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“Then said Jesus, “Father, forgive them; for they know not what they do.””
– Luke 23:34.

For the benefit of non-subscribers, there are two versions of the Financial Times newspaper. One of them is the hard copy edition, still printed on pink paper, an exact digital replica of which is available on the paper’s website to subscribers. The second is the website itself, at www.ft.com. The difference between the two is subtle, but crucial. In the formal, hard copy edition, ‘reader response’ is strictly edited and controlled. Occasionally a despatch critical of one of the paper’s columnists (normally and deservedly Martin Wolf) will make its way through enemy lines, but as the ‘edition of record’, hostility to and criticism of the newspaper’s editorial staff is, as you might expect, strictly rationed.

On the website, however, the gloves come off.

Last week the FT published an article, ‘Central banks: negative thinking’, co-authored by Robin Wigglesworth, Leo Lewis and Dan McCrum, that was atypically sceptical of the received wisdom on QE (i.e., that it works). The article began, as is probably compulsory these days, in Japan:

“Forums have seen a flood of commentary from Japan’s retirees decrying negative rates and the “torture” that the BoJ’s policy is already inflicting..

“The Japanese can be conservative at the best of times, and few think these are the best of times.”

But as the authors rightly point out, Japan is not the only country affected by negative interest rates, a policy that John Stepek, the editor of MoneyWeek, has nicely called

“the weaponisation of compound interest”.

As Messrs Wigglesworth, Lewis and McCrum rightly observe,

“With quantitative easing seemingly losing its power to dazzle markets, and many governments either unable or unwilling to countenance raising spending, central banks have felt compelled to try new tools.”

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

Steen Jakobsen: The End Of The Debt Cycle

February 23, 2016

Steen Jakobsen: The End Of The Debt Cycle

As transformational as the fall of the Berlin Wall

As we’ve been watching closely, something is wrong with the big banks. Their shares have lost 25-33% of their market value since the beginning of the year. What’s going on?

The turmoil seems greatest in Europe, where bank shares have fallen the hardest, and negative interest rates have appeared with increasingly frequency across member countries.

To make sense of it all, we’ve invited Steen Jakobsen back on, Chief Investment Officer of Saxo Bank, who can provide an eyes-on-the-ground perspective on the European banking system from his location in Copenhagen:

Clearly what we’ve seen over the course of the first quarter this year is that the ability of central banks to do their magic in terms of talking to the market with the rhetoric of “low for longer” and the likes is running on empty now.

If we look back in chronological order of what happened this year, first we had, of course, the Fed with Yellen and Fischer backing down slightly from the three to four hikes they promised in December. That was followed very quickly by, of course, Draghi promising to do ‘Whatever it takes!’ yet again in March this year. Then the BOJ went negative on interest rates and a number of European central banks followed suit. So much so that actually right now if you look at the G7 governments, about 50 percent of all G7 government is now trading at a negative yield, which seems to be the new solution from central banks.

I think the market is seeing right through that because, of course, at the center of all of this at all times will be the banking system, a banking system that is getting penalized for the negative interest rate.

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

Revolt against NIRP Breaks out, Bank of Japan “Baffled”

February 19, 2016

Revolt against NIRP Breaks out, Bank of Japan “Baffled”

Meanwhile, exports collapse at fastest rate since 2009.

This would be hilarious, if it weren’t so serious: Frazzled politicians, during a parliamentary session, lambasting the governor of their central bank over its new negative interest rate policy. But this is what happened in Japan.

Central-bank imposed negative interest rates have caused a lot of financial mayhem. Since they’ve contaminated much of Europe, they’ve dragged most major stock indices into a bear market. In the US, stocks fell hard as well. The Nasdaq sidled up to a bear market before bouncing off and is now down “only” 14% from its peak. The Russel 2000 is in a bear market, down 22.4%.

