I told you to keep your eyes on Europe. On Tuesday, widespread panic shot through European financial markets and this deeply affected U.S. markets as well. The Dow Jones industrial average fell 391 points, and at this point the Dow and the S&P 500 have been down for three trading sessions in a row. But the big news is what is happening over in Europe. Tuesday’s crash represented the largest one day move for 2 year Italian bonds ever, and Italian bank stocks are now down a whopping 24 percent from their April highs. Overall, European banks have fallen a total of 11 percent over the last four days, and it isn’t just banks in troubled countries such as Italy and Spain that are hurting. The biggest bank in Europe, Deutsche Bank, just keeps on tumbling and is now just barely above all-time lows. A few days ago when I wrote that the next global economic crisis “could be just around the corner”, there were some people that criticized me for making such a statement. Well, as you will see below, now this fact has become so obvious that even George Soros is saying it.
Those that are ignoring what is going on in Italy are making a tragic mistake. Italy is the third largest economy in the eurozone, and even the Wall Street Journal is admitting that its bond market is “in meltdown”…
Risk aversion is back. Italy is the focal point, with its bond market in meltdown, its politics in crisis after President Sergio Mattarella blocked the formation of an anti establishment government, and its credit rating under threat.
That is all now making bigger waves: Europe’s deepening troubles and disappointing global growth signals are sparking a sudden rally in haven bonds like U.S. Treasurys.
Read the entire article
DAILY BUSINESS REPORT - Financial Updates, International Markets and Business News
May 31, 2018
May 30, 2018
Gold Production On The Cusp Of Peaking
Gold is valuable because it is a finite resource. What happens when all available gold is mined and processed? There is still abundant gold deep within the earth, but it has not yet been found. Mining companies are unable, to dig deep enough. It is difficult for them to know where to locate this deep gold. All known locations have been depleting for years.
That is the reason mining gold has become more difficult and output is expected to begin decreasing steadily. The precious metal is becoming harder to find.
Most of the world’s gold was mined before the 1848 Gold Rush era. Since 1950, 125,000 tons of gold has been processed, which is approximately two-thirds of all gold ever mined. All of the gold that could be accessed easily has been mined.
Gold cannot be manufactured or created. It can only be mined from the earth’s crust. If we want more gold, companies, and investors will need to begin allocating more capital to exploration companies.
According Eugene King of Goldman Sachs, known mineable gold reserve may be gone in 20 years. The definitive word here is “known.” Gold mining companies are gearing up for a new era of exploration deeper below the surface than ever before. This means these companies will be incurring new costs at the same time their profits are decreasing. That is the reason why so few new mines are being excavated and few new projects are being started.
The earth’s easy-to-find gold has already been found and mined. There will not be another California Gold Rush. The search for new gold becomes increasingly challenging and expensive each year. Outdated equipment and technology need to be replaced.
Read the entire article
That is the reason mining gold has become more difficult and output is expected to begin decreasing steadily. The precious metal is becoming harder to find.
Most of the world’s gold was mined before the 1848 Gold Rush era. Since 1950, 125,000 tons of gold has been processed, which is approximately two-thirds of all gold ever mined. All of the gold that could be accessed easily has been mined.
Gold cannot be manufactured or created. It can only be mined from the earth’s crust. If we want more gold, companies, and investors will need to begin allocating more capital to exploration companies.
According Eugene King of Goldman Sachs, known mineable gold reserve may be gone in 20 years. The definitive word here is “known.” Gold mining companies are gearing up for a new era of exploration deeper below the surface than ever before. This means these companies will be incurring new costs at the same time their profits are decreasing. That is the reason why so few new mines are being excavated and few new projects are being started.
The earth’s easy-to-find gold has already been found and mined. There will not be another California Gold Rush. The search for new gold becomes increasingly challenging and expensive each year. Outdated equipment and technology need to be replaced.
Read the entire article
May 29, 2018
Which Banks Are Most Exposed To Italy's Sovereign Debt? (Other The The Horribly-Exposed Italian Banks)
Risk. Exposure. Contagion. These are three words we’re likely to hear more and more in relation to Europe, as the Eurozone’s debt crisis returns.
On Friday, Italy’s 10-year risk premium - the spread between Italian ten-year bond yields and their German counterparts — surged almost 20 basis points to 212 basis points. This was the highest level since May 2017, when a number of Italy’s banks, including third biggest bank Monte dei Paschi di Siena (MPS), were on the brink of collapse and were either “resolved” or bailed out. Now, they’re all beginning to wobble again.
