Oct 032014
 October 3, 2014  Posted by at 1:44 pm Finance Tagged with: , , , , , ,

Dorothea Lange Negro women near Earle, Arkansas July 1936

Hi, Ilargi here. As per today, October 3, I’m going to make some changes I’ve been thinking about for a while, for a number of reasons. That is, the Daily Links that used to be in this space will now become part of a daily separate post, entitled Debt Rattle +date (to be found below where all posts are, at about 8am ET every day), which will also include the quotes from these same links, which used to be below our own daily essays. The latter will now stand on themselves, and also be separate posts. So the only change for you is that to get to the links, you will need to execute one extra click, but then you get everything I read everyday presented in one go.

If you think this is the worst idea ever, or if you think it’s great, please do let me know at ilargi •AT• theautomaticearth •DOT• com. And thanks for your support. Talking of which: please check our donate box, top of the left hand column, below the ad, and donate what you can. This site runs well below the poverty line these days, and it shouldn’t. I want to bring back a lot more Nicole Foss here, but she does have to make a living.

Yours, Raúl Ilargi Meijer

Albert Edwards Says Watch Japanese Yen and Be Very Afraid (Bloomberg) “When Bad News Becomes Bad News Again”: Albert Edwards (Zero Hedge)
Japanese Stocks Have Crashed Over 1000 Points Since Friday (Zero Hedge) Yen’s Steepest Decline in 20 Months Spreads Unease in Japan (Bloomberg)
Emerging Stocks Pummeled as Weak Yen Boosts Japan (Bloomberg) Japan Inc. Begins To Turn Against The Weak Yen (MarketWatch)
European Stocks Plunge Most In 16 Months As Draghi Disappoints (Zero Hedge) Eurozone Private-Sector Growth Slows More Sharply (MarketWatch)
Draghi Keeps QE Herd Waiting With Stimulus Goal Shrouded (Bloomberg) Mario Draghi Stung By Austerity Critics As Naples Hit By Protests (Guardian)
Mario Draghi’s QE: Too Little For Markets, Too Much For Germany (AEP) France’s Noyer Is Third ECB Dissenter Against ABS Buying Plan (Bloomberg)
Bank of England To Hike Rates Before Fed But At Slower Pace: Goldman (CNBC) China Debt Fix Is ‘Short-Term Pain, Long-Term Gain’ (CNBC)
Oil Heads To Bear Market As Saudis Signal Price War (CNBC) JP Morgan: 76 Million Households Hit In Largest Ever Data Breach (Guardian)
Is the New York Fed a Pushover for Big Banks? Dudley Fires Back (Bloomberg) How to Collect Argentina Bond Payment Is An Unsolved Riddle (Bloomberg)
Humans Lose to Machines in $500 Billion-a-Day Bond Market (Bloomberg) Four People Close To US Ebola Patient Quarantined In Dallas (Reuters)
NBC Cameraman Becomes 4th American To Test Positive For Ebola (Telegraph) Ebola ‘Could Become Airborne’: UN Warns Of ‘Nightmare Scenario’ (Telegraph)

“What happened in March 2009, when the S&P 500 touched 666, that was just a brief stop,” he said. “We will go lower than that.”

Albert Edwards Says Watch Japanese Yen and Be Very Afraid (Bloomberg)

The Japanese yen goes into freefall. China’s fragile economy tips over the edge. A wave of profit-crushing deflation comes washing over the U.S. and Europe. Investors panic. That’s the view of perennial pessimist Albert Edwards. The London-based analyst and his team at investment bank Societe Generale SA have been ranked No. 1 for global strategy in surveys by Thomson Reuters Extel every year since 2007, even with a history of saying unpleasant things that few want to hear. “My role is to step back from the excessive enthusiasm that builds up in the market, and to just say, ‘This is wrong. This is going to go horribly wrong,’” the 53-year-old said by phone last week. The cliche is that when the U.S. sneezes, Japan catches a cold. Edwards says Japan is just as apt to lead the way.

When the Internet bubble burst in 2000, Japan’s tech-heavy Jasdaq index started to slide weeks before the Nasdaq. Japan also pioneered the deflation that now threatens the West. In 1997, it was a plunging yen that helped trigger Asia’s currency crisis. With the yen’s drop this week to a six-year low of 110 versus the dollar, Japan’s currency may once again be the first domino to fall in a chain of events that could be bad for everyone, according to Edwards. The U.S. stock market rally has been going for 66 months since the financial crisis bottomed in March 2009, a streak that’s already a year longer than average. A disconnect between buoyant equity prices and corporate profit growth in the low single-digits makes the situation especially precarious. “Almost 100% of investors think we’re at the start of a long recovery,” Edwards said.

“It’s already a long recovery. Forget about starting from here.” In an hour-long interview, during which he made the global economy sound like a game of Mousetrap, Edwards explained why investors should be watching Japan for clues about what may happen in the next big trouble-spot: China, whose economy is already headed for its slowest full-year growth since 1990. The argument was this: if the yen falls, it will take other Asian currencies down with it. Eventually China will be forced to weaken the yuan, by adjusting its trading range and expanding its money supply, to keep its exports competitive. That will squeeze developed economies that have yet to fully recover from the financial crisis.