In Japan, stocks have gotten mauled since the Bank of Japan inflicted the idea of negative deposit rates on the land three weeks ago, after Governor Haruhiko Kuroda had repeatedly assured parliament that he wasn’t even considering the idea. Despite a bounce earlier this week, the Nikkei is down 24% from its recent high.

It doesn’t matter that, under the BOJ’s three-tiered system, no deposits qualify yet for the special treatment. It’s the idea that counts. It’s all a mind-game.

And so on Thursday, Kuroda stood before Parliament to be lambasted from all sides. According to DJ Business News, he “found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was victimizing consumers and sending a message of despair.”

Opposition lawmaker Shinkun Haku needled Kuroda: “Can you deny that banks will put an additional burden on average depositors” by charging fees or interest on deposits? “If you can’t deny it, don’t. It’s a yes or no.”

Kuroda dodged the jab the best he could, refusing to speculate on fees but said that “there’s no chance that deposit interest rates will turn negative.”

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

Central Banking Goes Negative

February 18, 2016

Central Banking Goes Negative

NEW HAVEN – In what could well be a final act of desperation, central banks are abdicating effective control of the economies they have been entrusted to manage. First came zero interest rates, then quantitative easing, and now negative interest rates – one futile attempt begetting another. Just as the first two gambits failed to gain meaningful economic traction in chronically weak recoveries, the shift to negative rates will only compound the risks of financial instability and set the stage for the next crisis.

The adoption of negative interest rates – initially launched in Europe in 2014 and now embraced in Japan – represents a major turning point for central banking. Previously, emphasis had been placed on boosting aggregate demand – primarily by lowering the cost of borrowing, but also by spurring wealth effects from appreciating financial assets. But now, by imposing penalties on excess reserves left on deposit with central banks, negative interest rates drive stimulus through the supply side of the credit equation – in effect, urging banks to make new loans regardless of the demand for such funds.

This misses the essence of what is ailing a post-crisis world. As Nomura economist Richard Koo has argued about Japan, the focus should be on the demand side of crisis-battered economies, where growth is impaired by a debt-rejection syndrome that invariably takes hold in the aftermath of a “balance sheet recession.”

Such impairment is global in scope. It’s not just Japan, where the purportedly powerful impetus of Abenomics has failed to dislodge a struggling economy from 24 years of 0.8% inflation-adjusted GDP growth. It’s also the US, where consumer demand – the epicenter of America’s Great Recession – remains stuck in an eight-year quagmire of just 1.5% average real growth. Even worse is the eurozone, where real GDP growth has averaged just 0.1% over the 2008-2015 period.

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

Why The Keynesian Market Wreckers Are Now Coming For Even Your Ben Franklins

February 18, 2016

Why The Keynesian Market Wreckers Are Now Coming For Even Your Ben Franklins

Larry Summers is a pretentious Keynesian fool, but I refer to him as the Great Thinker’s Vicar on Earth for a reason. To wit, every time the latest experiment in Keynesian intervention fails——as 84 months of ZIRP and massive QE clearly have—–he can be counted on to trot out a new angle on why still another interventionist experiment or state sponsored financial fraud is just the ticket.

Right now he is leading the charge for the greatest stroke of foolishness yet conceived. Namely, negative interest rates based on the rubbish theory that the “natural” money market rate of interest is at an extraordinarily low point. Accordingly, the central bank should drive the “policy rate” to sub-zero levels in order to achieve the appropriate level of “accommodation” in an economy that refuses to attain “escape velocity”.

ENLARGE

As can’t be pointed out often enough, however, there is no such economic ether as “accommodation”. It’s just a blanket cover story for what Keynesian central bankers believe they are accomplishing by pegging interest rates below market clearing levels and by bending and mangling the yield curve to cause more investment.

But after 86 months it is evident that all of this putative monetary “accommodation” has failed. Falsifying the cost of money and capital can only work if it causes households and businesses to borrow more than they would otherwise; and to then lay credit based spending for consumption and investment goods on top of what can be funded out of current production and income. Another name for that is leveraging private balance sheets and thereby stealing production and income from the future.

