Vincent van Gogh Road menders at Saint-Remy 1889
EU banks are disasters. US banks are too.
The FDIC just released the aggregated third-quarter performance metrics of the 5,477 banks and thrifts it insures. The amount of their combined assets ticked up to $17.7 trillion. These assets – mostly loans but also investments of all kinds – include $3.6 trillion in securities (not including the securities in their trading accounts). And banks got hit by the biggest quarterly losses on those securities since the first quarter of 2009. Banks designate these securities either as “held-to-maturity” securities (valued at “amortized cost” or book value) and “available-for-sale” securities (valued at “fair value,” such as market value). For Q3, these were their unrealized losses – meaning, banks have not yet sold the securities:
• Available-for-sale securities: $51.5 billion in unrealized losses, or 2% of their amortized cost, as the FDIC said, “the highest loss level since first quarter 2009.” • Held-to-maturity securities: $32.8 billion in unrealized losses. • Both combined: $84.3 billion in unrealized losses. Note the damage done in 2018, after years of big gains: $83.4 billion in Q3; $66.4 billion in Q2; and about $55 billion in Q1; for a total so far this year about $200 billion in unrealized losses.
And Draghi went for negative rates. One for the history books.
As we approach the end of a dismal year for European stocks, the question is: which sector had the worst year of them all? With a few trading sessions left before the end of 2018, banks and autos are in a tight race to the bottom. As of Thursday’s close, lenders are the biggest losers, with a quarter of their market value down the drain, a wipeout of roughly 300 billion euros in shareholders’ money. Banks haven’t seen such a bad year since the heat of the euro-zone sovereign debt crisis in 2011. As the final ECB meeting of the year confirmed, the central bank will keep rates unchanged at least until next summer and the grim outlook for the sector highlighted in one of our earlier Taking Stock columns remains valid.
Any attempt by the sector to break out from its downward trend in 2018 has so far failed. Perhaps it’s not a surprise as banks face a wall of worry from investors and nothing seems to be able to help them move forward. Repeated calls from some analysts that the sector is cheap hasn’t triggered any significant buying. A good example is Credit Suisse’s buyback and dividend announcement on Wednesday. That didn’t even raise investors’ interest with the stock hovering near its low. While any return of capital to shareholders is welcome, the dark clouds over its investment banking outlook seemed to weigh more.
Here’s the grim silver lining: …it doesn’t matter much to the rest of the market: Since the financial crisis a decade ago, the influence of banks over the broader European gauge has fallen dramatically, to a point where they now barely move the Stoxx 600. So what could help the shares regain their vigor? Although merger talk seems to find fruitful (speculative) ground, large cross-border deals remain a fantasy. But domestic love stories might be one theme to keep an eye on next year. Most prominent is the ongoing chatter about Deutsche Bank and Commerzbank, the worst and third-worst performing stocks in the Stoxx 600 Banks index. While any merger is far from certain, market reaction shows that investors, or at least algos and punters, are betting on any consolidation as the last resort to improve bottom-lines.
And if you are gloating at the “fortress balance sheet” US banks, as BMO’s Brad Wishak notes, price and time are playing a familair hand in US bank stocks… Finally, BofAML strategists summed it all up very succinctly this week: “What we learned in 2018: That central banks trump everything, when global liquidity peaked in Q1, markets peaked; that we remain in a deflationary world which cannot handle a 10-year Treasury yield above 3%; That investors have no satisfactory answers to the existential questions of ‘If not stocks, what?’, ‘If not tech, what?’ ‘If not the U.S. dollar, what?'”…
Sometimes you wonder if even a grand jubilee could change this.
The world’s debt currently exceeds $86,000 per person on average, according to the IMF. The US, China, and Japan are the top three global borrowers, accounting for more than half of the global debt. The IMF has calculated that their share of debt exceeds that of output. It stated that the emergence of China among the top ranking is, however, a relatively new development. Since the beginning of the millennium, China’s share in global debt surged from less than three percent to over 15 percent, underscoring the rapid credit surge in the aftermath of the global financial crisis. According to the IMF, global debt has reached a record high of $184 trillion in nominal terms.
That’s the equivalent of 225 percent of the world GDP in 2017. The debt figure is $2 trillion higher than the estimated number released by the fund in October, because it includes the debts of several countries who had not previously reported their updated data. “By including both the sovereign and private sides of borrowing for the entire world, the GDD (Global Debt Database) offers an unprecedented picture of global debt in the post-World War II era,” said the IMF. GDD is a comprehensive dataset covering public and private debt for 190 countries dating back to the 1950s.
As I write this, things seem to be quiet still.
Paris is bracing for yet another round of Yellow Vest protests, with demonstrators planning to take to the streets on Saturday. More than 10,000 people have already RSVP’d on Facebook to the ‘Acte 5: Macron Démission’ march. The demonstration is scheduled to take place in the French capital on the Champs-Élysées. The organizers, consisting of some 15 groups, have outlined their list of demands on Facebook, saying they will continue their action against Macron until all their demands are met. “Our organizations support the demands of tax and social justice brought by the movement of yellow vests.