[..] In 2006, when the S&P 500 was rising ever higher and then-Fed Chairman Alan Greenspan was being feted as “the Maestro,” Edwards called him “an economic war criminal.” Two years later financial markets were in crisis. Edwards’ aversion to equities stems from watching the experience of Japan, where the market took more than two decades to find a bottom after the 1989 bust. According to Edwards’ view, it’s a template for the extended bear market that will unfold in the U.S. and Europe, as stocks recover only to crash again and plumb ever-new lows. “What happened in March 2009, when the S&P 500 touched 666, that was just a brief stop,” he said. “We will go lower than that.” The structural bear market ends when equities are dirt cheap.”

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“Investors are beginning to see how impotent the Fed and ECB’s efforts are to prevent deflation”.


” … investors once again chose to tilt their ears towards the reassuring siren songs of the Central Bankers and away from the increasingly hysterical ramblings of the perma-bears and doomsayers.”

“When Bad News Becomes Bad News Again”: Albert Edwards (Zero Hedge)

One of Albert Edwards’ trademark terms to define the New (and not so New) Normal, is the so-called Ice Age: a period of prolonged stagnation marked by pervasive deflation, deteriorating living conditions and a sliding stock market. It was to defeat the oncoming “Ice Age” that the global central banks embarked on a massive, coordinated (and largely failed) money printing monetary experiment some 6 years ago. Now, in what Albert Edwards dubs his “second most important chart for investors”, (as a reminder his “most important chart” is here), he warns that as a result of the central banks to offset broad deflationary headwinds, the Ice Age is once again just around the corner. From his most recent note, here is what Albert Edwards believes is the chilly chart that is the “second most important for investors.”

Inflation expectations in the US have just followed the eurozone by plunging lower. Until very recently, the Fed and the ECB had been quite successful at keeping inflation expectations in their normal range – this despite their clear failure to control actual inflation itself, which has consistently undershot expectations. Investors are beginning to realise that contrary to their confident actions and assurances, the Fed and the ECB have failed to prevent a dreaded replay of Japan’s deflationary template a decade earlier in the West. The Ice Age is once again about to exert its frosty embrace on markets as investors wake up to a new and colder reality. There were two key parts to our Ice Age thesis. First, that the West would drift ever closer to outright deflation, following Japan’s template a decade earlier. And second, financial markets would adjust in the same way as in Japan. Government bonds would re-rate in absolute and relative terms compared to equities, which would also de-rate in absolute terms.

This would take many economic cycles to play out. Previous US equity valuation bear markets have taken 4-6 recessions to complete; we’ve only had two thus far. Another associated element of the Ice Age we also saw in Japan is that with each cyclical upturn, equity investors have assumed with child-like innocence, that central banks have somehow ‘fixed’ the problem and we were back in a self-sustaining recovery. Those hopes would only be crushed as the next cyclical downturn took inflation, bond yields and equity valuations to new destructive lows. In the Ice Age, hope is the biggest enemy. Investors must pay close attention to the (second most important) chart below. Investors are beginning to see how impotent the Fed and ECB’s efforts are to prevent deflation. And as the scales lift from their eyes, equity, credit and other risk assets trading at extraordinary high valuations will take their next giant Ice Age stride towards the final denouement.

They may be impotent to prevent deflation, but they are quite omnipotent at printing money, either electronically or in paper format, and while so far they have focused on outside money, soon they will shift to “inside” money creation, also known as Bernanke’s helicopter paradrop. That will be the moment when the status quo finally uses the nuclear option at pervasive global deflation, leading to a collapse in sequential, or parallel, collapse in fiat. But even before that, there is something, that to the current generation of traders may be even scarier: a return to normalcy, or as Edwards calls it: bad news being bad news again, something which traders haven’t experienced in nearly 6 years.

… “amid the inevitable impending global economic and financial carnage, when people, like Queen Elizabeth ask, as she did in November 2008, why no-one saw this coming, tell them that many did. But just like in 2006, before the Great Recession, investors once again chose to tilt their ears towards the reassuring siren songs of the Central Bankers and away from the increasingly hysterical ramblings of the perma-bears and doomsayers.”

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Let’s talk Japan, shall we? This is what you call deep trouble.

Japanese Stocks Have Crashed Over 1000 Points Since Friday (Zero Hedge)

After ticking just above 110.00, USDJPY has been a one-way street lower and that means only one thing… Japanese stocks are cratering. From Friday’s highs, The Nikkei 225 has crashed over 1000 points (despite Abe’s promises yet again of more pension reform buying of stocks). Of note, perhaps, is that, Japanese investors bought a net $3.6 billion of foreign stocks last week – the most since January 2009 – perfectly top-ticking global equities… Well played Mrs. Watanabe.

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What seemed so nice and benign, the weaker yen, threatens to turn into a nightmare.

