Thursday, October 8, 2015

Central Banks Lose Control as Debt CRUSHING Global Economy!

fed federal reserve…
central bank…
“Ben Bernanke attacks Congress for failing to foster US rebound –…
BOJ bank of japan…
“US trade balance, August – Business Insider”…
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“NYSE short interest Oct 2015_1.jpg 1,021×702 pixels”…
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“A robot sold us a Chris Cornell CD at Best Buy – Fox 5 NY | WNYW”…
“Your next boss: A computer algorithm? – LA Times”…

Monsanto To Cut 2,600 Jobs As Demand For GMO Seeds And Cancer Causing Herbicides Declines

Monsanto, the company you love to hate is cutting 2600 jobs due to falling sales of GMO seeds and cancer causing herbicides. This is just the beginning for America’s most hated company…I can’t wait to watch this one in slow motion. Read more from the dinosaur media:

Monsanto Co. said Wednesday it will eliminate 2,600 jobs as part of a cost-saving plan designed to deal with falling sales of its biotech seeds and herbicides, which pushed its quarterly losses deeper into the red.
The job cuts will reduce the company’s 22,500-employee workforce of by about 12 percent over the next two years.
The St. Louis-based agricultural giant predicts the move will generate between $275 million and $300 million in annual savings by the end of fiscal 2017. The cost of the reorganization — which will streamline sales, R&D and other departments — is estimated at $850 million to $900 million.
Monsanto’s last round of layoffs came in June 2009, when the company slashed 900 jobs.
CEO Hugh Grant pointed to the negative impact of foreign exchange rates as well as falling crop prices that have squeezed farmers.
“Despite weakening global currencies and commodity prices we continue to view this as a time of opportunity,” Grant said on a call with analysts.
Monsanto has struggled in recent quarters to deal with slumping corn prices in the U.S., which have reduced demand for its best-selling product: genetically-enhanced corn seeds. Farmers are shifting more acres to other crops due to a surplus of corn from last year’s harvest. Even with that shift, 2015 is expected to bring the third-largest corn harvest on record, squashing prices and limiting farmers’ profits.
Monsanto’s biotech seeds have genetically engineered traits that help farmers increase their crop yield, despite their higher costs.
Monsanto announced the lay-offs as it reported a $495 million loss for its fiscal fourth quarter.
The company posted a net loss of $1.06 per share, compared with a net loss of $156 million, or 31 cents per share, a year ago. Losses, adjusted for one-time gains and costs, were 19 cents per share. That was still below the average estimate of eight analysts surveyed by Zacks Investment Research who were looking for a loss of 1 cent per share.
The company’s sales also missed Wall Street forecasts, falling more than 10 percent to $2.36 billion during the period. Four analysts surveyed by Zacks expected $2.89 billion.
Sales of Monsanto’s best-selling product, biotech corn seeds, fell 5 percent to $598 million. Meanwhile, the company’s chemical business, led by Roundup weed killer, also fell 12 percent to $1.1 billion.

TPP: 'She's a beauty, mate!' Really?

Rarely has there been such a triumph of image over substance; rarely such an outpouring of admiration for a deal, whose details yet remain a secret, as there has been this week in the wake of the Trans-Pacific Partnership free trade announcement.
"A gigantic foundation stone for our future prosperity," gushed the PM as business groups pumped out their press releases with zeal. On the TV news, the networks ran their panegyrics to the TPP even higher in the bulletin than the nightly Prince Harry segment.
<i>Illustration: John Shakespeare</i> Illustration: John Shakespeare
If this is such a great deal, why are they hiding it? There is, among other things, a four-letter answer to this question: ISDS (Investor-State Dispute Settlement). ISDS is a mechanism for corporations to sue governments.
Water and waste management giant Veolia is suing the government of Egypt for lifting the minimum wage. Canada is being sued for a ban on fracking and Germany for its phasing out of nuclear power; all actions taken under ISDS clauses in free trade pacts.
US corporations are the biggest litigants, having brought some 127 cases thus far against sovereign government decisions which they claim have damaged their financial interests. Taxpayers have the pleasure of footing the legal defence bills. Even worse, the authority of sovereign courts is ignored in favour of an international dispute tribunal.
The TPP faces opposition, and a lot of it is because of its secrecy. If this is such a great deal, why are they hiding it? The TPP faces opposition, and a lot of it is because of its secrecy. If this is such a great deal, why are they hiding it? Photo: AAP
The reality is this TPP free trade deal is as much about free trade as it is about entrenching the interests of large multinational corporations.
It is no secret that, while the citizens of the 12 signatory nations remain in the dark about the detail of the regional free trade pact, multinationals and their lobbyists had a large hand in shaping it. The US has a system of trade consultative committees. There are some 600 "cleared advisers" who consult to government. Of those, about 550 hail from the corporate sector; the rest a smattering of union, community and environment groups.
The cleared adviser has to sign a confidentiality contract and cannot talk about the deal but is free to give detailed advice to government.

Leg-up for vested interests

Besides this leg-up for vested interests, there is the potent influence of money in politics. During the 2008 election campaign, there was $US5.8 billion ($7.7 billion) in political donations. Some $US3.6 billion was splashed on the 2010 mid-term elections. Wall Street, the health and pharmaceutical sectors, oil and gas, telecommunications, weapons manufacturers and real estate are among the biggest donors, and account for the bulk of the annual billion-dollar lobbying spend.
Washington has largely been bought off. Washington is driving the TPP process.Washington kow-tows to corporate interests, and Canberra, in turn, kow-tows to Washington's interests. Australians therefore can have little comfort that the detail in the TPP will turn in their favour.
So it is that we are subject to a PR blitz. "Free trade" is the branding. It is hard to argue with free trade. In principle, free trade is good. But what is the trade-off? By the time the detail is forthcoming in a month, people will be tired of the TPP - old news - and its architects of the hope that the barrage of flattery will render the deal a fait accompli.
Instead of a full TPP text, which can be credibly analysed and discussed by the people who elect governments, we have a press release which sums up all thirty chapters of the agreement with a few sentences for each chapter.
Chapter 10 on Cross Border Trade in Services for instance contains seven sentences and refers to two "country-specific annexes attached to the agreement". These presumably relate to exceptions for two countries but the "annexes" themselves are nowhere to be seen. Australia does a large trade in services – education, financial services and the likes. Are we one of these exceptions?
Trade Minister Andrew Robb has won plaudits from far and wide in the business lobby, notably for sticking to his guns on changes to the rules on patents and generic drugs. Yet, with the detail of the deal invisible, there appears to be a contradiction in the American interpretation of these very same arrangements.
As Patricia Ranald of the Australian Fair Trade and Investment Network (AFTINET) puts it, Andrew Robb has given assurances that Australia "has not agreed to immediate extension of monopolies on life-saving biologic medicines beyond the current Australian standard of five years".
"The US government was seeking an extension from five to eight years which would cost the Pharmaceutical Benefits Scheme hundreds of millions of dollars for every year of delay for cheaper versions to become available," says Dr Ranald. "This would lead to pressure for higher prices at the chemist.
"However, we note these assurances are weakened by the fact that the US is claiming that five years is a minimum standard and there is a "voluntary" agreement using administrative means for an additional three years of monopoly on biologics, referred to as 'five years + three years'. Without the detail of the text it is difficult to know exactly what impact this will have."