Shares of bailed-out and now majority-state-owned MPS, whose management the new government says it would like to change, are down 20% in the last two weeks’ trading. The shares of Unicredit and Intesa, Italy’s two biggest banks, have respectively shed 10% and 18% during the same period.
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 (which is used to measure bank solvency), according to research by Eric Dor, the director of Economic Studies at IESEG School of Management.
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%).
Read the entire article
On Friday, Italy’s 10-year risk premium - the spread between Italian ten-year bond yields and their German counterparts — surged almost 20 basis points to 212 basis points. This was the highest level since May 2017, when a number of Italy’s banks, including third biggest bank Monte dei Paschi di Siena (MPS), were on the brink of collapse and were either “resolved” or bailed out. Now, they’re all beginning to wobble again.
Shares of bailed-out and now majority-state-owned MPS, whose management the new government says it would like to change, are down 20% in the last two weeks’ trading. The shares of Unicredit and Intesa, Italy’s two biggest banks, have respectively shed 10% and 18% during the same period.
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 (which is used to measure bank solvency), according to research by Eric Dor, the director of Economic Studies at IESEG School of Management.
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%).
Read the entire article
May 28, 2018
Why America Is Heading Straight Toward The Worst Debt Crisis In History
Today, America is nearly 70 trillion dollars in debt, and that debt is shooting higher at an exponential rate.
Usually most of the focus in on the national debt, which is now 21 trillion dollars and rising, but when you total all forms of debt in our society together it comes to a grand total just short of 70 trillion dollars. Many people seem to believe that the debt imbalances that existed prior to the great financial crisis of 2008 have been solved, but that is not the case at all. We are living in the terminal phase of the greatest debt bubble in history, and with each passing day that mountain of debt just keeps on getting bigger and bigger.
It simply is not mathematically possible for debt to keep on growing at a pace that is many times greater than GDP growth, and at some point this absurd bubble will come to an abrupt end. So those that are forecasting many years of prosperity to come are simply being delusional. Our current standard of living is very heavily fueled by debt, and at some point we are going to hit a wall.
Let’s talk about consumer debt first. Excluding mortgage debt, consumer debt is projected to hit the 4 trillion dollar mark by the end of the year…
Americans are in a borrowing mood, and their total tab for consumer debt could reach a record $4 trillion by the end of 2018.
That’s according to LendingTree, a loan comparison website, which analyzed data from the Federal Reserve on nonmortgage debts including credit cards, and auto, personal and student loans.
Americans owe more than 26 percent of their annual income to this debt. That’s up from 22 percent in 2010. It’s also higher than debt levels during the mid-2000s when credit availability soared.
Read the entire article
Usually most of the focus in on the national debt, which is now 21 trillion dollars and rising, but when you total all forms of debt in our society together it comes to a grand total just short of 70 trillion dollars. Many people seem to believe that the debt imbalances that existed prior to the great financial crisis of 2008 have been solved, but that is not the case at all. We are living in the terminal phase of the greatest debt bubble in history, and with each passing day that mountain of debt just keeps on getting bigger and bigger.
It simply is not mathematically possible for debt to keep on growing at a pace that is many times greater than GDP growth, and at some point this absurd bubble will come to an abrupt end. So those that are forecasting many years of prosperity to come are simply being delusional. Our current standard of living is very heavily fueled by debt, and at some point we are going to hit a wall.
Let’s talk about consumer debt first. Excluding mortgage debt, consumer debt is projected to hit the 4 trillion dollar mark by the end of the year…
Americans are in a borrowing mood, and their total tab for consumer debt could reach a record $4 trillion by the end of 2018.
That’s according to LendingTree, a loan comparison website, which analyzed data from the Federal Reserve on nonmortgage debts including credit cards, and auto, personal and student loans.
Americans owe more than 26 percent of their annual income to this debt. That’s up from 22 percent in 2010. It’s also higher than debt levels during the mid-2000s when credit availability soared.
Read the entire article
May 25, 2018
Petroyuan Is Only The Beginning, Pop Goes The Metals Market
When Hong Kong Exchanges and Clearing (HKEX) bought the London Metals exchange in 2012 all the speculation was about the effects on gold trading. The primary reason for buying the LME was to obtain its warehouses and ensure a free flow of metals to points east.