Yen’s Steepest Decline in 20 Months Spreads Unease in Japan (Bloomberg)

The yen’s steepest decline in 20 months is prompting concern in Japan that the central bank’s support for a weaker currency may hurt consumers and companies. Monetary authorities intervention to curb the slump is “possible,” according to Hirohisa Fujii, a former finance minister and member of the opposition party, after the currency’s steepest drop last month since January 2013. Some companies are suffering from the weaker yen, Nobuhide Minorikawa, Japan’s vice finance minister said this week, following comments from the nation’s economy minister on the risk of excessive gains or declines in the yen. The chorus of dissent against the Bank of Japan’s accommodative monetary policy, which has seen 60 trillion yen ($553 billion) to 70 trillion yen committed to annual asset purchases, is growing louder, as consumer prices remain depressed and growth is anemic. The weaker yen puts Japan at risk of recession, Kazumasa Iwata, deputy governor of the central bank until 2008, warned last month.

“The whole notion of devaluing the currency has been a bad policy,” Robert Sinche, a global strategist at Pierpont Securities, said by phone. “They think the yen is overvalued, but we’ve just had a very extreme move and I think their concern was that it could destabilize markets and destablize the economy.” Sinche forecasts the currency will slump to 120 yen per dollar by the end of 2015. The currency slumped 5.3% last month and is down 2.8% this year. The weaker yen is driving up the price of imported energy and hurting small companies, consumers, and Japan’s regional economies, Vice Finance Minister Minorikawa said in Tokyo yesterday. A weaker currency is positive for companies that have overseas business or rely on exports, he said. BOJ Governor Haruhiko Kuroda said last month, after the dollar rose above 109 yen, that he didn’t see any big problems with current movements in exchange rates.

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Everybody will get hit by the higher dollar. Everybosy except Wall Street banks, that is.

Emerging Stocks Pummeled as Weak Yen Boosts Japan (Bloomberg)

The yen’s slide to a six-year low is amplifying a rout in emerging-market stocks as investors shift their focus to Japanese companies with earnings in dollars, according to Morgan Stanley. The CHART OF THE DAY shows the MSCI Emerging Market Index tumbled 7.6% in September, the most since May 2012, led by China and Hong Kong. That compares with a 3.8% drop for the Topix Index in the period. The yen depreciated 5.1% versus the dollar to the weakest level since August 2008 last month, while a gauge tracking developing-nation currencies retreated 3.8%. “Asset allocation away from emerging markets was in part because Japan was back and that yen weakness is a positive catalyst,” Jonathan Garner, Hong Kong-based head of Asia and emerging-market strategy at Morgan Stanley, said by phone on Sept. 25.

“We don’t have a large export-industrial dollar earnings sector for EM, while Japan’s corporate-sector earnings responded positively to yen weakness.” Japan’s exporters are benefiting from a weaker currency, which boosts overseas income when repatriated, while developing-nation assets have come under pressure as the prospect for higher Federal Reserve interest rates dents demand for riskier assets. Toyota, the world’s biggest carmaker by market value which derives most of its revenue from the U.S., rallied 9% last month. Net inflows to U.S. exchange-traded funds that invest in emerging-markets tumbled 82% to $977.9 million in September, led by a 90% decline to China and Hong Kong, data compiled by Bloomberg show.

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All the promised exports ain’t going anywhere either. As we predicted.

Japan Inc. Begins To Turn Against The Weak Yen (MarketWatch)

When the Japanese yen began its long descent in late 2012 — around the time it became clear Shinzo Abe would be elected to another prime-ministership — the executives running Japan’s top corporations seemed to believe that the lower the currency, the better, regardless of all else. But since then, the yen has trekked steadily, inexorably downward against the dollar, with the greenback rising from around ¥78 two years ago to ¥110 earlier this week. And, at least according to a Nikkei news survey out Friday, some senior corporate officers are having second thoughts about the race to the bottom for forex. The survey covered responses from 65 chief financial officers at the largest Japanese corporations, an admittedly small sample. But it’s notable that more than half said they’d prefer the dollar to range between ¥100 and ¥104, a level last seen in early September.

The next most popular forex range was for a dollar just above ¥108 — but only just: A mere 3% called for a rate between ¥110 and ¥114 rate. And not a single CFO said they wanted to see the dollar breach above ¥115. Of course not all companies see the yen in the same way. While some follow the classic exporter model of making stuff at home to sell abroad, many corporations do not. Consider Honda: The cars it sells in North America, for instance, are generally made in North America, with the costs incurred in foreign currencies. Of course, it does eventually repatriate the profit, but its geographic diversity means there’s no special rush to do so. And of course, for companies that need to import materials — especially fuel — the falling yen is no good at all. Meanwhile, the Nikkei survey said roughly 20% of CFOs surveyed are looking at further forex hedging on the futures market to guard against any further dramatic currency moves.

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The ECB spells infighting these days.

European Stocks Plunge Most In 16 Months As Draghi Disappoints (Zero Hedge)

Broad European stocks plunged into the red for 2014 today as a rattled Mario Draghi disappointed a hungry-for-more risk market. Bloomberg’s BE500 index dropped its most since June 2013 to 2-month lows led by weakness in Italian banks. UK stocks underperformed (-3.6%) but Spain, Italy, and Portugal all tumbled 2-3%. The selling pressure interestingly stayed in stocks as bond spreads rose only modestly and EURUSD roundtripped to only a small rise from pre-ECB. Notably, US equities are cratering as they are so used to the pre-EU-close pump that did not happen.