Dismal failure

Yes, falling tariffs will help farmers and other exporters. Lower barriers to trade for these countries comprising 40 per cent of the world's economy are a good thing. There is a dismal failure however by the proponents of free trade pacts to do an independent cost-benefit analysis before they are signed (as the Productivity Commission would like to do). And there is an equally dismal failure to justify free trade deals by credible historic analysis.
What for instance has been the upshot of the US-Australia free trade agreement struck as the quid pro quo for Australia joining the invasion of Iraq in 2003? How has that favoured the US vis-à-vis Australia's national interest?
FTAs are largely an article of faith. To criticise them sounds pernickety given the prevailing public sentiment that they sound like a good thing, so they must be a good thing.
There is little doubt however that the TPP will do as much to promote free trade as it will to cement the power of large corporations who are inexorably usurping governments around the world.
If governments don't have the courage and the nous to stand up to multinational tax avoiders – many of who are the leading proponents of this deal - how can the public trust them to ensure the best outcome in a free trade deal struck in secret?
Under these circumstances, signing up to the TPP is a bit like buying a used car over the phone with no detail as to the state of the vehicle or the clicks on the odometer, but with glowing assurances from the dealer that "she's a beauty".

How and Why Banks Will Seize Deposits During the Next Crisis

(Phoenix Capital)  As we noted last week, one of the biggest problems for the Central Banks is actual physical cash.
The financial system is predominantly comprised of digital money. Actual physical Dollars bills and coins only amount to $1.36 trillion. This is only a little over 10% of the $10 trillion sitting in bank accounts. And it’s a tiny fraction of the $20 trillion in stocks, $38 trillion in bonds and $58 trillion in credit instruments floating around the system.
Suffice to say, if a significant percentage of people ever actually moved their money into physical cash, it could very quickly become a systemic problem.
Indeed, this is precisely what caused the 2008 meltdown, when nearly 24% of the assets in Money Market funds were liquidated in the course of four weeks. The ensuing liquidity crush nearly imploded the system.
Because of this, Central Banks and the regulators have declared a War on Cash in an effort to stop people trying to get their money out of the system.
One policy they are considering is to put a carry tax on physical cash meaning that your Dollar bills would gradually depreciate once they were taken out of the bank. Another idea is to do away with actual physical cash completely.
Perhaps the most concerning is the fact that should a “systemically important” financial entity go bust, any deposits above $250,000 located therein could be converted to equity… at which point if the company’s shares, your wealth evaporates.
Indeed, the FDIC published a paper proposing precisely this back in December 2012. Below are some excerpts worth your attention.
This paper focuses on the application of “top-down” resolution strategies that involve a single resolution authority applying its powers to the top of a financial group, that is, at the parent company level. The paper discusses how such a top-down strategy could be implemented for a U.S. or a U.K. financial group in a cross-border context…
These strategies have been designed to enable large and complex cross- border firms to be resolved without threatening financial stability and without putting public funds at risk…
An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company into equity. In the U.S., the new equity would become capital in one or more newly formed operating entities.
…Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.
In other words… any liability at the bank is in danger of being written-down should the bank fail.And guess what? Deposits are considered liabilities according to US Banking Law. In this legal framework, depositors are creditors.
So… if a large bank fails in the US, your deposits at this bank would either be “written-down” (read: disappear) or converted into equity or stock shares in the company. And once they are converted to equity you are a shareholder not a depositor… so you are no longer insured by the FDIC.
So if the bank then fails (meaning its shares fall)… so does your deposit.
Let’s run through this.
Let’s say ABC bank fails in the US. ABC bank is too big for the FDIC to make hold. So…
1)   The FDIC takes over the bank.
2)   The bank’s managers are forced out.
3)   The bank’s debts and liabilities are converted into equity or the bank’s stock. And yes, your deposits are considered a “liability” for the bank.
4)   Whatever happens to the bank’s stock, affects your wealth. If the bank’s stock falls at this point because everyone has figured out the bank is in major trouble… your wealth falls too.
This is precisely what has happened in Spain during the 2012 banking crisis over there. Since then it’s also happened in Cyprus, Greece…and it is now perfectly legal in the US courtesy of a clause in the Dodd-Frank bill.
This is just the start of a much larger strategy of declaring War on Cash.  The goal is to stop people from being able to move their money into physical cash and to keep their wealth in the financial system at all cost.
This is just the start of a much larger strategy of declaring War on Cash.  The goal is to stop people from being able to move their money into physical cash and to keep their wealth in the financial system at all costs.
Indeed, we’ve uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets.
We detail this paper and outline three investment strategies you can implement
right now to protect your capital from the Fed’s sinister plan in our Special Report
Survive the Fed’s War on Cash.
We are making 1,000 copies available for FREE the general public.
To pick up yours, swing by….

More bleak numbers. German industry output unexpectedly falls even ahed of VW crisis.

German industrial production unexpectedly declined in August, signaling that Europe’s largest economy is feeling the effects of weaker emerging-market demand.
Output, adjusted for seasonal swings and inflation, fell 1.2 percent in August after a revised increase of 1.2 percent in July, data from the Economy Ministry in Berlin showed on Wednesday. The reading, which tends to be volatile, compares with a median estimate for a 0.2 percent gain in a Bloomberg survey of economists. Industrial production advanced 2.3 percent from a year earlier.
Germany is grappling with a slowdown in China and other emerging markets, which have been key destinations for its exports. With factory orders from countries outside the 19-nation euro region down more than 13 percent in July and August combined, the focus is shifting to strengthening domestic spending fueled by pent-up investment demand and consumption.
“Over the last couple of months, the industrial safety net of low inventories and filled order books has become thinner,” said Carsten Brzeski, chief economist at ING-Diba AG in Frankfurt. “Somehow, the weak euro and extremely favorable financing conditions have not fully deployed their full impact on the economy, yet.”
The single currency was little changed after the report and traded at $1.1265 at 8:15 a.m. Frankfurt time. It’s depreciated by more than 11 percent in the past year.

