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SocGen: “Now We Know Why The Fed Desperately Wants To Avoid A Drop In Equity Markets”
SocGen: “Now We Know Why The Fed Desperately Wants To Avoid A Drop In Equity Markets”
With the ECB now unabashedly unleashing a bond bubble in Europe of which it has promised to be a buyer of last resort with the stronly implied hint that European IG companies should issue bonds and buy back shares, and promptly leading to the biggest junk bond issue in history courtesy of Numericable, it will come as no surprise that the world once again has a debt problem.
For the best description of just how bad said problem is we go to SocGen’s Andrew Lapthorne, one of last few sane analyzers of actual data, a person who first reveaked the stunning fact that every dollar in incremental debt in the 21st century has gone to fund stock buybacks, and who in a note today asks whether “central bank policies going to bankrupt corporate America?”
His answer is, unless something changes, a resounding yes.
Here are the key excerpts:
Sensationalist headlines such as the one above are there to grab the reader’s attention, but the question is nonetheless a serious one. Aggressive monetary policy in the form of QE and zero or negative interest rates is all about encouraging (forcing?) borrowers to take on more and more debt in an attempt to boost economic activity, effectively mortgaging future growth to compensate for the lack of demand today. These central bank policies are having some serious unintended consequences, particular on mid cap and smaller cap stocks.Aggressive central bank monetary policies have created artificial demand for corporate debt which we think companies are exploiting by issuing debt they do not actually need. The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand.
…click on the above link to read the rest of the article…
A Quarter Century Of Monetary Voodoo
A Quarter Century Of Monetary Voodoo
A Witless Tool of the Deep State?
Finance or politics? We don’t know which is jollier. The Republican presidential primary and Fed monetary policies seem to compete for headlines. Which can be most absurd? Which can be most outrageous? Which can get more page views?
Politics, led by Donald J. Trump, was clearly in the lead… until Wednesday. Then, the money world, with Janet L. Yellen wearing the yellow jersey, spurted ahead in the Hilarity Run.
“Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.
At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.
But it wasn’t so much what Ms. Yellen said that sent stocks racing ahead. It was what she hasn’t done. And she hasn’t done exactly what we thought she wouldn’t do. That is, so far this year, she has not taken a single step in the direction of a “normal” monetary policy; our guess is that she never will.
Why not? Is it because she is a witless tool of Deep State cronies? Is it because her economic theory is silly, superficial, and simpleminded? Or is it because she and her predecessor, Ben Bernanke, have done so much damage to the normal world that there is nothing to go back to?
A coo-coo for the stock market…
“Cautious Yellen drives global stocks near 2016 peak,” reported a Reuters headline. The story itself was a remarkable tribute to the whole jackass money system.
At first glance, “cautious Yellen” would seem incongruous with stocks rising to “near 2016 peak.” Caution normally means playing it cool, not encouraging speculation.
…click on the above link to read the rest of the article…
“I’ll Go Full Power If There’s No Agreement” – Kuwait Breaks OPEC Production Freeze
“I’ll Go Full Power If There’s No Agreement” – Kuwait Breaks OPEC Production Freeze
Of course, even said “freeze” is nothing but a stalling tactic employed by an OPEC member (Saudi Arabia), to give the impression that OPEC still exists as a production-throttling cartel when OPEC ceased to exist in that capacity in November 2014. Everything since then has been one surreal redux of “Weekend at Bernies” where everyone pretends not to notice the corpse in the room.
However, while many had pretended to at least play along with the charade, today a core OPEC member effectively broke ranks when Kuwait said it would only agree to an output freeze if all major producers take part including Iran.
According to Reuters, Kuwait’s oil minister said on Tuesday that his country’s participation in an output freeze would require all major oil producers, including Iran, to be on board.
“I’ll go full power if there’s no agreement. Every barrel I produce I’ll sell,” Anas al-Saleh told reporters in Kuwait City.