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And the eurozone is sick.

Eurozone Private-Sector Growth Slows More Sharply (MarketWatch)

Activity in the eurozone’s private sector slowed more sharply in September than initially estimated, an indication that the currency area’s economy remains trapped in a period of low or no growth. Data firm Markit’s monthly composite purchasing managers index–a measure of activity in the currency bloc’s manufacturing and services sectors–fell to 52.0 from 52.5 in August, and was lowered from an initial estimate of 52.3. The average PMI for the third quarter was lower than in either of the two previous periods. But there are some parts of the economy that may be benefiting from low inflation for now. Figures released by the European Union’s statistics agency on Friday showed the volume of retail sales rose by 1.2% in August from July, the largest increase since Dec. 2009 and likely reflecting a pickup in real wages.

European Central Bank President Mario Draghi Thursday acknowledged that recent surveys have pointed to a “weakening in the euro area’s growth momentum,” but said the ECB governing council continues to expect a recovery in 2015. However, he warned those expectations could be disappointed, noting in particular that the economy’s second-quarter stagnation, and signs the third quarter wasn’t much better, “could dampen confidence and, in particular, private investment.” The governing council took no new action at its meeting Thursday, despite inflation weakening to a five-year low, signaling that it will wait to see if stimulus measures undertaken in recent months lift the eurozone’s weak economy. The surveys of 5,000 businesses across the currency area indicated that the annual rate of inflation is unlikely to quickly move back toward the central bank’s target of just below 2%, and may fall further below it. Manufacturers and service providers said they cut their prices again in September, and more steeply than in any month since July 2013.

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Too much dissent. Draghi is stuck.

Draghi Keeps QE Herd Waiting With Stimulus Goal Shrouded (Bloomberg)

Mario Draghi hasn’t moved any closer to full-blown quantitative easing. Focusing on plans to buy private debt as soon as this month to buoy the weakest euro-area inflation in five years, the European Central Bank president yesterday left the option of purchasing government bonds in his toolbox. He also backpedaled on indications that he could boost the central bank’s balance sheet by as much as €1 trillion ($1.3 trillion). Draghi’s reluctance to spell out how many assets officials might buy disappointed investors pushing him to go all-in. With the outlook for consumer prices worsening and the 18-nation economy closer to renewed recession, they’re pressuring him to honor his pledge to take further action if needed. “For a dove, that was hawkish,” said Lars Peter Lilleore, chief analyst at Nordea Markets in Copenhagen. “The herd of market participants pining for QE will have to wait a bit longer.”

The ECB will start buying covered bonds this month and asset-based securities this quarter and continue for at least two years, Draghi said yesterday after the 24-member Governing Council met in Naples, Italy. He also reiterated that he wants to “steer” the ECB’s assets toward early-2012 levels, when they were at more than €3 trillion, compared with €2 trillion currently. Yet he also said investors shouldn’t place too much emphasis on the precise size of the balance sheet. “Draghi seemed to back away from his previous commitment to expand the ECB’s balance sheet back to 2012 levels,” said Marchel Alexandrovich, an economist at Jefferies International Ltd. in London. “What the markets were hoping for were some ballpark figures for what the ECB was likely to achieve.”

Spanish and Italian bonds dropped and the euro rose as the lack of a target conflicted with Draghi’s claim that policy makers are taking greater control over the level of stimulus they inject. “The door to quantitative easing didn’t widen or narrow,” said Hetal Mehta, a London-based economist at Legal & General Investment Management, which oversees 450 billion pounds ($726 billion). “The ECB is very much in a wait-and-see mode.” The refusal to lock in a number may reflect division among policy makers or a suspicion that a lack of available assets limits any swelling of stimulus, said Azad Zangana, European economist at Schroder Investment Management Ltd. in London.

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Stuck on both sides, that is.

Mario Draghi Stung By Austerity Critics As Naples Hit By Protests (Guardian)

Mario Draghi gave an impassioned defence of the European Central Bank’s role in the eurozone crisis as anti-austerity protestors took to the streets of Naples blaming the central bank for economic misery. The ECB’s president rejected the suggestion that the bank had been an agent of doom for the people of Italy and the wider economic bloc because of its role in pushing spending cuts and tax rises in some of the worst hit countries in the region. Speaking after the October meeting of the ECB’s governing council in Naples, he insisted the it had instead taken radical steps in recent months to breathe some life into the eurozone’s flagging economy. “I think the description of the ECB here as the guilty actor needs to be corrected. Go back and ask yourself how you were two and a half, three years ago. The financial system seemed on the verge of collapsing.” Draghi appeared to be stung as the bank became the subject of protests in his home country. Protestors held banners declaring “block the ECB” and “job insecurity, poverty, unemployment, speculation. Free us from the ECB.”

Reeling out a list of measures introduced by the ECB over recent months to combat weak growth and low inflation, Draghi said they were expected to have a “sizeable impact” on the eurozone economy. He added: “We have done a lot since June, quite unprecedented. We have decided a massive amount of measures now and we haven’t yet seen the impact on the economy.” Last month the ECB took markets by surprise, further cutting the main interest rate from 0.15% to 0.05%. Policymakers also made it more expensive for banks to park money with the ECB – cutting the deposit rate, which was already negative, from -0.1% to -0.2% in the hope of persuading banks to lend more to businesses and consumers. The ECB announced no new measures on Thursday, and failed to reveal the scale of an asset purchasing scheme announced last month. Investors were left disappointed, contributing to a large scale selloff of equities across Europe.