Deutsche Bank warns of $7B loss, cuts dividend, stock drops 6%

Deutsche Bank warned Wednesday that a series of charges, including litigation expenses, will result in a third-quarter loss of $6.97 billion, or 6.2 billion euro.
The Frankfurt-based bank, which has operations in the United States, may also reduce or eliminate its dividend for the rest of the year, it warned in a press release.
The company's NYSE-listed shares fell more than 6% in after-hours trading after having ended the trading day at $28.77.
It's been a rough year for Germany's largest bank. In June, German law enforcement officials raided the bank's Frankfurt headquarters on suspicions of tax fraud related to customer securities transactions. The raid came just two days after the company's co-chief executive officers announced plans to resign amid growing questions over their leadership.
On Wednesday, Deutsche Bank warned of an impairment of approximately $6.5 billion (5.8 billion euro) tied to "higher regulatory capital requirements"  in its corporate and securities business, as well as its private client unit.
The bank also warned of an impairment of $674 million tied to Deutsche Bank's 19.99% stake in Hua Xia Bank Co., a publicly traded bank in Beijing, as well as $1.3 billion in litigation expenses.
As a result of the charges, Deutsche Bank expects to report a third quarter net loss of $6.97 billion (6.2 billion euro) when it reports earnings on October 29.

Global Financial Meltdown Coming? Clear Signs That The Great Derivatives Crisis Has Now Begun

By Michael Snyder
Global Financial Meltdown - Public DomainWarren Buffett once referred to derivatives as “financial weapons of mass destruction“, and it was inevitable that they would begin to wreak havoc on our financial system at some point.  While things may seem somewhat calm on Wall Street at the moment, the truth is that a great deal of trouble is bubbling just under the surface.  As you will see below, something happened in mid-September that required an unprecedented 405 billion dollar surge of Treasury collateral into the repo market.  I know – that sounds very complicated, so I will try to break it down more simply for you.  It appears that some very large institutions have started to get into a significant amount of trouble because of all the reckless betting that they have been doing.  This is something that I have warned would happen over and over again.  In fact, I have written about it so much that my regular readers are probably sick of hearing about it.  But this is what is going to cause the meltdown of our financial system.
Many out there get upset when I compare derivatives trading to gambling, and perhaps it would be more accurate to describe most derivatives as a form of insurance.  The big financial institutions assure us that they have passed off most of the risk on these contracts to others and so there is no reason to worry according to them.
Well, personally I don’t buy their explanations, and a lot of others don’t either.  On a very basic, primitive level, derivatives trading is gambling.  This is a point that Jeff Nielson made very eloquently in a piece that he recently published
No one “understands” derivatives. How many times have readers heard that thought expressed (please round-off to the nearest thousand)? Why does no one understand derivatives? For many; the answer to that question is that they have simply been thinking too hard. For others; the answer is that they don’t “think” at all.
Derivatives are bets. This is not a metaphor, or analogy, or generalization. Derivatives are bets. Period. That’s all they ever were. That’s all they ever can be.
One very large financial institution that appears to be in serious trouble with these financial weapons of mass destruction is Glencore.  At one time Glencore was considered to be the 10th largest company on the entire planet, but now it appears to be coming apart at the seams, and a great deal of their trouble seems to be tied to derivatives.  The following comes from Zero Hedge
Of particular concern, they said, was Glencore’s use of financial instruments such asderivatives to hedge its trading of physical goods against price swings. The company had $9.8 billion in gross derivatives in June 2015, down from $19 billion in such positions at the end of 2014, causing investors to query the company about the swing.
Glencore told investors the number went down so drastically because of changes in market volatility this year, according to people briefed by Glencore. When prices vary significantly, it can increase the value of hedging positions.
Last year, there were extreme price moves, particularly in the crude-oil market, which slid from about $114 a barrel in June to less than $60 a barrel by the end of December.
That response wasn’t satisfying, said Michael Leithead, a bond fund portfolio manager at EFG Asset Management, which managed $12 billion as of the end of March and has invested in Glencore’s debt.
According to Bank of America, the global financial system has about 100 billion dollars of exposure overall to Glencore.  So if Glencore goes bankrupt that is going to be a major event.  At this point, Glencore is probably the most likely candidate to be “the next Lehman Brothers”.
And it isn’t just Glencore that is in trouble.  Other financial giants such as Trafigura are in deep distress as well.  Collectively, the global financial system has approximately half a trillion dollars of exposure to these firms…
Worse, since it is not just Glencore that the banks are exposed to but very likely the rest of the commodity trading space, their gross exposure blows up to a simply stunning number:
For the banks, of course, Glencore may not be their only exposure in the commodity trading space. We consider that other vehicles such as Trafigura, Vitol and Gunvor may feature on bank balance sheets as well ($100 bn x 4?)
Call it half a trillion dollars in very highly levered exposure to commodities: an asset class that has been crushed in the past year.
The mainstream media is not talking much about any of this yet, and that is probably a good thing.  But behind the scenes, unprecedented moves are already taking place.
When I came across the information that I am about to share with you, I was absolutely stunned.  It comes from Investment Research Dynamics, and it shows very clearly that everything is not “okay” in the financial world…
Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market.   Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate.   However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008:
Reverse Repo Operation
What in the world could possibly cause a spike of that magnitude?
Well, that same article that I just quoted links the troubles at Glencore with this unprecedented intervention…
What’s even more interesting is that the spike-up in reverse repos occurred at the same time – September 16 – that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6% in that time period.  You’ll note that this is around the same time that a crash in Glencore stock and bonds began.   It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the “Lehman moment” that triggered the 2008 collapse.
The blame on the general stock market plunge was cast on the Fed’s inability to raise interest rates.  However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out sight in the general liquidity functions of the global banking system.
Back in 2008, Lehman Brothers was not “perfectly fine” one day and then suddenly collapsed the next.  There were problems brewing under the surface well in advance.
Well, the same thing is happening now at banking giants such as Deutsche Bank, and at commodity trading firms such as Glencore, Trafigura and The Noble Group.
And of course a lot of smaller fish are starting to implode as well.  I found this example posted on Business Insider earlier today
On September 11, Spruce Alpha, a small hedge fund which is part of a bigger investment group, sent a short report to investors.
The letter said that the $80 million fund had lost 48% in a month, according the performance report seen by Business Insider.
There was no commentary included in the note. No explanation. Just cold hard numbers.
Wow – how do you possibly lose 48 percent in a single month?
It would be hard to do that even if you were actually trying to lose money on purpose.
Sadly, this kind of scenario is going to be repeated over and over as we get even deeper into this crisis.
Meanwhile, our “leaders” continue to tell us that there is nothing to worry about.  For example, just consider what former Fed Chairman Ben Bernanke is saying
Former Federal Reserve chairman Ben Bernanke doesn’t see any bubbles forming in global markets right right now.
But he doesn’t think you should take his word for it.
And even if you did, that isn’t the right question to ask anyway.
Speaking at a Wall Street Journal event on Wednesday morning, Bernanke said, “I don’t see any obvious major mispricings. Nothing that looks like the housing bubble before the crisis, for example. But you shouldn’t trust me.”
I certainly agree with that last sentence.  Bernanke was the one telling us that there was not going to be a recession back in 2008 even after one had already started.  He was clueless back then and he is clueless today.
Most of our “leaders” either don’t understand what is happening or they are not willing to tell us.
So that means that we have to try to figure things out for ourselves the best that we can.  And right now there are signs all around us that another 2008-style crisis has begun.
Personally, I am hoping that there will be a lot more days like today when the markets were relatively quiet and not much major news happened around the world.
Unfortunately for all of us, these days of relative peace and tranquility are about to come to a very abrupt end.

