It’s More Than Just The Absence of Acceleration, It’s The Synchronization Where There Should Be None

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
According to the latest ECB figures, as of yesterday total ‘liquidity’ added to the European banking system for that central bank’s ongoing monetary ‘stimulus’ was just shy of 2 trillion. The outstanding balance in the core current account (reserves) held on behalf of the banking system was 1.296 trillion. In the deposit account, banks are holding 686 billion at -40 bps in ‘yield.’
To create all these euro-denominated numbers, the European Central Bank through its constituent National Central Banks (NCB) has purchased 2.21 trillion through its three main active LSAP’s (Large Scale Asset Purchases): the PSPP, or QE, which buys up sovereign bonds and is the reason for running them through the NCB’s (out of original concern exactly who would bear any default risk); the CBPP3, or the third time the ECB has bought covered bonds from banks; and the Corporate Sector Purchase Program which is self-explanatory.
The numbers given above don’t appear to balance because of the way all this stuff is accounted for. The NCB transactions of QE and other material operations actually subtract from the ECB’s asset side because it isn’t doing them, becoming instead -1.21trillion in so far accumulated autonomous factors. On the other side, the liability side of the simple balance sheet, there are outstanding 769 billion in normal liquidity operations (OMO) at the MRO.

This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ November 30, 2017.

Venezuela Defaults On A Debt Payment – Is This The First Domino To Fall?

Did you know that Venezuela just went into default? This should be an absolutely enormous story, but the mainstream media is being very quiet about it. Wall Street and other major financial centers around the globe could potentially be facing hundreds of millions of dollars in losses, and the ripple effects could be felt for years to come. Sovereign nations are not supposed to ever default on debt payments, and so this is a very rare occurrence indeed. I have been writing about Venezuela for years, and now the crisis that has been raging in that nation threatens to escalate to an entirely new level.
Things are already so bad in Venezuela that people have been eating dogs, cats and zoo animals, but now that Venezuela has officially defaulted, there will be no more loans from the rest of the world and the desperation will grow even deeper…
Venezuela, a nation spiraling into a humanitarian crisis, has missed a debt payment. It could soon face grim consequences.
The South American country defaulted on its debt, according to a statement issued Monday night by S&P Global Ratings. The agency said the 30-day grace period had expired for a payment that was due in October.
A debt default risks setting off a dangerous series of events that could exacerbate Venezuela’s food and medical shortages.
So what might that ‘dangerous series of events’ look like?
Well, Venezuela already has another 420 million dollars of debt payments that are overdue. Investors around the world are facing absolutely catastrophic losses, and the legal wrangling over this crisis could take many years to resolve. The following comes from Forbes…

This post was published at The Economic Collapse Blog on November 14th, 2017.

Meanwhile, The “Next Big Short” Is Quietly Blowing Up

Back in March, when we detailed the ongoing catastrophic deterioration in the US retail sector, manifesting itself in empty malls, mass store closures, soaring layoffs and growing bankruptcies – demonstrated most vividly by the overnight bankruptcy of Toys “R” Us, the second largest retail bankruptcy in US history after K-Mart – we said that “just like 10 years ago, when the “big short” was putting on the RMBX trade, and to a smaller extent, its cousin the CMBX, so now too some are starting to short CMBS through the CMBX, a CDS index which tracks the values of bonds backed by various commercial properties. They are betting against securities backed by malls in weaker locations where stores could close in quick succession, triggering debt defaults.”
We dubbed this retail short via CMBX the next “Big Short” trade, and others promptly followed.
In a subsequent post just a few days later, we underscored why the correct way to short the great retail collapse was not so much through stocks, but CMBX:
The trade, as we discussed before, is not so much shorting the equities where a persistent threat of a short squeeze has burned the bears on more than one occasion, but going long default risk via CMBX or otherwise shorting the CMBS complex. Based on fundamentals, the trade indeed appears justified: Sold in 2012, the mortgage bonds have a higher concentration of loans to regional malls and shopping centers than similar securities issued since the financial crisis. And because of the way CMBS are structured, the BBB- and BB rated notes are the first to suffer losses when underlying loans go belly up.

This post was published at Zero Hedge on Sep 19, 2017.