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“Mr Draghi is facing a severe credibility problem” alright, but that’s not the whole story. He has a rock and a hard place problem.

Mario Draghi’s QE: Too Little For Markets, Too Much For Germany (AEP)

European stocks have suffered the steepest one-day fall in 15 months after the European Central Bank retreated from pledges for a €1 trillion blitz of stimulus and failed to clarify the scale of quantitative easing. The sell-off came amid a mounting political storm in Europe as leading German economists and jurists reacted with fury to the ECB’s first asset purchases, denouncing the move as monetary debauchery, and threatening a blizzard of lawsuits in the German courts. “Our worst fears are being fulfilled,” said Hans Werner Sinn, head of Germany’s IFO Institute. The Milan bourse tumbled almost 4pc, led by sharp falls in Italian banks counting on fresh ECB liquidity. The Eurostoxx 600 index was off 2.4pc and the FTSE 100 fell 1.7pc to its lowest level this year, with effects spreading through global markets. The CRB index of commodities slumped to 2004 levels, before the onset of the resource boom, and Brent crude fell to a two-year low of $92.83 on rising Libyan supply and fears of a deepening industrial slowdown in China.

Mario Draghi, the ECB’s president, seemed unable to secure backing for far-reaching measures from Germany’s two ECB members or from the German finance ministry, forcing him to play down earlier hints for a €1 trillion boost to the ECB’s balance sheet. As he spoke inside a renaissance palace in Naples, riot police doused crowds of protesters on the street outside with water cannon. The city has become a political cauldron, with the highest “misery index” Europe. Youth unemployment in Italy’s Mezzogiorno is still rising, topping 56pc in the second quarter. Mr Draghi said the ECB would start to buy covered bonds and asset-backed securities (ABS) as soon as this month, but gave no concrete figure and deflected all questions on the scope of stimulus. “I wouldn’t want to emphasise the balance sheet size per se,” he said. Sovereign bond strategist Nicholas Spiro said the ECB was “backtracking” on earlier pledges and seemed to be losing confidence in its ability to halt deflation at all. “Mr Draghi is facing a severe credibility problem,” he said.

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The central bankers of Germany, France and Austria are all against the ABS plan. That’s what you get when you want to buy junk loans.

France’s Noyer Is Third ECB Dissenter Against ABS Buying Plan (Bloomberg)

France’s Christian Noyer joined European Central Bank policy makers from Germany and Austria in opposing a program to buy asset-backed securities, according to two euro-area officials. His dissent leaves President Mario Draghi facing a clash with policy makers from the region’s two largest economies, albeit for different reasons. While Noyer disapproved of the way the purchases will be conducted, Austrian central bank Governor Ewald Nowotny shared Bundesbank President Jens Weidmann’s view that the measure involves too much balance-sheet risk, said the people, who asked not to be identified because the talks are private.

Draghi unveiled details of the program yesterday, pledging to buy both covered bonds and ABS before the end of the year. He shied away from a definitive goal for the plan, saying total stimulus may fall short of the 1 trillion euros ($1.3 trillion) he had signaled in September. Noyer opposed the design of the program because it will exclude national central banks from its implementation, said the people. ECB policy is generally conducted in a decentralized way, with national institutions responsible for refinancing their banks and purchasing securities. In this case, the ECB has opted to involve outside brokers to buy ABS, the people said, even though the French central bank has a long-standing expertise in assessing the quality of ABS. It was the euro-area hub for valuing the assets until 2012, when it was replaced by a regional initiative.

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How smart is this when the dollar is rising?

Bank of England To Hike Rates Before Fed But At Slower Pace: Goldman (CNBC)

The Bank of England (BoE) will start to tighten the screws of monetary policy earlier than the Federal Reserve but will raise rates at a slower pace than its U.S. counterpart, according to Goldman Sachs. The BoE will begin raising interest rates in the first quarter of 2015, while the Fed will wait until the third quarter, Goldman Sachs economists led by Huw Pill wrote in a note on Friday. The U.K. central bank appears more hawkish than its U.S. counterpart, they said. “We expect U.K. rates to rise by around 75 basis points per year vs. 100-125 basis points per year in the U.S. [between 2015-2018],” Pill said. The difference in the speed of interest rate hikes comes down to the different cyclical positions of each economy. “Looking forward, we expect U.K. GDP (gross domestic product) growth and the pace of the decline in U.K. unemployment to moderate in the quarters ahead, both in absolute terms and relative to the U.S. All else equal, this would imply the need for a slower pace of tightening in the U.K.,” Pill said.

Britain’s economy grew 0.9% in the three months from April to June this year, the quickest increase since the third quarter of 2013. The U.S. economy, meanwhile, expanded at a 4.6% annual rate over the same period, its fastest pace in 2-1/2 years. Looking back over the past quarter-century, the BoE has typically tightened more slowly than the Fed, according to Goldman. On the basis of five tightening cycles for the U.K. and three for the U.S. over this period, the Fed has raised rates on average by 2.1 percentage points in the first year, while the BoE has raised rates by just 1.3 percentage points. One reason they have risen more gradually is that the U.K.’s private sector has been more highly leveraged compared with the U.S. In addition, the average duration of debt held by British households is shorter than their American counterparts.

