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Draghi Admits “Growth May Have Peaked”; ECB To Delay QE Unwind

As we have showed repeatedly over the past month, the European economic imploding, and nowhere is this more obvious than the Citi Eurozone Economic Surprise Index why will soon hit its post financial crisis lows.

It appears that after weeks of dithering, someone at the ECB also figured out how to pull up this chart on their Bloomberg because moments ago, and one month after the ECB first admitted that things are not ok when the central bank cut its 2019 inflation forecast, arguably due to protectionism concerns…

… Mario Draghi finally admitted what we all know:

  • ECB’S DRAGHI EURO-AREA GROWTH CYCLE MAY HAVE PEAKED

To be sure, Draghi also brought up the usual spate of platitudes he mentions every time, including that: “Notwithstanding the latest economic indicators, which suggest that the growth cycle may have peaked, the growth momentum is expected to continue”, that protectionism “may have already had some negative impact on global sentiment indicators” and that “while our confidence in the inflation outlook has increased, remaining uncertainties still warrant patience, persistence and prudence with regard to monetary policy.”

His conclusion was the punchline: “An ample degree of monetary stimulus remains necessary.”

Which leads us to the second point. As Draghi was speaking, Bloomberg reported the latest ECB “trial balloon” according to which Central Bank policymakers “see scope to wait until their July meeting to announce how they’ll end their bond-buying program”, according to euro-area officials familiar with the matter.

In other words, so much for the ECB tightening, or being able to tighten, any time soon.

More details:

…click on the above link to read the rest of the article…

The Central Bank Crisis on the Immediate Horizon

While the majority keep bashing the Federal Reserve, other central banks seem to escape any criticism. The European Central Bank under Mario Draghi has engaged in what history will call the Great Monetary Experiment of the 21st Century – the daring experiment of negative interest rates. A look behind the scenes reveals that this experiment has been not just a failure, it has undermined the entire global economic structure. We are looking at pension funds being driven into insolvency as the traditional asset allocation model of 60% equity 40% bonds has failed to secure the future with negative interest rates. Then, the ECB has exceeded 40% ownership of Eurozone government debt. The ECB realizes it can not only sell any of its holdings ever again, it cannot even refuse to reinvest what it has already bought when those bonds expire. The Fed has announced it will not reinvest anything. Draghi is trapped. He cannot stop buying government debt for if he does, interest rates will soar. He cannot escape this crisis and it is not going to end nicely.

When this policy collapses, forced by the free markets (no bid), CONFIDENCE will collapse rapidly. Once people no longer believe the central banks can control anything, the end has arrived. We will be looking at the time at the WEC. We will be answering the question – Can a central bank actually fail?

ECB Tells Deutsche Bank To Simulate A “Crisis Scenario”

In a stark reminder that despite all the operational and management turmoil over the past three years, few if any of the outstanding concerns involving Europe’s banking behemoth – Deutsche Bank, which has gone thorugh – with €48 trillion in net notional derivatives has been resolved…

… in its Monday edition, Suddeutsche Zeitung reports that the ECB has asked that Deutsche Bank simulate what a “crisis scenario” would look like, and what it would cost to complete a “resolution”, i.e. wind-down, of its own investment banking division. 

While DB’s calculations have reported been taking place for several months, SZ notes that this is the first time that the ECB supervisory authority has demanded such a measure from a major bank. The German publication also notes that the ECB will demand similar simulations of other banks.

According to the report, banking regulators want to know what the impact would be on the value of Deutshe Bank’s capital market and derivatives business if, as a solvent bank, it had to simulate an abrupt end to new business.

One possible need for such a simulation may stem from the recent termination of CEO John Cryan, and his replacement with Christian Sewing, a lifelong retail banker, who some have speculated may seek to wind-down Deutsche Bank’s i-Banking division.

To be sure, in order to avoid a panic that the ECB is preparing for the worst and simulating a full-blown Deutsche Bank bankruptcy, SZ adds that the exercise is not about simulating an event of bankruptcy, “which would be many times more expensive and difficult.” In response to the article, the ECB said that it generally gives banks many tasks, without elaborating on the “crisis scenario” it has requested.