Glencore's $100 Billion 'Gorilla' Means Bad News for Banks

Glencore has $35 billion in bonds, $9 billion in bank borrowings, $8 billion in available drawings and $1 billion in secured borrowings, in addition to $50 billion in committed credit lines, against which it draws letters of credit to finance trading, according to BofA.
Glencore has $35 billion in bonds, $9 billion in bank borrowings, $8 billion in available drawings and $1 billion in secured borrowings, in addition to $50 billion in committed credit lines, against which it draws letters of credit to finance trading, according to BofA.
Source: Glencore
Global financial firms’ estimated $100 billion or more exposure to Glencore Plc may draw more scrutiny as regulatory stress tests approach after the commodity giant’s stock plunge this year, according to Bank of America Corp.
Bank shareholders and regulators may be concerned that Glencore’s debt and trade finance deals, of which a “significant majority” are unsecured, will reveal higher-than-expected risk and require more capital once the lenders are put through U.S. and U.K. stress tests, BofA analysts said Wednesday. Adding an estimated $50 billion of committed lines to the company’s own reported gross debt, the analysts say financial firms’ exposure may be three times larger than Glencore’s reported adjusted net debt of less than $30 billion.
“The banking industry may have significantly more exposure to Glencore than is generally appreciated in the market,” analysts including Alastair Ryan and Michael Helsby said in a note titled “The $100 Billion Gorilla In the Room.” The commodity-price bust and “stress in Glencore’s share price and debt spreads may spur a review by investors, supervisors and bank management,” while “bank shareholders may pressure managements to reduce exposures,” they said.
Loans to the industry have come under scrutiny as the price of oil, copper and other commodities fell to the lowest in 16 years amid weakening demand from China. Glencore, the Swiss producer and trader of commodities led by billionaire Ivan Glasenberg, has pledged to cut debt by $10 billion and revealed more detail about its financing to mollify investors. On Dec. 1, the Bank of England releases its second round of stress tests, in which it has pledged to examine U.K. banks’ commodities exposure.
Glencore spokesman Charles Watenphul declined to comment on the BofA report. Glasenberg told staff last week the company had $13.5 billion of available liquidity and the company “will emerge even stronger.”

Stress Tests

The shares climbed 6 percent to 124.8 pence at 1 p.m. in London and have almost doubled from their low on Sept. 28, when Investec Plc analysts wrote there may be little equity value in Glencore if low commodity prices persist. Trading was briefly halted due to volatility twice on Tuesday and the stock posted its biggest gain ever on Monday, though the stock is still down by more than 50 percent in 2015.
“Gross exposures will be considered by regulators in upcoming stress tests” as opposed to banks’ net exposure, which can be offset by hedging, BofA said. “Many banks may now be more carefully reviewing their exposure to the commodities complex.”
The analysts criticized the lack of disclosure from banks about their commodity lending, but predict a change in policy to calm fears. “We believe the numbers are big enough that banks will need to use third-quarter disclosure to alleviate what we believe will be building investor concerns,” Ryan and Helsby said.

Balance Sheet

On Tuesday, Glencore released a document explaining its financing, reiterating much information that was already public knowledge, in response to recent criticism of a trading business that some have labeled a “black box.” Glencore has argued that its secured trade-financing from banks is of a high quality and has a low rate of default.
“Losses on trade finance portfolios historically have been low,” the Paris-based International Chamber of Commerce said last year, citing a report from the Bank for International Settlements. “Moreover, given their short-term nature, banks have been able to quickly reduce their exposures in times of stress.”
Glencore has $35 billion in bonds, $9 billion in bank borrowings, $8 billion in available drawings and $1 billion in secured borrowings, in addition to $50 billion in committed credit lines, against which it draws letters of credit to finance trading, according to BofA. That compares with more than $90 billion in property, plant, equipment and inventories.

Standard Chartered

More than 60 banks participated in Glencore’s $15.25 billion revolving credit facility raised in May, and the broad syndication of the debt means that credit issues “would not likely be existential for any individual bank,” the analysts said.
Standard Chartered Plc, which has also been battered by the commodity rout, has the greatest exposure to commodity traders among European banks with $1.9 billion of syndicated loans, including more than $1 billion of loans and credit lines to Trafigura Pte Ltd., Sanford C. Bernstein said Oct. 5. Credit Agricole AG has the largest exposure of any bank to Glencore at $841 million, followed by HSBC Holdings Plc with $658 million, analyst Chirantan Barua said.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.

MN Supreme Court upholds payday lending law

MINNEAPOLIS (AP) -- The Minnesota Supreme Court has upheld the constitutionality of the state's payday lending law involving out-of-state, online lenders.
The state sued Integrity Advance in 2011, saying the company violated the state lending law when making nearly 1,300 loans to borrowers in Minnesota at annual interest rates of up to 1,369 percent.
A state district court in 2013 concluded that the company violated the Minnesota law thousands of times and awarded $7 million in statutory damages and civil penalties to the state.
The company appealed to the state Supreme Court, arguing that the payday lending law was unconstitutional when applied to online lenders based in other states.
Some Internet payday lenders have tried dodging the Minnesota statute by claiming their loans are only subject to the laws of their home state or country.

