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China Black Swans Not So Rare Anymore as PBOC Shocks Markets

August 13, 2015

China Black Swans Not So Rare Anymore as PBOC Shocks Markets

Investors should prepare for more surprises out of China after the yuan’s devaluation became the country’s latest unexpected policy move to roil global markets.

That’s the advice from Fraser Howie, co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.” He says Chinese policy decisions are becoming “erratic” as authorities struggle to combat the nation’s deepest economic slowdown in more than two decades.

This week’s tumble in the yuan — the biggest devaluation since 1994 — comes just a month after unprecedented state intervention in the stock market deepened a $4 trillion sell-off. Two years ago, authorities triggered the country’s worst modern-day cash squeeze by restricting the supply of funds to the banking system. The failure of China’s decision makers to telegraph and explain those policy changes has increased volatility worldwide as traders struggle to forecast what happens next in Asia’s biggest economy, Howie said.

“This complete lack of signaling has investors, both foreign and domestic, completely spooked about what’s going on,” Howie, a former managing director at CLSA Asia-Pacific Markets, said in a phone interview from Singapore. “China has a huge influence globally and markets don’t like shocks.”

While investors parse every word in Federal Reserve statements for clues on future U.S. monetary policy, the People’s Bank of China provides few such details, while decisions are often the result of political wrangling, according to Howie.

 

“We don’t know what their policy is,” he said. “We don’t see minutes of meetings. We don’t get regular announcements, so we get a tremendous lack of transparency.”

Yuan Plunge

The PBOC took markets by surprise when it cut the daily fixing for the yuan by 1.9 percent on Tuesday, ending a four-month peg against the dollar. The currency tumbled 2.9 percent in two days, the most since the country ended a dual-currency system in 1994, while it now trades at the biggest discount to the offshore yuan since 2010.

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

 

Austrian Bad Bank “Black Swan” Bail-In Is Unconstitutional, Austria Declare

July 28, 2015

Austrian Bad Bank “Black Swan” Bail-In Is Unconstitutional, Austria Declare

The subject of bail-ins and bank resolutions is back in the news this month as every eurocrat in Brussels scrambles to determine the best way to recapitalize Greece’s ailing banking sector, which, you’re reminded, is sinking further into insolvency with each passing day thanks to the unyielding upward pressure on NPLs that’s part and parcel the country’s outright economic collapse.

And while you could be forgiven for focusing squarely on the trainwreck that’s occurring in Athens, it would be a mistake to ignore the fact that just a few months back, a black swan landed in Austria when a €7.6 billion capital hole was “discovered” in Heta Asset Resolution, the vehicle set up to resolve the now defunct lender Hypo Alpe-Adria-Bank.

In short, the bad bank went bad, and when it became clear that no further state support was forthcoming, Heta Asset Resolution was itself put into resolution and a moratorium on bond payments was declared.

The debacle raised a number of troubling issues not the least of which involves the beautifully picturesquesouthern Austrian province of Carinthia, which had guaranteed some €10 billion worth of Heta debt despite the rather inconvenient fact that annual provincial revenues only amount to around €2.3 billion.

 

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

When a Black Swan Flies Over Wall Street’s House of Cards

July 13, 2015

When a Black Swan Flies Over Wall Street’s House of Cards

A black swan is Wall Street lexicon for an unpredicted event. The author of that concept, Nassim Taleb, opines that most of the major moves in stock market history originated as black swan events coming out of nowhere, with a random, stochastic disorderliness that pushes markets into wild gyrations and implosion.

But subliminally, everyday, CNBC and Bloomberg market mavens reassure us that the market hovers only a few percentage points off all time highs, that unemployment is moderating, and projected GDP, if not robust, is certainly positive.

Still, outliers like Ron Paul endlessly pontificate that we are living in a fairy tale house of cards.

The Fed has pumped about $4.6 trillion into our economy—“quantitative easing,” a term Ron feels is printing money out of thin air. What bothers the former Congressman is that the Fed won’t submit to a real audit, and he suspects it is hiding something far darker. “If the Fed has nothing to hide, it has nothing to fear.” [1]

So what is it hiding? The Fed may have surreptitiously lent $16 trillion to foreign banks completely under the radar and without any approval of anyone. Says Bernie Sanders “No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the President.”[2]  The Fed may have done exactly that.

Just to keep these numbers in perspective, the total value of the entire U.S. economy, $17.4 trillion, is less than what the Fed may have been printing, unaudited, and all by its lonesome since 2008.

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

 

 

Welcome to Blackswansville

July 7, 2015

Welcome to Blackswansville

While the folks clogging the US tattoo parlors may not have noticed, things are beginning to look a little World War one-ish out there. Except the current blossoming world conflict is being fought not with massed troops and tanks but with interest rates and repayment schedules. Germany now dawdles in reply to the gauntlet slammed down Sunday in the Greek referendum (hell) “no” vote. Germany’s immediate strategy, it appears, is to apply some good old fashioned Teutonic todesfurcht — let the Greeks simmer in their own juices for a few days while depositors suck the dwindling cash reserves from the banks and the grocery store shelves empty out. Then what?

Nobody knows. And anything can happen.

