from the European Central Bank on March 10.

Nordea economist Holger Sandte, cited by Reuters, said that “deflation would be a disaster for the euro area as the burden of high debt would increase. Therefore, the ECB will continue easing monetary policy significantly. But no matter what the ECB decides to do on 10 March, inflation is likely to hover around zero during the next few months before it picks up – if oil prices behave well.”

It’s not just analysts: Bank of France Governor Francois Villeroy de Galhau, an influential member of the ECB’s Governing Council, warned over the weekend that the central bank would have to act if the low energy prices appeared to have long-term effects.

As Reuters adds, the worrisome inflation print comes just days after the G20 meeting of the world’s top economies warned that leaders needed to looks beyond ultra-low interest rates and printing money to shake the global economy out of its torpor.

Still, the meeting failed to outline any bold steps and even called on central banks to maintain accommodating policies as weak Chinese growth weighs on all top economies and low commodity prices raise the specter of deflation.

This, until the surprising PBOC RRR cut, had pressured US equity futures into a lower open until a the traditional pre-market open ramp pushed futures into the green.

In any case, as we said last night when summarizing the post-G20 landscape, “the next big move in the market is now entirely in Mario Draghi’s hands” after quoting Citi’s Steven Englander:

The ECB is in focus. EZ is undershooting on growth and inflation, and ECB President Draghi has been impassioned on the need to provide more stimulus. If they lowball or grudgingly meet expectations, we could face another December 4 move because market participants will see it as the equivalent of a ‘last ease in the cycle announcement’, basically ECB throwing in the towel. If they move aggressively (and take measures beyond vanilla QE and 10bps on rates), they will catch market off guard and unwind the view that policymakers see themselves as powerless.

This has prompted speculation just what it is Draghi will announce in 10 days:

full article at source: http://www.zerohedge.com/news/2016-02-29/all-eyes-again-draghi-what-remains-ecbs-toolbox

Ireland General Election 2016

What have we ? the he same old politicians who are responsible for the collapse of the Irish dream of independence in the first place: These dinosaurs and sell out’s have the money behind them and I suspect Brussels and the ECB  will dictate who we are going to have rule over us for the next five years! THE RECOVERY – (PLUNDER) MUST GO ON!  

Thinking of coming back to Ireland?  Dont, NOTHING has changed and the same old musical chairs politicians are still in charge : The people of Ireland were forced to pay 48% of Europe’s banking collapse all because our politicians were all bought off  and these same politicians have now been re elected to the sham Dáil !Taxes and corruption will be rampant and we might see the return of the Galway developer tents ! Disgusted !Most people haven’t shaken off the house slave mentality ! Maybe the next time we might see real change and we might get people in to the Dail who will fight the ECB and Brussels and take them to the international court of Justice and get our stolen natural resources back and our plundered national pension funds along with the billions we paid on interest on an “ODIOUS DEBT”currently running at 9,300,000,000 Euro each year for the last 5 years

God save Ireland from the Gombeens in the Dáil

Photo depicts the returning officer with the ballot box from Inishbofin; (source https://twitter.com/rayodonnchadha)

 

Housing in Ireland

The Irish General election 2016

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Wicklow Politics back to the old ways???

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Stephen Donnelly trying to build a home is OK.

But meeting with council planners to try zone the land around where you propose to build as a parkland so nobody else can apparently block your view isn’t OK.

Its very easy to view this as bordering on abuse of public office. Luckily for him the council saw sense and rejected his planning application twice.

I do hope we are not looking at more of the same type of shady political shenanigans we’ve gotten used to with some Wicklow public representatives:

Comment

The people of Ireland will have to wait again for the next election to get the changes we really need : How sad

One of the Most Corrupt Industries on Earth – the Cancer Industry

Here Comes The Red Swan And Other Reasons To Be Very Afraid

The Red Chip casino took another one of its patented 6.5% belly flops last night. In fact, more than 1,300 stocks in Shanghai and Shenzhen fell by 10%—the maximum drop permitted by regulators in one day—–implying that the real decline was far deeper.

