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Paris — Michael Lewis is the chronicler of Wall Street. He takes the complexity behind which the inhabitants of the financial world hide and weaves a tale that is both understandable and compelling. Starting with the classic “Liars Poker” (1989), Lewis has produced a number of books about the financial markets including “Flash Boys: A Wall Street Revolt” (2014) and “The Big Short: Inside the Doomsday Machine” (2010). Working with director Adam McKay and some great actors and screen writers, Lewis has managed to produce what is perhaps the most accessible and relevant treatment of the mortgage boom and financial bust of the 2000s, and the subsequent 2008 financial crisis.

The beauty of “The Big Short,” both as a movie and a book, is that it provides sufficient detail to inform the general audience about events and issues that are not part of everyday life. Wall Street is a secretive place, but “The Big Short” manages to convey enough of the details to make the story credible as a journalistic effort, yet also enormously entertaining. Lewis does this with two essential ingredients of any film: a simple story and compelling characters.

Images of greed and stupidity are presented like Italian frescos in “The Big Short,” pictures that are memorable and thought provoking. Indeed, what many people know and remember years from now about the 2008 financial crisis will be shaped by creative efforts such as “The Big Short” for the simple reason that Lewis has simplified the description into a manageable portion. Unlike hedge fund manager Michael Burry (played by Christian Bale), most people lack the patience and expertise to sift through and understand reams of financial data.

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

2016 – the BIG SHIFT

January 1, 2016

2016 – the BIG SHIFT

As we close 2015 and begin a new year, the markets generally closed flat to neutral with a warning that as we approach the political year from hell being 2017, this is by no means going to be a walk through the park. We are more likely than not going to see some trends conclude in 2016 and others perform a false move the scare the hell out of everyone. Nevertheless, the stars may not be aligning, but the markets appear to be setting the stage to align for the BIG SHIFT.

What does the BIG SHIFT mean? It means that as we face a meltdown in Socialism which has taken hold of Western Governments destroying our underlying democratic foundations, ALL assets must prepare for the HEDGE against government.

Relationships are NEVER constant, yet the TV analysis touts fixed concepts that people then believe. At first, many will buy or sell based upon such unfounded beliefs and assumptions. When we examine them in detail, they fall to the ground into dust.

Europe is operating under a dictatorship and has lost any possible right to exercise a democratic process to remove the three members of the Troika since not a single one stands for any election. Lagarde is of the IMF and is not even appointed the head of the IMF exclusively by Europeans. She was a personal friend of Obama. Draghi is ex-Goldman Sachs. Once a member of Goldman, you never leave. The EU Parliament has no validity since the Commission is not bound by their vote. The people of European nations have absolutely no means to reclaim their sovereignty by any method other than force. And to prevent that, the EU Commission wants to create its own army.

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

Ukraine’s Looming “19 Fukushimas” Scenario

December 25, 2015

Ukraine’s Looming “19 Fukushimas” Scenario

With all the action in Syria, the Ukraine is no longer a subject for discussion in the West. In Russia, where the Ukraine is still a major problem looming on the horizon, and where some 1.5 million Ukrainian refugees are settling in, with no intentions of going back to what’s left of the Ukraine, it is still actively discussed. But for the US, and for the EU, it is now yet another major foreign policy embarrassment, and the less said about it the better.

In the meantime, the Ukraine is in full-blown collapse – all five glorious stages of it – setting the stage for a Ukrainian Nightmare Before Christmas, or shortly after.

Phase 1. Financially, the Ukrainian government is in sovereign default as of a couple of days ago. The IMF was forced to break its own rules in order to keep it on life support even though it is clearly a deadbeat. In the process, the IMF stiffed Russia, which happens to be one of its major shareholders; what gives?

Phase 2. Industry and commerce are approaching a standstill and the country is rapidly deindustrializing. Formerly, most of the trade was with Russia; this is now over. The Ukraine does not make anything that the EU might want, except maybe prostitutes. Recently, the Ukraine has been selling off its dirt. This is illegal, but, given what’s been happening there, the term “illegal” has become the stuff of comedy.