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

Deranged Central Bankers Blowing Up the World

February 15, 2016

DERANGED CENTRAL BANKERS BLOWING UP THE WORLD

It is now self-evident to any sentient being (excludes CNBC shills, Wall Street shyster economists, and Keynesian loving politicians) the mountainous level of unpayable global debt is about to crash down like an avalanche upon hundreds of millions of willfully ignorant citizens who trusted their politician leaders and the central bankers who created the debt out of thin air. McKinsey produced a report last year showing the world had added $57 trillion of debt between 2008 and the 2nd quarter of 2014, with global debt to GDP reaching 286%.

The global economy has only deteriorated since mid-2014, with politicians and central bankers accelerating the issuance of debt. These deranged psychopaths have added in excess of $70 trillion of debt in the last eight years, a 50% increase. With $142 trillion of global debt enough to collapse the global economy in 2008, only a lunatic would implement a “solution” that increased global debt to $212 trillion over the next seven years thinking that would solve a problem created by too much debt.

The truth is, these central bankers and captured politicians knew this massive issuance of more unpayable debt wouldn’t solve anything. Their goal was to keep the global economy afloat so their banker owners and corporate masters would not have to accept the consequences of their criminal actions and could keep their pillaging of global wealth going unabated.

The issuance of debt and easy money policies of the Fed and their foreign central banker co-conspirators functioned to drive equity prices to all-time highs in 2015, but the debt issuance and money printing needs to increase exponentially in order keep stock markets rising. Once the QE spigot was shut off markets have flattened and are now falling hard. You can sense the desperation among the financial elite. The desperation is borne out by the frantic reckless measures taken by central bankers and politicians since 2008.

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

The Negative Mortgage Rate Program (NMRP)

February 13, 2016

The Negative Mortgage Rate Program (NMRP)

Something Needs to be Done – A Glimpse of the Future

In the summer of 2016, US and global economic growth rates are nowhere close to estimates. In fact, a global recession, or worse, is imminent. At home, student loan defaults are now close to 100%. The unemployment rate is climbing, as minimum wage workers finally realize that the financial pain of working or not working is identical. In Euro-land, as the weather warms up, the never-ending flotillas from Northern Africa resume swamping the Southern shores.

NIRP A black hole opens up in the world of centrally planned money Illustration by Denis Cristo

By now, the Treasury has long given up on the idea of privatizing the agencies. Freddie and Fannie will soon be part of HUD, surviving for the sole purpose of providing affordable housing for all – whatever that is supposed to mean. Policymakers have determined that the real estate market is stalling. Desperate times require desperate measures. Something needs to be done.

After an intense pow-wow between the administration, Congressional leaders and the Federal Reserve, the Negative Mortgage Rate Program (NMRP) is born. The program is simple. Homeowners will be paid to borrow. The Federal Reserve declares that the NMRP is a brilliant extension of NIRP (negative interest rate policy), because it will benefit everyone, not just the 1%ers.

fannie-mae-cartoon A good reason to break into song… Cartoon by cartoon by Steve Breen

Here is how it works:

No downpayment needed. 100% financing.

No payments needed. This is the reverse of the negative amortization loans during the subprime era. In other words, it is a negative negative amortization, or neg-neg-am loan. The loan balance will decrease instead of increase.

No need for mortgage insurance since, with no payments, there can be no defaults.

No qualifying needed, hence removing the entire cumbersome loan application process.

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

This Is The NIRP “Doom Loop” That Threatens To Wipeout Banks And The Global Economy

February 12, 2016

This Is The NIRP “Doom Loop” That Threatens To Wipeout Banks And The Global Economy

Remember the vicious cycle that threatened the entire European banking sector in 2012?

It went something like this: over indebted sovereigns depended on domestic banks to buy their debt, but when yields on that debt spiked, the banks took a hit, inhibiting their ability to fund the sovereign, whose yields would then rise some more, further curtailing banks’ ability to help out, and so on and so forth.