This renewed carnage was the worst since, well, the last 6% drop way back on January 29, and It means that the cumulative meltdown from last June’s high is pushing 45%. And all this red chip mayhem did not come at an especially propitious moment for the regime, as the  Wall Street Journalexplained:

It comes at an awkward moment for the Chinese government, which is hosting the world’s leading central bankers and finance ministers starting Friday. China has been expected to use the G-20 meeting to address global anxiety about its economy and financial markets. Worries about China’s economic slowdown and the volatility of its markets have weighed on investment decisions around the world.

But if we are remarking on “awkward”, here’s awkward. The G-20 central bankers, finance ministers and IMF apparatchiks descending on Shanghai should take an unfiltered, eyes-wide-open view of the Red Ponzi fracturing all about them, and then make a petrified mad dash back to their own respective capitals. There is nothing more for G-20 to talk about with respect to China except how to get out of harms’ way, fast.

China is a monumental doomsday machine that bears no more resemblance to anything that could be called stable, sustainable capitalism than did Lenin’s New Economic Policy of the early 1920s. The latter was followed by Stalin’s Gulag and it would be wise to learn the Chinese word for the same, and soon.

The regime is in a horrendous bind because it has played out the greatest credit spree in world history. This cycle of undisciplined, debt-fueled digging, building, spending and speculating took its collective balance sheet from $500 billion of debt in the mid-1990s to the $30 trillion tower of the same that now gyrates heavily over the land.

That’s a 60X gain in debt over just two decades in an “economy” that has no honest financial markets; no legal system and tradition of bankruptcy and financial discipline; and a banking system that functions as an arm of the state, cascading credit down from the top in order to “print” an exact amount of GDP each month on the theory that anything that can be built, should be built in order to hit Beijing’s targets.

If an economy and its ruling regime were an animate being you could call it a “fatal addiction” and be done with it. These folks are on the deadliest strain of financial heroin known to mankind and have no chance of surviving; its a dead economy walking.

Look no further than the hideous debt gains reported for the month of January. Total social financing rose by 3.42 trillion yuan or a round one half trillion USD.

That’s right. On top of it tottering $30 trillion debt tower China has just piled on new debt at a $6 trillion annual rate or 55% of GDP per year!

By now China’s businesses—–especially the giant SOEs (state owned enterprises)—— are drowning in excess capacity and unpayable debt that amounts to upwards of 180% of GDP (compared to 70% in the US). But never mind. New loans to the business sector in January were up by 73 percent over prior year.

Worse still, it is evident that a high share of January’s lunatic rate of credit expansion was devoted to paying interest on the existing monumental debts of China’s businesses and so-called local government financing vehicles (LGFVs).  Even the authorities concede that more than 60% of new debt issuance in recent years has been used to pay interest. They are chasing their tail ever more furiously; they are strapped on to a debt whirligig they can’t and won’t get off…….until it finally explodes.

full article at source:http://davidstockmanscontracorner.com/here-comes-the-red-swan-and-other-reasons-to-be-very-afraid/

 

The Game Changed in Venezuela Last Night

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Listen and understand. The game changed in Venezuela last night. What had been a slow-motion unravelling that had stretched out over many years went kinetic all of a sudden.

What we have this morning is no longer the Venezuela story you thought you understood.

Throughout last night, panicked people told their stories of state-sponsored paramilitaries on motorcycles roaming middle class neighborhoods, shooting at people and  storming into apartment buildings, shooting at anyone who seemed like he might be protesting.

People continue to be arrested merely for protesting, and a long established local Human Rights NGO makes an urgent plea for an investigation into widespread reports of torture of detainees. There are now dozens of serious human right abuses: National Guardsmen shooting tear gas canisters directly into residential buildings. We have videos of soldiers shooting civilians on the street.

