• Category Archives Banking
  • To Avoid Liquidation Panic, HNA Assures Deutsche Shareholders It’s A “Long-Term Investor”

    The notoriously acquisitive Chinese conglomerate HNA – which recently had a sharp falling out with Beijing resulting in a margin call “shocksave” – is facing a serious cash crunch in 2018 as nearly a quarter of its $100 billion in debt – a large chunk of which was accumulated during a multi-year buying spree that saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and a large portfolio of international holdings – comes due.
    But even as the company resorted to loaning out shares and entering into arcane derivative financing agreements to finance its debt-service payments, it is quickly finding that traditional avenues of financing are disappearing or becoming too costly.
    Despite being one of China’s largest conglomerates, HNA has been shut out of stock and bond markets as lenders worry about its outsized debt load, forcing the company to pledge some of its core holdings as collateral for short-term loans, as the Wall Street Journal reported earlier this month.
    This has forced the conglomerate to explore other options. To wit, the bank recently pledged some of its Deutsche Bank shares to UBS as collateral for a loan worth roughly $117. It also executed an options strategy known as a collar. This strategy involves purchasing out-of-the-money puts to protect against a large drop in the stock while simultaneously selling out-of-the money calls to offset the cost of the puts.
    On Dec. 20, HNA’s unit entered into a new series of collar transactions with Swiss bank UBS Group AG, and pledged its Deutsche Bank shares to UBS in exchange for a total of 2.36 billion euros (US$2.8 billion) in net financing. It also has a margin loan from UBS and ICBC Standard Chartered PLC. In all, the new total amount of financing was about 99 million euros (US$117.6 million) higher than what was disclosed in a similar filing in May.

    This post was published at Zero Hedge on Dec 27, 2017.


  • The Integrated Non-USD Platforms

    The many new integrated non-USD platforms devised and constructed by China finally have critical mass. They threaten the King Dollar as global currency reserve. Clearly, the USDollar cannot be displaced in trade and banking without a viable replacement for widespread daily usage. Two years ago, critics could not point to a viable integrated system outside the USD realm. Now they can. The integration of commercial, construction, financial, transaction, investment, and even security systems can finally be described as having critical mass in displacing the USDollar. The King Dollar faces competition of a very real nature. The Jackass has promoted a major theme in the last several months, that of the Dual Universe. At first the USGovt will admit that it cannot fight the non-USD movement globally. To do so with forceful means would involve sanctions against multiple nations, and a war with both Russia & China. Their value together is formidable in halting the financial battles from becoming a global war. The United States prefers to invade and destroy indefensible nations like Libya, Iraq, Ukraine, Syria, and by proxy Yemen. The USMilitary appears formidable against undeveloped nations, seeking to destroy their infra-structure and their entire economies, in pursuit of the common Langley theme of destabilization. In the process, the USMilitary since the Korean War has killed 25 million civilians, a figure receiving increased publicity. The Eastern nations and the opponents to US financial hegemony will not tolerate the abuse any longer. They have been organizing on a massive scale in the last several years. Ironically, the absent stability can be seen in the United States after coming full circle. The deep division of good versus evil, of honest versus corrupt, of renewed development versus endless war, has come to light front and center within numerous important USGovt offices and agencies.
    The shape of the US nation will change with the loss of the USDollar’s status as global currency reserve. The starting point for the global resistance against the King Dollar was 9/11 and the onset of the War on Terror. It has been more aptly described as a war of terror waged by the USGovt as a smokescreen for global narcotics monopoly and tighter control of USD movements. Then later, following the Lehman failure (killjob by JPMorgan and Goldman Sachs) and the installation of the Zero Interest Rate Policy and Quantitative Easing as fixed monetary policies, the community of nations has been objecting fiercely. The zero bound on rates greatly distorted all asset valuations and financial markets. The hyper monetary inflation works to destroy capital in recognized steps. These (ZIRP & QE) are last ditch desperation policies designed to enable much larger liquidity for the insolvent banking structures. Without them, the big US banks would suffer failure. They also provide cover for the amplified relief efforts directed at the multi-$trillion derivative mountain. In no way, can the global tolerate unbridled monetary inflation which undermines the global banking reserves.

