The European banks are dumping government debt, do they know something we don’t. 2016 was revised down to the worst year of productivity. US companies have more debt, more leverage and more richly valued than ever before. Central bank in England covered up the bond problem and how the central bank was buying the bonds that know one wanted, basically they lied. Another indicator shows we are already in a recession. Now two financial pundits report that bonds are going to be a problem and most likely bring down the entire system. Central banks are still buying stocks. FBI agents raided Paul Manafort’s home in July, what did they find, not much. Russian lawyer reports that the US media changed her story around to make it sound much different than what she was discussing. Tillerson and Trump are playing good cop, bad cop with NK. The deep state continues to push their agenda with NK, what is their end game?
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Current News – 08.09.2017
- New statistical data from the investment bank Jefferies LLC has revealed a startling new trend that could have major implications for Europe’s economic future: Italian banks have begun dumping unprecedented volumes of Italian sovereign debt.
- The banks’ mass sell-off is probably being driven by two main factors: first, as an attempt to preempt a pending Basel III reform package that could eliminate the equity capital privilege for EU government bonds [read: Fears of Italy Doom Loop Resurface]; and second, to position themselves for an anticipated autumn announcement from the ECB that it will begin tightening monetary policy.
- “Maybe we are seeing an indication of Italian banks catching up with what their counterparts in Spain have known for a long time — that sovereign debt is not the place to be in a world of rising interest rates,
- But then: who’s buying it?
- The answer, in the case of Italy, is the ECB and its Italian branch office, the Bank of Italy, where Italian bank deposits rose by €22 billion in June and €50 billion since the start of 2017. The ECB “overbought” Italian government debt in July with purchases of €9.6 billion — its highest monthly quota since quantitative easing began.
- As Italian banks offload their holdings, the ECB, with Italian native and former Bank of Italy governor Mario Draghi at the helm, is picking up the slack. In doing so, the central bank surpassed its own capital key rules by which member state debt is bought in proportion to the size of each country’s economy. By contrast, the ECB’s German Bund purchases slipped below its capital key rules for the fourth month in a row, which further depressed the spread between Italian and German 10-year debt to 152 basis points, its lowest level of the year.
- US non-farm productivity rose 0.9% QoQ in Q2, slightly better than the 0.7% growth expected and a notable bounce off the ‘zero’ in Q1.This rebound was largely due to disappointment in the growth of unit labor costs (which rose just 0.6% in Q2), but saw an outrageous upward revision in Q1 (from +2.2% to +5.4% QoQ).
- Productivity rose 1.2 percent from the second quarter of 2016; unit labor costs, which are adjusted for efficiency gains, were down 0.2 percent from a year earlier
- Over the last 10 years, S&P 500 corporations have returned more money to shareholders via share buybacks and dividends than they have earned.
- At $8.6 trillion, corporate debt levels are 30% higher today than at their prior peak in September 2008.
- At 45.3%, the ratio of corporate debt to GDP is at historical highs, having recently surpassed levels preceding the last two recessions.
- In short, US corporations are simultaneously more indebted, less profitable, and more highly valued than they have been in a long time.
- Plus, they are intentionally making themselves more leveraged by distributing cash as dividends and buying back shares instead of saving or investing that cash.
- As reported last week, the Swiss central bank has accumulated foreign exchange worth 714.3 billion francs (over $740 billion) due to its ongoing interventions to depress the Swiss franc, and has “invested” those funds created out of thin air in stocks and bonds. At the end of the second quarter, it held 20% in equities, of which the bulk was in US stocks.
- While we are far beyond the point of debating central bank intervention in equity markets (we do want to remind readers that until several years ago, it was considered “fake news” to even mention it, and those who accused central bankers of manipulating stock markets were said to be paranoid tinfoil basement dwellers), we want to point out that unlike the BOJ, which at least keeps its capital markets distortion local, the SNB, which likewise creates money out of thin air (then sells it for dollars in an attempt to keep the Swiss franc depressed) is actively causing substantial price distortions in the US.
- While we doubt this will be investigated with stocks are at all time highs, we look forward to the Congressional hearings after the crash when the scapegoating and fingerpointing begins, and everyone is “stunned” to learn that central banks were responsible for blowing the biggest asset bubble the world has ever seen by directly buying stocks.
