Italy’s Bank Bailout Fund Already One Third Empty After First Bank Rescue – 04.30.16

  • When one month ago, Italy was scrambling to unveil a “last resort” bad bank bailout fund (which eventually received the name Atlante, or Atlas, for the Titan god who was condemned to hold up the sky for eternity, only in this case he is holding up Italy’s €360 billion in bad loans), many wondered why the rush? While the explicit purpose of the fund was to allow Italy to bailout insolvent banks without the involvement of the state which is expressly prohibited by the Eurozone, the scramble appeared erratic almost frentic, and was one of the reasons why Italian bank stocks tumbled in early February.
  • The question: “Does someone know something?”
  • It turns out the answer was yes, because as we learn today, “Atlas” is about to become the proud new owner of around 90% of Italy’s Popolare di Vicenza after investors only bought a fraction of the mid-tier bank’s €1.5 billion IPO, Reuters reports.
  • Popolare di Vicenza, which was due to announce the outcome of the public share offer later on Friday, said earlier in the day that it had raised €4.25 billion, at the lower end of a 4-6 billion euro range it had initially targeted, from 67 mostly domestic financial institutions.
  • And if the low take-up for the Popolare di Vicenza share sale is confirmed, Atlas is about to see nearly a third of its fire-power invested in a single bank.

Read more at:Italy’s Bank Bailout Fund Already One Third Empty After First Bank Rescue


US Treasury Gives Explicit Warning To China, Germany And Japan Not To Devalue Their Currencies – 04.29.16

  • While the US Treasury’s semi-annual report on the foreign-exchange policies of major U.S. trading partners has traditionally been, pardon the pun, a paper tiger, as the US has not named a single country as a currency manipulator since it did so to China in 1994, and it didn’t go so far as to blame any country as an outright manipulator in the just released April edition, there was a new addition to the latest report.
  • In an inaugural “monitoring list”, the US put five economies including China, Japan and Germany (as well as South Korea and Taiwan) on a new currency watch list, saying that their foreign-exchange practices bear close monitoring to gauge if they provide an unfair trade advantage over America.
  • This is what it said:
 In determining the appropriate factors to assess these criteria, Treasury took a thorough approach, analyzing data spanning 15 years across dozens of economies, including all economies that have had a trade surplus with the United States during that period, and which in the aggregate represent about 80 percent of global GDP. The thresholds are relatively robust in that reasonable changes to the thresholds do not materially change the Report’s conclusions. Treasury will also continue to review the factors it uses to assess these criteria to ensure that the new reporting and monitoring tools provided under the Act meet the objective of indicating where unfair currency practices may be emerging.

Pursuant to the Act, Treasury finds that no economy currently satisfies all three criteria, however, five major trading partners of the United States met two of the three criteria for enhanced analysis. Treasury is creating a new “Monitoring List” that includes these economies: China, Japan, Korea, Taiwan, and Germany. China, Japan, Germany, and Korea are identified as a result of a material current account surplus combined with a significant bilateral trade surplus with the United States. Taiwan is identified as a result of its material current account surplus and its persistent, one-sided intervention in foreign exchange markets. Treasury will closely monitor and assess the economic trends and foreign exchange policies of these economies.

As noted above, Treasury is creating a new “Monitoring List” that cites major trading partners that have met two of the three criteria specified in the Act. In this first Report, the Monitoring List includes China, Japan, Korea, Taiwan, and Germany.

  • This is about as direct a threat to the 3+2 nations not to engage in major currency devaluation whether through QE, NIRP or major interest rate changes as Jack Lew could come up with, and in some ways was to be expected in the aftermath of the G-20 meeting which as we found out this week, precluded any additional QE by the BOJ.

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Jim Bianco Warns “The Risk Of An ‘Accident’ Is Very High”

  • In an interesting interview with Finanz und Wirtschaft, Bianco Research president Jim Bianco discusses a variety of topics such as negative interest rates turning the entire credit process upside down, bank balance sheets being even more complex and concentrated than before the financial crisis, energy loans being an accident waiting to happen, the markets having veto power over the Fed, and gold having more room to run.
  • * * *
  • Mr. Bianco, negative interest are causing a lot of stir at the financial markets. It looks like even the Bank of Japan is having some doubts now, since it didn’t launch more monetary stimulus this week. What’s your take on negative interest rates?
 Even if you go back to the Egyptian pharaohs and the Fertile Crescent in Mesopotamia we have never consistently seen negative interest rates in the reported human history until two years ago. That’s why investors are worried that negative rates are going to create distortions and what you see out of Japan are some of those distortions. The Bank of Japan is not getting the market reaction that it expected. So if negative yields are not a mistake then central bankers have to do a better job in explaining to the world why this is going to work out just fine.
  • Why are many investors so skeptical about negative interest rates?