Well don’t look now, but central bankers’ headlong plunge into NIRP-dom has created another “doom loop” whereby negative rates weaken banks whose profits are already crimped by the new regulatory regime, sharply lower revenue from trading, and billions in fines. Weak banks then pull back on lending, thus weakening the economy further and compelling policy makers to take rates even lower in a self-perpetuating death spiral. Meanwhile, bank stocks plunge raising questions about the entire sector’s viability and that, in turn, raises the specter of yet another financial market meltdown.

Below, find the diagram that illustrates this dynamic followed by a bit of color from WSJ:

From WSJ:

In a way, the move below zero was a gamble. The theory went like this: Banks would take a hit, but negative rates would get the economy moving. A stronger economy would, in turn, help the banks recover.

It appears that wager isn’t working.

The consequences are deeply worrying. Weak banks may now drag the economy down further. And with the economy weak and deflation—a damaging spiral of falling wages and prices—looming, central banks that have gone negative will be loath to turn around and raise rates.

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

Why NIRP (Negative Interest Rates) Will Fail Miserably

February 12, 2016

Why NIRP (Negative Interest Rates) Will Fail Miserably

What NIRP communicates is: this sucker’s going down, so sell everything and hoard your cash and precious metals.

The last hurrah of central banks is the negative interest rate policy–NIRP. The basic idea of NIRP is to punish savers so severely that households and businesses will be compelled to go blow whatever money they have on something–what the money is squandered on is of no importance to central banks.

All that matters is that people and enterprises are forced to spend whatever cash they have rather than “hoard” it, i.e. preserve and conserve their capital.

That this is certifiably insane is self-evident. If an economy depends on bringing future spending into the present by destroying savings, that economy is doomed regardless of NIRP, for eventually the cash runs out and spending declines anyway.

But NIRP will fail completely and totally due to another dynamic— one I addressed last month in Another Reason Why the Middle Class and the Velocity of Money Are in Terminal Decline. As correspondent Mike Fasano noted, negative interest rates force us to save even more, not less:

“People like me who have saved all their lives realize that they their savings (no matter how much) will never throw off enough money to allow retirement, unless I live off principal. This is especially so since one can reasonably expect social security to phased out, indexed out or dropped altogether. Accordingly, I realize that when I get to the point when I can no longer work, I’ll be living off capital and not interest. This is an incentive to keep working and not to spend.”

If banks start charging savers interest on their cash, savers will have to save even more income to offset the additional costs imposed by central banks on their savings.

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

Janet Yellen Admits Fed Is Evaluating Possibility Of Negative Rates

February 11, 2016

Janet Yellen Admits Fed Is Evaluating Possibility Of Negative Rates

One week before the BOJ shocked the world by adopting negative interest rates and unleashed the next leg lower in global risk assets, it warned everyone “please not to worry, all is under control”

Moments ago at least Yellen had the courtesy of “warning” market participants in general, and banks and savers in particular that legal, logistical or monetary concerns aside, the Fed is already evaluating the possibility of negative rates.

“We had previously considered them and decided that they would not work well to foster accommodation back in 2010. In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.“

As Bloomberg reported first earlier this week, a Fed staff memo posted on the central bank’s website last month showed Fed economists grappled with a number of issues related to implementation of negative rates at the time, including possible legal obstacles. Yellen said Thursday that negative rates might be legal, but the question remained open to further examination.

Among the other concerns were whether the Fed has the logistical capacity to implement NIRP:

… the Federal Reserve computer systems used to calculate and manage interest on reserves do not currently allow for the possibility of a negative IOER rate, although these systems could be modified over time if needed.

And a further concern about NIRP is the potential lack of physical cash:

DIs might opt to shift a significant quantity of their reserve balances into currency. Present Federal Reserve inventories of currency, at about $200 billion, would not be adequate to cover large-scale conversion of the nearly $1 trillion in reserve balances to banknotes.