Meanwhile, Deutsche Bank said it is routinely tasked by regulators to determine “the consequences of orderly settlement of positions in its trading books.” Perhaps, but never until now was Europe’s biggest bank asked to quantify how the abrupt end of its banking business, with its associated €48.3 trillion in gross notional derivatives, would affect both the bank itself, and would percolate across markets.

Bank of Japan Buys Record Amount of Equity ETFs: Once Upon a Time

The Japanese stock market fell, so the Bank of Japan bought more equity funds.

After cornering the bond market, the Bank of Japan has its sight on the stock market with a Record Buying Binge in March.

The Bank of Japan spent 833 billion yen ($7.8 billion) on exchange-traded funds tracking the country’s shares last month, the largest amount ever according to data back to 2010. The BOJ stepped in as the Japanese market slumped and its benchmark Topix index inked its first back-to-back monthly declines since the start of 2016. Haruhiko Kuroda’s bank is now ahead of its scheduled goal to spend about 6 trillion yen a year on ETFs. “If the market keeps on falling, there will be the problem of what they do next,” said Kazuyuki Terao, chief investment officer for the Japan arm of Allianz Global Investors.

Problem? What Problem?

Just buy them all. 100% of every ETF. Given the Bank of Japan has cornered the bond market, it’s simply the logical next step.

Once Upon a Time

Once upon a time, I seem to recall central banks discussing and setting monetary policy in a very strange way.

For those of you not old enough to remember, the Fed and other central banks actually discussed the growth rate of money supply at monetary policy meetings.

How peculiar, to actually discuss money at monetary policy meetings. Those silly days are gone.

New Normal

  • Central banks now sponsor negative interest rates, something that could never happen in the real world.
  • The Bank of Japan and the Swiss National Bank are playing roulette with the stock market.
  • The Fed embarked on three rounds of QE to force bond yields lower.
  • The ECB is still at it, in a clear attempt to keep Italy on life support.

…click on the above link to read the rest of the article…

Monetary Policy is a Complete Failure? Will Shutting Down the Fed Solve All the Problems?

I recently did an interview and was asked about the Federal Reserve. There is so much absolute nonsense sophistry that circulates where people think that ending the central bank will somehow cure everything. I really just laid it out plain and simple. The Fed’s balance sheet is a tiny fraction of the economy or the real money supply. Everyone blames the Fed for everything and they NEVER bother to look at (1) the fiscal policy of Congress, and (2) the banking system as a whole.

Even if you want to scream from the top of every hill that $4 trillion worth of Fed’s Quantitative Easing was pure evil and should have created hyperinflation (which it did not), the deficits created by Obama topped $1 trillion per year and those never die whereas the Fed’s QE evaporates as they do let the debt they bought mature and expire without rebuying it again, whereas Draghi and the ECB have conceded they will reinvest their holdings. Look at 2009-2012. Obama created $5.4 trillion that will never expire but will be rolled until there are no more buyers.

So let’s do the math. The entire Federal Reserve QE program was equal to 1/5th of the national debt. The ECB bought 40% of all public debt and the Bank of Japan bought 75% of new debt coming to the market. Yet all we get is dollar bashing and people actually have called the yen the safe-haven play. I really do not know if I am arguing is drunks, people with dementia, or just con-artists. All these people pushing the end of central banks because they are clueless about how the real world functions.

…click on the above link to read the rest of the article…

 

Central Bank Money Rules the World

Central Bank Money Rules the World

Central bank credit that supports markets — is not just creation of the Fed, but by central banks and institutions around the world colluding together. Global markets are too deeply connected these days to consider the Fed in isolation.

Since last month’s correction, the world has been watching the Fed because its policies have global implications. And worldwide sell-offs sent a clear sign to Fed Chair Powell to relax with the rate hikes.

When fears arise that central bank QE will recede on one side of the world, we see more volatility and rumors of hawkishness. To counter those fears, there will be a move toward dovish policy on the other side of the world.