What it also did was give them control over what type and kind of futures contracts could be traded on their exchanges. No longer would the west control this very important part of the precious and industrial metal supply chain.
Now we’re seeing the next evolution of the power of owning the exchange. After successfully launching a yuan-denominated gold futures contract last year, the LME is now preparing to issue a range of yuan-denominated metals futures.
In other words... Boom.
First Rule: Do No Harm
When China bought the LME the usual suspects in the contrarian investing community talked about the coming apocalypse for the bullion banks. It never happened. In fact, China was in a position to help them cap the price of gold and extend the gold bear market for the past six years while it and its strategic partners, namely Russia, accumulated vast quantities of the world’s most important metal.
The Chinese were smart. Take over the LME and, for a while, change nothing. Don’t upset the apple cart and allow markets to operate mostly normally. Now their ownership of the LME is not an issue.
Until now. First gold trading in Yuan. Now the rest of the metals.
Read the entire article
What it also did was give them control over what type and kind of futures contracts could be traded on their exchanges. No longer would the west control this very important part of the precious and industrial metal supply chain.
Now we’re seeing the next evolution of the power of owning the exchange. After successfully launching a yuan-denominated gold futures contract last year, the LME is now preparing to issue a range of yuan-denominated metals futures.
In other words... Boom.
First Rule: Do No Harm
When China bought the LME the usual suspects in the contrarian investing community talked about the coming apocalypse for the bullion banks. It never happened. In fact, China was in a position to help them cap the price of gold and extend the gold bear market for the past six years while it and its strategic partners, namely Russia, accumulated vast quantities of the world’s most important metal.
The Chinese were smart. Take over the LME and, for a while, change nothing. Don’t upset the apple cart and allow markets to operate mostly normally. Now their ownership of the LME is not an issue.
Until now. First gold trading in Yuan. Now the rest of the metals.
Read the entire article
May 24, 2018
Is Oil About To Become Front-Page News Again?
Here’s a new indicator for you: It seems that the difference between the price of oil here and abroad is a measure of tightness in the market, with a rising spread indicating higher prices in the future, with all the inflationary pressures that that implies. From today’s Wall Street Journal:
Trans-Atlantic Oil-Price Spread Soars as Supply Glut Disappears
U.S. oil prices are lagging behind global oil prices climbing toward $80 a barrel, the latest sign of a market that has gone from glutted to exceptionally tight in the past year.
U.S. oil futures are trailing Brent, the global benchmark, by more than $7 a barrel, settling at $71.28 a barrel on Friday. The two oil benchmarks are further apart than they have been since 2015, before U.S. crude could be freely exported.
The divergence is a sign of how stretched global oil supplies have become even as U.S. output has marched higher, overtaking Saudi Arabia and rivaling Russia. That has contributed to soaring U.S. exports, which have hit a record of nearly 2.6 million barrels a day as users clamor.
“The market is screaming right now, ‘We need every barrel we can get,’ ” said Phil Flynn, an analyst at the Price Futures Group.
Both benchmarks have been on a tear lately. The Organization of the Petroleum Exporting Countries and its allies have been holding oil off the market for more than a year, and demand has surged as the global economy roared to life. Unexpected disruptions, like plunging oil output from Venezuela, have tightened supplies even further. A glut of oil that held prices down for years is essentially gone.
Read the entire article
Trans-Atlantic Oil-Price Spread Soars as Supply Glut Disappears
U.S. oil prices are lagging behind global oil prices climbing toward $80 a barrel, the latest sign of a market that has gone from glutted to exceptionally tight in the past year.
U.S. oil futures are trailing Brent, the global benchmark, by more than $7 a barrel, settling at $71.28 a barrel on Friday. The two oil benchmarks are further apart than they have been since 2015, before U.S. crude could be freely exported.
The divergence is a sign of how stretched global oil supplies have become even as U.S. output has marched higher, overtaking Saudi Arabia and rivaling Russia. That has contributed to soaring U.S. exports, which have hit a record of nearly 2.6 million barrels a day as users clamor.
“The market is screaming right now, ‘We need every barrel we can get,’ ” said Phil Flynn, an analyst at the Price Futures Group.