156 Year Old Company To Layoff 10,000 Workers By Thanksgiving

The numbers keep increasing. A&P a 156 year old  iconic company has doubled their layoff projections to 10,000. Making this another tough holiday for many jobless Americans as the NY Post reports:
As many as 10,000 A&P workers will lose their jobs by Thanksgiving Day as the 156-year-old grocer heads toward liquidation, The Post has learned.
Fewer stores than expected were bought by rival grocers, leaving nearly one-third of A&P’s 28,500 workers — some who have been at the chain for decades — literally out in the cold.
Many A&P locations that did receive bids saw the interest come from businesses that do not intend to keep the stores’ employees, according to court documents and sources who attended the first auction of A&P stores on Oct. 1 and 2.
“Based on what we saw last week, it’s not a pretty picture,” said John Durso, president of Local 338, who expects to lose “a few thousand” union members to store closures.

Most major U.S. metro areas continue to face higher poverty rates than when the recession began

Most major U.S. metro areas continue to face higher poverty rates than when the recession began: 
The latest poverty data from the U.S. Census Bureau underscore the uneven nature of the economic recovery since the Great Recession. While some major metro areas are slowly starting to make progress, for most regions poverty rates and poor populations continue to outstrip their pre-recession levels. An analysis of 2014 American Community Survey data on people living below the federal poverty line (e.g., $24,230 for a family of four in 2014) in the nation’s 100 largest metro areas finds:

Between 2013 and 2014, the major metro area poverty rate fell slightly for the first time since the onset of the Great Recession.

Taken together, the poverty rate for the 100 largest metro areas edged down by three-tenths of a percentage point between 2013 and 2014—from 15.0 to 14.7 percent—which means the poor population fell by 274,000 to reach 30.5 million. Both the poverty rate decline and decline in poor population were statistically significant.
However, the modest decline in the poverty rate was largely driven by just 14 metro areas, including Greensboro-High Point and Jackson in the South; Denver, San Jose, and Seattle in the West; and Chicago and Detroit in the Midwest. And only 12 of those regions registered a statistically significant decrease in the number of poor residents: Houston and San Francisco’s poverty rates fell because the poor population held steady while overall population grew. (See the appendix for detailed data.)
Only one region—the Nashville metro area—experienced an uptick in both the poor population and poverty rate between 2013 and 2014. The Bakersfield and Austin regions also saw their poor populations grow, but broader population gains kept their poverty rates unchanged.
For most major metro areas (85 of the top 100), 2014 brought no significant change to their poverty levels compared to the year before.

Marc Faber: We Have Colossal Asset Inflation

Popescu Report – Central Banks and Gold

 Central Banks and Gold: A love hate relationship
China’s strategy to replace America as the global superpower
Gold and China (Oct.4, 2015)

Welcome to the Recovery – Homelessness Amongst Students Doubles Since Before the Recession

Source: Michael Krieger, Liberty Blitzkrieg

Screen Shot 2015-08-31 at 3.02.51 PM
How’s that recovery going for you? That’s what I thought.
Here’s the latest data point from the ongoing oligarch crime spreeshamelessly marketed to the masses as an “economic recovery.”
From Five-Thirty-Eight:
The number of homeless students in the country’s classrooms has more than doubled since before the recession, according to recently released federal data. That’s an alarming trend, but a new report offers some hope: At least part of the increase, the authors say, is not because more students have become homeless, but because states have gotten better at identifying homeless students.
Here’s a visual representation of America’s Banana Republic neo-feualism for those of you so inclined:

Screen Shot 2015-10-07 at 10.28.38 AM
Bull market in serfdom. If this is what a recovery looks like, I don’t want to see a recession.
There were about 1.4 million homeless students nationwide in the 2013-14 school year, according to the Department of Education, twice as many as there were in the 2006-07 school year, when roughly 680,000 students were homeless.
The rankings are based on an array of indicators that range from the concrete, like the number of available rental units that are affordable for extremely low-income families, to the less so, like the number of policies that reduce homeless families’ barriers to accessing child care. Matthew Adams, the institute’s principal policy analyst, said that rather than try to measure the effectiveness of policies in each state, which can be hard to quantify, the goal of the report is to identify and compare the efforts being made by each state.
Don’t forget to send thank you notes to America’s #1 criminal at large. Return address optional:
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For related articles, see:
In New York City, Workers with Full Time Jobs Are Living in Homeless Shelters
The Face of the Oligarch Recovery – Luxury Skyscrapers Stay Empty as NYC Homeless Population Hits Record High
Welcome to the Recovery Part 2 – Washington D.C.’s Homeless Population Expected to Rise 16% in 2014
Welcome to the Recovery – U.S. Child Homelessness Hits Record as Poverty in Mass. is Highest Since 1960

CITE: The $1 Billion City That Nobody Calls Home

In the arid plains of the southern New Mexico desert, between the site of the first atomic bomb test and the U.S.-Mexico border, a new city is rising from the sand.
Planned for a population of 35,000, the city will showcase a modern business district downtown, and neat rows of terraced housing in the suburbs. It will be supplied with pristine streets, parks, malls and a church.
But no one will ever call it home.
The CITE (Center for Innovation, Testing and Evaluation) project is a full-scale model of an ordinary American town. Yet it will be used as a petri dish to develop new technologies that will shape the future of the urban environment.

The $1 billion scheme, led by telecommunications and tech firm Pegasus Global Holdings, will see 15-square-miles dedicated to ambitious experiments in fields such as transport, construction, communication and security.
CITE will include specialized zones for developing new forms of agriculture, energy, and water treatment. An underground data collection network will provide detailed, real-time feedback. 

Read More... 