Experian, Equifax & TransUnion want to sell you new mortgage credit scores

This is a syndicated repost courtesy of theinstitutionalriskanalyst. To view original, click here. Reposted with permission.
Some of the housing industry’s largest trade groups reportedly want housing finance agencies Fannie Mae and Freddie Mac to look at using new types of credit scores for assessing default risk on residential mortgages. These groups argue that existing scores are ‘unfair’ to low income borrowers.
Housing Wire reported last month that the groups sent a letter to Federal Housing Finance Agency Director Mel Watt, the Mortgage Bankers Association, National Association of Realtors, the National Association of Home Builders, and other groups pressing Watt on the issue.
Watt, a former congressman from North Carolina and long-time member of the House Financial Services Committee, threw cold water on the idea that Fannie and Freddie would begin using alternative credit scoring models at any point in the next two years.
‘Watt said that making any changes to the government-sponsored enterprises’ credit scoring models before 2019 would be a ‘serious mistake,’ reports HW. Ditto.

This post was published at Wall Street Examiner on September 18, 2017.

Goldman Sees 50% Chance Of A Government Shutdown

As we pointed out earlier, the chances of government agreeing any kind of debt ceiling deal (and avoiding a government shutdown) is dropping fast as USA default risk spikes and the Treasury Bill curve inverts. Goldman Sachs is now concerned also…
Uncertainty in The White House is starting to make investors realize the chance of successfully navigating the debt ceiling crisis without a government shutdown are dwindling…

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

Central Banks Are Hiding the True Price of Risk

If you invest your money, you will have to deal with numerous risks. For instance, if you buy a bond, you run the risk of the borrower defaulting or being repaid with debased money. As a stock investor, you face the risk that the company’s business model will not live up to expectations, or that it, at the extreme, will go bankrupt. In an unhampered financial market, prices are formed for these and other risk factors.
For instance, a bond with a high default risk will typically carry a high yield. The same goes for debt denominated in an unsound currency. Stocks of companies that are deemed risky tend to trade at a lower valuation level than those considered low risk. All these risk premiums, if determined in the unhampered market, constitute a portion of an asset’s price, be it a bond or a share. They play a vital role in the way capital is allocated in an economy.
Risk premiums are meant to compensate investors for the risk of losses resulting from adverse developments. If you buy a stock at a depressed price relative to the firm’s earnings power, it tends to reduce your downside (while offering the chance of great gains). At the same time, risk premiums increase investors’ cost of capital. This, in turn, discourages them from engaging in overly risky investments.

This post was published at Ludwig von Mises Institute on August 10, 2017.

LTCM Is Back: One Hedge Fund Uses 25x Leverage To Beat The Market

Before we start, a little history lesson…
At the beginning of 1998, Long-Term Capital Managementhad equity of $4.72 billion and had borrowed over $124.5 billion with assets of around $129 billion, for a debt-to-equity ratio of over 25 to 1.
It was run by finance veterans, PhDs, professors, and two Nobel Prize winners. Everyone on Wall Street wanted a piece of their profits.
But by 1998, that firm was primed to expose America’s largest banks to more than $1 trillion in default risks. The demise of the firm, LTCM, was swift and sudden. In less than one year, LTCM had lost $4.4 billion of its $4.7 billion in capital.
The disaster had all the players – the Federal Reserve, which finally stepped in and organized a bailout, and all the major banks that did the heavy lifting: Bear Stearns, Salomon Smith Barney, Bankers Trust, J. P. Morgan, Lehman Brothers, Chase Manhattan, Merrill Lynch, Morgan Stanley, and Goldman Sachs.
In desperate need of a $4 billion bailout, the crumbling firm was at the mercy of the banks it had once snubbed and manipulated.

This post was published at Zero Hedge on Jun 11, 2017.

