Russia and Iran discuss using cryptocurrency to bypass the dollar and sanctions. We have been paying attention to the wrong interest rates, the rate which we would should be watching is he Libor rate. Italian banks are exposed and banks around the world are exposed to the Italian banks, this will not end well. We have now hit the credit cycle peak, we hit this peak during the last recessions, we are at that point. There are multiple indications that point to one thing and one thing only, a collapse of the economy. The North Korea summit is back on, the trap was set and the deep state went for it. Greece and Turkey make deals with Russia regarding pipelines and ship building. US warships enter South China sea according to unknown sources. Syria submits names to the UN to create a new constitution. Lavrov says Russia should control the southern part of Syria. Israel and Iran might be in negotiations for peace in the region, Syria might follow Putin’s lead and ask Iran to leave Syria, in doing this the agreement will include the coalition forces and Russia will control the southern part of Syria with the Syrian Army. The pieces are now being rearranged to trap the deep state.
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Current News – 05.28.2018
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- Iranian MP chairing the Commission for Economic Affairs Mohammad-Reza Pourebrahimi has suggested that Iran and Russia could use cryptocurrency to overcome sanctions and use it as a replacement for the SWIFT inter-bank payment system to execute international bank transfers.
- Start by paying attention to the interest rate that matters. Chances are, you’ve watched the talking heads on TV. They are heavily focused on the Federal Reserve and what actions members plan to take on interest rates.
- But, the interest rate that really matters is LIBOR. LIBOR stands for the London Interbank Offered Rate. It’s an extremely important rate.
- When investors borrow money and use their portfolio as collateral, the loan is often priced at LIBOR plus some base interest rate. For example, the loan might be priced at LIBOR plus 1%. Importantly, these loans are not priced based on the federal funds rate.
- Nearly every day it is getting more and more expensive to maintain these lines of credit that wealthy investors have been using.
- How much credit is out there, borrowed against stock portfolios? Trillions of dollars.
- People with portfolios of liquid assets, people who own stocks, have access to these credit lines. Often they must have more than $1 million in stocks and bonds to gain access to LIBOR-plus loans. These are the one percenters.
- They can buy a new house or finance a large purchase of an illiquid asset by using their portfolio as collateral. These assets might be boats, planes, fine wine, or investable art.
- You name it.
- The rub is that the banks don’t ask you what you’re going to use the money for. The only stipulation is that it can’t be used to buy more stocks. Anything else is fair game.
- However, there is a problem. As interest rates creep up and more portfolios have been used to finance asset purchases, a huge storm can be created if stocks and bonds take even a minor dip.
- If stock prices slide, the borrower could get margins calls. They have to sell stock, but, they also have to reduce their leverage because they can only borrow so much against the portfolio. Everything unravels at once, accelerating the selling pressure. What should be down 10% in normal markets might be down 30% in a highly levered market.
- With trillions out there, things could get nasty. What’s the tipping point?
- Now, as the stock market has practically gone parabolic, investors have taken on massive amount of margin debt. When this margin debt is unwound, like it was during the last two bear markets, it’s going to be nastier than before because there is so much speculation in the system.
- Based on history, we are clearly in Bubble Territory. Years of low interest rates have manipulated the stock market higher and created an imbalance that is disproportionate relative to the general economy. When the market does get hit with another crisis or bear market, it’s going to be more painful than normal given its relative size to the economy.
- One of the big questions investors are asking themselves is which banks are most exposed to Italian debt.
- A recent study by the Bank for International Settlements shows Italian government debt represents nearly 20% of Italian banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign-debt holdings that represent over 100% of their tier-1 capital
- The list includes Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier-1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), Monte dei Paschi di Siena (206%), BPER Banca (176%) and Banca Carige (151%).
- In other words, despite years of the ECB’s multi-trillion euro QE program, which is scheduled to come to an end soon, the so-called “Doom Loop” is still very much alive and kicking in Italy. The doom loop is when weakening government bonds threaten to topple the banks that own the bonds, and in turn, the banks start offloading them, which causes these bonds to fall further, thus pushing the government to the brink. The doom loop is a particular problem in the Eurozone since a member state doesn’t control its own currency, and cannot print itself out of trouble, which leaves it exposed to credit risk.
- But it’s not just Italian banks that are heavily exposed to Italian debt. So, too, are French lenders, which last year had combined holdings of Italian bonds worth €44 billion, according to data from the European Banking Authority’s 2017 transparency exercise. Spanish banks had €29 billion.
“I do think we’re all feeling like where we were back in 2007,”
- the level of global nonfinancial junk-rated companies has soared by 58% representing $3.7 trillion in outstanding debt, the highest ever, with 40%, or $2 trillion, rated B1 or lower. Putting this in contest, since 2009, US corporate debt has increased by 49%, hitting a record total of $8.8 trillion, much of that debt used to fund stock repurchases. As a percentage of GDP, corporate debt is at a level which on ever prior occasion, a financial crisis has followed.