And that’s just what came out in real time, over Twitter and YouTube, before any real investigation is carried out. Online media is next, a city of 645,000 inhabitants has been taken off the internet amid mounting repression, and this blog itself has been the object of a Facebook “block” campaign.

What we saw were not “street clashes”, what we saw is a state-hatched offensive to suppress and terrorize its opponents.

Here at Caracas Chronicles we’re doing what it can to document the crisis, but there’s only so much one tiny, zero-budget blog can do.

After the major crackdown on the streets of large (and small) Venezuelan cities last night, I expected some kind of response in the major international news outlets this morning. I understand that with an even bigger and more photogenic freakout ongoing in an even more strategically important country, we weren’t going to be front-page-above-the-fold, but I’m staggered this morning to wake up, scan the press and find…

Nothing.

source:http://caracaschronicles.com/2014/02/20/the-game-changed/

Irish SPVs (special purpose vehicles) are exporting risk to other financial systems around the world

Based in a drab office building in Dublin down the road from a pub frequented by Prime Minister Enda Kenny, VPB Funding Ltd. had no employees but one function: selling bonds. In 2013, it issued $225 million of unsecured notes.

The proceeds of that sale were funneled to Vneshprombank Ltd., a Moscow lender whose license was revoked last month when Russian authorities accused management of pilfering its assets and falsifying accounts. VPB’s notes have plunged to pennies on the dollar.

The entanglement of an obscure Dublin firm in the woes of a lender 2,000 miles away shows why Irish officials have begun shining a light on special purpose vehicles like VPB, unregulated entities that borrow on behalf of corporations throughout the world. The Irish capital, home of Europe’s costliest banking meltdown, remains a hub for the sort of opaque operations that contributed to the global financial crisis, threatening risks that policy makers are seeking to stamp out.

“There’s concern that Irish SPVs are exporting risk to other financial systems around the world and could have contagion effects,’’ said Shaen Corbet, a lecturer in finance at Dublin City University.

SPVs fall under the heading of shadow banking — lending by entities outside the traditional banking industry. Ireland ranks with China as the biggest center for nonbank finance firms after the U.S. and the U.K., with 2.3 trillion euros ($2.6 trillion) of assets, based on a survey by the Financial Stability Board, a group of global regulators. The nation’s shadow-banking system — including hedge funds, mutual funds and insurers — is more than 10 times the size of the economy.

While most of the network falls under the purview of authorities in Ireland or elsewhere, unregulated vehicles — including SPVs — account for an estimated half a trillion euros, the survey found.

Gareth Murphy, who heads the Irish central bank’s markets-supervision unit, said authorities must increase cooperation in circumstances where a Dublin-based SPV, for example, is linked to “a German bank or a French bank which is prudentially regulated elsewhere.”

“Monitoring of the full financial landscape wasn’t good enough,’’ Murphy, who formerly worked at JPMorgan Chase & Co. and the Bank of England, said in an interview. “One of the lessons of the financial crisis is that a narrow, inwardly focused approach to the pursuit of one’s regulatory mandate really doesn’t work because of the global nature of financial services.”

Gathering Data

The scenario has played out before. In 2007, Germany’s Landesbank Sachsen Girozentrale needed a 17 billion-euro emergency credit line from a group of German banks after its Dublin-based SPVs, loaded with toxic assets, were unable to pay their debts.

Irish authorities have begun amassing data on SPVs, and joined last year in an annual survey of shadow banking by the FSB, a group of regulators that monitors the global financial system. The report examined 26 jurisdictions, though some countries with large shadow-finance operations, such as Luxembourg, didn’t participate.

“It makes sense for the central bank to look for that kind of information just to get an idea of the scale of what’s happening,” said Enda Faughnan, a Dublin-based partner at accounting firm PricewaterhouseCoopers, which helps set up the vehicles.