Phase 3. Politically, the Ukrainian government is a total farce. Much of it has been turned over to fly-by-night foreigners, such as the former Georgian president Saakashvili, who is a wanted criminal in his own country, which has recently stripped him of his citizenship. The parliament is stocked with criminals who bought their seat to gain immunity from prosecution, and who spend their time brawling with each other.

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

“The Cost Is Very High”: Portugal Taxpayers Face €3 Billion Loss After Second Bank Bailout In 2 Years

December 21, 2015

“The Cost Is Very High”: Portugal Taxpayers Face €3 Billion Loss After Second Bank Bailout In 2 Years

Back in August of 2014, Portugal had an idea.

Lisbon would use some €5 billion from the country’s Resolution Fund to shore up (read: bailout) Portugal’s second largest bank by assets, Banco Espirito Santo. The idea, basically, was to sell off Novo Banco SA (the “good bank” that was spun out of BES) in relatively short order and use the proceeds to pay back the Resolution Fun. That way, the cost to taxpayers would be zero.

You didn’t have to be a financial wizard or a fortune teller to predict what was likely to happen next.

Unsurprisingly, the auction process didn’t go so well. As we recounted in September, there were any number of reasons why Portugal had trouble selling Novo, not the least of which was that two potential bidders – Anbang Insurance Group and Fosun International which, you’re reminded, is run by the recently “disappeared” Chinese Warren Buffett – suddenly became far more risk-averse in the wake of the financial market turmoil in China. Talks with US PE (Apollo specifically) also went south, presumably because no one knows if this “good” bank will actually turn out to need more capital going forward given that NPLs sit at something like 20% while the H1 loss totaled €250 million thanks to higher provisioning for said NPLs. Now, the auction process has been mothballed and will restart in January.

This matters because if the bank can’t be sold, the cost of the bailout ends up being tacked onto Lisbon’s budget. The impact is substantial. In September, when the effort to sell Novo collapsed, the government restated its 2014 deficit which, after accounting for the bailout, ballooned to 7.2% of GDP from 4.5%.

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

Declassified U.S. Government Report Prepared a Week After Fukushima Accident: “100% of The Total Spent Fuel Was Released to the Atmosphere from Unit 4”

December 11, 2015

Declassified U.S. Government Report Prepared a Week After Fukushima Accident: “100% of The Total Spent Fuel Was Released to the Atmosphere from Unit 4”

We reported in 2011 that the International Atomic Energy Agency knew within weeks that Fukushima had melted down … but failed and refused to tell the public.

The same year, we reported in 2011 that the U.S. knew within days of the Fukushima accident that Fukushima had melted down … but failed to tell the public.

We noted in 2012:

The fuel pools and rods at Fukushima appear to have “boiled”, caught fire and/or exploded soon after the earthquake knocked out power systems. See this, this, this, thisand this.

Now, a declassified report written by the U.S. Nuclear Regulatory Commission on March 18, 2011 – one week after the tidal wave hit Fukushima – states:

The source term provided to NARAC was: (1) 25% of the total fuel in unit 2 released to the atmosphere, (2) 50% of the total spent fuel from unit 3 was released to the atmosphere, and (3) 100% of the total spent fuel was released to the atmosphere from unit 4.

NARAC is the the U.S. National Atmospheric Release Advisory Center, located at the University of California’s Lawrence Livermore National Laboratory. NARAC “provides tools and services that map the probable spread of hazardous material accidentally or intentionally released into the atmosphere“.

The fuel pools at Units 3 and 4 contained enormous amounts of radiation.

For example, there was “more cesium in that [Unit 4] fuel pool than in all 800 nuclear bombs exploded above ground.”

Expert That Correctly Predicted Market Moves In July, August And September Says Stocks Will Crash In November

October 22, 2015

Expert That Correctly Predicted Market Moves In July, August And September Says Stocks Will Crash In November

When someone is right over and over and over, eventually people start paying attention. Personally, I have learned to tune out the “forecasts” of most “economic experts” out there. As an attorney, I was trained to be skeptical, and I have found that most forecasts about what the financial markets are going to do are not worth the paper they are printed on. However, once in a while something comes along that really gets my attention. Over the past few days, I have seen a number of references to the remarkable forecasts of Bo Polny of Gold 2020 Forecast. In recent months he has correctly predicted that U.S. stocks would begin to drop in July, that there would be a huge plunge in August and that that the month of September would be rather uneventful. Now he is saying that he expects “November to be a complete meltdown on the U.S. and world markets”. Just because he has been right in the past does not guarantee that he will be correct this time around, but lots of people (like me) are starting to pay attention.