Fitch Warns Baidu Faces “Default Risk” Due To Growing Shadow Banking Business

Less than a week after Moody’s downgraded China’s sovereign credit rating, prompting an unprecedented currency response by the PBOC which as noted earlier resumed its crusade against Yuan shorts by sending CNH overnight deposit rates as high as 65%, on Wednesday another rating agency, Fitch, took aim at what many consider the weakest link in China’s financial system: the nearly $9 trillion in shadow banking “assets”, of which roughly $4 billion are Wealth Management Products.
Just as surprising was the target of Fitch’s wrath: none other than China’s tech giant Baidu, which Fitch put on “negative watch” warning that the company’s financial services division faced increased risk of default as a result of its growing reliance on shadow banking in general and Wealth Management Products (WMPs) in particlar. As reported previously, China’s popular WMPs offer a higher yielding alternative to conventional financial instruments by bundling together investments into money market bonds, corporate loans and many other products, all of which are usually a mystery to the buyer. As of 2016, China had nearly 30 trillion yuan outstanding in WMPs.

This post was published at Zero Hedge on May 31, 2017.

German Default Risk Spikes To Highest Since Brexit As Merkel Lead Plunges To Multi-Year Low

Germany’s Social Democrats narrowed the gap with Chancellor Angela Merkel’s bloc to the closest in more than four years, reinforcing a poll bounce after they chose outsider Martin Schulz to challenge Europe’s longest-serving leader. As Bild reports, the 6-point surge in opposition support was the biggest ever recorded for the party… and may explain why German sovereign risk spiked to its highest since Brexit.
As Bloomberg reports, support for the SPD jumped 8 percentage points to 29% from a month earlier, the highest level since the last election in September 2013, according to the Infratest-Dimap for broadcaster ARD. Merkel’s Christian Democratic-led bloc, known informally as the Union, slid 3 points to 33%. Half of those surveyed would support Schulz if the chancellor were elected directly, compared with 34% for Merkel.

This post was published at Zero Hedge on Feb 6, 2017.

Update on the Comex fear-mongering

Over the past few years there has been a lot of irrational fear-mongering within the gold commentariat regarding the potential for the Comex to default due to having insufficient physical gold in its coffers. I most recently addressed this topic in a post on 6th May.
I’m not going to repeat all the information contained in earlier posts such as the one linked above. However, here’s a very brief recap:
1) The ratio of Comex Open Interest (OI) to ‘Registered’ gold inventory that Zero Hedge et al employed to create the impression of high default risk was not, in any way, shape or form, a valid indicator of such risk.
2) The amount of gold available for delivery at any time is the TOTAL amount of gold in the ‘Registered’ and ‘Eligible’ categories, not just the amount of ‘Registered’ gold, since it is a quick and easy process to convert between ‘Eligible’ and ‘Registered’.
3) The maximum amount of gold that can be demanded for delivery is the amount of OI in the nearest futures contract, not the total OI across all futures contracts.
In the above-linked post I included a chart showing that the amount of gold delivered to futures ‘longs’ over the preceding two years was much less in both absolute and relative terms than at any other time over the past decade. The chart made it clear that as the gold price fell, the desire of futures traders to ‘stop’ a contract and take delivery of physical gold also fell.

This post was published at GoldSeek on 7 November 2016.

Moody’s Warns Deutsche Bank Is Dangerously Close To Falling Below Its “Default Point”

Moody’s Capital Markets Research issued a damning verdict on Deutsche Bank earlier this week. In a research report put together by the credit agency’s ‘Analytics’ research division, Moody’s analysts write that Deutsche Bank expected default frequency remains at one of the highest levels in the banking industry, despite the bank’s efforts to shore up its capital position.
In the report, Moody’s cites its Expected Default Frequency measure, which is a continuous measure of a firm’s default risk. The firm’s one-year EDF measure increased from 1.05% in January to its all-time high of 2.85% on February 9. Since then, the EDF measure has declined somewhat, but remains volatile, reflecting Deutsche Bank’s lingering financial problems. At present, the company’s current EDF measure is a 1.39%, which is still significantly above the Global Banks and S&Ls group’s optimal threshold level as calculated by Moody’s. The optimal threshold or value at which firms in the Global Banks and S&Ls Group should be flagged for additional review is 1.22%.
Deutsche Bank Is Dangerously Close To Falling Below Its ‘Default Point’
There are two key takeaways from the EDF measure of 1.39%. Firstly, only 15% of companies in the Global Banks and S&Ls group have an EDF measure above this level suggesting that, compared to the rest of the global banking industry, Deutsche’s default risk is relatively high. That being said, the second key takeaway is the fact that Deutsche’s EDF is only slightly above the trigger level, implying that the firm is not facing imminent risk of default but requires close monitoring.