Both benchmarks have been on a tear lately. The Organization of the Petroleum Exporting Countries and its allies have been holding oil off the market for more than a year, and demand has surged as the global economy roared to life. Unexpected disruptions, like plunging oil output from Venezuela, have tightened supplies even further. A glut of oil that held prices down for years is essentially gone.
Read the entire article
May 23, 2018
Bank Of England Issues Working Paper On Central Bank Digital Currencies
On May 18, the Bank of England released a staff working paper, laying out various scenarios of possible risks and financial stability issues of central bank digital currencies (CBDCs).
The paper constructs three models of CBDC depending on the sectors that have access to CBDC, from a narrow CBDC where access is limited to banks and non-bank financial institutions (NBFIs), to direct and indirect access extended to households and non-financial firms.
The Financial Institutions Access model is limited to banks and NBFIs, where financial institutions can interact directly with the central bank to purchase and sell CBDC in exchange for eligible securities. Financial institutions are not supposed to provide an asset to households and firms, which are entirely backed by central bank money.
The Economy-wide Access model assumes that access to CBDCs is granted to banks and NBFIs, households and firms. In this way, a CBDC can serve as money for all agents in the economy. While only banks and NBFIs can interact directly with the central bank to buy and sell CBDCs, the report says that “households and firms must use a CBDC Exchange to buy and sell CBDC in exchange for deposits.”
Within the Financial Institutions Plus CBDC-Backed Narrow Bank Access model access is again limited to banks and NBFIs. There is at least one financial institution that acts as a ‘narrow bank,’ which provides financial assets to households and firms that are fully backed by a CBDC but that does not extend credit.
Read the entire article
The paper constructs three models of CBDC depending on the sectors that have access to CBDC, from a narrow CBDC where access is limited to banks and non-bank financial institutions (NBFIs), to direct and indirect access extended to households and non-financial firms.
The Financial Institutions Access model is limited to banks and NBFIs, where financial institutions can interact directly with the central bank to purchase and sell CBDC in exchange for eligible securities. Financial institutions are not supposed to provide an asset to households and firms, which are entirely backed by central bank money.
The Economy-wide Access model assumes that access to CBDCs is granted to banks and NBFIs, households and firms. In this way, a CBDC can serve as money for all agents in the economy. While only banks and NBFIs can interact directly with the central bank to buy and sell CBDCs, the report says that “households and firms must use a CBDC Exchange to buy and sell CBDC in exchange for deposits.”
Within the Financial Institutions Plus CBDC-Backed Narrow Bank Access model access is again limited to banks and NBFIs. There is at least one financial institution that acts as a ‘narrow bank,’ which provides financial assets to households and firms that are fully backed by a CBDC but that does not extend credit.
Read the entire article
May 22, 2018
77 Million Square Feet Of Retail Space And Counting – America’s Retail Apocalypse Is Spiraling Out Of Control In 2018
In 2017 we absolutely shattered the all-time record for retail store closings in a single year, and this year it looks like we are going to shatter the record once again. In fact, there are some that are projecting that up to 9,000 retail stores could close by the time that we get to the end of this calendar year. Already, the amount of retail space that has shut down is simply jaw-dropping. If you total up all of the retail store closings that have been announced so far in 2018, it accounts for 77 million square feet of retail space. Let that number sink in for a bit. Many shopping centers and strip malls around the country already have a post-apocalyptic feel to them, and more “space available” signs are going up with each passing day. And in case you are tempted to think that I am making this figure up, here it is straight from Bloomberg…
At last count, U.S. store closures announced this year reached a staggering 77 million square feet, according to data on national and regional chains compiled by CoStar Group Inc. That means retailers are well on their way to surpassing the record 105 million square feet announced for closure in all of 2017.
In the end, we could shatter the all-time record that was established just last year by 20 or 30 million square feet.
At moments such as this, the phrase “retail apocalypse” doesn’t really seem to fit the gravity of what is actually taking place.
Read the entire article
At last count, U.S. store closures announced this year reached a staggering 77 million square feet, according to data on national and regional chains compiled by CoStar Group Inc. That means retailers are well on their way to surpassing the record 105 million square feet announced for closure in all of 2017.
In the end, we could shatter the all-time record that was established just last year by 20 or 30 million square feet.
At moments such as this, the phrase “retail apocalypse” doesn’t really seem to fit the gravity of what is actually taking place.