Cross-Border Risks

The collapse of Vneshprombank encapsulates some of the cross-border risks the central bank is seeking to identify. The lender, which held billions of rubles in deposits for some of Russia’s biggest state companies, including oil producer Rosneft OJSC and pipeline operator Transneft OJSC, set up VPB Funding to raise cash for “general corporate purposes’’ and to “diversify its sources of funding,’’ a prospectus shows.

Last year, Russian regulators found a 187 billion-ruble ($2.5 billion) hole in Vneshprombank’s balance sheet. Former managers may have stripped the bank’s assets for investments in real estate, expensive vehicles and financial instruments, Russia’s central bank said in a Jan. 21 statement. The lender remains under administration by the central bank and a liquidation will follow, said a spokeswoman for Russia’s Deposit Insurance Agency who declined to comment further.

Ireland’s central bank said all prospectuses are subject to a “robust approval process,” and that the VPB notes were issued before the U.S. and European Union imposed sanctions on Russia in 2014. The sale was restricted to institutional investors and use of the proceeds was “clearly disclosed,” it said.

VPB Funding’s notes were quoted at 13 cents on the dollar as of Jan. 19, according to Trace, the bond-price reporting system of the U.S. Financial Industry Regulatory Authority.

Hidden Links

Shadow-banking assets have swelled since the financial crisis, and not just in Ireland. Globally, nonbank firms that extend credit had an estimated $36 trillion of assets at the end of 2014, after climbing by an average $1.3 trillion a year since 2011, according to the FSB. Regulators, concerned that banks may use shadow lending to evade new rules and wary that risks could build up unseen, are trying to map the size of the industry and develop rules for it.

Until late 2015, Irish SPVs had no obligation to alert the central bank to their presence in Dublin or explain their purpose, except where their activities touched on regulated areas.

Officials face a challenge in monitoring the SPVs because of the “complexity and opaqueness of their transactions,’’ Ireland’s central bank said in a report last July. The biggest borrowers through these vehicles are in the U.S., U.K., Germany, France, Italy, Russia and the Netherlands, according to the report.

Shadow Mapping

There are about 2,100 companies in Ireland set up under the legislation that governs SPVs, including some 1,400 since 2010, Irish Finance Minister Michael Noonan said in parliament last month. Even tax authorities don’t know how many assets these firms hold, he said.

“Risks may be building up in the part of the shadow-banking sector for which a statistical breakdown is not readily available,” the European Central Bank, the euro-area’s banking supervisor, said in an e-mailed response to questions.

Under Irish law, the entities are structured so that transactions deliver little or no taxable profit. Their shares are held by charitable trusts, which can keep their assets and liabilities off the balance sheets of the parties that use them. Law firms typically set up the trusts and pass along a portion of the fees they generate to charities, according to lawyers who structure them.

Putin’s Pals

VPB Funding is registered at the address of Cafico International, an Irish company that focuses on setting up SPVs for banks, airlines and aircraft-operating lessors. Cafico Managing Director Rodney O’Rourke didn’t respond to calls, emails and a visit to his offices seeking comment.

Vneshprombank wasn’t alone in making the trip to Dublin. Moscow-based UralSib Bank Ltd., which faced bankruptcy last year until the state orchestrated a takeover by an ally of President Vladimir Putin, is among Russian firms with ties to SPVs, Irish company filings show.

In 2013, another SPV lent $1 billion to Sibur Holding, a chemicals company part-owned by Gennady Timchenko, a billionaire subject to U.S. sanctions, and Kirill Shamalov, who a family acquaintance said last year is Putin’s son-in-law. (Putin has not confirmed the relationship.) Other entities have ties to Russian oil-drilling firms, energy companies, the country’s national energy grid and Domodedovo Airport in Moscow, filings show.

These are the kinds of cross-border links Ireland’s central bank should be worried about, said Corbet, a former commodities trader.