One thing we ought to know: both sides in the current skirmish are fighting reality. The Germans foolishly insist that the Greek’s meet their debt obligations. The German’s are just pissing into the wind on that one, a hazardous business for a nation of beer drinkers. The Greeks insist on living the 20th century deluxe industrial age lifestyle, complete with 24/7 electricity, cheap groceries, cushy office jobs, early retirement, and plenty of walking-around money. They’ll be lucky if they land back in the 1800s, comfort-wise.

The Greeks may not recognize this, but they are in the vanguard of a movement that is wrenching the techno-industrial nations back to much older, more local, and simpler living arrangements. The Euro, by contrast, represents the trend that is over: centralization and bigness. The big questions are whether the latter still has enough mojo left to drag out the transition process, and for how long, and how painfully.

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

 

Black Swan 2: This Is “The Next Critical Chapter In The Austrian Banking System Story”

March 27, 2015

Black Swan 2: This Is “The Next Critical Chapter In The Austrian Banking System Story”

When it comes to the sweeping of (trillions of) toxic assets until such time as the ECB starts purchasing not only government bonds but equities, bank loans and really anything else that in a normal world would have some “mark to market” value, Europe had a ready answer: bad banks. A tradition which started with Switzerland and the semi-bailout of UBS during the great financial crisis, “bad banks” have been proposed every time there are a few hundred billion in bad assets that need to be swept away or otherwise removed from the the public eye.

In fact, it was just a few hours ago that Spain’s economy minister praised the usefulness of bad banks, which have certainly seen their fair share of use in Spain over the past 5 years.

  • GUINDOS: BAD BANKS USEFUL INSTRUMENT TO CLEAN UP BALANCE SHEETS.

Yes, useful. Until you have a massive blow up like in Austria when several years of avoiding reality exploded in everyone’s face when the Bad Bank meant to fix the mess left after the collapse of Hypo Alpe Adria itself became insolvent, after the horrendous state of its balance sheet could no longer be masked, and creditors were shocked to learn they would foot the bail out, or rather bail in costs thanks to massive debt writedowns.

And since there is never just one cockroach when it comes to hiding Europe’s biggest financial problem, namely trillions in non-performing loans, the question always is: which cockroach is next?

For now the answer, thanks to the ECB’s relentless intervention in all capital markets is hiding, but one proposal comes from Daiwa Capital Markets which suggests to take a long hard look at Austria’s Pfandbriefbank Oesterreich AG.

Here is what Daiwa’s Jakub Lichwa thinks:

 

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

The Austrian Black Swan Claims Its First Foreign Casualty: German Duesselhyp Collapses, To Be Bailed Out

March 15, 2015

The Austrian Black Swan Claims Its First Foreign Casualty: German Duesselhyp Collapses, To Be Bailed Out

Precisely one week ago in “A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe“, when analyzing the consequences of the collapse of Austria’s bad bank, we noted perhaps the biggest paradox of Europe’s emergency preparedness response to the Greek collapse and imminent expulsion from the Eurozone: namely that the biggest threat to German banks was no longer in some Mediterranean nation, but in its very own back yard. To wit:

Irony #2, and the biggest one of all: while German banks had spent the past 3 years preparing for the inevitable Grexit and offloading all their exposure to the now insolvent Greek state, it was a waterfall chain of events which started in Germany’s own “back yard”, courtesy of auditors who decided it was unnecessary to mark losses to market until it was far too late, and the immediate outcome is that one ninth of until recently Aaa/AAA-rated Austria is now also insolvent. And that is just the beginning.

One can only imagine how many such other “0% risk-weighted” Pandora boxes lie in wait across what are otherwise considered Europe’s safest banks, provinces and nations.

Indeed, it was just the beginning, and moments ago we got confirmation that the next domino has tipped over, following a Reuters report that Germany’s deposit protection fund will take over the property lender Duesseldorfer Hypothekenbank AG (DuesselHyp), which has “run into problems” due to its exposure to Austrian lender Hypo Alpe Adria’s “bad bank” Heta.

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

 

 

Living and Breathing in a ‘Black Swan’ World | Solutions

October 23, 2014

Living and Breathing in a ‘Black Swan’ World | Solutions.

Mike Weightman, IAEA Imagebank
“Black Swan” events such as the Fukushima disaster contribute to changes and turbulance across various levels of society, driving the need for more resilient systems.

A Marine Corps friend of mine defines resilience as the ability to take a gut punch and come back swinging. More formally, it is said to be the capacity to maintain core functions and values in the face of outside disturbance. Either way, the concept is elusive, a matter of more or less, not either/or. The combination of slow, cumulative changes like soil erosion, loss of species, and acidification of oceans with fast, Black Swan events, such as the Fukushima disaster, like intersecting ocean currents, will create overlapping levels of unpredictable turbulence at various depths1. Against that prospect, the idea that we can improve resilience at scales ranging from cities to global civilization is becoming an important part of policy discussions, but mostly in reaction to crises like the global economic crisis of 2008 and the prospect of rapid climate change. If we are serious about it we will have to improve not only our capacity to act with foresight but also develop the wherewithal to diagnose and remedy the deeper problems rooted in language, paradigms, social structure, and economy that undermine resilience in the first place.

The theoretical underpinnings of the concept go back to the writings of C. S. Holling on the resilience of ecological systems and to metaphors drawn from the disciplines of systems theory, mathematics, and engineering. More recently, scholars such as Joseph Tainter, Thomas Homer-Dixon, and Jared Diamond have documented the histories of societies that collapsed for lack of foresight, competence, ecological intelligence, and environmental restraint.2

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

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