This post was published at Zero Hedge on Oct 28, 2016.

Thai Stocks, Currency Plunge On Concerns Over King’s Health, Fed Hike

Ever since the 1997 Asian Financial Crisis, investors have kept a close eye on financial developments in Thailand as canary in the Asian financial conditions coalmine, and overnight there was little to look forward to after Thai stocks crashed the most in over a year, plunging as much as 6.9% before settling 4.1%, lower while the baht currency tumbled 1.1%, its steepest plunge in three years. The Thai stock market was the worst performing in Asia, with the sharp selloff attributed to concerns about the health of the king and “sudden” fears about the prospect of a December rate hike.
Thai stocks approached a correction, after sliding 8.8% in the week, the most among about 100 benchmark share indexes tracked by Bloomberg. Default risk also spiked with Thai CDS rising 8%, and more than 12 per cent since the start of the week. The Thai currency traded at 35.768 per dollar, headed for an eighth day of losses in the longest stretch since July 2015. It sank as much as 1.5 percent to 35.902, the lowest since Jan. 26, and is headed for its steepest weekly drop since 2013. The 10-year sovereign bond yield rose five basis points to 2.35 percent, the highest since January.

This post was published at Zero Hedge on Oct 12, 2016.

German Media Says Merkel Can Not Afford To Bail Out Deutsche Bank

Having kept mostly silent during the past week when Deutsche Bank stock was crashing, its default risk soaring, and only a spurious rumor by French AFP, based on a Twitter report, prevented the bank’s stock from going into a three day weekend at all time lows , on Saturday the German press woke up to the ongoing local banking crisis, reiterating what stoked the crisis in the first place, namely Angela Merkel’s statement last weekend that it won’t bail out Deutsche Bank.
Repeating not only what Merkel herself said last week – a statement which first prompted this week’s plunge in DB stock – but what we have said all along, namely that a bailout of Deutsche Bank would be political suicide for the Chancellor due to pressure from AfD, and may lead to the collapse of Europe, where other nations, namely Italy, have been pushing for a similar bailout of their own banking systems only to be met with stern denials by German, Reuters reports that according to much of the German media, Angela Merkel cannot afford to bail out Deutsche Bank given the hard line Berlin has taken against state aid in other European nations and the risk of a political backlash at home.

This post was published at Zero Hedge on Oct 1, 2016.

Saudi Devaluation Bets Surge, Stocks Crash As Debt Deal Falters On 9/11 Legislation Anxiety

Despite its peg, Spot Riyal is trading at its weakest in 8 months as turmoil mounts in The Kingdom as a failed ‘deal’ in Algiers, pay cuts for royalty, and now growing concerns that the US vote/veto on 9/11 Legislation will delay Saudi Arabia’s first international bond sale. Forward bets on Saudi currency devaluation are surging and default risk is on the rise again as Bloomberg reports, a Senate vote to override President Barack Obama’s veto could cause some investors to balk at the issue.
The country is planning to sell at least $10 billion of bonds next month, four people said. As Bloomberg adds,
Senate leaders in both parties said Tuesday they expect the vote to succeed, though Congress has yet to override a veto by Obama. Senator Ben Cardin of Maryland, the ranking Democrat on the Foreign Relations Committee, said last week that the Saudi government has warned that enacting the bill would cause a ‘significant change’ in the U. S.-Saudi relationship. Saudi stocks tumbled and the currency weakened the most in four months. Overriding the bill ‘could dent investor demand in near term,’ said Kaan Nazli, who helps oversee $4.8 billion of emerging-market debt at Neuberger Berman Europe Ltd. in The Hague.
‘It would subject the new bonds to some headline noise but ultimately the U. S.-Saudi relationship is very deep and the thinking would be that this issue would be overcome somehow.’

This post was published at Zero Hedge on Sep 28, 2016.