“I’d be concerned about the reputational, financial and contagion risks that would be associated should more Russian banks with SPVs in Ireland meet the same fate as Vneshprombank,’’ he said. “Without data, the central bank is in the dark.’’

The Biggest Threat To Deutsche Bank’s Survival

Two weeks ago, on one of the slides in a Morgan Stanley presentation, we found something which we thought was quite disturbing. According to the bank’s head of EMEA research Huw van Steenis, while in Davos, he sat “next to someone in policy circles who argued that we should move quickly to a cashless economy so that we could introduce negative rates well below 1% – as they were concerned that Larry Summers’ secular stagnation was indeed playing out and we would be stuck with negative rates for a decade in Europe. They felt below (1.5)% depositors would start to hoard notes, leading to yet further complexities for monetary policy.”

 

As it turns out, just like Deutsche Bank – which first warned about the dire consequences of NIRP to Europe’s banks – Morgan Stanley is likewise “concerned” and for good reason.

With the ECB set to unveil its next set of unconventional measures during its next meeting on March 10 among which almost certainly even more negative rates (for the simple reason that a vast amount of monetizable govt bonds are trading with a yield below the ECB’s deposit rate floor and are ineligible for purchase) the ECB may cut said rates anywhere between 10bps, 20bps, or even more (thereby sending those same bond yields plunging ever further into negative territory).

As Morgan Stanley warns that any substantial rate cut by the ECB will only make matters worse. As it says, “Beyond a 10-20bp ECB Deposit Rate Cut, We Believe Impacts on Earnings Could Be Exponential.

 

Which brings us the the punchline: according to Morgan Stanley, a fellow bank, the biggest threat to its largest European competitor, Deutsche Bank is not its unquantified commodity loan exposures, nor its just as opaque exposure to China, nor its massive derivatives book, not even its culture of rampant corruption and crime which have resulted in constant top management changes over the past several years, but the deflationary challenges to profitability – specifically, “Risks to Trading/Markets Revenues and Due to Negative Ratesimposed by none other than the European Central Bank!

 

In other words, according to Morgan Stanley the biggest threat to the profibatility, viability and outright existence of the most leveraged commercial bank in the world, is none other than ECB president Mario Draghi…

 

… who will almost certainly unveil even more negative rates in two weeks time, and in doing so will unleash another round of selling in European bank securities, which will further tighten financial conditions, which may force even more “desperate” ECB intervention and so forth in a feedback loop, for the simple reason that Draghi appears to not realize that just like Kuroda, he himself is the cause of asset volatility and European bank instability.

Which, incidentally, is precisely what Bundesbank president (and ECB member) Jens Wiedmann warned against. As WSJ reports, Weidmann expressed reservations Wednesday about further expansionary monetary policy to combat very low rates of inflation in the currency bloc.

According to prepared remarks to present the annual report of the Deutsche Bundesbank, which he heads, Mr. Weidmann said “it would be dangerous to simply ignore” the longer-term risks and side effects of loosening already highly accommodative policy.

As the WSJ writes, “the comments from perhaps the ECB’s most outspoken critic of very accommodative policy provide further evidence that ECB head Mario Draghi may have a tough time garnering unanimity for any effort to further expand the central bank’s accommodative monetary policy.”

Still, Draghi may well get his wishes: after all, despite the ongoing conflict between the two central bankers, so far Draghi has gotten absolutely everything he has gotten, from QE to NIRP, over Weidmann’s loud objections. The WSJ further adds that the ECB is expected to cut its deposit rate further into negative territory beyond the minus 0.3% where it sits now, as well as expanding its bond buying program beyond the EUR60 billion a month of mostly government bonds that it has purchased since last March.

The two are linked: for the ECB to expand QE – now that the NIRP genie has been released – it will have to cut rates or else it will run into liquidity limitations and an inability to procure the desire bonds.

full aricle at source:

http://www.zerohedge.com/news/2016-02-24/according-morgan-stanley-biggest-threat-deutsche-banks-survival

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