With the inherent weakness in US GDP and the rising probability of a recession (two weeks ago Bank of America modeled that the next recession would likely start roughly one year from now), Gluskin Sheff's David Rosenberg thinks that with monetary options exhausted it will take a fiscal boost in the trillions of dollars to kickstart the economy. These issues were discussed in an extended interview with Real Vision TV, where the chief economist and strategist at Gluskin Sheff proposed some radical policies to engineer the growth needed in nominal income.
His ideas, some of which can be seen here in a clip of the interview, include helicopter money attached to a $2 trillion perpetual bond, massive infrastructure spending and measures to tackle the $1 trillion student debt load that has seriously hamstrung the economy.
Doing the Same Thing Over Again and Expecting a Different Outcome
Whether the US will in fact experience the technical definition of a recession is a matter of fervent debate, with the odds something like 20%-30%, according to Rosenberg (60% according to Deutsche Bank), but with growth averaging around 1%, there is no doubt the economy is weak.
“There are some people saying a recession is here right now,” Rosenberg says, “I don't think that we meet those conditions yet. But people say, well, look. Twelve months in a row of negative year on year industrial production, that's never happened outside recession, check. We've had now going into six quarters of profit contraction, year over year. That's only happened in the context of a recession, check. I mean, all that is true, but so much of this has been related to the oil shock that we had.”
Read the entire article
DAILY BUSINESS REPORT - Financial Updates, International Markets and Business News
October 21, 2016
October 20, 2016
Mexico Orders Banks To "Stress Test" For A Trump Victory
It's official: Donald Trump is now a systemic threat.
As part of the Mexican stress test, alongside more traditional calamities such as recession, economic crisis, and market crash, the Mexican financial authorities have ordered local banks to assess the potential impact of Donald Trump winning the U.S. presidential election, Reuters reports. Citing six bank sources, Reuters says that alongside a "normal" annual stress test, the banks were asked to conduct an additional test to examine the macroeconomic effects and volatility resulting from a potential Trump victory on Nov. 8.
The local regulator, the Financial System Stability Board (CESF) said that as a result of the ongoing risk surrounding the U.S. election and an expected tightening in Federal Reserve monetary policy, it had examined the results of stress tests of the country's financial system. "These exercises showed that the banking sector maintains adequate levels of capital and liquidity to face adverse scenarios," the CESF, which includes representatives from the Finance Ministry, the Bank of Mexico and the banking regulator CNBV, said in its statement.
However, while the rest of the stress test is largely fluff, what Mexico really wanted to know is what happens to local banks if Trump becomes president in 19 days: as a result the tests "were specifically aimed at modeling the possible impact of a Trump victory over Democratic candidate Hillary Clinton, the latest example of the panic the Republican candidates campaign has induced in Mexico."
Read the entire artcile
As part of the Mexican stress test, alongside more traditional calamities such as recession, economic crisis, and market crash, the Mexican financial authorities have ordered local banks to assess the potential impact of Donald Trump winning the U.S. presidential election, Reuters reports. Citing six bank sources, Reuters says that alongside a "normal" annual stress test, the banks were asked to conduct an additional test to examine the macroeconomic effects and volatility resulting from a potential Trump victory on Nov. 8.
The local regulator, the Financial System Stability Board (CESF) said that as a result of the ongoing risk surrounding the U.S. election and an expected tightening in Federal Reserve monetary policy, it had examined the results of stress tests of the country's financial system. "These exercises showed that the banking sector maintains adequate levels of capital and liquidity to face adverse scenarios," the CESF, which includes representatives from the Finance Ministry, the Bank of Mexico and the banking regulator CNBV, said in its statement.
However, while the rest of the stress test is largely fluff, what Mexico really wanted to know is what happens to local banks if Trump becomes president in 19 days: as a result the tests "were specifically aimed at modeling the possible impact of a Trump victory over Democratic candidate Hillary Clinton, the latest example of the panic the Republican candidates campaign has induced in Mexico."