Saudi Arabia Bails Out Banking System After Interbank Rates Hit 2009 Highs

Amid what some might call self-inflicted economic collapse, Saudi Arablia has announced a $5.3 billion bailout of its banking system as interbank borrowing rates near the highest since Lehman. In what the supposedly central bank calls “supportive monetary policy…on behalf of government entities,” is easing liquidity constraints with 28-day repo agreements and is the second liquidty injection this year.
While Saudi default risk has fallen – as the entire world has been liquified in recent months – it remains worse than Mexico, Russia, and South Africa.
As Bloomberg reports, The Saudi Arabian Monetary Agency, as the central bank is known, is giving banks about 20 billion riyals ($5.3 billion) of time deposits ‘on behalf of government entities.’ It’s also introducing seven-day and 28-day repurchase agreements, as part of its ‘supportive monetary policy.’ It didn’t provide further details.

This post was published at Zero Hedge on Sep 26, 2016.

Why Deutsche Bank Expects A Collapse In Monthly Job Growth To Under 60,000

Deutsche Bank’s stock price has crashed to all time lows, while its market-implied default risk is back to just shy of record levels…

… which is what likely prompted its chief economist to admit today that all is not well in the state of European banking, asking for a 150 billion (to start) bailout for European banks (of which DB is a member).

This post was published at Zero Hedge on Jul 10, 2016.

Deutsche Bank’s Chief Economist Calls For 150 Billion Bailout Of European Banks

The cards have been tipped, and it appears Italy’s Prime Minister may have been right.
In the aftermath of Brexit, much of the investing public’s attention has turned to Italian banks which are in desperate need of a bailout as a result of 360 billion in bad loans growing worse by the day (and not a bail-in, as European regulations mandate, as that would lead to an immediate bank run) to avoid a freeze and/or collapse of Italy’s banking sector. This has pushed stock prices – and default risk – on Italian banks to record levels. So far Italy’s bailout requests have mostly fallen on deaf ears, as Germany’s political leaders have resisted Renzi’s recurring pleas for a taxpayer funded rescue. However, as we have alleged, and as the Italian Prime Minister admitted last week, the core risk for Europe is not just the Italian banking sector but the biggest bank of all in Europe: Deutsche Bank.
Recall last Thursday, when speaking at a joint news conference with Swedish Prime Minister Stefan Lofven, Matteo Renzi said other European banks had much bigger problems than their Italian counterparts.
“If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred,” Renzi said.
He was, of course, referring to the tens of trillions of derivatives on Deutsche Bank’s books.

This post was published at Zero Hedge on Jul 10, 2016.

EU Banks Crash To Crisis Lows As Funding Panic Accelerates

The signs are everywhere – if you choose to look – Europe’s banking system is collapsing (no matter what Draghi has to offer). From record lows in Deutsche Bank and Credit Suisse to spiking default risk in Monte Paschi, the panic in Europe’s funding markets (basis swaps collapsing) is palpable.
Tumbling to a fresh post-Brexit low, Europe’s Stoxx 600 Bank Index is testing EU crisis lows…

This post was published at Zero Hedge on Jul 6, 2016.

European Banks Crash To Worst 2-Day Loss Ever As Default Risk Soars

So much for George “Panic-Monger” Osborne’s calming statement this morning, European banks have collapsed this morning to close down between 20% and 30% since the Brexity vote. The last 2 days plunge in EU banks (down 23%) is the largest in history (double the size of Lehman) and pushes European bank equity market cap to its lowest (in USD terms) ever.
Worst. Drop. Ever…

This post was published at Zero Hedge on Jun 27, 2016.

“It’s a F##king Bloodbath” – European Banking Stocks Collapse As UK Default Risk Spikes

Traders are frantic this morning as George Osborne’s calming words have done nothing to halt the carnage. From Italian banks crashing over 25% to British banks being halted, trading at record lows, to Deutsche Bank extending its Lehman-esque trend, as one veteran stock market trader in London said, “it’s a f##king bloodbath, not even Draghi can save this one.” The contagion is spreading however as UK defaul risk has spiked to 3 year highs and USD liquidty needs are surging with funding markets seeing serious distress.
It’s everywhere…European Bank Stocks are down 23% in the last 2 days…

This post was published at Zero Hedge on Jun 27, 2016.