…click on the above link to read the rest of the article…
Why Tomorrow’s “Secret” Meeting Between Russian, Saudi Oil Ministers Will Not Lead To A Cut In Production
Why Tomorrow’s “Secret” Meeting Between Russian, Saudi Oil Ministers Will Not Lead To A Cut In Production
For the past two weeks recurring flashing red headlines of an agreement, or at least a meeting, between Russia and Saudi Arabia – the world’s two largest oil producers – have led to aggressive short-covering rallies in oil on just as recurring hopes that the Saudi strategy of flooding the market with excess supply (by its own calculations as much as 3 million barrels daily) adopted during the 2014 Thanksgiving Day OPEC meeting, will come to an end.
Tomorrow this endless “headline hockey” will come to an end, following what is now a confirmed “secret” meeting between the two oil superpowers when, as Bloomberg reports, Saudi Arabia’s oil minister will meet with his Russian counterpart in Doha on Tuesday “to discuss the oil market.”
According to Bloomberg, Ali al-Naimi, the most senior oil official of the world’s biggest crude exporter, will speak with Russia’s Alexander Novak in the Qatari capital, “according to the person, who asked not to be identified because the talks are private.” The person didn’t say what the agenda of the meeting will be, which will also be attended by the kingdom’s fellow OPEC member Venezuela. The energy ministries of Russia and Saudi Arabia declined to comment.
Going into the meeting, one thing is certain: over the past 15 months Saudi Arabia has never once indicated any interest in curtailing production: after all, that would go against its unstated directive of putting marginal oil producers, read US shale companies, out of business:
Saudi Arabia has insisted that it won’t reduce production to tackle the global oil glut unless major producers outside the Organization of Petroleum Exporting Countries co-operate.
…click on the above link to read the rest of the article…
Chinese Shipyards “Vanish” As Baltic Dry Collapses To New Record Low
Chinese Shipyards “Vanish” As Baltic Dry Collapses To New Record Low
Another day, another plunge in The Baltic Dry Index, which just dropped a further 3.1% to 402 today – a new record low. While the index is driving headlines, under the surface, reality in the shipping (and shipbuilding) industry is a disaster. Total orders at Chinese shipyards tumbled 59% in the first 11 months of 2015, and as Bloomberg reports, with bulk ships accounting for 41.6% of Chinese shipyards’ $26.6 billion orderbook as of December, there is notably more pain to come, as one analyst warns “Chinese shipbuilders won’t be able to revive even if you try breathing some life into them.”
Baltic Dry Bloodbath…
About 140 yards in the world’s second-biggest shipbuilding nation have gone out of business since 2010, and more are expected to close in the next two years after only 69 won orders for vessels last year, JPMorgan Chase & Co. analysts Sokje Lee and Minsung Lee wrote in a Jan. 6 report. That compares with 126 shipyards that fielded orders in 2014 and 147 in 2013.
As Bloomberg reports, the weakening yuan and China’s waning appetite for raw materials have come around to bite the country’s shipbuilders, raising the odds that more shipyards will soon be shuttered.
“The chance of orders being canceled at Chinese yards is becoming greater and greater,” said Park Moo Hyun, an analyst at Hana Daetoo Securities Co. in Seoul.“While a weaker yuan could mean cheaper ship prices for customers, it still won’t be enough to lure back any buyers. Chinese shipbuilders won’t be able to revive even if you try breathing some life into them.”
And it is not going to get better anytime soon…
Bulk ships accounted for 41.6 percent of Chinese shipyards’ $26.6 billion orderbook as of Dec. 1, according to Clarkson Plc, the world’s largest shipbroker.
…click on the above link to read the rest of the article…
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…
An Exasperated Tsipras Calls For Syriza Referendum On Bailout Cancellation
An Exasperated Tsipras Calls For Syriza Referendum On Bailout Cancellation
Anyone who thought Greece’s third bailout program was a done deal or that, at the very least, the market would get a few months of respite before having to grapple with daily Grexit headlines again, got a rude awakening late last week when reports of a secret plot (hatched by ex-Energy Minister Panayiotis Lafazanis along with several Left Platform co-conspirators) to storm the Greek mint and seize the country’s currency reserves underscored the deep divisions within Syriza and betrayed the extent to which passing a third set of prior actions and sealing the deal on an ESM program would prove to be anything but simple.