Read the entire artcile
October 19, 2016
Trump, Clinton, Obama and the TPP
The Trans-Pacific Partnership (TPP) agreement between the US and eleven other Pacific Rim countries was under negotiation for the first seven years of the Obama presidency. For the first four years, Hilary Clinton was the Secretary of State, directly supervising the negotiations. Even after she quit her cabinet position to launch for her second presidential bid, she continued to tout it in superlative terms.
Yet, by early 2016, most presidential aspirants, including Mrs. Clinton, had disowned the TPP. No new information about the TPP had come to light to prompt this volte face. Nor had the then new Secretary of State John Kerry added anything radically new to the proposals she was associated with during her tenure.
While largely in the interests of corporate America, the TPP is not in the interests of the US economy or the public at large. While it is in the interest of US transnational corporations (TNCs) to source manufactures and services from low-wage Asian economies for the US market, by doing so, they are likely to displace those previously producing those goods, increasing US unemployment. This, in turn, reduces aggregate demand and increases the current account deficit in the US balance of payments.
US Corporate Interests
The TPP will promote US corporate interests by institutionalizing new arrangements which undermine the sovereignty of TPP countries, including the US itself. For instance, the TPPA’s patent and copyright provisions are stronger and for longer durations. This would strengthen corporate monopolies, especially of US TNCs, raising the prices of goods, especially pharmaceutical drugs, in all TPP countries. Thus, while US TNCs stand to profit greatly, consumers in all TPP countries, including the US, would be worse off.
Read the entire article
Yet, by early 2016, most presidential aspirants, including Mrs. Clinton, had disowned the TPP. No new information about the TPP had come to light to prompt this volte face. Nor had the then new Secretary of State John Kerry added anything radically new to the proposals she was associated with during her tenure.
While largely in the interests of corporate America, the TPP is not in the interests of the US economy or the public at large. While it is in the interest of US transnational corporations (TNCs) to source manufactures and services from low-wage Asian economies for the US market, by doing so, they are likely to displace those previously producing those goods, increasing US unemployment. This, in turn, reduces aggregate demand and increases the current account deficit in the US balance of payments.
US Corporate Interests
The TPP will promote US corporate interests by institutionalizing new arrangements which undermine the sovereignty of TPP countries, including the US itself. For instance, the TPPA’s patent and copyright provisions are stronger and for longer durations. This would strengthen corporate monopolies, especially of US TNCs, raising the prices of goods, especially pharmaceutical drugs, in all TPP countries. Thus, while US TNCs stand to profit greatly, consumers in all TPP countries, including the US, would be worse off.
Read the entire article
October 18, 2016
ECB's First Chief Economist Warns: The EU Is A "House Of Cards"
None of the following about the EU will come as a surprise to most of you, but the language used by Otmar Issing is nevertheless pretty remarkable.
The Telegraph reports:
The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned.
“One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB’s first chief economist and a towering figure in the construction of the single currency.
Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since degenerated into a fiscal free-for-all that once again masks the festering pathologies.
“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly,” he told the journal Central Banking in a remarkable deconstruction of the project.
The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.
Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said.
The ECB has “crossed the Rubicon” and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in rescue missions and agent of monetary policy. Its own financial integrity is increasingly in jeopardy.
Read the entire article
The Telegraph reports:
The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned.
“One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB’s first chief economist and a towering figure in the construction of the single currency.
Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since degenerated into a fiscal free-for-all that once again masks the festering pathologies.
“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly,” he told the journal Central Banking in a remarkable deconstruction of the project.
The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.
Prof Issing lambasted the European Commission as a creature of political forces that has given up trying to enforce the rules in any meaningful way. “The moral hazard is overwhelming,” he said.
The ECB has “crossed the Rubicon” and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in rescue missions and agent of monetary policy. Its own financial integrity is increasingly in jeopardy.
Read the entire article
October 17, 2016
Why Italy’s Banking Crisis is Spiraling Out of Control
Things have got so serious in Italy that the only two things propping up the country’s crumbling banking sector — apart from the last few remaining crumbs of public faith in the system — are two inadequately capitalized bad bank funds, Atlante I and the imaginatively named Atlante II.