So how does Polny come to his conclusions? Well, he uses something that most of us hated when we were in school – mathematics. The following comes from the Daily Sheeple…

Cyclical analyst Bo Polny of Gold 2020 Forecast utilizes advanced mathematical formulas and years of cyclical analysis to make forecasts about global stock markets. In late July he noted that U.S. stock markets had hit a top and that investors should prepare for a rapid down-move in the Dow Jones and other indexes. As we now know, that prediction has come to pass.

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

America’s “Inevitable” Revolution & The Redistribution Fallacy

October 18, 2015

America’s “Inevitable” Revolution & The Redistribution Fallacy

Here’s the good news: The chaos and upheaval we see all around us have historical precedents and yet America survived.

The bad news: Everything likely will get worse before it gets better again.

That’s NYPost.com’s Michael Goodwin’s chief takeaway from “Shattered Consensus,” a meticulously argued analysis of the growing disorder. Author James Piereson persuasively makes the case there is an inevitable “revolution” coming because our politics, culture, education, economics and even philanthropy are so polarized that the country can no longer resolve its differences.

To my knowledge, no current book makes more sense about the great unraveling we see in each day’s headlines. Piereson captures and explains the alienation arising from the sense that something important in American life is ending, but that nothing better has emerged to replace it.

The impact is not restricted by our borders. Growing global conflict is related to America’s failure to agree on how we should govern ourselves and relate to the world.

Piereson describes the endgame this way: “The problems will mount to a point of crisis where either they will be addressed through a ‘fourth revolution’ or the polity will begin to disintegrate for lack of fundamental agreement.”

He identifies two previous eras where a general consensus prevailed, and collapsed. Each lasted about as long as an individual’s lifetime, was dominated by a single political party and ended dramatically.

First came the era that stretched from 1800 until slavery and sectionalism led to the Civil War.

The second consensus, which he calls the capitalist-industrial era, lasted from the end of the Civil War until the Great Depression.

It is the third consensus, which grew out of the depression and World War II, which is now shattering. Because the nation is unable to solve economic stagnation, political dysfunction and the resulting public discontent, Piereson thinks the consensus “cannot be resurrected.”

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

In Latest Sign Of EM Chaos, Turkey’s FX Reserves Fall Below Key Threshold Ahead Of Pivotal Elections

October 2, 2015

In Latest Sign Of EM Chaos, Turkey’s FX Reserves Fall Below Key Threshold Ahead Of Pivotal Elections

One of the key things to understand about the veritable meltdown that’s unfolded across emerging markets is that there’s more to the story than the headline risk factors.

That is, while the list of proximate causes that includes a decelerating China, collapsing commodity prices, and uncertainty over when or even if the Fed will hike goes a long way towards explaining the carnage that’s unfolded across EM, each country has its own set of unique circumstances to grapple with. Indeed, the idiosyncratic political risks playing out across emerging economies have taken center stage as Brazil attempts to navigate congressional gridlock, Malaysia struggles with the 1MDB scandal, and Turkey faces new elections in November.

While there’s no question that the political situation in Brazil is particularly troubling, it would be difficult to imagine a more precarious scenario than that which exists in Turkey, where President Recep Tayyip Erdogan has managed to subvert the democratic process by starting a civil war, and thanks to the strategic significance of Incirlik, the effort is co-sponsored by the US and NATO.