Central banks operate in collusion. When the Fed signals it is raising rates, or markets over-react negatively to the threat, another central bank steps in. By colluding, other central banks offer even more dark money-QE to keep the party going.

The net result is a propensity toward the status quo in global monetary policy: a bullish, asset bubble-inflating bias in the stock markets and caution in the bond markets.

Here’s what’s going on with some of the most powerful central bankers right now, starting with Japan…

While U.S. markets were correcting earlier this month, Japan’s financial benchmark, the Nikkei 225 index fell more than 1,200 points. At the same time, the rumors of Japan’s central bank curbing its dark money-QE programs are just that.

While investors have speculated that the BoJ could be moving towards an exit from dark money policy (despite the BOJ denying this), we know that central banks are too scared of the outcomes.

In an economic pinch, the Bank of Japan (BoJ), will keep dark money flowing.

Confirming my premise, when Japanese Government Bond prices were dipping too fast, the BoJ announced “unlimited” buying of long-term Japanese government bonds. This is simply the continuation of the policy the BoJ already has in place.

…click on the above link to read the rest of the article…

 

 

Then They Came for the Globalists

Then They Came for the Globalists

Photo by Francisco Osorio | CC BY 2.0

Thank God for the corporate media. If it wasn’t for them, and the ADL, I’d have probably never discovered that I’m a Nazi. Apparently, I’ve been one for quite some time … which is weird, as I had no idea. Here I was, naively believing that I’d been writing about global capitalism and the realignment of political power and ideology in the post-Cold War world, when all along I had really just been persecuting the Jews. I didn’t think I was persecuting the Jews. But such is the insidious nature of thoughtcrime. When you’re a Nazi thought criminal (as I apparently am), it doesn’t matter what you think you’re thinking. What matters is what the global capitalist ruling classes tell you you’re thinking, which it turns out is often a lot more complicated and horrible than what you thought you were thinking.

For example, I’ve been thinking and writing about globalism, which most dictionaries define as “a national policy of treating the whole world as a proper sphere for political influence,” or “the development of socioeconomic networks that transcend national boundaries,” or something like that … which was more or less my understanding of the term. Little did I know that these fake “definitions” had been infiltrated into these dictionaries by discord-sowing Strasserist agents to dupe political satirists like myself into unknowingly spreading anti-Semitism as part of Putin’s Master Plan to destroy the United States of America and establish worldwide Nazi domination.

Fortunately, the lexicography experts in the corporate media and the Anti-Defamation League cleared that up for me earlier this month. According to these experts, words like “globalist” and “globalism” don’t really mean anything. They are simply Nazi code words for “the Jews.” There is actually no such thing as “globalism,” or “global capitalism,” or “transnational capitalism,” or “supranational quasi-governmental entities” like the International Monetary Fund, the World Trade Organization, the European Commission, and the European Central Bank … or, OK, sure, there are such entities, but there is no legitimate reason to discuss them, or write about them, or even casually mention them, and anyone who does is definitely a Nazi.

Now, imagine my horror when I took that in, especially given my repeated references to “the corporatocracy,” “global capitalism,” and “the global capitalist ruling classes” in the essays I’ve been publishing recently. I didn’t want to accept it at first, but the more “authoritative sources” I consulted, the more glaringly obvious my thoughtcrimes became.

…click on the above link to read the rest of the article…

 

The Central Bank Bubble: It Will Be Ugly

The Central Bank Bubble: It Will Be Ugly

The global economy has been living through a period of central bank insanity, thanks to a little-understood expansion strategy known as quantitative easing, which has destroyed main-street and benefitted wall street.

Central Banks over the last decade simply created credit out of thin air. Snap a finger, and credit magically appears. Only central banks can perform this type of credit magic. It’s called printing money and they have gone on the record saying they are magic people. 

Increasing the money supply lowers interest rates, which makes it easier for banks to offer loans. Easy loans allow businesses to expand and provides consumers with more credit to buy goods and increase their debt. As a country’s debt increases, its currency eventually debases, and the world is currently at historic global debt levels. 

Simply put, the world’s central banks are playing a game of monopoly.