- What else did the SNB reveal in its 13F? Two main things.
- First, its top 20 holdings are as shown in the following chart. The central bank was clearly not shy in adding to its top positions, especially the top position, which increased as a result of both appreciation and new purchases.
- When one strips away the lies about central banks’ “inflation and employment” mandates and focuses on what they really do – which is to keep asset prices artificially supported and volatility suppressed – the motive behind virtually every central bank act becomes readily apparent: preserve (and increase, if possible) confidence in the market and economy, while saying anything and everything that helps achieve this, or in other words, lie but don’t get caught.
- Today, thanks to the FT, we have proof of precisely this, in what may be the first recorded instance of a central bank openly lying in an attempt to preserve market stability… and getting caught.
- On Tuesday, the Bank of England admitted that the UK government failed to find enough investors to fully cover its its 1914 War Loan, and was forced to turn to the central bank to help plug a deficit of more than £100m in the fundraising. However, it did so only after it lied to the public that the bond was oversubscribed:
- “Despite claims it was swamped with buyers, the 1914 War Loan raised less than a third of its £350m target, attracting a very narrow set of investors, according to BoE employees writing on the Bank Underground website today.” The bloggers uncovered the cover-up by trawling through the bank’s old ledgers.
- As the FT notes, “the debt yielded 4.1 per cent, well above the 2.5 per cent payable on other government debt at the time, but it still failed to attract a wide enough pool of investors.”
- So why lie? For the same reason to this day central bankers around the world lie at every possibly opportunity: to preserve confidence in a fragile system, which can collapse the moment doubt spikes.
The government decided that news of a failed bond sale would have been “disastrous” to the general public, and so schemed with the Bank to plug the gap, the BoE now says. The central bank bought the outstanding securities on offer, and covered its tracks by purchasing the bonds in the name of its chief cashier, and listing them on its balance sheet as “other securities”.
- Ironically, the FT which reported of the BOE’s blog finding, was instrumental in publicizing and disseminating the lie on November 23, 1914, something which many have accused the paper of doing today.
The Financial Times played its role in convincing the public that the sale was a success, publishing a segment (which appears to be an advert) claiming that the debt was oversubscribed and offering “further particulars of this magnificent investment… upon request.”
- Thanks to Jesse Felder, we recently stumbled upon a measure of economic conditions that has reliably signaled every recession since 1948. The data point, Real Value Added, is currently in negative territory and may, therefore, be a harbinger of an economic downturn. If it is a false signal, it would be the first in a 70-year history of observations.
- 720Global does not rely on any one data source to determine the pace of economic activity or to formulate recession probabilities. Instead, we analyze data from many different sources to help better understand the likely path of the economy.
- Gross Value Added (GVA) and Real Value Added (RVA)
- GVA is a measure of economic activity, like GDP, but formulated from the production side of the economy. It measures the dollar value of all goods and services produced less all the costs required to produce those goods or services. For example, if 720Global buys $100 worth of wood, $20 worth of other materials and employs $30 worth of labor to build a chair, we have produced a good for $150. If that good is sold for $200, 720Global has created $50 of economic value.
- since 1948. Periods deemed recessionary by the National Bureau of Economic Research (NBER) are denoted in gray.
Data Courtesy: St. Louis Federal Reserve (FRED)
- Since 1948 there have been 277 quarters of data. RVA has only been negative during recessions or in proximity to periods leading up to and/or following recessions.
- Currently, three of the last four quarters have produced negative RVA levels. Real GDP is not producing similar results, having averaged 2% growth over the same quarters. As mentioned earlier, RVA and Real GDP may not be well correlated over short time frames.
- Last week former Fed Chairman Alan Greenspan warned that the bond market was a gigantic bubble waiting to burst.
- This week, another financial elite, Jamie Dimon, CEO of JP Morgan, has said the same thing.
“I’m not going to call it a bubble, but I wouldn’t personally be buying 10-year sovereign debt anywhere around the world.”
- This would be an ASTONISHING admission from ANY bank CEO. But coming from the CEO of JP Morgan, the single largest bank in the United States, it is truly incredible.