Read the entire article
May 21, 2018
It's Not Stagflation... It's Inflationary Impoverishment
It is a matter of personal interest that it was my uncle, Iain Macleod, who invented the term stagflation shortly before he was appointed shadow chancellor in 1965. It is no longer used in its original context. From Hansard (the official record of parliamentary debates) 17 November that year:
We now have the worst of both worlds —not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of "stagflation" situation and history in modern terms is indeed being made.
The inflation that Iain was referring to was of wages, which were averaging an increase of 6.2%, and rising, and stagnation in production, which had declined from an index of 134 to 131. It was this divergence that gave him the opportunity to invent this portmanteau word. It has now passed into more common use to describe an economy that fails to respond to the stimulus of monetary inflation.
Its use in this context is therefore different from the original. The idea that stagflation exists as an economic phenomenon is only really true for neo-Keynesians, who view inflation as economically stimulative, and its failure to stimulate perplexing. In this sense it is frequently applied to conditions today, where massive monetary stimulus does not appear, so far at least, to have brought about the economic growth that might have been expected from it.
Read the entire article
We now have the worst of both worlds —not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of "stagflation" situation and history in modern terms is indeed being made.
The inflation that Iain was referring to was of wages, which were averaging an increase of 6.2%, and rising, and stagnation in production, which had declined from an index of 134 to 131. It was this divergence that gave him the opportunity to invent this portmanteau word. It has now passed into more common use to describe an economy that fails to respond to the stimulus of monetary inflation.
Its use in this context is therefore different from the original. The idea that stagflation exists as an economic phenomenon is only really true for neo-Keynesians, who view inflation as economically stimulative, and its failure to stimulate perplexing. In this sense it is frequently applied to conditions today, where massive monetary stimulus does not appear, so far at least, to have brought about the economic growth that might have been expected from it.
Read the entire article
May 18, 2018
"We Won’t Make Unilateral Concessions": China Denies It Offered To Slash U.S. Trade Gap By $200BN
Overnight, experts and pundits were stumped by the biggest geopolitical news from Thursday: how could China possibly - or feasibly - agree to a $200 billion cut in the US-China trade deficit, even if merely to placate President Trump. Speaking to Bloomberg, Victor Shih, a China politics and finance professor at the University of California in San Diego said earlier that he finds an agreement to cut the U.S. deficit by $200 billion "difficult to contemplate."
"Even with a drastic reallocation of Chinese imports of energy, raw materials and airplanes in favor of the U.S., the bilateral trade deficit may reduce by $100 billion," he said. "A $200 billion reduction would mean a drastic reduction in Chinese exports to the U.S. and a dramatic restructuring of the supply chain."
On Friday morning we got the answer: the entire story was nothing more than the latest fake news concocted by a "US official" and then promptly spun by the US media without actual confirmation by China.
And so, the mystery of just how China would shrink its $200 billion trade deficit with the US died on Friday morning, when China gave the answer: it wouldn't, after Beijing denied it had offered the deficit-cutting package, just hours after it dropped an anti-dumping probe into U.S. sorghum imports in a conciliatory gesture as top officials meet in Washington.
“This rumor is not true. This I can confirm to you,” Chinese foreign ministry spokesman Lu Kang politely told a news briefing saying "the question is about some US officials who said China will cut the deficit. As I understand, the relevant consultations are ongoing and they are constructive,” he said, adding that he could not elaborate on the specifics of the negotiations.
Commentary posted in an article on WeChat accounts run by Xinhua News Agency and People’s Daily overseas edition was less restrained, and said that the offer to cut China's trade surplus with the U.S. is "nonexistent" and that reports that China accepted the U.S. demand to narrow the trade gap are “purely a misreading."
Read the entire article
"Even with a drastic reallocation of Chinese imports of energy, raw materials and airplanes in favor of the U.S., the bilateral trade deficit may reduce by $100 billion," he said. "A $200 billion reduction would mean a drastic reduction in Chinese exports to the U.S. and a dramatic restructuring of the supply chain."
On Friday morning we got the answer: the entire story was nothing more than the latest fake news concocted by a "US official" and then promptly spun by the US media without actual confirmation by China.
And so, the mystery of just how China would shrink its $200 billion trade deficit with the US died on Friday morning, when China gave the answer: it wouldn't, after Beijing denied it had offered the deficit-cutting package, just hours after it dropped an anti-dumping probe into U.S. sorghum imports in a conciliatory gesture as top officials meet in Washington.