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China debt fix is desperate.

China Debt Fix Is ‘Short-Term Pain, Long-Term Gain’ (CNBC)

China’s debt loads have long loomed as a serious economic risk, and while analysts say new plans to clean up local government borrowing will bring near-term pain, a longer-term fix may be in sight. “[The new plan] represents the first concrete step by the central government to clean up the debt problems at the local governments,” analysts at Bernstein Research said in a note Friday. Provincial governments’ debt, often issued via local government financing vehicles, or LGFVs, has worried economists for years. Outstanding debt climbed to around 17.9 trillion yuan ($2.92 trillion) by the end of the first half of 2013, according to the most recent national audit, from around 10.7 trillion in 2010. On Thursday, China’s State Council, its highest authority, set quotas on the amount of debt that local governments can issue, required it to be used for public projects rather than operational spending and tied debt levels to local officials’ performance reviews.

It also barred local governments from using LGFVs and state-owned enterprises (SOEs) to raise debt and from guaranteeing or covering the liabilities of financial institutions or local corporates. “It’s a tick in the right box,” said Freya Beamish, an economist at Lombard Street Research, noting it indicates Beijing is willing to accept slower growth as a step toward avoiding an “Armageddon” scenario over its debt. “While this may bring short-term pain in terms of slowing economic growth and accelerating credit losses at LGFVs, we think the reform will benefit the economy and the Chinese banking sector in the long term,” Bernstein said. It expects the reforms will weaken economic growth in debt-laden provinces as they incorporate existing and new debt into their budgets, as well as spurring an increase in the number of defaults among existing LGFV and local SOE debts.

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Saudis are dumping. Couldn’t have anything to do with putting the squeeze on Putin?!

Oil Heads To Bear Market As Saudis Signal Price War (CNBC)

Oil could continue its deep slide, possibly dipping into bear market territory, under new pressure from Saudi Arabia’s decision to defend market share, as opposed to cutting production to battle falling prices. A well-supplied oil market, helped by increased North American production and softer global demand as Europe’s economy falters and Chinese demand growth slows, has created a supply imbalance that has driven prices sharply lower. The Saudi move is counter to expectations that it would further cut its 9.6 million barrel-a-day production to bring back oil prices. West Texas Intermediate oil futures for November hit a 17-month low early Thursday, falling below the $90 mark for the first time since April 2013. That was a 16% decline from its June high. Brent, the international benchmark, fell to a 27-month low of $91.55 per barrel, before recovering at about $93 per barrel for November futures. Brent, at the low, was about 19% off its high. A weaker dollar helped lift oil off its lows.

Oil analysts expect oil to fall another couple%, which could take both WTI and Brent into bear market territory—a 20% decline from recent highs. “It’s both supply and demand. it’s basically the perfect storm that brought oil prices down,” said Fadel Gheit, Oppenheimer senior energy analyst. “You have plenty of supply which you never thought possible, and all of a sudden, demand is shrinking, China’s slowing down, Europe never recovered.” He said the fact that the Saudis are willing to play hardball with prices makes it difficult for other oil-based economies like Russia. Saudi Aramco, the state-run oil company, surprised markets Wednesday when it announced it would cut official prices for Asian customers in November. The cuts come as the Organization of Petroleum Exporting Countries was expected to be on course to cut back on production instead, to protect prices.

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That’s a lot of people.

JP Morgan: 76 Million Households Hit In Largest Ever Data Breach (Guardian)

JP Morgan Chase, one of the largest banks in the US, said on Thursday that a massive computer hack affected the accounts of 76 million households and about seven million small businesses, making it one of the largest of its kind ever discovered. The attack was under way for a month before it was discovered in July, and when it was disclosed in August, the bank estimated that about one million accounts had been compromised. But the latest information revealed on Thursday showed the attack was vastly more serious than earlier thought. The bank said financial information was not compromised and that there had been no breach of login information such as account or social security numbers, passwords or dates of birth. However names, email addresses, phone numbers and addresses of account holders were captured by hackers. “As of such date, the firm continues not to have seen any unusual customer fraud related to this incident,” the bank said in a regulatory filing. It said customers would not be liable for unauthorized transactions on their account.

JP Morgan, the largest bank in the country by assets, is working with the Federal Bureau of Investigation and the US secret service to determine the roots of the attack. The scale of the hack, one of the largest ever, comes after a series of massive data breaches at US institutions and follows in the wake of attacks on Target and Home Depot. In September, Home Depot confirmed its payment systems were breached in an attack that some estimated impacted 56 million payment cards. Last year’s attack on Target impacted 40 million payment cards and compromised the personal details of some 70 million people. But the JP Morgan hack is considerably more serious, as banks holds far more sensitive information than retailers. In August, Bloomberg reported that the attack on JP Morgan had been linked to Russian hackers who FBI sources said had been able to extract “gigabytes of sensitive data”.