They call for demonstrations Saturday, December 15, for social justice and tax, for a real democracy, for equal rights, for a true ecological transition…” the planners said in a statement, as quoted by Le Parisien. Similar demonstrations are also expected to take place in other cities across the country. Security officials are gearing up for the protests, with Paris Police Chief Michel Delpuech stating that tens of thousands of cops will be deployed across France, and some 8,000 in Paris. “We need to be prepared for worst-case scenarios,” he said. Delpuech told RTL that authorities are aiming to be in “better control” of the situation than they were last weekend, when more than 125,000 people hit the streets of France, 10,000 of whom protested in Paris.
But why should he?
Senior Tories have told Theresa May to open talks with Labour as her only hope of salvaging a Brexit deal, after the EU’s outright refusal to renegotiate left her strategy in tatters. A badly bruised prime minister was urged to stop trying to “go it alone”, accept her proposed agreement is dead and that she needs the help of other parties to push through softer exit terms. Nicky Morgan, the former education secretary, told The Independent that “cross-party support and proper discussions” were now essential, while Nick Boles, another former minister, said Ms May “must open cross-party discussions”.
The calls came after EU leaders dealt a devastating blow by scrapping written commitments, designed to help Ms May pass her deal through parliament, after disastrous talks failed to achieve a breakthrough. Brussels’ frustration at the prime minister’s inability to set out clearly what she wanted was laid bare when Jean-Claude Juncker, the European Commission president, branded the UK approach “nebulous”. At a press conference, Ms May put a brave face on, insisting her Brexit deal remained on track and that talks in the next few days would achieve “further clarification”.
[..] Jeremy Corbyn said the prime minister had “utterly failed in her attempts to deliver any meaningful changes to her botched deal”, calling for a Commons vote to kill it off without delay “Rather than ploughing ahead and dangerously running down the clock, the prime minister needs to put her deal to a vote next week so parliament can take back control,” he said. Nevertheless, Mr Boles said the route to success for Ms May was cross-party talks to “deliver their support for the deal”.
She fled to Europe because she could, not to get anything done. The result is no Commons vote until after Christmas.
Theresa May has come home from Brussels empty-handed and without hope of further negotiations over the Irish backstop, with the failure to achieve any kind of breakthrough leaving her brutally exposed. Plans to work over Christmas on a legal guarantee over the temporary nature of the backstop had run into a brick wall, EU officials said, despite May’s claim that she would be holding further talks “in the coming days”. Brussels sources claimed May was just keeping up a pretence that the legal guarantee she had promised rebellious Tory MPs during this week’s leadership challenge was still on the cards.
Without clear evidence that she has made progress, May faces mounting jeopardy in Westminster, with Labour seriously considering tabling a vote of no confidence before Christmas, if it believes the prime minister’s DUP partners might support it. Jeremy Corbyn accused May on Friday of “dangerously running down the clock”. “The last 24 hours have confirmed that Theresa May’s Brexit deal is dead in the water. The prime minister has utterly failed in her attempts to deliver any meaningful changes to her botched deal,” he said. One shadow cabinet member said the moment at which Labour would table a no-confidence vote was getting “much, much closer”, but said it would depend on the stance of the DUP. “We are watching like hawks,” he added.
Set up a bipartisan commission and get this solved. The US is a tragic laughing stock.
A federal judge in Texas ruled on Friday the Affordable Care Act unconstitutional, potentially threatening health-care coverage for millions of Americans and setting up a new legal showdown over former President Barack Obama’s signature policy initiative. U.S. District Court Judge Reed O’Connor of Texas issued the decision, declaring that key portions of the legislation were inconsistent with the Constitution. O’Connor’s ruling argued that the health-care law can not stand on its own since Congress last December repealed the individual mandate, which imposed a tax penalty on consumers who went uninsured. The mandate, which remains in effect for 2018, was a key part of ACA legislation, otherwise known as Obamacare. The mandate is the greater of $695 person per adult, or 2.5% of household income.
The lawsuit was backed by the Trump administration, and is likely to be appealed — which could mean the legislation will heard anew by the Supreme Court, which upheld Obamacare in a narrowly divided 2012 ruling. Medicare & Medicaid Services Administrator Seema Verma told reporters earlier this month that CMS has a plan to protect pre-existing conditions if the law is struck down. A CMS spokesperson late Friday told CNBC, “The recent federal court decision is still moving through the courts, and the exchanges are still open for business and we will continue with open enrollment. There is no impact to current coverage or coverage in a 2019 plan.”
Government investigators who refuse to share documents with the House. Not just insane, but by now years of insanity.
Fraud investigators have exposed the Clinton Foundation’s alleged misdeeds in a Congressional hearing, describing it as a de facto “foreign agent” devoted not to charity but to “advancing the personal interests of its principals.” The Clinton Foundation acted as an agent of foreign governments “early in its life and throughout its existence,” according to testimony by former government forensic investigator John Moynihan, which, if true, would not only render it in violation of the Foreign Agents Registration Act but also would violate its nonprofit charter, putting it on the hook for a massive quantity of unpaid taxes. Moynihan and fellow ex-government investigator Lawrence Doyle shared 6,000 pages of evidence with the IRS over 18 months ago, only to be met with silence.