“This rumor is not true. This I can confirm to you,” Chinese foreign ministry spokesman Lu Kang politely told a news briefing saying "the question is about some US officials who said China will cut the deficit. As I understand, the relevant consultations are ongoing and they are constructive,” he said, adding that he could not elaborate on the specifics of the negotiations.
Commentary posted in an article on WeChat accounts run by Xinhua News Agency and People’s Daily overseas edition was less restrained, and said that the offer to cut China's trade surplus with the U.S. is "nonexistent" and that reports that China accepted the U.S. demand to narrow the trade gap are “purely a misreading."
Read the entire article
May 17, 2018
Blowback Begins: EU To Ditch Dollar In Payments For Iranian Oil
The dollar’s collapse is nearing. The European Union is planning to switch it’s payments to the Euro for its oil purchases from Iran, eliminating United States dollar transactions.
Just one more nail to the US dollar’s coffin. Its collapse is all but imminent at this point. The EU has successfully found a way to scoff at potential future sanctions on Iran by openly defying the US; and as an “added bonus,” they’ve helped seal the dollar’s fate. According to RT, a diplomatic source with the EU has told a news outlet of the decision.
“I’m privy to the information that the EU is going to shift from dollar to euro to pay for crude from Iran,” said the diplomatic source.
Brussels has been at odds with Washington over the US’s decision to withdrawal from the Iran nuclear deal, which was reached during the administration of Barack Obama. President Donald Trump has pledged to re-impose sanctions against the Islamic Republic as soon as he is able to do so. The Trump administration also has had plans to topple the current regime in Iran, according to leaked documents, and it looks like they’ve just given themselves the go-ahead:
The Washington Free Beacon has obtained a three-page white paper being circulated among National Security Council officials with drafted plans to spark regime change in Iran, following the US exit from the Obama-era nuclear deal and the re-imposition of tough sanctions aimed at toppling the Iranian regime.
The plan, authored by the Security Studies Group, or SSG, a national security think-tank that has close ties to senior White House national security officials, including – who else – National Security Adviser John Bolton, seeks to reshape longstanding American foreign policy toward Iran by emphasizing an explicit policy of regime change, something the Obama administration opposed when popular protests gripped Iran in 2009, writes the Free Beacon, which obtained a leaked copy of the circulating plans. –Zerohedge
Read the entire article
Just one more nail to the US dollar’s coffin. Its collapse is all but imminent at this point. The EU has successfully found a way to scoff at potential future sanctions on Iran by openly defying the US; and as an “added bonus,” they’ve helped seal the dollar’s fate. According to RT, a diplomatic source with the EU has told a news outlet of the decision.
“I’m privy to the information that the EU is going to shift from dollar to euro to pay for crude from Iran,” said the diplomatic source.
Brussels has been at odds with Washington over the US’s decision to withdrawal from the Iran nuclear deal, which was reached during the administration of Barack Obama. President Donald Trump has pledged to re-impose sanctions against the Islamic Republic as soon as he is able to do so. The Trump administration also has had plans to topple the current regime in Iran, according to leaked documents, and it looks like they’ve just given themselves the go-ahead:
The Washington Free Beacon has obtained a three-page white paper being circulated among National Security Council officials with drafted plans to spark regime change in Iran, following the US exit from the Obama-era nuclear deal and the re-imposition of tough sanctions aimed at toppling the Iranian regime.
The plan, authored by the Security Studies Group, or SSG, a national security think-tank that has close ties to senior White House national security officials, including – who else – National Security Adviser John Bolton, seeks to reshape longstanding American foreign policy toward Iran by emphasizing an explicit policy of regime change, something the Obama administration opposed when popular protests gripped Iran in 2009, writes the Free Beacon, which obtained a leaked copy of the circulating plans. –Zerohedge
Read the entire article
May 16, 2018
What's Trump's Real Trade Target: China Or Europe?
Do Trump's endless trade volleys and sanctions have a clear target? Consider the possibility it's the EU, not China.
Out of the blue, and with open rebuke form Democrats and Republicans, Trump reversed sanctions on China.
This was peculiar in and of itself, but his rationale raised more than a few eyebrows.
All of a sudden. Trump is concerned about "too many jobs lost in China"!
One can rationalize this is about Rotting Cherries, Spoiled Pork, and Car Inspections, but could it be there is more than meets the eye?