Pension Reductions Only Way For Truckers To Save Plan From Insolvency


(Michael A. Fletcher)    Nearly 300,000 former truckers and their families would suffer significant losses under a proposal that uses a controversial new law to cut once sacrosanct pension benefits.
The huge Central States Pension Fund, which administers retirement benefits for some former and current Teamster truckers, said the reductions are the only way to save the plan from insolvency.
“A realistic rescue plan is needed now,” said Thomas C. Nyhan, executive director of the Central States Pension Fund. “The longer we wait to act, the larger the benefit reductions will have to be.”
Under the proposal, pensions for Central States’ 407,000 participants would be cut by an average of nearly 23 percent. But the pain would be distributed unevenly. Some participants, including the disabled, would not be subject to reductions. Older retirees would generally receive smaller cuts, while those who worked for defunct companies that did not keep pace with their pension funding obligations would face steeper reductions.
The proposed cuts were detailed in a plan submitted to the Treasury Department late last month. In it, Central States said the reduced number and increased age of its participants have left it paying out $3.46 for every dollar it takes in. The result is that the plan is disbursing $2 billion more in benefits than it takes in through employer contributions each year.
Officials say the pension plan was hurt by significant membership losses after the trucking industry was deregulated in the 1980s. Central States also suffered catastrophic investment losses during the stock market crash that accompanied the Great Recession. Since then, its investments have returned about 13 percent a year, but that has not been enough to return it to sound footing. Without changes in its benefit formula, the pension plan is on course to be insolvent by 2026, Nyhan said.
A Treasury official said Central States is the first to file a proposal with the federal government to reduce benefits under a law that was passed late last year. The measure for the first time allows the benefits of current retirees to be cut in order to address the fiscal distress confronting some of the nation’s multi-employer pension plans.
An estimated 1 million people, including many retirees, are in multi-employer pension plans that federal officials say are in danger of running out of money in the near future. Multi-employer plans are formed by businesses and unions that join forces to provide pension coverage for working-class Americans, including truck drivers, grocery store clerks and construction workers.
If some of the larger multi-employer plans are allowed to collapse, the federal insurance fund that protects them could also collapse. Given that, a coalition of plan trustees and unions said the only way to salvage the most distressed pension plans is to allow them to cut retirement benefits before they run out of money.
The law was enacted in the face of strident opposition from some unions and pension advocates, who argued that allowing plans to cut retiree benefits violates the core promise of traditional pensions: that they would provide a defined benefit for life.
Now that the first pension plan is moving to make cuts, opponents’ anger has been rekindled.
“Pension fund participants and beneficiaries did not cause the problem of underfunding,” James P. Hoffa, general president of the International Brotherhood of Teamsters, wrote in a letter to Central States. “They worked day in and day out to earn their pension credits. It is monstrously unfair that they will end up holding the short end of the stick.”
Some union leaders and their supporters, including Democratic presidential candidate Bernie Sanders, say the government should step in to shore up the pension funds. Sanders, an independent senator from Vermont, has introduced a bill that would repeal the measure allowing pensions to be cut.
Nyhan said Central States would embrace that solution as well. The problem, he said, is that it appears to be a political impossibility.
Treasury has 225 days to evaluate Central States’ plan to trim pensions. If officials approve the reductions, the cuts would then be voted on by plan participants. But even if participants vote the plan down, the law says it could still be imposed for the sake of protecting the broader pension guarantee system.

Iconic Retailer City Sports Files For Bankruptcy, Plans To Close Or Sell Remaining Stores

(Thomas Dishaw)  Another iconic mom and pop retailer files for bankruptcy. Boston-based City Sports plans to close or sell all remaining stores according to this report:

Boston-based sporting goods retailer City Sports filed for Chapter 11 bankruptcy Monday and plans to shutter eight of its 26 locations before selling or liquidating the rest.
“We have arranged financing for reorganization and intend to emerge from this process a much healthier company, better positioned for long-term success,” Marty Hanaka, the company’s CEO, said in a statement.
City Sports, which opened its first store on Massachusetts Avenue in Boston in 1983, has yet to announce which stores will be eliminated and when those closures will take place. However, a company spokeswoman told The Boston Globethe retailer does not intend to close any of the nine Boston-area stores. The company estimates that the reorganization process will take between one and three months, according to a release.
Since the spring of 2014, the company has struggled financially and tried to save money by cutting store hours, shrinking its workforce, and slowing delivery time, according to The Wall Street Journal . Still, City Sports could not negotiate better rent deals with its landlords, leading it to file for bankruptcy.
The company currently owes Nike USA Inc., Under Armour, Asics, and Patagonia more than $1 million each, the Globereported.
City Sports hopes to sell the remaining stores by October 30, and says several buyers have expressed interest in them. Until then, the company will continue to operate its remaining stores and online business as usual.
“Our stores remain stocked with the same high-quality products, and we will continue to honor gift cards and returns on merchandise purchased prior to the filing,” Hanaka said. “Our team is focused on developing a reorganization plan and running the business during this time of transition.”

Indeed, Lots Of Propping Going On.…
Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market.   Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate.   However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008:

The Real Reason for the Refugee Crisis You Won’t Hear About in the Media

The Real Reason for the Refugee Crisis You Won’t Hear About in the Media

There’s a meme going around that the refugee crisis in Europe (the largest since World War II) is part of a secret plot to subvert the West.
I completely understand why the locals in any country wouldn’t be happy about waves of foreigners pouring in. Especially if they’re poor, unskilled, and not likely to assimilate.
It leads to huge problems. Infrastructure gets strained. More people are sucking at the teat of the welfare system. The unwelcome newcomers compete for bottom-of-the-ladder jobs. Things easily turn nasty and then turn violent.
But the idea that the refugee crisis in Europe is part of a hidden agenda - rather than a predictable outcome - strikes me as strange. And it’s a notion that conveniently deflects blame away from the people and factors that deserve it.

Interventions Destabilize the Middle East

The civil war in Syria has turned the country into a refugee-maker.
Syria’s neighbors have reached their physical limit on their ability to absorb refugees.
That’s one of the reasons so many are heading to the West.
Lebanon has received over 1 million Syrian refugees. That’s an enormous number for a country with a population of only 4 million - a 25% increase. Jordan and Turkey also have millions of Syrian refugees. They’re saturated.
The number of refugees heading to the West, by contrast, is in the hundreds of thousands. So far.
But it’s not just Syria that’s sending refugees. Many more come from Iraq and Afghanistan, two other countries shattered by bungled Western military interventions.
Then there are the refugees from Libya. A country the media and political establishment would rather forget because it represents another disastrous military decision.
Actually, it’s not just Libyan refugees. It’s refugees from all of Africa who are using Libya as a transit point to reach Europe.
Before his overthrow by NATO, Muammar Gaddafi had an agreement with Italy, which is directly to Libya’s north, across the Mediterranean Sea. Gaddafi agreed to prevent refugees heading for Europe from using Libya as a transit point. It was an arrangement that worked. So it’s no shocker that when NATO helped a coalition of ambitious rebels overthrow the Gaddafi government, the refugee floodgates opened.
When there’s war, there are refugees. It’s a predictable outcome.
It’s like kicking a bees’ nest and being surprised that bees fly out. Nobody should be surprised when that happens. And nobody should be surprised that people are fleeing war zones in Libya, Syria, Iraq, and Afghanistan.
If Western governments didn’t want a refugee crisis, they shouldn’t have been so eager to topple those governments and destabilize those countries. The refugees should camp out in the backyards of the individuals who run those governments.
I also have to mention the Saudis. They were very much involved in the Libyan war. They’ve also devoted themselves to ousting the Assad government in Syria, for geopolitical and sectarian reasons.
Then there’s the war in Yemen that the Saudis have sponsored. It’s another mess the media doesn’t discuss often. But it will likely produce even more refugees.
The Saudis make no secret about not welcoming refugees, even though the Kingdom is a primary instigator of the wars that are forcing people to flee their homelands. One reason is the Saudis don’t want more people leeching off their welfare system, especially amid budget crunches from lower oil prices.
This brings up another interesting point. For the first time in decades, observers are calling into question the viability of the Saudi currency peg of 3.75 riyals per US dollar.
The Saudi government spends a ton of money on welfare to keep its citizens sedated. But with lower oil prices cutting deep into government revenue, there’s less money to spend on welfare. Then there’s the cost of the wars in Yemen and Syria.
There’s a serious crunch in the Saudi budget. They’ve only been able to stay afloat by draining their foreign exchange reserves. That threatens their currency peg.
The next clue that there’s trouble is Saudi officials telling the media that the currency peg is fine and there’s nothing to worry about. An official government denial is almost always a sign of the opposite. It’s like the old saying…“believe nothing until it has been officially denied.”
If there were a convenient way to short the Saudi riyal, I would do it in a heartbeat.