Just days after Lafazanis’ plan leaked last week, Kathimerini claimed it had transcripts from a conference call between former Finance Minister Yanis Varoufakis and international hedge fund managers during which Varoufakis described yet another secret ploy to return the country to the drachma by way of establishing a parallel payments system set up using surreptitiously obtained tax filer ID numbers. Later, the full audio recording was released.
At that juncture, the opposition parties which helped PM Alexis Tsipras beat back a Syriza rebellion and pass the first two sets of bailout prior actions through parliament began to ask questions.
Essentially, opposition lawmakers wanted to know whether Tsipras was allowing his party to undermine progress on the bailout just as he was desperately courting MPs from across the aisle in order to win parliamentary approval for the deal’s conditions.
On Wednesday, in an interview with Sto Kokkino radio, Tsipras addressed friction within the party andsuggested that if he lost his majority in parliament he would call for snap elections.
…click on the above link to read the rest of the article…
Greece Caves, Formally Requests ESM Bailout: Full Headline And Next Steps Summary
Greece Caves, Formally Requests ESM Bailout: Full Headline And Next Steps Summary
As we reported yesterday, following the latest European leaders summit, Greece was given until the end of the week to come up with a proposal for sweeping reforms in return for loans that will keep the country from crashing out of Europe’s currency bloc and into economic ruin.
“The stark reality is that we have only five days left … Until now I have avoided talking about deadlines, but tonight I have to say loud and clear that the final deadline ends this week,” European Council President Donald Tusk told a news conference.
It did that moments ago when Greece officially submitted a request for a three-year loan facility from the European Stability Mechanism. And to think Syriza’s main election promise was no more bailouts…
As Bloomberg reports, the loan will be used to meet Greece’s debt obligations, and to ensure financial system stability. Greece proposed immediate implementation of measures, including tax, pension reforms as early as next week. Govt to detail its proposals for specific reform agenda on July 9 at latest or tomorrow.
More details from the WSJ:
Greece formally requested a three-year bailout from the eurozone’s rescue fund Wednesday and pledged to start implementing some of the overhauls demanded by creditors by early next week, according to a copy of the request seen by The Wall Street Journal.
Crucially for Greece’s creditors, the letter says the government would start implementing some measures, including on taxation and pensions, by the beginning of next week, though it doesn’t go into details.
The letter is a first step toward fulfilling a demand by international creditors, who have given Athens until Sunday to come up with tougher measures they would impose in return for desperately needed financing that could keep the country from bankruptcy and even worse economic turmoil.
…click on the above link to read the rest of the article…
Will Greek “Hope” Offset “Limit Down” Contagion From The “Frozen” China Crash
Will Greek “Hope” Offset “Limit Down” Contagion From The “Frozen” China Crash
Today’s market battle will be between those (central banks) “hoping” that a Greek deal over the weekend is finallyimminent (which on one hand looks possible after a major backpeddling by Tsipras – who may never have wanted to win the Greferendum in the first place – yesterday in Brussels and today during his speech in the Euro Parliament, but on the other will be a nearly impossible sell to Greece as any deal terms will be far harsher than the deal offered by the Troika 2 weeks ago and will have no debt reduction), and those who finally noticed that the Chinese central planners have effectively lost control.
For those who may have missed the overnight fireworks, here are some more indicative Bloomberg headlines about China:
- China’s Stocks Plunge as State Intervention Fails to Stop Rout
- China Freezes Trading in 1,300 Companies as Stock Market Tumbles
- China’s State-Owned Firms Ordered Not to Cut Share Holdings
- China’s Market Rescue Makes Matters Worse as Prices Lose Meaning
- China Ramps Up Policy Response as Panic Grips Stock Market
While pundits have been eager to downplay what is now a historic rout in Chinese risk assets, one that is matched by the depression of 2008 and which has sent the SHCOMP from up 60% for the year 3 weeks ago to barely green losing some 15 Greeces in market cap since mid-June…
… the same pundits to whom neither the oil crash nor a Grexit nor the imminent collapse in Q2 corporate revenues and GAAP EPS, or anything else matters, the reality is that the Chinese stock rout is very clearly starting to have contagion effects on the rest of the economy, crashing commodities such as crude, gold, copper, iron and virtually everything else where China has been a marginal source of demand, but leading to forced selling of anything that is not nailed down.
…click on the above link to read the rest of the article…