Iran Sanctions
Bloomberg reports Iran’s Door to the West Is Slamming Shut, and That Leaves China.
China is “already the winner,’’ said Dina Esfandiary, a fellow at the Centre for Science and Security Studies at King’s College in London, and co-author of the forthcoming ‘Triple Axis: Iran’s Relations With Russia and China’.
Turning East
Read the entire article
Out of the blue, and with open rebuke form Democrats and Republicans, Trump reversed sanctions on China.
This was peculiar in and of itself, but his rationale raised more than a few eyebrows.
All of a sudden. Trump is concerned about "too many jobs lost in China"!
One can rationalize this is about Rotting Cherries, Spoiled Pork, and Car Inspections, but could it be there is more than meets the eye?
Iran Sanctions
Bloomberg reports Iran’s Door to the West Is Slamming Shut, and That Leaves China.
China is “already the winner,’’ said Dina Esfandiary, a fellow at the Centre for Science and Security Studies at King’s College in London, and co-author of the forthcoming ‘Triple Axis: Iran’s Relations With Russia and China’.
Turning East
Read the entire article
May 15, 2018
Orphan CDS, Manufactured Credit Events, Insufficient Deliverables: What The Hell Is Going On In The CDS Market?
Long gone are the days when the CDS market was naively seen as merely a simple hedge to long cash bond positions for vanilla investors (negative basis), or more conspiratorially, a means to naked short the bonds of distressed companies (as many alleged happened during the financial crisis) without being subject to squeezes, margin calls, or regulatory scrutiny courtesy of (what was once) a far more liquid and deep CDS market.
Of particular note in recent months has been rapid, and often confounding, propagation of manufactured credit events in which a CDS is triggered - usually after some collusion between the issuing company and one or more hedge funds - without causing an acceleration in the issuer's debt obligations, as discussed recently in the case of Hovanian, in which the CDS surges benefiting one or more hedge funds and/or the company while impairing others, or a manufactured CDS "orphaning", as was the case more recently with McClatchy, in which a CDS suddenly found itself with no reference securities and plunged to 0, in the process sparking a profit bonanza for hedge fund Chatham which had sold the CDS.
And while manufactured credit events remain niche events for a very select group of highly sophisticated investors, several recent events have prompted Barclays to write an extensive analysis looking at the details and motivations for such events, while addressing potential changes to the ISDA Definitions to reduce their likelihood, including adding a multiple holder requirement and excluding missed affiliate payments from the definition of a Failure to Pay credit event. Furthermore, in the context of the McClatchy event, Barclays' credit analysts also examined the latest, most recent development in the CDS marketplace – a potential manufactured orphaning – and how this may be more difficult to address from a definitions perspective.
Why the sudden focus among some of Wall Street's most active CDS trading desks? Because as Barclays says "we believe that failure to address these issues could lead to a loss of confidence in the CDS market, particularly as an indicator of fundamental credit and default risk, and ultimately to lower levels of trading activity."
Read the entire article
Of particular note in recent months has been rapid, and often confounding, propagation of manufactured credit events in which a CDS is triggered - usually after some collusion between the issuing company and one or more hedge funds - without causing an acceleration in the issuer's debt obligations, as discussed recently in the case of Hovanian, in which the CDS surges benefiting one or more hedge funds and/or the company while impairing others, or a manufactured CDS "orphaning", as was the case more recently with McClatchy, in which a CDS suddenly found itself with no reference securities and plunged to 0, in the process sparking a profit bonanza for hedge fund Chatham which had sold the CDS.
And while manufactured credit events remain niche events for a very select group of highly sophisticated investors, several recent events have prompted Barclays to write an extensive analysis looking at the details and motivations for such events, while addressing potential changes to the ISDA Definitions to reduce their likelihood, including adding a multiple holder requirement and excluding missed affiliate payments from the definition of a Failure to Pay credit event. Furthermore, in the context of the McClatchy event, Barclays' credit analysts also examined the latest, most recent development in the CDS marketplace – a potential manufactured orphaning – and how this may be more difficult to address from a definitions perspective.
Why the sudden focus among some of Wall Street's most active CDS trading desks? Because as Barclays says "we believe that failure to address these issues could lead to a loss of confidence in the CDS market, particularly as an indicator of fundamental credit and default risk, and ultimately to lower levels of trading activity."