With securities being bought by a currency that is backed by debt rather than actual value, we have recently seen $9.7 trillion in bonds with a negative yield. At maturity, the bond holders will actually lose money, thanks to the global central banks’ strategies. The Federal Reserve has already hinted that negative interest rates will be coming in the next recession.

These massive bond purchases have kept volatility relatively stable, but that can change quickly. High inflation is becoming a real possibility. China, which is planning to dethrone the dollar by backing the Yuan with gold, may survive the coming central banking bubble. Many other countries will be left scrambling. Some central banks are attempting to turn the current expansion policies around. Both the Federal Reserve, the Bank of Canada, and the Bank of England have plans to hike interest rates. The European Central Bank is planning to reduce its purchases of bonds. Is this too little, too late?

…click on the above link to read the rest of the article…

 

The Perfect Storm for 2020: Weidmann at the ECB, Trump’s trade war, Macron’s failure, Italy’s turmoil

The Perfect Storm for 2020: Weidmann at the ECB, Trump’s trade war, Macron’s failure, Italy’s turmoil

Clouds are gathering: Weidmann will end QE while Macron’s reform will not solve any problem whatsoever. It’ll be the final push for a Eurosceptic Italy, where plans for parallel currencies are popping up. Add Trump’s trade war to the soup and 2020 promises to turn nasty.

It is becoming increasingly clear that at the end of 2019 Jens Weidmann, current President of the Bundesbank, will replace Mario Draghi at the helm of the European Central Bank. The change in terms of economic beliefs will be radical and, combined with the other developing issues in Italy and the US, which will be discussed later in the text, might as well put an end to the misery of the Eurozone.

What does Jens Weidmann believe in?
As a typical post-Weimar German, he believes in strong currency and low inflation. The Financial Times carried an interesting interview with him a few weeks ago,1)in which the German financier expressed his opposition to everything that Mario Draghi has stood for in the last few years and made known his wish to stop the quantitative easing program and replace it with raised interest rates. What happens when interest rates increase? If they go up too fast, markets crumble. Low interest rates offered for too long have contributed to the subprime mortgages debacle of 2007-8. In 2012, at the peak of the Eurozone sovereign debt crisis, Draghi promised to do ”whatever it takes” to preserve the European common currency. Weidmann was the only one on the board of the ECB who was opposed to this too. Draghi’s statement had a therapeutic effect on financial markets which quickly calmed down after it. Once he’s gone, however, Weidmann is unlikely to show the same resolve to indeed do whatever it might take to keep the currency together. Finally, just like most Germans, he is not a fan of Emmanuel Macron’s idea of creating a Eurozone budget because the money transfer is seen as too much of a concession towards “lazy Southerners”. Maybe in the end Weidmann will opt to preserve the status-quo, but if he sticks to his beliefs, rates will increase, markets will fall and it’ll be the end of the Eurozone.

…click on the above link to read the rest of the article…

Eurozone Banking Crisis – ECB Delays Rules for Bad Loans until 2021

The European Central Bank (ECB) has postponed its new guidelines for banks because if it did not, the Italian banking system would simply collapse. The ECB has given Eurozone area banks more time to adapt to new guidelines on how to deal with bad loans. The deadline has been postponed from 2018 off into 2021. The new rules require banks to increase their capital for all loans, which are now classified as risk-taking. Bad loans are systemic in Europe as they increased after the 2007-2009 financial crisis.

After almost 10 years of Quantitative Easing to help banks, nothing has been achieved. Because of the Quantitative Easing, Europe has become very aggressive in collecting taxes. That is deflationary and Southern Europe still suffers from joining the Euro as a whole. The Quantitative Easing has simply kept governments on life-support while failing to stimulate the economy. Mario Draghi moved to negative interest rates in an effort for force people to spend. Instead, the bought safes and withdrew cash from the banks.

This latest move is once again trying desperately to keep the Eurozone afloat until Draghi ends his term next year. Then Draghi could care less what happens, for he will not be blamed if he can just get out the door before it all comes crashing down.