Don’t Give the Welfare State a Pass

It’s no coincidence that the refugees are flowing to the countries with the most generous welfare benefits, especially Germany and the Scandinavian nations.
If there weren’t so many freebies in these countries, there wouldn’t be so many refugees showing up to collect them.
The whole refugee crisis was easily predictable. It was the foreseeable consequence of shortsighted interventions in the Middle East and the welfare-state policies of nearby Europe.
Instead of facing facts, blaming it all on a scheme to subvert the West conveniently deflects any responsibility from the authors of the mess.
If the individuals who run Western governments really wanted to solve the refugee problem, they would throttle way back on welfare-state policies and then stay out of the Middle East free-for-all. It’s really as simple as that.
But don’t count on the mainstream media to figure this out. They effectively operate as an organ of the State. I bet they’ll keep prescribing more of the same bad medicine that caused this crisis to begin with.
This will help to cover the tracks of the real perpetrators, and it will obscure other real problems. I expect the media to ramp up the “blame the foreigner” sentiment, as it helps the US and EU governments distract the anger of their citizens from the sputtering economy and the shrinking of their civil liberties. From the politicians’ perspective, it’s a win-win. But it’s a lose-lose for citizens hoping for accountable government.
And this brings up another uncomfortable truth for Americans and Europeans. The way the political and economic winds are blowing, things could get much worse.
Central banks around the globe have created the biggest financial bubble in world history.
The social and political implications of this bubble bursting are even more dangerous than the financial consequences.
An economic depression and currency inflation (perhaps hyperinflation) are very much in the cards. These things rarely lead to anything but bigger government, less freedom, and shrinking prosperity. Sometimes they lead to much worse.
One day the shoe could be on the other foot. We could see American and European refugees fleeing to South America or other havens to escape the problems in their home countries. It would be an ironic twist.
Now, this outcome isn’t inevitable. But the chance it will happen isn’t zero, either, and the risk seems to grow each day.
Because of these enormous risks in the financial system, we’ve published a groundbreaking, step-by-step manual that sets out the three essential measures all Americans should take right now to protect themselves and their families.
These measures are easy and straightforward to implement. You just need to understand what they are and how they keep you safe. New York Times best-selling author Doug Casey and his team describe how you can do it all from home. And there’s still time to get it done without extraordinary cost or effort.
Normally, this get-it-done manual retails for $99. But I believe it’s so important for you to act now to protect yourself and your family that I’ve arranged for anyone who is a resident of the U.S. to get a free copy. Click here to secure your free copy now.

Once the Biggest Buyer, China Starts Dumping U.S. Government Debt

Shift in Treasury holdings is latest symptom of emerging-market slowdown hitting global economy

Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis.
Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt.
While central banks have been...

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2015 Economic Freedom Report: The freedom of all the world’s countries, ranked! (Hint: America’s not #1)

“Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.”
This is the most extensive study of freedom worldwide, conducted every year. We can all have sentimental beliefs about what country is free, but here’s the numbers.
Here’s the top-10 most economically free countries on Earth (2013 – most recent year numbers are available for):
1. Hong Kong
2. Singapore
3. New Zealand
4. Switzerland
5. UAE
6. Mauritius
7. Jordan
8. Ireland
9. Canada
10. UK
I’m sure you’re surprised not to see the US there. I’m sure you’re surprised to see Canada and Britain ahead of America! America is at 16. You might resist that, but (a) the numbers speak for themselves – you can all read the data they use – and (b) economists have known America isn’t the most economically free country for years. In fact, America has been slipping in the rankings for years.
Now, attentive readers might wonder “What was the ranking under Bush?” The 2009 report gives the numbers for 2007. America was ranked 6th globally in economic freedom.
So, in short, under Obama America has fallen from the 6th most free country on Earth to the 16th as of 2013. Given the trend since 2007, we can expect that the report next year and the year after will show America slipping even farther.