Both funds are operated by a deeply opaque Luxembourg-based private firm called Quaestio SGR. The firm is a wholly owned subsidiary of Quaestio Holding S.A, which is itself jointly owned by a bizarre mishmash of organizations, including Fondazione Cariplo (37.65%), an influential “charitable” banking foundation; Fondazione Cassa dei Risparmi di Forlì (6.75%), a regional savings bank; Cassa Italiana di Previdenza e Assistenza dei Geometri liberi professionisti (18%), a bank for professional freelance surveyors (no, seriously); Locke S.r.l. (22%), an obscure Milan-based holding company; and Direzione Generale Opere Don Bosco (15.60%), a Roman Catholic religious institute. No surprises there.
[Hat tip to regular WOLF STREET reader and commenter MC for pointing out some of the peculiarities of Italy’s two bad banks]
Atlante I’s funds are largely privately sourced, coming primarily from Italy’s largest banks. The two biggest banks, Unicredit and Intesa San Paolo,both pledged around a billion euros a piece. A further €500 million was provided by a gaggle of smaller banks and another €500 million was pledged by Cassa Depositi e Prestiti (CDP for short), an almost wholly state-owned financial institution. With a little extra help from certain foreign investors, Atlante was able to claw together some €4.8 billion — to help solve a €360 bad-debt problem.
Read the entire article
Both funds are operated by a deeply opaque Luxembourg-based private firm called Quaestio SGR. The firm is a wholly owned subsidiary of Quaestio Holding S.A, which is itself jointly owned by a bizarre mishmash of organizations, including Fondazione Cariplo (37.65%), an influential “charitable” banking foundation; Fondazione Cassa dei Risparmi di Forlì (6.75%), a regional savings bank; Cassa Italiana di Previdenza e Assistenza dei Geometri liberi professionisti (18%), a bank for professional freelance surveyors (no, seriously); Locke S.r.l. (22%), an obscure Milan-based holding company; and Direzione Generale Opere Don Bosco (15.60%), a Roman Catholic religious institute. No surprises there.
[Hat tip to regular WOLF STREET reader and commenter MC for pointing out some of the peculiarities of Italy’s two bad banks]
Atlante I’s funds are largely privately sourced, coming primarily from Italy’s largest banks. The two biggest banks, Unicredit and Intesa San Paolo,both pledged around a billion euros a piece. A further €500 million was provided by a gaggle of smaller banks and another €500 million was pledged by Cassa Depositi e Prestiti (CDP for short), an almost wholly state-owned financial institution. With a little extra help from certain foreign investors, Atlante was able to claw together some €4.8 billion — to help solve a €360 bad-debt problem.
Read the entire article
October 14, 2016
While Media Obsesses Over Pussy-Gate, US Debt Soars To $19.7 Trillion
One of the things that caught my attention this morning was that the US government’s debt level has soared to just a hair under $19.7 trillion.
To give it some context, that’s up over $170 billion in just eight business days.
It’s almost as if Barack Obama is intentionally and desperately trying to breach the $20 trillion mark before he leaves office in January.
Total US public debt has skyrocketed over the last eight years by $9 trillion, from $10.6 trillion to $19.7 trillion.
And in the 2016 fiscal year that just closed two weeks ago, the government added a whopping $1.4 trillion to the debt, the third highest amount on record.
Plus, they managed to accumulate that much debt at a time when they weren’t even really doing anything.
It’s not like the government spent the last year vanquishing ISIS or rebuilding US infrastructure. They just… squandered it.
Read the entire article
To give it some context, that’s up over $170 billion in just eight business days.
It’s almost as if Barack Obama is intentionally and desperately trying to breach the $20 trillion mark before he leaves office in January.
Total US public debt has skyrocketed over the last eight years by $9 trillion, from $10.6 trillion to $19.7 trillion.