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Is the New York Fed a Pushover for Big Banks? Dudley Fires Back (Bloomberg)

William C. Dudley, president of the Federal Reserve Bank of New York, defended his bank-supervision staff following allegations that they had been too deferential to large financial firms. “I completely stand behind the integrity and work of our supervision staff,” he said after a speech today in New York. “They are operating completely in the public interest.” Dudley’s remarks, his first addressing allegations of lax supervision aired last week by former employee Carmen Segarra, highlight the New York Fed’s difficulties in overcoming perceptions that it’s too close to Wall Street. “This is a zero-credibility era for big banks and their regulators,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington. As a result, stories like Segarra’s “have a lot of resonance regardless of their truth,” she added. Dudley turned voluntarily to the topic after getting no questions about it from the audience at New York University’s Stern School of Business.

He said there had been a “significant reorganization” following a report commissioned by the regional Fed bank, and that “improving supervision has been and remains an ongoing priority for me.” The 2009 report, by Columbia University Professor David Beim, made recommendations to improve bank supervision, including that Fed officials should seek to keep their distance and be more skeptical of the banks they oversee. Dudley’s comments follow reports last week on the radio program “This American Life” and ProPublica, a nonprofit news organization. The radio program broadcast excerpts of conversations it said were secretly recorded by Segarra, a former New York Fed bank examiner fired in 2012, with some of her colleagues and her supervisor. In a transcript of the broadcast, Segarra described how she felt that her Fed colleagues were afraid of Goldman Sachs and handled it with kid gloves.

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How to Collect Argentina Bond Payment Is An Unsolved Riddle (Bloomberg)

After announcing a plan to sidestep a U.S. court order that prevented Argentina from paying its bondholders, Economy Minister Axel Kicillof scoffed at the idea that it would be hard to pull off. “No one’s going to have to take a plane,” he told reporters Aug. 20. “These days even your gas and electricity bills can be paid by the Internet. We’re not going to have an influx of bond tourists coming to get paid.” Six weeks later, holders of the nation’s foreign-currency bonds still have no idea how the plan will actually enable them to get paid. While Argentina has deposited $161 million with a local bank in downtown Buenos Aires to make good on an interest payment due Sept. 30, the government hasn’t given bondholders any instructions on how they can go about collecting their cash, said Emso Partners, which owns Argentine notes.

“It’s a completely symbolic gesture designed to allow Argentina to continue to claim that it’s fulfilling its obligations to bondholders,” Patrick Esteruelas, an analyst at Emso, a New York-based hedge fund, said by telephone. “Without being able to secure the information and effectively confirm who it is that is the holder of the bond, you don’t have a verifiable mechanism to impart payment or collect payment.” Argentina’s attempt to honor its debt underscores how bondholders remain in limbo two months after the court order blocked a debt payment and caused the nation to default on July 30, its second in 13 years. The government, which has been entangled in a legal dispute with unpaid creditors from its $95 billion default in 2001, was barred from paying other bondholders until it settled with the so-called holdouts.

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And everywhere else too.

Humans Lose to Machines in $500 Billion-a-Day Bond Market (Bloomberg)

While investors traditionally negotiated prices for U.S. Treasuries by telephone, they’re increasingly turning to computer-based marketplaces for a range of price quotes from different dealers. Human traders are increasingly losing out to machines in the world’s biggest bond market. While investors traditionally negotiated prices for U.S. Treasuries by telephone, they’re increasingly turning to computer-based marketplaces for a range of price quotes from different dealers. A record 48% of trades in U.S. government debt have occurred on electronic platforms this year, up from 31% in 2012, according to a Greenwich Associates study released yesterday. Bond managers are looking for more efficient ways to determine values in a $12 trillion market as banks use less of their own money to opportunistically buy and sell, giving them less of an edge when they pitch their brokerage services. “Investment firms are much more focused on being able to prove they’re getting good execution than ever before,” said Kevin McPartland, head of research at Greenwich Associates.

“In Treasuries, the market seems ripe for electronic trading.” The trend is squeezing profits on Wall Street, where firms are already facing lower trading revenues in a sixth year of record Federal Reserve stimulus that’s suppressing yields and volatility. (Bloomberg LP, the parent company of Bloomberg News, and Tradeweb Markets LLC are the dominant providers of electronic systems for Treasuries trading, according to the Greenwich Associates study.) The biggest banks reduced their rates-trading balance sheets by almost one-third, or about $200 billion, since the 2010 peak, Credit Suisse Group AG analysts Ira Jersey and William Marshall wrote in a May report. While electronic trading systems may allow for faster price discovery, the trend may also discourage some investors from selling bigger chunks of less-traded securities out of concern they may move prices against themselves.

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Too many hiccups in this case.

Four People Close To US Ebola Patient Quarantined In Dallas (Reuters)

Four people close to the first person diagnosed with Ebola in the United States were quarantined in a Dallas apartment, where sheets and other items used by the man were sealed in plastic bags, as health officials widened their search for others who had direct or indirect contact with him. In Liberia, an American freelance television cameraman working for NBC News in Liberia has contracted Ebola, the fifth U.S. citizen known to be infected with the deadly virus that has killed at least 3,300 people in the current outbreak in West Africa. The 33-year-old man, whose name was not released, will be flown back to the United States for treatment, the network said on Thursday. Immediately after beginning to feel ill and discovering he was running a slight fever, the cameraman quarantined himself. He then went to a Doctors Without Borders treatment center and 12 hours later learned he tested positive for Ebola.