    This post was published at GoldSeek on 26 December 2017.


  • Stockman: US Fiscal Path Will Rattle the Rafters of the Casino

    As we’ve reported, the US government is spending money like a drunken sailor. But nobody really seems to care.
    Since Nov. 8, the US national debt has risen $1 trillion. Meanwhile, the Russell 2000 (a small-cap stock market index) has risen by 30%. Former Reagan budget director David Stockman said this makes no sense in a rational world, and he thinks the FY 2019 is going to sink the casino.
    In a rational world operating with honest financial markets those two results would not be found in even remotely the same zip code; and especially not in month #102 of a tired economic expansion and at the inception of an epochal pivot by the Fed to QT (quantitative tightening) on a scale never before imagined.’
    Stockman is referring to economic tightening recently launched by the Federal Reserve. It’s not only the increasing interest rates. By next April the Fed will be shrinking its balance sheet at an annual rate of $360 billion and by $600 billion per year as of next October. By the end of 2020, the Fed will have dumped $2 trillion of bonds from its books. Stockman puts this into perspective.

    This post was published at Schiffgold on DECEMBER 26, 2017.


  • Yes, governments CAN go bankrupt. And no, it’s NOT impossible…

    [Editor’s Note: As we’re coming up on the end of the year, we thought it would be appropriate to republish some of our most popular articles. Today’s was originally published on March 13, 2017]
    In the year 1517, one of the most important innovations in financial history was invented in Amsterdam: the government bond.
    It was a pretty revolutionary concept.
    Governments had been borrowing money for thousands of years… quite often at the point of a sword.
    Italian city-states like Venice and Florence had been famously demanding ‘forced loans’ from their wealthy citizens for centuries.

    This post was published at Sovereign Man on December 26, 2017.


  • The Yield Curve Accordion Theory

    The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.
    ***
    Yield curves flatten out when investors believe a recession is looming. This results from the demand for long-term bonds rising as investor confidence wanes. As demand shifts out along upward sloping supply, long-term bond prices rise and yields fall. On the other end of the yield curve, short-term bond rates rise. This is a result of investors demanding fewer short-term securities and more long-term securities. In response, suppliers of short-term securities lower prices to attract investors. The black dots along the red line in the above figure gives the 2007 yield curve. It is flat because the Great Recession of 2008 and 2009 was just around the bend.

    This post was published at Ludwig von Mises Institute on December 26, 2017.


  • Kushner’s Records At Deutsche Bank Subpoenaed As Mueller Avoids Trump

    As it turns out, President Trump’s legal team was telling the truth when it said that Special Counsel Robert Mueller hadn’t subpoenaed financial records related to the president’s business activities from German lender Deutsche Bank, contrary to Bloomberg reporting.
    On Friday, the New York Times reported that Deutsche Bank had received a subpoena for records on accounts linked to the Kushner Companies, the family real-estate empire of Trump son-in-law and senior adviser Jared Kushner. This contradicts reports by both German and US media organizations dating back to July which insinuated that Mueller had been digging into Trump’s multi-decade career in real estate. Even after his infamous bankruptcies in the 1990s, Trump managed to maintain a functioning lending relationship with Deutsche, which has lent him and his businesses hundreds of millions of dollars over the years.

    This post was published at Zero Hedge on Dec 22, 2017.


  • US Consumers Tap Out: Personal Savings Rate Plunges To 10 Year Low While Americans Splurge

    The latest confirmation that the US consumer is now effectively tapped out came moments ago when the Dept of Commerce reported that in November, Personal Income rose by a lower than expected 0.3% (exp. 0.4%), while US consumers continued to splurge at an accelerated rate, with personal spending rising 0.6%, above the 0.5% expected, as Americans decided to splurge on holiday products and services.
    A way of visualizing the historical change in income, spending – and savings – is the next chart below:

    This post was published at Zero Hedge on Dec 22, 2017.