And in the 2016 fiscal year that just closed two weeks ago, the government added a whopping $1.4 trillion to the debt, the third highest amount on record.
Plus, they managed to accumulate that much debt at a time when they weren’t even really doing anything.
It’s not like the government spent the last year vanquishing ISIS or rebuilding US infrastructure. They just… squandered it.
Read the entire article
October 13, 2016
Could Falling Chinese Oil Production Kill The OPEC Deal?
Dwindling Chinese oil production could lead the Organization of Petroleum Exporting Countries (OPEC) to delay a freeze deal further, as the Asian giant ramps up its own imports to make up for lost domestic supply.
China, which was ranked as the fifth-largest oil producer in the world during 2015, reported a production rate of 3.87 million barrels per day in August—the lowest since December 2009, and the second consecutive month of sharp declines, according to Forbes.
Markets will have to reach an oil price of $60 a barrel before Chinese energy companies can grow production operations back to previous highs, analysts speaking to Bloomberg have said.
Even in 2015 –a year when oil prices were thought be on the road to recovery after the 2014 crash – Sinopec reported that it slashed oil and gas production.
As China’s middle class booms, the demand for energy has been and will be soaring with it. By 2022, McKinsey and Co. estimates that approximately 76 percent of the country’s urban population will be considered middle class.
The China National Offshore Oil Cooperation (CNOOC) can see profits at barrel prices above $41 a pop on average – a figure almost 40 percent higher than the break-even point of select Middle Eastern outlets who can still viably produce in a $25 a barrel market.
Read the entire article
China, which was ranked as the fifth-largest oil producer in the world during 2015, reported a production rate of 3.87 million barrels per day in August—the lowest since December 2009, and the second consecutive month of sharp declines, according to Forbes.
Markets will have to reach an oil price of $60 a barrel before Chinese energy companies can grow production operations back to previous highs, analysts speaking to Bloomberg have said.
Even in 2015 –a year when oil prices were thought be on the road to recovery after the 2014 crash – Sinopec reported that it slashed oil and gas production.
As China’s middle class booms, the demand for energy has been and will be soaring with it. By 2022, McKinsey and Co. estimates that approximately 76 percent of the country’s urban population will be considered middle class.
The China National Offshore Oil Cooperation (CNOOC) can see profits at barrel prices above $41 a pop on average – a figure almost 40 percent higher than the break-even point of select Middle Eastern outlets who can still viably produce in a $25 a barrel market.
Read the entire article
October 12, 2016
Can The Price Of Oil Hold Above $50 Per Barrel?
Why energy prices are ultimately headed lower; what the IMF missed
We have been hearing a great deal about IMF concerns recently, after the release of its October 2016 World Economic Outlook and its Annual Meeting October 7-9. The concerns mentioned include the following:
These issues are very much related to issues that I have been writing about:
Read the entire article
We have been hearing a great deal about IMF concerns recently, after the release of its October 2016 World Economic Outlook and its Annual Meeting October 7-9. The concerns mentioned include the following:
- Too much growth in debt, with China particularly mentioned as a problem
- World economic growth seems to have slowed on a long-term basis
- Central bank intervention required to produce artificially low interest rates, to produce even this low growth
- Global international trade is no longer growing rapidly
- Economic stagnation could lead to protectionist calls
These issues are very much related to issues that I have been writing about:
Read the entire article
October 11, 2016
During The Coming Economic Crisis Two-Thirds Of The Country Will Be Out Of Cash Almost Immediately
Did you know that almost 70 percent of the U.S. population is essentially living paycheck to paycheck? As you will see below, a brand new survey has found that 69 percent of all Americans have less than $1,000 in savings. Of course one of the primary reasons for this is that most of us are absolutely drowning in debt. In fact, the total amount of household debt in the United States now exceeds 12 trillion dollars. So many Americans are so busy just trying to pay off their existing debts that they can’t even think about saving anything for the future. If economic conditions remain relatively stable, the fact that so many of us are living on the edge probably won’t kill us. But the moment the economy plunges into another 2008-style crisis (or worse), we could be facing a situation where two-thirds of the country is in imminent danger of running out of cash.