Rough sleeping ban will ‘criminalize most vulnerable’ in Newport


Human rights group Liberty has called on Newport City Council to scrap its plans to ‘criminalize’ begging and rough sleeping in the city center.
On Sunday, a consultation into the Welsh local authority’s proposed Public Spaces Protection Order (PSPO) closed.
The Order, if implemented, would make free leaflet distribution, rough sleeping and begging illegal in Newport city center.
The proposals were announced soon after the council revealed measures aimed at “improving the area.
In a consultation paper, the council said it expresses “a view to introducing a new and updated PSPO in time for the opening of the Friars Walk retail development in November 2015.”
However, Liberty has condemned these plans, claiming they would “criminalize the most vulnerable in the city.”
These proposals make a mockery of Newport’s Chartist legacy. For the sake of a new shopping center, the Council is pouring its energies into criminalizing the most vulnerable in the city, and silencing means of dissent,” Liberty’s legal officer Rosie Brighthouse said in a statement.
This PSPO won’t house people, move them on, or help resolve their homelessness in any other way – it will simply fine them for their extreme poverty. We urge the council in the strongest terms to reconsider these utterly shameful plans,” she said.
In a letter to Newport City Council’s Labour leader Bob Bright, Liberty said a ban on rough sleeping would “constitute an interference with Articles 8 and 10 of the Human Rights Act.”
It will do nothing to address the underlying causes of homelessness and extreme poverty, or have any effect other than drawing impoverished people, many suffering mental health conditions into the criminal justice system,” the letter read.
Speaking to the BBC on Tuesday, Labour councilor Bob Poole said Newport Council is trying to make the city center look more appealing.
It is perhaps timely, against this background of positive change, that this new piece of legislation offers the city and its residents the chance to build on that momentum by ensuring that the experience of people visiting the city center is a positive one,” he said.
Minister and retail development manager Paul Halliday said Newport Council needs to support homeless people.
What they need is help and support; what we don’t do is demonize them and treat them like criminals,” he told the South Wales Argus.
Commenting on the controversy, Newport City Council said the PSPO would not ban homeless people from the city center or prevent them from accessing night shelters.
In relation to rough sleeping, the council remains committed to working with other local service board partners in Newport to address the underlying needs of those affected in this way.
Any prohibition within the PSPO relating to this activity would (if approved) simply make it unlawful to sleep rough in the city center; it would not ban homeless people from the city center or prevent them from gaining access to night shelters within this area.
The night time safety of both the homeless and local residents is paramount.”
The proposals will be discussed by the council’s scrutiny committee on October 15.
Via RT. This piece was reprinted by RINF Alternative News with permission or license.

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Something’s Up: Panic Buying of Super-Liquid Treasuries Despite The Five-day Rally In Stocks

Wolf Richter,
Despite the rally in stocks that left the S&P 500 up for the fifth day in a row, the longest such series since December, there was, at the other end of the spectrum, a whiff of panic.
It wasn’t that visible in ten-year Treasuries, though intense buying drove them higher, with the yield dropping to 1.989% Monday morning, the lowest since April, before ending the day at 2.06%. It was in short maturities, the safest and most liquid financial assets in the world: The US Treasury was able to sell $21 billion of six-month bills at a minuscule yield of 0.065%.
It also auctioned off $21 billion in three-month bills. Each dollar of the bills offered got chased by $4.14 in bids – the highest bid-to-cover ratio since June 22 when China was in full-crash mode. With buyers jostling for position to grab whatever they could, these bills sold at a yield of zero for the first time in history.
Even more liquid one-month bills have sold at zero yield in five of the six most recent auctions. And in the secondary market, some bills have traded at slightly negative yields for a while; investors who hold these bills to maturity end up with a guaranteed loss, the price they’re willing to pay to keep their money save and liquid.
But this was the first time for the Treasury to sell three-month bills at zero yield.
OK, there’s a supply issue. The gross national debt has been bouncing into the debt ceiling for months. So the Treasury can only sell new debt to replace maturing debt. The actual borrowing needs of the government are not met by selling more Treasuries but by temporarily siphoning money from other government accounts – “extraordinary measures,” as it’s called. But there is a limit. Beyond it lies the official out-of-money date, which the Treasury now projects to be November 5.
So tight supply meets desperate demand. Even cash in bank would earn more. But for these large investors, such as money-market funds, their cash in bank would be uninsured and could go up in smoke during a crisis.
Which leaves us with a quandary: The stock market rally says folks believe that the bonanza will continue, that risks have disappeared, that the economy is hot, and that the Fed will never take away the punchbowl.
But the Treasury market shows that others are desperate to put their money into highly liquid and safe places, even if it costs them money – a behavior normally visible ahead of a looming crisis. Even then, the Treasury had never before been able to auction off three-month T-bills at a yield of zero.
Why are these people so spooked? Why don’t they get the drift that momentum is back, that everything is under control, that it’s time to plow back into risk?
Fed flip-flopping has something to do with it. By now, no one believes anything the Fed says, one way or the other. It doesn’t matter how many Fed heads come out and proclaim that a rate increase is still on the table for later this year. It doesn’t matter how often they claim that inflation will once again rise. No one believes them anymore.
On Monday, Fed funds futures – where Wall Street rate-hike beliefs turn into money – put the likelihood of a rate hike during the Fed’s October 27-28 meeting at 6% and at 32% for its December 15-16 meeting.
Traders have been searching for confirmation that the Fed would never raise rates. They’re clamoring for ZIRP infinity. Most of our corporate heroes, after using the ZIRP years to load up on cheap debt, won’t be able to roll over this debt at “normalized” rates without skidding into serious trouble. And today’s highly leveraged investment models don’t work when there is suddenly a real cost of capital.
They found what they were looking for: a crummy but not catastrophic jobs report on Friday, a steepening deterioration in corporate revenues and earnings, and a swooning manufacturing sector. They brush off other data such as booming auto sales, a steamy housing market, or rents that are getting closer to the stratosphere in a world where real wages have been stagnating.
So it doesn’t matter that Fed heads are beating the bushes, trying to get markets to believe that a rate hike is still on the table.
“We’ll have to see whether the employment report was a little anomalous or whether it turns out to be more of a broader pattern,” Boston Fed president Eric Rosengren toldMarketWatch. “If this is an anomalous report then, if the data came in sufficiently, I would be comfortable possibly raising rates by the end of the year.”
On September 24, when the Fed decided to keep its benchmark rates at near zero, it added the huge caveat that 13 out of 17 Fed officials – “including myself,” as Fed Chair Janet Yellen emphasized – expected a rate hike this year.
Rosengren pointed out that the jobs report was just “one report,” and that other data would have to confirm this weakness. He wasn’t convinced it was a broader pattern. Much of the weakness was in manufacturing and mining. That’s not a new development.
“I think the real question is whether the domestic economy offsets some of the headwinds we’re seeing from the international sector,” he said. “I don’t think we have enough data yet to know whether that actually is going to occur.”
So, according to him and numerous other Fed heads, rate hikes are still prominently on the table for this year. But after all the flip-flopping, no one believes the Fed anymore. The Fed’s credibility has gone to heck. The Fed is never going to put its foot down, ever again. That’s what the market is increasingly sure of.
And if it does put its foot down – as it has been indicating for months, only to flip-flop at the last moment – it will be a wild “surprise,” the kind that markets don’t like.
So if the stock market shows that investors once again are getting drunk at the Fed’s punchbowl, why is there another group of investors who are spooked, who want to put their money into the safest and most liquid asset even if it costs them money? Is it because they think that the Fed will raise rates despite market expectations to the contrary, and that the ensuing “surprise” will trigger market gyrations of the kind where safe and liquid assets suddenly become priceless?
These spooked folks might see the stock market rally as yet one more element that would make the Fed feel at ease about raising rates, and thus one more reason to seek safe and liquid assets for that period.