Read more at:Jim Bianco Warns “The Risk Of An ‘Accident’ Is Very High”


All Depressions Are Not Created Equal – 04.29.16

  • It has been said that history may not repeat but it sometimes rhymes. Just as the generals always seem to fight the last war people seem to prepare for the last depression. Times change and the mechanism that leads to misfortune changes with it. Looking at the past may not give us the clear answer to how to deal with the future but it can help us to determine what might happen and how to deal with it when the time comes.
  • We always look at the last incident because that is what we know. The problem is that social and economic conditions are always changing and they have a major impact on how things unfold. When people hear that they should prepare for another great depression they immediately think about how people survived the last one and how events unfolded. That is a good starting point but things will not be exactly the same the next time.
  • In the 1930’s people did not posses specialized skills, they had general knowledge that allowed them to take any job that was available. Today people are skilled in one area and loss of employment in that area requires them to obtain skills to work in a new area. The jack of all trades has been replaced by the specialist so when job loss comes they have a more difficult time finding a new one.
  • In the 1930’s we had a deflationary depression and anyone holding cash and bonds were able to hold on to their wealth and banks were allowed to fail. The farmers suffered from a drop in commodity prices but taxes were low and most people that had land owned it free and clear allowing them to stay in place. Today we are more likely to have an inflationary depression due to the mandate to save the banks at all costs. Anyone trying to save their wealth in cash and bonds will get slaughtered in the paper assets they hold due to massive money printing.
  • In the 1930’s most people lived in rural areas and people worked to help their neighbors in difficult times. Most people had the skills to take care of themselves and their families until things got better. Today most people live in urban and suburban areas and society has been fragmented into militant groups that cannot work together even in good times. Declining economic conditions will likely make society turn in on itself even more causing suffering and loss of life. Most people have no idea how to care for themselves if the system breaks down.
  • In the 1930’s people were forced to find new employment due to job loss because there were no social safety nets to provide for them. In difficult times they were forced to look to family, friends and the church for help but most people felt they had failed if they asked for help. Today people losing a job have unemployment, welfare, food stamps and dozens of other services to provide

Obama Admits Couldn’t “Convince Americans Of ‘Recovery'”, Bashes ‘The Big Short’

  • Despite his proclamation that he “saved the world from a Great Depression,” the fact is that Obama will be the first President ever to not see a single year of 3% GDP growth – but only cynical fiction-peddlers would mention facts at a time like this. In yet more legacy-defending narrative, Obama toldThe NYTimes today that his biggest failure was being unable to sell his success in putting the American economy back on track to the American people (no matter the actual realities) careful to blame Republicans for slowing growth “by a percentage point or two.” And then in a final affront to fact, Obama dismisses the conclusion of “The Big Short” proclaiming that he reined in Wall Street, overhauled the banking system, and made water from wine “the financial system substantially more stable.”
  • With regard his presidential legacy, Obama recently said he was proud of the healthcare reforms, and added that:

“saving the world from a Great Depression – that was quite good.”

  • Defending the sheer arrogance (and ignorance) of such a statement, he added, “I’m proud; I think I’ve been true to myself during this process.” Truth must have a different meaning where he comes from, but of course, anyone doubting the truthiness of such a statement was hacked down to size with the now ubiquitous “Don’t give up and succumb to cynics.”
  • And now, as The Independent notes,
  The interview, with the paper’s Sunday Magazine, was part an exercise in patting himself on his own back for lifting the US out of the economic morass he inherited from President George W. Bush and part remorse.

“I actually compare our economic performance to how, historically, countries that have wrenching financial crises perform,” he said of the early days of his presidency. “By that measure, we probably managed this better than any large economy on Earth in modern history.”

  • However, in fact, some might way his economic performance was simply the worst…
Obama is First President Ever to Not See Single Year of 3% GDP Growth

According to Louis Woodhill, if the economy continues to perform below 2.67% GDP growth rate this year, President Barack Obama will leave office with the fourth worst economic record in US history.

Assuming 2.67% RGDP growth for 2016, Obama will leave office having produced an average of 1.55% growth. This would place hispresidency fourth from the bottom of the list of 39, above only those of Herbert Hoover (-5.65%), Andrew Johnson (-0.70%) and Theodore Roosevelt (1.41%)

Read more at:Obama Admits Couldn’t “Convince Americans Of ‘Recovery'”, Bashes ‘The Big Short’


Congress Votes To Require Women To Register For Selection – 04.28.16

  • With all the problems facing America – both at home and abroad – The House Armed Services Committee decided on Wednesday to solve one of the nation’s crucial “problems” – a “sexist draft.”
  • As reports on Wednesday the committee approved (by a narrow margin) an amendment to a defense bill to require women to register for the draft.
  • Rep. Duncan Hunter, a Republican from California, proposed the amendment to lift the restriction on women registering for the selective service at a committee-wide mark-up session of the proposed fiscal 2017 National Defense Authorization Act.
  • “Here is why I think this is important; it doesn’t matter in this debate whether you think women should be in the infantry or be in special operations,” Hunter said during the session on Wednesday night. “I personally don’t. If we had that vote in committee today I would vote against women being in infantry and special operations.

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UN Syria envoy says ceasefire ‘alive but barely,’ calls on Russia and US to revive- 04.28.16

  • Acknowledging the increasingly shaky state of the ceasefire in Syria, the UN’s special envoy to the country has expressed hope that Russia and the US can breathe a new impetus that will halt fighting on the ground and solidify the political transition process.
  • Speaking to reporters following his briefing to the United Nations Security Council and at the conclusion of the latest round of negotiations, Staffan de Mistura acknowledged that the ceasefire brokered by the US and Russia is in “grave danger.”
  • “It is still alive, but barely. And the perception is that it could collapse any time,” the envoy said. “Let’s put it in a few words- in the last 48 hours we had on the average one Syrian killed every 25 minutes, one Syrian wounded every 13 minutes.”
  • To save the ongoing political talks and safeguard the February 27 truce, de Mistura expressed hope that Moscow and Washington can revitalize the negotiations by pressuring the warring parties to adhere to the ceasefire.
  • “We need that to be urgently revitalized… the Russian Federation and the US need to come back again and relaunch it,” he said. “And it is totally possible.”

Read more at:UN Syria envoy says ceasefire ‘alive but barely,’ calls on Russia and US to revive it