  • New Home Sales Explode Higher: Biggest Monthly Jump In 25 Years

    Earlier we discussed that US personal savings tumbled to the lowest since 2007, and now we can also conclude that one of the things Americans splurged on last month was New Homes, because according to the Census on Friday morning, new home sales in November soared by a near record 109K to 733,000 from a downward revised 624,000 in October (from 685,000 previously).

    This post was published at Zero Hedge on Dec 22, 2017.


  • Americans have no savings and with very good reason: housing, education, and health care have seen extraordinary inflation while wages are stagnant.

    It has now become a daily ritual in which story after story of broke Americans plaster the web. Yet somehow on the mainstream press, very little is discussed about this topic. Americans are largely broke because inflation is vey real. Housing, education, and health care costs have soared out of control while wages have remained stagnant. The way Americans continue to pay for these items is by going into loan shark levels of debt. There used to be a pretense that ‘we’ actually cared about having a middle class but that is now thrown out the window. At this point, we are in a full on sprint towards low wage capitalism. Many people live on a paycheck to paycheck diet and are berated about saving more for retirement. The reality is, the new retirement model is working until you die.
    In the land of no savings
    Sunday morning, I wake up and take a stroll through the neighborhood. ‘Did you hear about Bitcoin? Wild right?’ I’m asked by a stranger at the park. ‘Sure seems wild. You own any?’ To which I get the following response, ‘I wish I had some money to even invest!’ I think we live in a world where most Americans are merely spectators to the wild gyrations of the market. They hear about investments too late or mistake speculation with actual investing.

    This post was published at MyBudget360 on December 21, 2017.


  • Credit Card Debt Suddenly Surges 18% As U.S. Consumers “Pre-Spend” Tax Relief Savings

    With Republicans in Washington D. C. on the verge of passing their first major piece of legislation in the form of comprehensive tax cuts that will allow Americans across the income spectrum to keep a little more of their hard earned cash in 2018, it appears as though eager U. S. consumers may have already “pre-spent” their savings on their credit cards.
    As the folks at Gluskin Sheff point out, 13-week annualized credit card balances in the U. S. have gone completely vertical in the last few months of 2017 which should make for some great Christmas gifts for little Johnny and Susie…gifts that will undoubtedly find themselves tucked away in a dark closet, never to be seen again, by mid January.

    This post was published at Zero Hedge on Dec 21, 2017.


  • What Will the Tax Law Do to Over-Indebted Corporate America?

    A crackdown on excessive debt. Financial engineering gets more expensive. The new tax law is larded with goodies for Corporate America, but there is one shift – a much needed shift – in this debt-obsessed world that will punish over-indebted companies, discourage companies from taking on too much leverage, and perhaps, just maybe, make these companies less risky: The new law sharply limits the deductibility of corporate interest expense.
    Starting in 2018, a company can only deduct interest expense of up to 30% of its Ebitda (earnings before interest, taxes, depreciation, and amortization). Any amount in interest expense beyond it will no longer be deductible.
    This will tighten further in 2022, when the deductibility of corporate debt will be capped at 30% of earnings before interest and taxes but after depreciation and amortization expenses. This is a much smaller number than Ebitda. And interest expense deduction is capped at 30% of that much smaller amount. This will raise the tax bill further.
    Most impacted will be highly indebted companies, which often have a junk credit rating. And due to this junk credit rating, they also pay higher interest rates. This made the interest expense deduction very valuable. But now it is getting partially gutted.

    This post was published at Wolf Street on Dec 22, 2017.


  • Another Liberal Governor Demands His State’s Pension Abandon Fiduciary Duties, Sell Fossil-Fuel Investments

    As if public pension managers around the country weren’t having enough difficulty digging themselves out of their massive $3-$5 trillion funding gap, the chorus of liberal governors suggesting they should recklessly abandon their fiduciary obligations to future retirees and choose investments not on their financial merits but rather based on the political preferences of clueless politicians is growing stronger by the day. As Pensions & Investments points out today, New York Governor Andrew Cuomo is the latest such politician to jump on the bandwagon after suggesting that the New York State Common Retirement Fund should “divest from all fossil-fuel holdings.”
    New York Gov. Andrew Cuomo on Tuesday proposed that the New York State Common Retirement Fund halt all new investments “with significant fossil-fuel-related activities” and prepare a plan to divest existing fossil-fuel investments.
    “New York has made incredible strides in securing a clean energy future for this state … yet the Common Fund remains heavily invested in the energy economy of the past,” Mr. Cuomo said in a news release.
    “Moving the Common Fund away from fossil-fuel investments will protect the retirement savings of New Yorkers,” he said. “This proposal lays out a roadmap for the Common Fund to take responsible steps to divest from its fossil-fuel holdings.”