They shared them with the FBI multiple times – ditto. Yet when the pair testified before the House Oversight and Government Reform Committee, they refused to turn over the documents, stating they did not want to interfere with any ongoing investigations. The committee chairman Rep. Mark Meadows (R-NC) said witnesses’ reluctance to share all the documents was hardly a “good foundation for truth and transparency,” while Rep. Jody Hice (R-GA) said he felt the duo was “using” the panel for their own benefit. “These are not our facts. They are not your facts. They are the facts of the Clinton Foundation,” said Moynihan, maintaining his interest in the case is purely financial – not political.
Testifying on their findings, Doyle highlighted the Foundation’s alleged “misuse of donated public funds,” explaining that it “falsely attested that it received funds and used them for charitable purposes which was, in fact, not the case. Rather the foundation pursued in an array of activities both domestically and abroad,” which included activities “properly characterized as profit-oriented and taxable undertakings of private enterprise, again failing the operational tests of philanthropy referenced above,” referring to the equally non-charitable pursuit of funding the Clinton Presidential Library. John Huber, appointed by former Attorney General Jeff Sessions to investigate the Clinton Foundation after Sessions recused himself from doing so, was conspicuously absent from the hearing, even though his job is to probe Clinton’s approval of the sale of US uranium assets to Russia.
Globalism has been extremely destructive. Hard to defend.
The idea that republican or democratic government will eventually deteriorate into some form of tyranny is not exactly new. Thomas Jefferson advocated a new revolution every generation to keep the spirit of government accountable to the people alive. Call it what you will – neoliberalism, neoconservatism or globalism – the new world order, as recently deceased President George H.W. Bush once labeled it, characteristically embraces a world community in which there is free trade, free movement of workers and democracy. They all sound like good things but they are authoritarian in nature, destructive of existing communities and social systems while at the same time enriching those who promote the changes.
They have also been the root cause of most of the wars fought since the Second World War, wars to “liberate” people who never asked to be invaded or bombed as part of the process. And there are, of course, major differences between neoliberals and neoconservatives in terms of how one brings about the universal nirvana, with the liberals embracing some kind of process whereby the transformation takes place because it represents what they see, perhaps cynically, as the moral high ground and is recognized as being the right thing to do. The neocons, however, seek to enforce what they define as international standards because the United States has the power to do so in a process that makes it and its allies impossible to challenge.
The latter view is promoted under the phony slogan that “Democracies do not fight other democracies.” The fact that globalists of every type consider nationalism a threat to their broader ambitions has meant that parochial or domestic interests are often disregarded or even rejected. With that in mind, and focusing on two issues – wholesale unwelcome immigration and corrupt government run by oligarchs – one might reasonably argue that large numbers of ordinary citizens now believe themselves to be both effectively disenfranchised and demonstrably poorer as rewarding work becomes harder to find and communities are destroyed through waves of both legal and illegal immigration.
I can still hope he succeeds, but it’s getting hard to see how.
Flanked by a dozen members of DiEM25, the pan-European movement launched in 2016 to “democratize” the continent’s institutions, Varoufakis announced that he would run for a seat representing Germany in the European Parliament. He would make his bid as a Greek, a European, and, you might even say, a Berliner—all to drive home a larger point about the necessity of thinking beyond borders. “No European people can be prosperous and free when other European countries are condemned to the permanent depression that eternal austerity creates,” he said. Persistent unemployment, cuts to welfare, and other suffocating economic policies across the continent help explain why Varoufakis chose Germany—a country he’s best known for antagonizing, precisely over its leaders’ support for austerity, in the fraught negotiations over Greece’s debt in 2015.
These circumstances are also the motivating force behind the Progressive International, an initiative that Varoufakis launched five days later in Burlington, Vermont, with DiEM25 and the Sanders Institute. Building broad-based coalitions takes time, and for now, the Progressive International is just a website with some inspiring language and a video. Its membership is also very Eurocentric. But Varoufakis hopes it will blossom into a global movement that helps leftists create coherent platforms, policies, and parties to defeat the “nationalist international” masterminded by Donald Trump’s former chief strategist, Steve Bannon. The logic is simple. Financiers have long had global networks; now, right-wing authoritarians do too, with coordinated social-media strategies and deep pools of dark money funding campaigns and disrupting elections around the globe.
It’s time for the left to go on the offensive and reclaim its tradition of internationalism: in Varoufakis’s words, to “mobilize workers, women, and the disenfranchised around the world” to prevent outright fascism from taking hold. This means local action, but it also means dreaming big. It’s a fuzzy plan, of course, and one that Varoufakis’s critics deem implausible. Aren’t ideas like “democratizing” the European Union and making global finance more “progressive” oxymorons? How will a ragtag group of leftists dream up a new monetary system and an ecological New Deal for the whole world when Goldman Sachs and ExxonMobil call the shots?
— Christiane Amanpour (@camanpour) December 13, 2018