The entire NBC crew will fly back to the United States on a private charter plane and will place themselves under quarantine for 21 days, the maximum incubation period for Ebola. U.S. health officials said they were confident they could prevent the spread of Ebola in the United States after the first case was diagnosed this week on U.S. soil. Up to 100 people had direct or indirect contact with Thomas Eric Duncan, a Liberian citizen, and a handful were being monitored, said Dr. Thomas Frieden, director of the U.S. Centers for Disease Control and Prevention (CDC). None of those thought to have had contact with Duncan were showing symptoms of Ebola, Dallas County officials said at a news conference.

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And counting.

NBC Cameraman Becomes 4th American To Test Positive For Ebola (Telegraph)

An American freelance television cameraman has contracted Ebola in Liberia, becoming the fourth US national to be diagnosed with the deadly disease. He had been hired on Tuesday to work with NBC News chief medical editor Dr Nancy Snyderman covering the outbreak which has so far killed more than 3,000 people in West Africa. A statement on the news network’s website said; “The freelancer came down with symptoms on Wednesday, feeling tired and achy. As part of a routine temperature check he discovered he was running a slight fever. He immediately quarantined himself and sought medical advice.” He went to a Medecins Sans Frontieres treatment centre on Thursday and a positive result for Ebola came back 12 hours later. Mr Mukpo, who has been working in Liberia for three years, is the fourth American to contract Ebola in Liberia during the current outbreak. The others were Christian missionaries.

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A slim chance for now, but …

Ebola ‘Could Become Airborne’: UN Warns Of ‘Nightmare Scenario’ (Telegraph)

There is a ‘nightmare’ chance that the Ebola virus could become airborne if the epidemic is not brought under control fast enough, the chief of the UN’s Ebola mission has warned. Anthony Banbury, the Secretary General’s Special Representative, said that aid workers are racing against time to bring the epidemic under control, in case the Ebola virus mutates and becomes even harder to deal with. “The longer it moves around in human hosts in the virulent melting pot that is West Africa, the more chances increase that it could mutate,” he told the Telegraph. “It is a nightmare scenario [that it could become airborne], and unlikely, but it can’t be ruled out.” He admitted that the international community had been “a bit late” to respond to the epidemic, but that it was “not too late” and that aid workers needed to “hit [Ebola] hard” to rein in the deadly disease.

Mr Banbury was speaking shortly before the first Ebola diagnosis was made in the US on Tuesday evening. The man, who contracted Ebola in Liberia before flying to Dallas, Texas, is the first case to be diagnosed outside Africa, where the disease has already killed more than 3,000 people. The number of people infected with Ebola is doubling every 20 to 30 days, and the US Center for Disease Control and Prevention has forecast that there could be as many as 1.4m cases of Ebola by January, in the worst case scenario. More than 3,300 people have been killed by the disease this year. Mr Banbury, who has served in the UN since 1988, said that the epidemic was the worst disaster he had ever witnessed.

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Home Forums Debt Rattle October 3 2014


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    Dorothea Lange Negro women near Earle, Arkansas July 1936 • Albert Edwards Says Watch Japanese Yen and Be Very Afraid (Bloomberg) • “When Bad News Bec
    [See the full post at: Debt Rattle October 3 2014]

    V. Arnold

    Charts, lots of charts, graphs, and statistics.
    But here on the street nothing really changes.
    For us poor schmucks, nothing really changes. Another day older and deeper in debt? Yes, for some. For the rest; a never changing future of lies and bullshit.
    And no future worth pondering…

    Jef Jelten

    Try as I might I just can’t see how the Fed/finance/banksters push massive amounts of money out to the general population to any degree that would show up as inflationary or even anti-deflationary.

    They already shot their wad with the housing bubble, (not the current one for investors but the previous one where every Tom, Dick, and Harriet with a pulse got a mortgage).

    Maybe if Starbucks also becomes a payday loan shop… Would you like a $10,000 loan with that latte?.

    I often thought that that was the goal of nationalizing 401-k’s was to eventually then be able to credit them all with regular funds as national policy. American….TBTF.


    My, you guys are negative; what’s up with that? I bring you all these happy tidings on a daily basis, and look at you!


    A long overdue donation headed your way, Ilargi. Many thanks for the reminder and your ongoing efforts to keep us informed.


    Thanks, Jb, much appreciated.

    C’mon you guys, I work my donkey off every day, you do your part.


    I’ve lurked for a long time on AE, and feel a bit guilty about not contributing (although I did buy one of Nicole’s DVDs). So I’ve just registered to make this comment. Being in the UK, I don’t want to contribute in USD, CAN or EUR. But I would love to send you some of the Bitcoin that I’ve been buying recently. Have you ever though about accepting Bitcoin? I expect a lot of people in the Bitcoin world would be sympathetic to your points of view, and it might prove a valuable additional revenue stream.

    Maybe something to consider?

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