    This post was published at Zero Hedge on Dec 21, 2017.


  • Why it’s essential you keep a portion of your savings in physical cash

    [Editor’s Note: As we’re coming up on the end of the year, we thought it would be appropriate to republish some of our most popular articles. Today’s was originally published on January 6, 2016]
    Think of the word ‘money’ for moment. What’s the first image that comes to mind?
    Perhaps the folded paper in your wallet. Or the balance in your bank account.
    Or perhaps the investments in your brokerage account.
    In our modern financial system where unelected central bankers wield totalitarian control over the financial system, all three of these are forms of money.
    But the relationship between them is very tenuous, and very risky. I’ll explain:
    1) Physical cash No matter where you live in the world, just about every civilized nation on the planet has some form of physical currency in various denominations. Dollars. Pounds. Euros. Yen. Renminbi.
    We pass around these pieces of paper as a medium of exchange.

    This post was published at Sovereign Man on December 21, 2017.


  • Three Cheers for the GOP Tax Plan

    Last night the Senate passed the Republican proposed tax plan, a major political victory for Trump and the GOP-controlled Congress.
    At the Mises Wire, we have featured numerous articles pointing out many of the fallacies involved with the general debate on the issue of “tax reform.” For example, the absurdity of “revenue neutral” reform, the danger of raising rates through eliminating loop hopes, the fallacy of trying to address the deficit through eliminating deductions on state and local taxes, and the general notion that tax breaks can be equated to tax subsidies. While the Republican bill does fall for some of these traps, the result of the bill as a whole is a genuine reduction in the tax burden for the majority of Americans. That is always something worth celebrating.
    There are additional benefits to be found within the bill as well.
    For example, the elimination of the Obamacare individual mandate is a small, but significant, step to improving the American healthcare system. As I noted in March, when Paul Ryan’s attempt at Obamacare reform failed, the rise of direct primary care and other market solutions meant that the best thing the GOP could do is simply provide as much freedom as possible for Americans to opt out of government-managed insurance markets:
    Given that this is happening naturally on the market already, the legislative focus for those in Washington concerned about American healthcare should be preventing any future laws and regulations that would destroy this model going forward. Further, rather than trying to completely overhaul Obamacare, simply eliminating the individual mandate tax and allowing Health Savings Accounts to be used for healthcare membership would be subtle ways of empowering the market to revolutionize American medicine. This should be coupled with real tax cuts, not ‘revenue neutral reform’ to help Americans keep their own hard-earned money to help pay for it.

    This post was published at Ludwig von Mises Institute on 12/20/2017.


  • “In The End, There Was Absurdity” – The Great Crash Of 2018?

    Crises always take longer to arrive than you think, and then happen much quicker than they ought to.
    – Rudiger Dornbusch
    An eerie calm has taken over the world markets. Volatility is crashing, and economic and political shocks come and go without any noticeable effect on the asset markets. Inflation and interest rates are also low. So ‘Goldilocks’ is here, right?
    Well, no. I have written a collection of dark pieces about the world economy this year. They have followed the tone set in our business cycle forecasts. In March, we took a deep dive behind the faade of the economic expansion to discover the sources of growth. We found them to be unstable, depending on political decisions and thus prone to crash.
    In our latest forecast, we envisaged how the world economy would respond if the foundations of global growth would break. It was not pretty. Here I present the main takeaways.
    I consider the Figure 1 (below) to give the most compelling picture on the absurdity we have arrived to. It presents the yield of the US 10 year treasury bond, the yield of Italian 10 year bond and yields of junk bonds of European and US companies as well as the QE:s of the ECB and the Fed. It implies that the default probability of an average European junk-rated company is smaller than that of the US government. This, naturally, is just absurd and it only tells the tale of a massive central bank induced market distortion. The pricing of risk in the normal sense does not exist in the capital markets anymore.