This is what she added today:

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

Something Very Disturbing Spotted In A Morgan Stanley Presentation Slide

February 10, 2016

Something Very Disturbing Spotted In A Morgan Stanley Presentation Slide

With central bankers losing credibility left and right, and failing outright to boost the “wealth effect” no matter what they throw at it, the next big question is when will central planners around the world unveil the cashless society which is a necessary and sufficient condition to a regime of global NIRP.

And while in recent days we have seen op-eds by both Bloomberg and FT urging the banning of cash, the most disturbing development we have seen yet in the push for a cashless society has come from the following slide in a Morgan Stanley presentation, one in which the bank’s head of EMEA equity research Huw van Steenis, pointed out the following…

… and added this:

One of the most surprising comments this year came from a closed session on fintech where I 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.

Consider this the latest, and loudest, warning on the road to digital fiat serfdom.

Negative Interest Rates Destroying World Economy: “Doom-and-Gloom Outlook for Banks in Europe”

February 9, 2016

Negative Interest Rates Destroying World Economy: “Doom-and-Gloom Outlook for Banks in Europe”

global-reset---shadow-banking

Trying to simply hold onto the standard that you’ve got has become a new normal for financial challenges.

Equity erodes away when interest rates go negative… then everything starts to sour.

China’s economy and stock market are effectively in the toilet, or poised to further collapse the next time anything big happens in Europe or the United States, and perhaps any part of the world.

The U.S. stock market has become jumpy and prone to collapse as well, and all major markets are now global, and trip up anytime the string tied around their ankle is yanked from across the ocean. And collapsing oil prices are adding huge pressures to everything.

Now Europe banks are at the brink. Will it be enough to set off the major crisis everyone has been warning about?

Via MarketWatch:

Europe’s bank index has posted its longest weekly string of losses since 2008 […] the Stoxx Europe 600 Banks Index has logged six straight weeks of declines.

Lackluster profits and negative interest rates, have prompted investors to dump shares in the sector that was touted as one of the best investment ideas just a few months ago.

[…]

The negative interest rates set by the ECB means that banks effectively have to pay to have cash on their balance sheets, while at the same time getting squeezed on their net interest margins. Debt levels are already really high on the continent, which means further loan growth is expected to be low, he said.

Negative interest rates, a result of the overkill of quantitative easing at the Federal Reserve, is plenty enough rope for all involved to hang themselves. The desperate and poor will fall as a result of borrowing too much on easy credit, and the richer and better off will fall as a result of declining returns and falling standards for income.

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

The Negative Rates Club

February 9, 2016

The Negative Rates Club

BRUSSELS – For the better part of a decade, central banks have been making only limited headway in curbing powerful global deflationary forces. Since 2008, the US Federal Reserve has maintained zero interest rates, while pursuing multiple waves of unprecedented balance-sheet expansion through large-scale bond purchases. The Bank of England, the Bank of Japan, and the European Central Bank have followed suit, each with its own version of so-called “quantitative easing” (QE). Yet inflation has not picked up appreciably anywhere.

Despite their shared struggles with deflationary pressures, these countries’ monetary policies – and economic performance – are now diverging. Whereas the United States and the United Kingdom are now growing strongly enough to exit their expansionary policies and raise interest rates, the eurozone and Japan are doubling down on QE, pushing policy long-term interest rates further into negative territory. What explains this difference?

The short answer is debt. The US and the UK have been running current-account deficits for decades, and are thus debtors, while the eurozone and Japan have been running external surpluses, making them creditors. Because negative rates benefit debtors and harm creditors, introducing them after the global economic crisis spurred a recovery in the US and the UK, but had little effect in the eurozone and Japan.

This is not an isolated phenomenon. By now, most of the world’s creditor countries – those with large and persistent current-account surpluses, such as Denmark and Switzerland – have negative interest rates, not only for long-term governments bonds and other “riskless” debt, but also for medium-term maturities. And it is doing little good.