If you are living paycheck to paycheck, you live under the constant threat of your life being totally turned upside down if that paycheck ever goes away. During the last crisis, millions of Americans lost their jobs very rapidly, and because so many of them were living paycheck to paycheck all of a sudden large numbers of people couldn’t pay their mortgages. As a result, multitudes of American families went through the extremely painful process of foreclosure.
Unfortunately, it appears that we have not learned anything from the last go around. According to the brand new survey that I mentioned above, 69 percent of all Americans have less than $1,000 in savings…
Read the entire article
If you are living paycheck to paycheck, you live under the constant threat of your life being totally turned upside down if that paycheck ever goes away. During the last crisis, millions of Americans lost their jobs very rapidly, and because so many of them were living paycheck to paycheck all of a sudden large numbers of people couldn’t pay their mortgages. As a result, multitudes of American families went through the extremely painful process of foreclosure.
Unfortunately, it appears that we have not learned anything from the last go around. According to the brand new survey that I mentioned above, 69 percent of all Americans have less than $1,000 in savings…
Read the entire article
October 10, 2016
ECB Allowed Deutsche Bank To Cheat In Latest Stress Test, FT Reports
In the latest scandal to emerge involving Deutsche Bank, earlier today the FT reported that German's largest lender was allowed to cheat, pardon was given "special treatment" by the ECB in the July stress tests. As part of the July stress tests results, which "promised to restore faith in Europe’s banks by assessing all of their finances in the same way" Deutsche Bank’s result was boosted by a "special concession" agreed to by Mario Draghi: DB's results included the $4 billion in proceeds from selling its stake in Chinese lender Hua Xia even though the deal had not been done by the end of 2015, the official cut-off point for transactions to be included.
While the Hua Xia sale was agreed in December 2015, it has still not been completed and now faces a delay after missing a regulatory deadline last month, though the bank is still confident of completion this year.
As the FT notes, the Hua Xia treatment was disclosed in a footnote to Deutsche’s stress test results, and adds that "none of the other 50 banks in the stress tests had similar footnotes, even though several also had deals agreed but not completed at the end of 2015."
As disclosed in the central bank's summer stress test, Deutsche’s common equity tier one capital fell to 7.8% after it was "subjected to the stress tests’ imagined doomsday scenario of fines, low interest rates and low economic growth." However, without the Hua Xia boost, the ratio would have been 7.4%, a level comfortably above regulatory minimums. Why the speal treatment? Because the higher published result helped reassure investors who were growing increasingly nervy about the bank’s capital adequacy.
Read the entire article
While the Hua Xia sale was agreed in December 2015, it has still not been completed and now faces a delay after missing a regulatory deadline last month, though the bank is still confident of completion this year.
As the FT notes, the Hua Xia treatment was disclosed in a footnote to Deutsche’s stress test results, and adds that "none of the other 50 banks in the stress tests had similar footnotes, even though several also had deals agreed but not completed at the end of 2015."
As disclosed in the central bank's summer stress test, Deutsche’s common equity tier one capital fell to 7.8% after it was "subjected to the stress tests’ imagined doomsday scenario of fines, low interest rates and low economic growth." However, without the Hua Xia boost, the ratio would have been 7.4%, a level comfortably above regulatory minimums. Why the speal treatment? Because the higher published result helped reassure investors who were growing increasingly nervy about the bank’s capital adequacy.
Read the entire article
October 7, 2016
Deutsche Bank Explores Capital-Raising Options, "All Unattractive"
Despite proclamations from various officials, business leaders, and mainstream media pundits that Deutsche Bank's demise was: a) driven by speculators, b) not driven by any need for liquidity, because c) the bank has plenty of capital... it doesn't. As Bloomberg reports, no matter how much the DoJ fine is watered-down (don't expect much), the most systemically dangerous bank in the world is holding informal talks with securities firms to explore options including raising capital; but while the lender has several options, as one analyst noted rather awkwardly, "they’re all unattractive."