    This post was published at Zero Hedge on Dec 20, 2017.


  • Don’t Just Do Something, Sit There!

    Have you heard of the depression of 1920-21?
    Unless you’re a pretty hard-core economics geek, you probably haven’t.
    The most striking aspect of this depression was its duration. It lasted just 18 months. And how did the US get itself out of this sharp economic downturn?
    By essentially doing nothing.
    A collapse in GDP and production led to a sharp spike in unemployment to double-digit numbers. Modern policymakers would immediately launch economic stimulus. Consider the 2008 crash. On top of government programs such as the $700 billion TARP and $800 billion in fiscal stimulus, the Federal Reserve pumped $4 trillion in new money into the system. For 165 out of 180 months, the Fed pushed interest rates down or held them at rock-bottom levels.
    The result? A tepid recovery at best with 2 million fewer ‘breadwinner’ jobs than during the 1990s. Oh. And a whole slew of bubbles waiting to pop.
    Lew Rockwell compares this to the how things played out in 1920.

    This post was published at Schiffgold on DECEMBER 20, 2017.


  • Expand Tax Breaks to Expand Education

    The Tax Cuts and Jobs Act is working its way through both chambers in an attempt to make it onto President Trump’s desk before Christmas. One amendment added by Senator Ted Cruz (R-TX) has some advocates of the school choice movement very enthusiastic while critics say it’s a symbolic gesture unlikely to have much of an impact.
    The amendment will expand the use of 529 plans that currently allow families to save money using after tax dollars without having to pay taxes on the accumulated amount (principal and interest) when the savings are used to pay for qualified higher education expenses. Specifically, 529s allow savers and investors to save for education purposes because income gained through these accounts are subject to less taxation. Specifically, 529’s help investors better avoid dividend and capital gains taxes which can be as high as 28 percent. The plans also help taxpayers avoid income taxes on interest earned through the accounts.
    So far, 529s have only been legal for use in higher education expenses. Cruz’s amendment, however, would expand the accounts to include k-12 expenses such as private and religious schools, homeschooling materials, online education courses, as well as tutoring for students with developmental disabilities for amounts up to $10,000 per year.
    In addition to expanding the use of the savings account, the amendment also includes language allowing families to open the 529 plans at the moment of the child’s conception as opposed to their birth, thus expanding the time during which funds can be accumulated.

    This post was published at Ludwig von Mises Institute on December 21, 2017.


  • Here’s An Interactive Map Of Which Housing Markets Get Hit The Most By The GOP Tax Bill

    With the Republican party (and the S&P 500 apparently) convinced they have the votes required to pass their tax reform legislation this week, the folks at ATTOM Data Solutions took a look at which housing markets will be most impacted by new limitations on mortgage interest and property tax deductions.
    First, on the reduction of the mortgage interest deduction to $750,000 from $1,000,000, ATTOM found that nearly 99,000 single family home and condo purchases so far in 2017 involved a mortgage higher than $750,000. And while that represents a small 3.9% of all home purchase loans underwritten so far in the year, per the interactive map below, those 99,000 loans are concentrated in a handful of liberal counties in the Northeast, California and Southern Florida.
    Among 2,022 counties included in this analysis and at least 50 home purchase loans so far in 2017, those with the highest share of loan originations above $750,000 were New York County (Manhattan), New York (63.8 percent); San Francisco County, California (58.0 percent); Nantucket County, Massachusetts (57.3 percent); San Mateo County, California (55.2 percent); and Marin County, California (50.o percent). Among those same 2,022 counties, those with the highest number of purchase home loan originations above $750,000 so far in 2017 were Los Angeles County, California (9,197); Santa Clara County, California (5,543); Orange County, California (4,450); Maricopa County, Arizona (3,723); and King County, Washington (3,715).

    This post was published at Zero Hedge on Dec 18, 2017.