Despite Years of ECB’s QE (Ending Soon), Italy’s “Doom Loop” Still Threatens Eurozone Financial System

Despite Years of ECB’s QE (Ending Soon), Italy’s “Doom Loop” Still Threatens Eurozone Financial System

Even banks outside Italy have an absurdly out-sized exposure to Italian sovereign debt.

The dreaded “Doom Loop” — when shaky banks hold too much shaky government debt, raising the fear of contagion across the financial system if one of them stumbles — is still very much alive in Italy despite Mario Draghi’s best efforts to transfer ownership of Italian debt from banks to the ECB, according to Eric Dor, the director of Economic Studies at IESEG School of Management, who has collated the full extent of individual bank exposures to Italian sovereign debt.

The doom loop is a particular problem in the Eurozone since a member state doesn’t control its own currency, and cannot print itself out of trouble, which leaves it exposed to credit risk.

The Bank of Italy, on behalf of the ECB, has bought up more than €350 billion of multiyear Treasury bonds (BTPs) in recent years. The scale of its holdings overtook those of Italian banks, which have been shedding BTPs since mid-2016, making the central bank the second-largest holder of Italian bonds after insurance companies, pension funds and other financials.

But Italian banks are still big owners of Italian debt. According to a study by the Bank for International Settlements, government debt represents nearly 20% of banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign debt holdings that represent over 100% of their tier 1 capital (or CET1), according to Dor’s research. The list includes Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier 1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), MPS (206%), BPER Banca (176%) and Banca Carige (151%).

…click on the above link to read the rest of the article…

Interbank Rates Starting to Rise – Monetary Crisis is Beginning

 

Extremely reliable sources from Behind the Curtain in Europe are becoming deeply concerned that Draghi at the ECB has created a monumental economic disaster he is just praying to holding off until he leaves next year. Interest rates are already starting to rise significantly in several important money and interbank markets. Both banks and debtors are facing a rapid rise in interest expenditures that will shock the world. This is going to blow-out budgets around the globe and both private and public debtors face higher costs of funds.

The Libor (London Interbank Offered Rate), the most important reference rate for the global interbank market, is currently at its highest level since 2008. We elected a Yearly Bullish Reversal on the close of 2016. Once we see the rate close above 213 on a monthly basis, LIBOR rates will be poised to jump to 510. When the Libor price rises, the short-term borrowing for banks becomes more expensive, and for borrowers in the financial market, such as sellers of bonds or buyers of mortgages, debt service becomes more difficult. The demand for debt is exceptionally high. We are looking at LIBOR rates rising sharply. The dollar-lending rate for dollar loans has been rising steadily in all maturities since about the end of 2014. The dollar-Libor for three-month loans in March 2017 were trading at around 1.1%. Currently, this dollar-Libor rate stands at around 2%.

This year’s WEC will be focused on the next major crisis and how all the markets will interact. This is the beginning of the Monetary Crisis Cycle. Our Yearly Models on LIBOR are already in a bullish posture on both short-term indicators. A closing on an annual basis above 208 will signal rates will rapidly more than DOUBLE into 2020. A closing above 510 on an annual basis will warn of a MAJOR financial crisis hitting just about every economy.

Will US Companies Repatriating Cash Home Create Banking Crisis Outside USA?

QUESTION: Mr. Armstrong; Do you believe that if American companies do repatriate dollars to get the low tax rate in the USA, will this impact foreign banks as capital withdraws? I figured you are the best qualified to answer that question nobody seems to be discussing.

Thank you for sharing your expertise.

SY

ANSWER: That is a very interesting question and it is indeed unique. I cannot think of anyone who has asked that one yet.  Let us assume that U.S. corporations will repatriate at least 25% of their estimated US$2.6 trillion of offshore funds to take advantage of a one-off 14% tax holiday. It will not matter if they are selling euros, yen, pounds, or yuan. Switching their funds from the offshore dollar funding markets to domestic dollars will have a similar impact on the same trend that took place between 1980 and 1985 that drove the dollar to all-time record highs.