After three straight days up - soaring 25% off last Friday's lows, thanks to a disproven rumor of a pending settlement with the DoJ - Deutsche Bank closed down 4% from its opening highs today, beginning the slow path to catch down to CDS-implied pain...
Deutsche Bank CEO John Cryan told Germany’s Bild newspaper in late September that he doesn’t plan to raise capital. But now it seems, perhaps the weakness in the credit market was warranted as Bloomberg reports senior advisers at top Wall Street firms are speaking to representatives of the German lender about ideas including a share sale and asset disposals, said the people, who asked not to be identified because the plans are private.
The bank is more likely to tap existing shareholders for funds to help weather mounting legal costs rather than selling asset management or merging with Commerzbank AG, Autonomous Research LLP said in a note on Oct. 3.
Read the entire article
After three straight days up - soaring 25% off last Friday's lows, thanks to a disproven rumor of a pending settlement with the DoJ - Deutsche Bank closed down 4% from its opening highs today, beginning the slow path to catch down to CDS-implied pain...
Deutsche Bank CEO John Cryan told Germany’s Bild newspaper in late September that he doesn’t plan to raise capital. But now it seems, perhaps the weakness in the credit market was warranted as Bloomberg reports senior advisers at top Wall Street firms are speaking to representatives of the German lender about ideas including a share sale and asset disposals, said the people, who asked not to be identified because the plans are private.
The bank is more likely to tap existing shareholders for funds to help weather mounting legal costs rather than selling asset management or merging with Commerzbank AG, Autonomous Research LLP said in a note on Oct. 3.
Read the entire article
October 6, 2016
Something Strange Is Going On In Switzerland: "Is Someone Trying To Buy The Swiss National Bank"
The surge has taken place at a time when the broader Swiss stock index remained virtually unchanged. "And nobody is talking about it" the Swiss publication adds stunned, which had prompted the bizarre question: "Is someone trying to buy the Swiss National Bank."
How is this possible?
The answer is that unlike other central banks which are owned by their respective governments (although in the case of the Fed that is not true), the ownership structure of the Swiss National Bank is unusual. It is owned by Swiss cantons (States), cantonal banks, private individuals and companies: it is a public company. The Swiss cantons together own 45%, 15% is owned by cantonal banks and the remaining 40% by private individuals or companies. The Swiss Federal Government owns no shares.
What's more, the shares of the SNB are listed on the Swiss stock exchange (Ticker: SNBN:SW) and their price moves up and down like every other share traded in the market. Every year, with rare exceptions like last year, shareholders receive a dividend, which according to the central bank amounts to CHF15 per year (and is not to exceed 6% of the share capital).
So what is prompting the surge. As Tagesanzeiger writes it can not be a scramble for the dividend, whose yield has tumbled to the lowest ever, well below 1% as of today.
It is also unlikely that any of the bank's traditional shareholders are gobbling up its shares: It is unlikely that a canton or a cantonal bank would buy the shares en masse, because as the Swiss publications notes, "on the side of the shareholders - alongside the SNB's national owners - the situation has been carved in stone for years."
Read the entire article
How is this possible?
The answer is that unlike other central banks which are owned by their respective governments (although in the case of the Fed that is not true), the ownership structure of the Swiss National Bank is unusual. It is owned by Swiss cantons (States), cantonal banks, private individuals and companies: it is a public company. The Swiss cantons together own 45%, 15% is owned by cantonal banks and the remaining 40% by private individuals or companies. The Swiss Federal Government owns no shares.
What's more, the shares of the SNB are listed on the Swiss stock exchange (Ticker: SNBN:SW) and their price moves up and down like every other share traded in the market. Every year, with rare exceptions like last year, shareholders receive a dividend, which according to the central bank amounts to CHF15 per year (and is not to exceed 6% of the share capital).
So what is prompting the surge. As Tagesanzeiger writes it can not be a scramble for the dividend, whose yield has tumbled to the lowest ever, well below 1% as of today.