Despite the weak impact of low interest rates, central banks in these economies remain committed to them.

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

Fear Hits Japanese Banks, Nikkei Plunges, 10-Year Yield Negative for First Time Ever

February 9, 2016

Fear Hits Japanese Banks, Nikkei Plunges, 10-Year Yield Negative for First Time Ever

A banking crisis radiating out from Europe?

While China, Hong Kong, and some other Asian markets celebrated the lunar New Year and wisely kept their markets closed, all heck is breaking loose in Japan.

The Nikkei had risen 1% on Monday and was down “only” 18.8% from its recent high in June 2015, thus dodging not only the rout of most other markets that day but also the ignominious fate of being pushed, like so many other markets, below the blue line in my infamous Global Bear-Market Progress Report. The blue line indicates a decline of 20% or more. But that was like so yesterday.

Today, the Nikkei plunged 919 points or 5.4%. It’s now down 23.1% from its recent high, in a solid bear market. Fears about global growth coagulated with fears about a banking crisis radiating out from Europe, and particularly its epicenter, Deutsche Bank.

So Japan’s four systemically important megabanks that will not be allowed to implode if at all possible got totally smoked today, and have gotten crushed since their highs last year:

Mitsubishi UFJ Financial Group plunged 8.7%, down 47% from June 2015.
Mizuho Financial Group plunged 6.2%, down 38% since June 2015.
Sumitomo Mitsui plunged 6.2%, down 26% since May 2015
Nomura plunged a juicy 9.1%, down 42% since June 2015

Hedge funds, particularly US hedge funds, that once had plowed into Japanese equities including the banks, hoping that Abenomics would perform miracles, have abandoned the cause. Japan’s Government Pension Investment Fund, upon the urging of the Bank of Japan, sold its mainstay investment, Japanese Government Bonds, to the Bank of Japan and loaded up with equities instead. This process is now mostly finished, and it too stopped buying equities. Other pension funds did the same. The artificial demand for stocks is dead. Now pension funds are left with stocks that have plunged.

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

Negative-Interest-Rate Effect already Dead, Central Banks Lost Control over Stocks

February 8, 2016

Negative-Interest-Rate Effect already Dead, Central Banks Lost Control over Stocks

And there’s a bitter irony.

The Bank of Japan’s surprise Negative-Interest-Rate party for stocks set a new record: it lasted only two days.

Today a week ago, the Bank of Japan shocked markets into action. As the economy has deteriorated despite years of zero-interest-rate policy and Quantitative and Qualitative Easing (QQE) – a souped-up version of QE – the BOJ announced that it would cut one of its deposit rates from positive 0.1% to negative 0.1%.

Headlines screamed Japan had gone “negative,” that it had joined the NIRPs of Europe – the Eurozone countries, Switzerland, Sweden, and Denmark. But it was just another desperate move, a head fake, and once the dust would settle, the hot air would go out [read…QE in Japan Nears End: Daiwa Capital Markets].

Now the dust has settled and the hot air has gone out.

On Thursday, January 28, the day before the announcement, the Nikkei closed at 17,041 down 19% from its Abenomics peak of 20,953 in June 2015. Today, it closed even lower.

This situation is a bit of an embarrassment for the BOJ which has pushed Japanese asset managers of all kinds, including pension funds, particularly the Government Pension Investment Fund (GPIF), the largest such pension fund in the word, to get off their conservative stance, sell their Japanese Government Bonds which made up the bulk or entirety of their portfolios, and buy risk assets with the proceeds.

This they did, near the peak of the Abenomics bubble. While the BOJ was eagerly mopping up JGBs, the asset managers bought mostly Japanese equities, but they also bought global equities and corporate bonds. And the mere prospect of all this buying, the front-running by hedge funds, and then the actual buying drove up Japanese stock prices in 2014 and early 2015. The bet seemed to work out. Wealth had been created out of nothing.

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

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