American corporations moving capital sends a powerful impulse through global finance system. Despite the rise of China and the creation of the euro, the world has never been so “dollarized” as it is today. The euro is a complete failure for there is no single market with a centralize debt to compete with the dollar as an alternative. China is rising, but it is not ready for prime time. There is no alternative to the dollar. That is the real crisis in the world economy.

U.S. lending rates are critical to the world economy. The Bank for International Settlements (BIS) says offshore dollar funding has risen fivefold to US$10.7 trillion since the early 2000s, with a further US$14 trillion of global dollar debt hidden in derivatives. BIS research also confirms that the rise and fall of the dollar is the major cycle of dollar liquidity which is driving the world’s investment appetite and global asset prices. This liquidity spigot is clearly being turned off. The Fed is not only raising rates, it is also reversing bond purchases exactly OPPOSITE of the ECB which openly admits it will repurchase government debt as it expires because they know there are no buyers at these rates. The Fed is shrinking its balance sheet while the ECB is trapped and cannot dare take the same steps.

…click on the above link to read the rest of the article…

Lativa Banking Crisis Unfolding on Schedule – Will There Be a European Contagion?

 

The Latvian Financial Supervisory Authority is concerned announcing a resolution plan for the crisis bank ABLV that is threatening a contagion risk of further closures of financial institutions in the country with a predominantly foreign customer base. There is a serious risk of a contagion unfolding that will also force consolidation and mergers in the industry as a whole. The financial system of the Baltic country has seen a run with customers withdrawing about 500 million euros in deposits in recent weeks. There are about ten banks in Latvia who have been serving primarily foreign customers. Concerns and a decline in confidence unfolding in Europe as a whole over the banking system as a whole may force a change in the business model of Latvian banks where they must return to a reliance upon domestic deposits rather than foreign.

Latvia’s third largest financial institution, ABLV, is about to collapse after being accused by the US of being involved in money laundering by customers from neighboring Russia and Ukraine. The bank denied the allegations but simply making those allegations by New York prosecutors can have a devastating impact upon foreign banks. A run on the bank began after the allegations were made public. The European Central Bank (ECB) came to the conclusion that the bank was facing collapse. The European Agency for the Settlement of Marged Banks (SRB) classified the bank as non-systemically important and left it to its fate. In Latvia, loans are provided mainly by Scandinavian banks located in Sweden. Many Latvian banks have specialized in financing themselves mainly through deposits of foreigners rather than domestic Latvian citizens. The crisis brewing stems from the fact that about 40% of Latvian bank deposits come from abroad. Allegations of money laundering by the US authorities have been sending foreign depositors into a state of panic.

…click on the above link to read the rest of the article…

An Apocalyptic Paul Tudor Jones Warns The Fed Is About To Lose Control

In a striking interview with Goldman’s Allison Nathan, legendary trader Paul Tudor Jones argues that US inflation is set to accelerate sharply, making bonds a very poor investment, and that the Fed must act swiftly to tackle financial bubbles created by prolonged monetary easing.

Joining such luminaries as Bill Gross and Ray Dalio, who have both claimed the bull market in bonds is over, PTJ joins the choir and warns that “markets disciplined Greece for its budget transgressions; it’s just a matter of time before they discipline us” and as a result he sees the 10-year yields rising to 3.75 percent by year-end as a “conservative” target amid the now traditional and widely discussed bogeymen: supply outweighing demand, economic momentum outpacing the monetary policy response, and “glaring” bond valuations. Oh, and central banks ending the party, of course:

Beginning next September, when the ECB concludes its asset purchases, the aggregate balance sheet of the main central banks will start contracting after nearly a decade of expansion. That will be a major data break, making it a horrible time to own bonds.

PTJ also pours cold water on the repeated suggestion that higher yields will lead to more buying from pension funds: “Bond pension buying, for example, is very pro-cyclical. When stock prices rise, pensions reallocate their capital gains from stocks into bonds. As we’ve seen, this depresses the term premium and fuels more gains in the stock market. If and when the Fed raises rates enough to stop and reverse the stock market rise, that virtuous circle predicated on increasing capital gains will reverse, and bonds and stocks will decline together like they did in the 1970s.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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