Of course extreme political uncertainty, a bloody civil war, and an unfolding proxy war just across the border do not inspire much confidence, which helps to explain the fact that Turkey’s FX reserves have now fallen below $100 billion for the first time since 2012:

And here’s an updated look at the lira which is in the midst of a rather epic decline (which threatens to destabilize inflation) thanks to everything noted above combined with a central bank that either i) doesn’t understand the gravity of the situation, or ii) is loathe to hike rates going into the election:

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

The Numbers Are In: China Dumps A Record $94 Billion In US Treasurys In One Month

September 7, 2015

The Numbers Are In: China Dumps A Record $94 Billion In US Treasurys In One Month

Shortly after the PBoC’s move to devalue the yuan, we noted with some alarm that it looked as though China may have drawn down its reserves by more than $100 billion in the space of just two weeks. That, we went on the point out, would represent a stunning increase over the previous pace of the country’s reserve draw down, which we’ve began documenting months ahead of the devaluation (see here, for instance). We went on to estimate, based on the estimated size of the RMB carry trade unwind, how large the FX reserve liquidation might need to be to offset capital outflows and finally, late last week, we suggested that China’s official FX reserve data was set to become the new risk-on/off trigger for nervous, erratic markets. In short, the pace at which Beijing is burning through its USD assets in defense of the yuan has serious implications not only for investors’ collective perception of market stability, but for yields on core paper, for global liquidity, and for US monetary policy.

On Monday we got the official data from China and sure enough, we find out that the PBoC liquidated around $94 billion in reserves during the month of August and as Goldman argues (see below), the “real” figure might have been closer to $115 billion. Whatever the case, it’s a staggering burn rate and needless to say, were the PBoC to continue to liquidate its assets at this pace, it would necessitate a raft of RRR cuts and hundreds of billions in short-term liquidity ops to ensure that money market don’t seize up in the face of the liquidity drain.

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

“This Time May Be Different”: Desperate Central Banks Set To Dust Off Asia Crisis Playbook, Goldman Warns

September 5, 2015

“This Time May Be Different”: Desperate Central Banks Set To Dust Off Asia Crisis Playbook, Goldman Warns

Early last month, Bloomberg observed that plunging currencies were “handcuffing bankers from Chile to Colombia.” The problem was described as follows:

Central bankers in commodity-dependent Andes economies aren’t even considering interest-rate cuts to revive growth, even as prices for oil, copper and other raw materials collapse.

That’s because the deepening price slump is also dragging down currencies in Colombia and Chile — a swoon that’s fanning inflation and tying policy makers’ hands.

That was six days before China’s decision to devalue the yuan.

Needless to say, Beijing’s entry into the global currency wars did nothing to help the situation and indeed, since the yuan devaluation, things have gotten materially worse. The real, for instance, has plunged 10.5%, the Colombian peso is down 6.6%, the Mexican peso is off 4.4%, and the Chilean peso is down a harrowing 8% (thanks copper). And again, that’s just since China’s devaluation.

Meanwhile, plunging commodity prices, falling Chinese demand, and depressed global trade aren’t helping LatAm economies. Just ask Brazil, where the sellside GDP forecast cuts are coming in fast (Morgan Stanley being the latest example) now that virtually every data point one cares to observe shows an economy that’s sliding into depression.

Of course a plunging currency, FX pass through inflation, and a soft outlook for growth is a pretty terrible place to be in if you’re a central bank, but that’s exactly where things stand for the “LA-5” (believe it or not, that’s not a reference to the Lakers, it’s short for Brazil, Chile, Colombia, Mexico, and Peru), who very shortly will be forced to decide whether the risks associated with further FX weakness outweigh those of hiking rates into a poor economic environment.

For Goldman, the outlook is clear: LatAm central banks will, in “stark” contrast to counter-cyclical measures adopted during the crisis, hike in a desperate attempt to shore up their currencies and control inflation.

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

The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play

September 5, 2015

The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play

The most important piece of news announced today was also, as usually happens, the most underreported: it had nothing to do with US jobs, with the Fed’s hiking intentions, with China, or even the ongoing “1998-style” carnage in emerging markets. Instead, it was the admission by ECB governing council member Ewald Nowotny that what we said about the ECB hitting a supply brick wall, was right. Specifically, earlier today Bloomberg quoted the Austrian central banker that the ECB asset-backed securities purchasing program “hasn’t been as successful as we’d hoped.”

Why? “It’s simply because they are running out. There are simply too few of these structured products out there.”

So six months later, the ECB begrudgingly admitted what we said in March 2015, in “A Complete Preview Of Q€ — And Why It Will Fail“, was correct. Namely this:

… the ECB is monetizing over half of gross issuance (and more than twice net issuance) and a cool 12% of eurozone GDP. The latter figure there could easily rise if GDP contracts and Q€ is expanded, a scenario which should certainly not be ruled out given Europe’s fragile economic situation and expectations for the ECB to remain accommodative for the foreseeable future. In fact, the market is already talking about the likelihood that the program will be expanded/extended.