It is also unlikely that any of the bank's traditional shareholders are gobbling up its shares: It is unlikely that a canton or a cantonal bank would buy the shares en masse, because as the Swiss publications notes, "on the side of the shareholders - alongside the SNB's national owners - the situation has been carved in stone for years."
Read the entire article
October 5, 2016
Gundlach: "Deutsche Bank Will Be Bailed Out But What About Credit Suisse"
Last Thursday, when Deutsche Bank was flailing ahead of the now confirmed fake report of a reduced settlement with the DOJ, Reuters spoke to Jeff Gundlach about his thoughts regarding the German lender, his advice was simple: don't touch it. "I would just stay away. It's un-analyzable," Gundlach said about Deutsche Bank shares and debt. "It's too binary." Gundlach said investors who are betting against shares in Deutsche Bank might find it futile. Maybe, but not if they cover their shorts before the max pain point, something which the market - where equity/CDS pair trades now allow a "go for default" strategy - will actively seek out.
"The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be."
What happens then? "One day, Deutsche Bank shares will go up 40 percent. And it will be the day the government bails them out. That jump will happen in a minute," Gundlach said. "It is about an event which is completely out of your control."
The very next day his forecast was proven largely accurate, when DB soared some 25% from its overnight lows on, if not a bailout, then a report of a potentiel reprieve, even if the report ultimately ended up being wrong.
Then, earlier today, during the Grant's Fall 2016 investment conference, Gundlach once again discussed the troubled German bank and said that “you cannot save your faltering economy by killing your financial system and one of the clear poster children for this is Deutsche Bank’s stock price,” Gundlach, 56, said at Grant’s Fall 2016 Investment Conference on Tuesday in New York. “If you keep these negative interest rate policies for a sufficient future period of time you are going to bankrupt these banks.”
Read the entire article
"The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be."
What happens then? "One day, Deutsche Bank shares will go up 40 percent. And it will be the day the government bails them out. That jump will happen in a minute," Gundlach said. "It is about an event which is completely out of your control."
The very next day his forecast was proven largely accurate, when DB soared some 25% from its overnight lows on, if not a bailout, then a report of a potentiel reprieve, even if the report ultimately ended up being wrong.
Then, earlier today, during the Grant's Fall 2016 investment conference, Gundlach once again discussed the troubled German bank and said that “you cannot save your faltering economy by killing your financial system and one of the clear poster children for this is Deutsche Bank’s stock price,” Gundlach, 56, said at Grant’s Fall 2016 Investment Conference on Tuesday in New York. “If you keep these negative interest rate policies for a sufficient future period of time you are going to bankrupt these banks.”
Read the entire article
October 4, 2016
US Ends Fiscal 2016 With $1.4 Trillion Debt Increase: Third Largest In History
The United States government closed out the 2016 fiscal year that ended a few days ago on Friday September 30th with a debt level of $19,573,444,713,936.79. That’s an increase of $1,422,827,047,452.46 over last year’s fiscal year close.
That debt growth amounts to roughly 7.5% of the entire US economy. By comparison, the Marshall Plan, which completely rebuilt Western Europe after World World II, cost $12 billion back in 1948, or roughly 4.3% of US GDP at the time.
The initial appropriation for the WPA, perhaps the largest of Roosevelt’s New Deal “make work” programs that employed millions of people, cost 6.7% of US GDP. And, more recently, the US $700 billion bank bailout at the beginning of the 2008 financial crisis was the equivalent of 4.8% of GDP. So basically these people managed to increase the national debt by a bigger percentage than the cost of the New Deal, Marshall Plan, and 2008 bank bailout.
What exactly did you get for that money?
Did they spend $1.4 trillion on achieving world peace, eradicating poverty, saving the planet, or some other pipedream?
Did they finally fix America’s crumbling infrastructure that has been in desperate need of repair?
Did they send a gigantic tax refund check to every man, woman, and child in the country?
Actually the answer is (D), none of the above. They squandered it all.