- The recent glut of debt is almost entirely attributable to the artificially low interest-rate environment imposed by the Federal Reserve and its central bank peers following the crisis. Many companies took advantage and refinanced their debt before 2015 when a large swath was set to mature, kicking the can several years down the road.
- So how bad are things at this moment?
- #1 The “smart money” is getting out of stocks at a rate that we haven’t seen since just before the financial crisis of 2008.
- #2 Moody’s is warning that a “particularly large wave” of junk bond defaults is coming. And as I have written about so many times before, junk bonds are often an early warning indicator for a major financial crisis.
- #3 According to the FDIC, a closely watched category known as “assets of problem banks” more than tripled during the first quarter of 2018. What that means is that some really big banks are now officially in “problem” territory.
- #4 U.S. Treasury bonds are having the worst start to a year since the Great Depression.
- #5 Mortgage interest rates just hit a 7 year high, and they have been rising at the fastest pace in nearly 50 years. This is going to be absolutely crippling for the real estate and housing industries.
- #6 Retail industry debt defaults have hit a record high in 2018.
- #7 We are on pace for the worst year for retail store closings ever.
- #8 The two largest economies on the entire globe are on the verge of starting an international trade war.
- #9 The 9th largest economy in the world, Italy, is in the midst of yet another financial meltdown. In fact, this one appears to be the worst yet, and there are fears that it could spread to other areas of the eurozone.
- #10 Italian banking stocks crashed really hard this week.
- #11 Italian two year bond yields are the highest that they have been since the crisis of 2014.
- #12 German banking giant Deutsche Bank just announced that it will be cutting another 7,000 jobs as it “seeks to turn the page on years of losses”. Those of you that have followed my work for a long time know that I have written extensively about Deutsche Bank, and it really is amazing that it has survived for this long. If Deutsche Bank fails in 2018, it will essentially be a “Lehman Brothers moment” for the entire planet.
- North Korean leader Kim Jong-un has held a surprise closed-door meeting with his South Korean counterpart over the cancelled summit with US President Donald Trump.The meeting is the second of its kind in two months, with the pair sitting down at a location near the demilitarized zone on the Korean peninsula
- U.S. OFFICIALS CROSS INTO NORTH KOREA FOR SUMMIT PREPARATION TALKS
- Athens sent a delegation to the St. Petersburg Economic Forum (SPIEF), which has spanned the latter part of this week, in a bid to secure Russian cooperation in possible joint endeavours. The event drew over 15,000 participants from over 100 countries and heads of state from France and China. One area in which Greece was there to seek Russian cooperation on was in the sector of shipbuilding.
- Russian state energy giant Gazprom and the Turkish government reached a deal on the construction of the land-based part of the Turkish Stream branch that will bring Russian gas to European consumers.
- The destroyer USS Higgins and the USS Antietam cruiser came near to the disputed Paracel Islands in the South China Sea, Reuters reported, citing an anonymous US official. According to the outlet, the warships passed by the Tree, Lincoln, Triton and Woody islands in the Paracels. Another unnamed US official noted that the move was likely made to exert pressure on Beijing over the North Korean issue.
- The Syrian government has submitted a list of names to the United Nations as candidates for inclusion in a constitutional committee,
- Formation of the committee, which will rewrite the Syrian constitution, was agreed at a Syrian peace conference in the Russian ski resort of Sochi in January. It is up to de Mistura to decide whom to pick.
- De Mistura has said he will select about 50 people, including supporters of the government, the opposition and independents
- Militants linked with the terrorist group Islamic State are feeling increasingly comfortable in a refugee camp located near a US military base in southern Syria, the Russian foreign minister said.”We have plenty of reports about strange things happening in the Al-Tanf area,” Sergey Lavrov said on Monday. “This area has no particular military value in terms of fighting terrorism. And in practical terms, we see a rise of presence in the region of militant groups, including those we believe to be connected with Islamic State (IS, formerly ISIS) in this or that way, including in the Rukban refugee camp.
- US plans to withdraw from Al-Tanf, Lavrov said he has not seen any reports indicating such an intention, but would welcome such a move.
- Russian Foreign Minister Sergei Lavrov stated that only Syrian government should have troops on the country’s southern border,
- According to Lavrov, a de-escalation zone in the south of Syria was established to eventually withdraw all non-Syrian forces from the border area.
- , there are new reports of unprecedented indirect talks being held between Iran and Israel. And related unconfirmed reports suggest the Syrian government may have asked Iranian forces to withdraw their presence from key bases