- Because sovereign bonds are the BEDROCK of the entire global financial system. They are the “risk-free” rate against which all risk assets are priced.
- So if sovereign bonds are in a bubble, every asset under the sun is in a bubble.
- And worse still, when the bond bubble bursts, we’re talking about ENTIRE COUNTRIES (not banks) going bust.
- Think what happened to Greece in 2010… for around the world.
- On top of this, the bond bubble is bigger than anything the world has ever seen. The housing bubble was about $14 trillion in size. This bubble is north of $100 TRILLION.
- You’ve been warned.
- Confirming that Special Counsel Mueller’s probe has a particular interest in the business dealing of Trump’s former campaign chairman, Paul Manafort, the WaPo reports that FBI agents “raided the Alexandria home of President Trump’s former campaign chairman late last month, using a search warrant to seize documents and other materials.”
- Federal agents reportedly appeared at Manafort’s home without advance warning two weeks ago, in the predawn hours on Wednesday, July 26, the day after he met voluntarily with the staff for the Senate Intelligence Committee. The WaPo reports that the served search warrant was “wide-rangingand FBI agents working with special counsel Robert S. Mueller III departed the home with various records.”
- Among the documents taken were materials Manafort had already provided to Congress, “If the FBI wanted the documents, they could just ask [Manafort] and he would have turned them over,” said one adviser close to the White House. Clearly, the intention was different.
- For now, the significance of the records seized from Manafort’s apartment is unclear, with the publication adding that Manafort provided documents to both the Senate Judiciary Committee and the Senate and House intelligence committees.
- Russian lawyer Natalia said US media manipulated the story about her meeting with Donald Trump Jr, and accused investor Bill Browder – convicted in Russia for tax fraud – of running a disinformation campaign in the US.“I don’t know what exactly Mr. Mueller is going to investigate regarding my meeting with his president’s son, I can only say what I know – that my meeting was determined by my duties as a lawyer,” Veselnitskaya told RT. “I was defending a Russian citizen in the United States of America. If it turns out that defending a Russian citizen in the US is a crime – in that case, there IS a subject for Mr. Mueller’s investigation.” Veselnitskaya said she believed that the media was colluding with certain interests to help push the narrative of “Russian collusion” with the Trump campaign.
- “You see, it’s interesting how the US media machine works. The New York Times sent me a request with the list of questions on July 8. I was very surprised by these questions – they were focused on my meeting with Mr. Trump,” she said. “At first, I couldn’t even remember when exactly that meeting happened – it was so fleeting and inconsequential. But here’s what’s interesting – after receiving a quite detailed response from me, The New York Times published only a short part they needed. Today, this article has changed significantly – if you open the first story they had on this matter, and compare it to the original version they published on the 8th – you will see how dramatic the difference is.”
- Earlier today, US based NBC news reported that America was preparing for airstrikes in Philippines against terrorist targets.
- This was followed by a flagrant denial by Philippines. As The Duran reported,
- Now, the Pentagon has confirmed that the US has no plans to intervene and that no such requests were made, thus backing up the Philippine side of the original story.
- The release was expected following yesterday’s news that Canadian special envoy, Daniel Jean, national security advisor to the prime minister of Canada, and his party had arrived in Pyongyang on Tuesday.
- North Korea is still holding three Americans. The U.S. State Department said last week it would ban U.S. nationals from traveling to the isolated country, beginning in September.
The KPA Strategic Force is now carefully examining the operational plan for making an enveloping fire at the areas around Guam with medium-to-long-range strategic ballistic rocket Hwasong-12 in order to contain the U.S. major military bases on Guam including the Anderson Air Force Base in which the U.S. strategic bombers, which get on the nerves of the DPRK and threaten and blackmail it through their frequent visits to the sky above south Korea, are stationed and to send a serious warning signal to the U.S.
- That Kim Jong Un is eyeing Guam, the sovereign U.S. territory with a strategic airfield and naval station, is no surprise to the 160,000 Guamanians on the island.
- The Syrian Arab Army (SAA), alongside the Palestine Liberation Army (PLA), resumed their offensive in eastern Al-Sweida this morning, targeting the Free Syrian Army’s (FSA) positions near the Jordanian border.