Read the entire article
That debt growth amounts to roughly 7.5% of the entire US economy. By comparison, the Marshall Plan, which completely rebuilt Western Europe after World World II, cost $12 billion back in 1948, or roughly 4.3% of US GDP at the time.
The initial appropriation for the WPA, perhaps the largest of Roosevelt’s New Deal “make work” programs that employed millions of people, cost 6.7% of US GDP. And, more recently, the US $700 billion bank bailout at the beginning of the 2008 financial crisis was the equivalent of 4.8% of GDP. So basically these people managed to increase the national debt by a bigger percentage than the cost of the New Deal, Marshall Plan, and 2008 bank bailout.
What exactly did you get for that money?
Did they spend $1.4 trillion on achieving world peace, eradicating poverty, saving the planet, or some other pipedream?
Did they finally fix America’s crumbling infrastructure that has been in desperate need of repair?
Did they send a gigantic tax refund check to every man, woman, and child in the country?
Actually the answer is (D), none of the above. They squandered it all.
Read the entire article
October 3, 2016
Smoke And Mirrors: What Did OPEC Really Agree On?
Oil prices shot up more than 6 percent this week on the news that OPEC reached a deal to cut oil production, but by Friday the rally seemed to be already running out of steam as the markets grew skeptical of the group’s ability to implement the deal.
Previously, I noted how there were reasons to question how serious the production cut actually might be. This was due to the difficulty in actually agreeing on the details of the reduction, rising oil production within OPEC that could offset the cut, and the small size of the planned cut itself (200,000 to 700,000 barrels per day).
But in the days that followed Wednesday’s deal, a few more wrinkles emerged that could complicate OPEC’s chances of having a meaningful impact on the global oil supply surplus. First, even as the ink was drying on OPEC’s announcement, Iraq’s oil minister disputed the data used to calculate his country’s total oil production. In OPEC’s monthly reports, the group lists production totals using both direct and secondary sources. The discrepancy matters because if Iraq’s production is actually higher than OPEC says it is, then Iraq should be allowed to produce more under any hypothetical allotment apportioned to it after November’s meeting.
“These figures do not represent our actual production,” Iraq’s oil minister Jabar Ali al-Luaibi told reporters. If the figures are not corrected by November, he said, “then we say we cannot accept this, and we will ask for alternatives.” If the dispute is not resolved, Iraq’s dissent could sink the deal. Moreover, even if they do iron out the data differences, it will probably need to be in Iraq’s favor, considering the minister’s insistence.
Needless to say, there are a lot of uncertainties after the Algiers announcement, which helps explain why the oil price rally ran into a wall less than 48 hours after the agreement, stopping short of $50 per barrel.
Read the entire article
Previously, I noted how there were reasons to question how serious the production cut actually might be. This was due to the difficulty in actually agreeing on the details of the reduction, rising oil production within OPEC that could offset the cut, and the small size of the planned cut itself (200,000 to 700,000 barrels per day).
But in the days that followed Wednesday’s deal, a few more wrinkles emerged that could complicate OPEC’s chances of having a meaningful impact on the global oil supply surplus. First, even as the ink was drying on OPEC’s announcement, Iraq’s oil minister disputed the data used to calculate his country’s total oil production. In OPEC’s monthly reports, the group lists production totals using both direct and secondary sources. The discrepancy matters because if Iraq’s production is actually higher than OPEC says it is, then Iraq should be allowed to produce more under any hypothetical allotment apportioned to it after November’s meeting.
“These figures do not represent our actual production,” Iraq’s oil minister Jabar Ali al-Luaibi told reporters. If the figures are not corrected by November, he said, “then we say we cannot accept this, and we will ask for alternatives.” If the dispute is not resolved, Iraq’s dissent could sink the deal. Moreover, even if they do iron out the data differences, it will probably need to be in Iraq’s favor, considering the minister’s insistence.
Needless to say, there are a lot of uncertainties after the Algiers announcement, which helps explain why the oil price rally ran into a wall less than 48 hours after the agreement, stopping short of $50 per barrel.
Read the entire article
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