… while we hate to beat a dead horse, the sheer lunacy of a bond buying program that is only constrained by the fact that there simply aren’t enough bonds to buy, cannot possibly be overstated.

Among the program’s many inherent absurdities are the glaring disparity between the size of the program and the amount of net euro fixed income issuance and the more nuanced fact that the effects of previous ECB easing efforts virtually ensure that Q€ cannot succeed.

(Actually, we said all of the above first all the way back in 2012, but that’s irrelevant.)

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

Malaysia Meltdown: Asian Currency Crisis 2.0 Sends Ringgit, Stocks, Bonds Crashing

August 14, 2015

Malaysia Meltdown: Asian Currency Crisis 2.0 Sends Ringgit, Stocks, Bonds Crashing

When China went the “nuclear” (to quote SocGen) devaluation route earlier this week in a last ditch effort to rescue its export-driven economy from the perils of an increasingly painful dollar peg, everyone knew things were about to get a whole lot worse for an EM currency basket that was already reeling from plunging commodity prices, slumping Chinese demand, and the threat of an imminent Fed hike.

Sure enough, EM currencies from Brazil to South Korea plunged, and monetary authorities – unsure whether to play down the move or cry foul – scrambled to respond.

With some Asian currencies already falling to levels last seen 17 years ago, some analysts fear that an Asian Currency Crisis 2.0 may be just around the corner.

That rather dire prediction may have been validated on Friday when Malaysia’s ringgit registered its largest one-day loss in almost two decades.

As FT notes, “sentiment towards Malaysia has been damped by a range of factors including sharp falls in global energy prices since the end of June. Malaysia is a major exporter of both oil and natural gas, with crude accounting for almost a third of government revenue.” The central bank meanwhile, “has opted to step back from intervening in the market in response to the falling renminbi, unleashing pent-up downward pressure on the ringgit.” That, apparently, marks a notable change in policy. “The most immediate challenge is the limited scope of Malaysia’s central bank to step in,” WSJ says, adding that “for weeks, it tried to stem the currency’s slide, digging into its foreign-exchange reserves to prop up the ringgit and warning banks from aggressively trading against its currency.”

Surveying the damage, here’s the one-day:

And the one week:

And the one month:

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

Goldman “Conspiracy Theory” Validated As ECB Expands QE Program

July 2, 2015

Goldman “Conspiracy Theory” Validated As ECB Expands QE Program

The ECB has expanded the list of SSA securities eligible for purchase under PSPP. The updated list includes:

Tyoettoemyysvakuutusrahasto
OeBB-Infrastruktur
Asfinag
Infraestruturas de Portugal
Entidade Nacional para o Mercado de Combustiveis
Ferrovie dello Stato Italiane
Terna Spa – Rete Elettrica Nazionale
ENEL
SNAM
Administrador de Infraestructuras Ferroviarias – Alta
Velocidad
SNCF Reseau
Caisse Nationale des Autoroutes
DARS

Since the program’s inception, we and others have said the central bank will likely need to add more names to the list of QE-eligible SSA bonds or move into corporate credit in order to ensure that NCBs can meet their purchase targets under the capital key (especially in core markets where scarcity is a problem) and in order to allay concerns about liquidity in the secondary market for some core EGBs.

That said, the decision to expand the list this week is obviously no coincidence and reflects the fact that the ECB is keen to ensure there are no lasting “spillover” effects from the meltdown in Greece on periphery yields which the central bank has worked so hard to keep unrealistically low.

The move also, as RBS noted this morning, shows the ECB is “ready to intervene closer to the real economy.” RBS also says the bank could move into IG corporate credit next, something we predicted months ago when we discussed the lower limit problem.

So that’s the surface-level analysis.

Beyond that, today’s announcement by the ECB seems to prove what we said in “Goldman’s Conspiracy Theory Stunner“; namely that Mario Draghi wants to push Greece over the edge in order to give himself an excuse to expand QE. Here’s how we explained the situation earlier this week:

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

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