Read the entire article
May 14, 2018
Europe Keeps Buying Iran Oil, But Banks May Hinder Trade
In the days following the U.S. withdrawal from the Iran nuclear deal, Iran’s European customers continue to buy Iranian oil and are in no immediate rush to replace volumes, but some refiners and traders have flagged financing issues as having the potential stop to crude trade with Iran.
After the U.S. walked out of the Iran deal, the U.S. will be targeting Iran’s crude oil sales, and sanctions previously lifted under the deal will be re-imposed following a 180-day wind-down period, the U.S. Treasury said.
European buyers are not in an immediate rush to replace Iranian supplies due to that wind-down period, with sanctions expected to kick in in November. All buyers report that they are complying and will comply with any sanctions imposed on Iranian trade, and some of them expect that banking issues will arise from the sanctions, such as the availability of trade finance.
Marta Llorente, a spokeswoman for Spanish oil company Cepsa, one of Iran’s customers in Europe, told Reuters:
“At this moment, our trading activity is business as usual.”
Italy’s Eni also continues to buy Iranian oil and it is buying 2 million barrels of oil per month from Iran under a deal that expires at the end of the year.
“We’re doing nothing,” said the head of trading at another European customer of Iran’s. “It’s wait and see. If we’re forced to reduce, we will. Iranian is not the only crude,” the manager told Reuters.
Read the entire article
After the U.S. walked out of the Iran deal, the U.S. will be targeting Iran’s crude oil sales, and sanctions previously lifted under the deal will be re-imposed following a 180-day wind-down period, the U.S. Treasury said.
European buyers are not in an immediate rush to replace Iranian supplies due to that wind-down period, with sanctions expected to kick in in November. All buyers report that they are complying and will comply with any sanctions imposed on Iranian trade, and some of them expect that banking issues will arise from the sanctions, such as the availability of trade finance.
Marta Llorente, a spokeswoman for Spanish oil company Cepsa, one of Iran’s customers in Europe, told Reuters:
“At this moment, our trading activity is business as usual.”
Italy’s Eni also continues to buy Iranian oil and it is buying 2 million barrels of oil per month from Iran under a deal that expires at the end of the year.
“We’re doing nothing,” said the head of trading at another European customer of Iran’s. “It’s wait and see. If we’re forced to reduce, we will. Iranian is not the only crude,” the manager told Reuters.
Read the entire article
May 11, 2018
Playing US Sanctions: China Walks A Fine Line In Iran
Chinese businessman Sheng Kuan Li didn’t worry about sanctions when he decided in 2010 to invest $200 million in a steel mill in Iran that started producing ingots and billet within months of the lifting of punitive measures against the Islamic republic as part of 2015 international nuclear agreement with Iran.
With no operations in the United States, Mr. Li was not concerned about being targeted by the US Treasury.
Mr. Li, moreover, circumvented financial restrictions on Iran by funding his investment through what he called a “private transfer,” a money swap that was based on trust and avoided regular banking channels.
In doing so, Mr. Li was following standard Chinese practice of evading the sanctions regime by using alternative routes or establishing alternative institutions that were in effect immune.
To be able to continue to purchase Iranian oil while sanctions were in place, China, for example, established the Bank of Kunlun to handle Chinese payments.
The Chinese experience in circumventing the earlier sanctions will come in handy with Beijing rejecting US President Donald J. Trump’s renewed effort to isolate Iran and force it to make further concessions on its nuclear and ballistic missiles programs as well as the Islamic republic’s regional role in the Middle East by walking away from the 2015 agreement and reintroducing punitive economic measures.
Read the entire article
With no operations in the United States, Mr. Li was not concerned about being targeted by the US Treasury.
Mr. Li, moreover, circumvented financial restrictions on Iran by funding his investment through what he called a “private transfer,” a money swap that was based on trust and avoided regular banking channels.
In doing so, Mr. Li was following standard Chinese practice of evading the sanctions regime by using alternative routes or establishing alternative institutions that were in effect immune.
To be able to continue to purchase Iranian oil while sanctions were in place, China, for example, established the Bank of Kunlun to handle Chinese payments.
The Chinese experience in circumventing the earlier sanctions will come in handy with Beijing rejecting US President Donald J. Trump’s renewed effort to isolate Iran and force it to make further concessions on its nuclear and ballistic missiles programs as well as the Islamic republic’s regional role in the Middle East by walking away from the 2015 agreement and reintroducing punitive economic measures.
Read the entire article
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