Europe’s Fantastic Bond Bubble: How Central Banks Have Unleashed Mindless Speculation

Capitalism gets into deep trouble when the price of financial assets becomes completely disconnected from economic reality and common sense. What ensues is rampant speculation in which financial gamblers careen from one hot money play to the next, leaving the financial system distorted and unstable – a proverbial train wreck waiting to happen.
That’s where we are now. And nowhere is this more evident than in the absurd run-up in the price of European sovereign debt since the Euro-crisis peaked in mid-2012. In that regard, perhaps Portugal is the poster-boy. It’s fiscal, financial and economic indicators are still deep in the soup, yet its government bond prices have soared in a triumphal arc skyward.
Unfortunately, the recent crashing landing of its largest conglomerate and financial group (Espirito Santo Group) is a stark remainder that its cartel-ridden, import-addicted, debt-besotted economy is not even close to being fixed. Notwithstanding the false claims of Brussels and Lisbon that it has successfully ‘graduated’ from its EC bailout, the truth is that the risk of default embedded in its sovereign debt has not been reduced by an iota.
At the time of the 2011-2012 crisis, its central government was already sliding rapidly into a debt trap with a ratio of just under 100%. Self-evidently, the nation’s so-called EC bailout has only made its public debt burden dramatically worse. Today Portugal’s debt to GDP ratio is 129% and there is no sign of a turnaround.
But that has not deterred the rambunctious speculators in peripheral sovereign debt. Since mid-2012 and Draghi’s ‘whatever it takes’ ukase, the price of Portugal’s public debt has soared. This means that leveraged speculators – -and they are all leveraged on repo or similar forms of hypothecated borrowings – -have made a killing, harvesting triple-digit gains on the thin slice of non-borrowed capital they actually have at risk in these carry trades.

This post was published at David Stockmans Contra Corner on September 1, 2014.

The Ultimate Demise Of The Euro Union

The European Union (EU) was created by the Maastricht Treaty on November 1st 1993. It is a political and economic union between European countries which makes its own policies concerning the members’ economies, societies, laws and to some extent security. To some, the EU is an overblown bureaucracy which drains money…and compromises the power of sovereign states. For others, the EU is the best way to meet challenges smaller nations might struggle with – such as economic growth or negotiations with larger nations – and worth surrendering some sovereignty to achieve. Despite many years of integration, opposition remains strong.
ACCORDINGLY, there are signs the EU is teetering on implosion.
Indeed the Euro zone break up is inevitable for numerous reasons.
Unpayable government debts and the massive bailouts in Greece, Portugal, Spain and Ireland logically pave the road to an eventual EU break up.
While it’s convenient to have the one currency for 17 different nations, the nature of those national economies and their strength is quite different and problematic. Indeed and fact it favors wealthy countries like Germany and France at the expense of the PIIGS (i.e. Portugal, Italy, Ireland, Greece and Spain).
Another issue is that while the 17 nations share the same Central Bank, they do not have a central control on government budgets, nor central political control.
Paul Griffiths, Colonial First State chief investment officer does not want to put a time frame on the euro zone being shrunk, but says it will eventually be very different from what it is today.

This post was published at Gold-Eagle on September 1, 2014.

The Unprecedented Failure to Regulate Citigroup Continues

Yesterday, Wall Street’s self-regulator, the Financial Industry Regulatory Authority (FINRA), charged Citigroup with cheating its customers out of fair prices on preferred stock trades – 22,000 times. Citigroup was fined a meager $1.85 million, ordered to pay $638,000 in restitution, allowed to neither deny or admit the charges, and sent on its merry way to loot the next unwary investor.
Why do we believe there will be more charges of malfeasance in Citigroup’s future? Because it is an unrepentant recidivist. Yesterday’s FINRA fine was the 408th fine that FINRA has levied against Citigroup Global Markets or its predecessor, Smith Barney, for trading violations, market manipulations or failure to supervise its traders or brokers.
And that’s just FINRA – the light-handed disciplinarian with industry ties. Citigroup has kept other Federal regulators, including the U. S. Justice Department, very busy as well.
It is now six years since Citigroup’s serial history of rogue conduct rendered it insolvent. Under the law, the U. S. government is not allowed to prop up insolvent banks with taxpayer money. But from 2007 to 2010, in the largest bank bailout in history, over $2.3 trillion was lavished on the serial recidivist Citigroup.
Citigroup received $25 billion in Troubled Asset Relief Program (TARP) funds on October 28, 2008. Less than a month later, Citigroup had blown through those bailout funds and required another $20 billion TARP infusion. But its situation was so wobbly that the government had to simultaneously provide another $306 billion in asset guarantees.

This post was published at Wall Street On Parade on August 27, 2014.

The Retail Death Rattle

A stunning, must-read dose of economic reality entitled, The Retail Death Rattle, is posted over at The Burning Platform.

Excerpt: The entire economic recovery storyline is a sham built upon easy money funneled by the Fed to the Too Big To Trust Wall Street banks so they can use their HFT supercomputers to drive the stock market higher, buy up the millions of homes they foreclosed upon to artificially drive up home prices, and generate profits through rigging commodity, currency, and bond markets, while reducing loan loss reserves because they are free to value their toxic assets at anything they please – compliments of the spineless nerds at the FASB. GDP has been artificially propped up by the Federal government through the magic of EBT cards, SSDI for the depressed and downtrodden, never ending extensions of unemployment benefits, billions in student loans to University of Phoenix prodigies, and subprime auto loans to deadbeats from the Government Motors financing arm – Ally Financial (85% owned by you the taxpayer). The country is being kept afloat on an ocean of debt and delusional belief in the power of central bankers to steer this ship through a sea of icebergs just below the surface.

Read the entire post at The Burning Platform.