people in motion

people in motion

dimanche 31 mars 2013

Les « 17 salopards » et l’Euro

Main basse sur les comptes chypriotes 
ou le nouveau casse du  siècle

Les événements ont été à Chypre présentés par le Mainstream médiatique sous l’angle de la lutte contre un paradis fiscal au système bancaire atrophie par l’argent russe et donc sale. Le Mainstream médiatique tente de faire oublier que les origines de la crise financière qui est en train de ruiner l’Europe ne viennent pas de l’Est du continent mais bel et bien des Etats-Unis. Quand a la crise Chypriote elle n’est pas du à un afflux de capitaux russes (et aussi orientaux) mais justement à la calamiteuse gestion de la crise Grecque par les autorités de la zone euro et le Fonds monétaire international.

Mieux : il est tout a fait possible d’imaginer que l’aide à la Grèce dont le second plan d’aide s’est monté à 130 milliards d’euros aurait pu et du prendre en compte les 4 milliards nécessaires pour Chypre, somme qui en comparant avec les sommes débloquées pour les autres pays européens en crise parait bien dérisoire.

Chypre a certes bien évité la faillite mais … Et maintenant? Est-ce que le sauvetage de Chypre signifie pour la Troïka que Chypre se doit d’avoir un « avenir à la grecque » soit un cocktail de chômage, pauvreté et austérité ? 

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Andreas Neocleous, Chypriote et directeur du plus gros cabinet de Chypre, affirme que maintenant que la place financière chypriote est détruite, l'hypocrisie dont feraient preuve les Européens serait sans égal puisque d’après lui: « les banques européennes envoient désormais leurs équipes pour démarcher les clients russes qui pourraient être tentés de quitter l'île ».

La troïka a-t-elle souhaitée aider Chypre ou avait-elle pour objectif unique de détruire un pays à la fiscalité attrayante au passage en lui piquant ses clients? On est en droit de se poser la question.



Quoi qu’il en soit ce Cocktail « racket fiscal + pillage de clientèle » est une première et de plus en plus de voix dissonantes se font entendre sur l’Ile ou ailleurs dans le monde laissant envisager que Chypre devrait et pourrait dans un avenir proche devenir le premier état a souverainement et démocratiquement quitter la zone Euro/UE. Une sortie dont on peut difficilement imaginer qu’elle n’est pas un effet domino sur de nombreux pays de la zone euro.


Chypre, qui aura été le cobaye martyrisé de la zone euro, pourrait donc bien devenir un exemple à suivre pour un grand nombre de pays qui ne peuvent plus supporter les contraintes financières et économiques de Bruxelles et pourrait envisager une sortie de la zone euro.

Une sortie de la zone euro qui pourrait avoir en réalité déjà commencé selon Evgueni Basmanov puisque selon lui les restrictions sur les déplacements de capitaux entrainent inévitablement qu’un euro sur un compte chypriote à désormais moins de valeur que dans un autre pays et que l’euro chypriote n’est donc plus vraiment de l’euro comme dans les autres pays de la zone. Pour lui les conséquences des mesures prises à Chypre pourraient très êtres lourdes pour la zone Euro et notamment au sein des PIGS (Portugal, Irlande, Grèce et Espagne) qui sont en pleine crise.

La zone euro telle que nous la connaissons aujourd’hui va-t-elle disparaître ou devoir se transformer radicalement pour survivre?




La guerre financière, entre énergie et orthodoxie
Chypre apparaît en réalité de plus en plus comme un maillon (un pion pour Thierry Meyssan) au cœur d’une tension géopolitique opposant de plus en plus directement et frontalement la Russie et l’Occident.
L’Eurogroupe a sans doute rempli ses objectifs réels. Tout d’abord celui de prendre une mesure test sur un pays de petite taille et qui a sans doute servi de laboratoire. Déjà l’Espagne et la Nouvelle Zélande se sont dites prêtes à faire passer une mesure similaire, pour combler le déficit de leurs systèmes bancaires. Nul doute que la liste va s’allonger. Les conséquences vont sans doute être très lourdes et pourraient insécuriser de nombreux titulaires de comptes dans la zone Euro. Bien que l’Eurogroupe répète en boucle que Chypre est un cas bien à part, nombreux sont les Européens tentés de déplacer leurs actifs financiers ailleurs, et sans doute outre-Atlantique, affaiblissant ainsi de plus en plus l’Europe et la zone euro. Les Chypriotes l’ont bien compris en brandissant dans la rue des pancartes «Nous ne serons pas vos cobayes» et alors que les rues de Nicosie sont pleines de messages adressés aux frères orthodoxes russes et que les manifestations de ces derniers jours voient fleurir les drapeaux russes.


Après la faillite de la Grèce, la Russie s’était engagée il y a près d’un an sur la voie du rachat du consortium gazier grec DEPA/DESFA par Gazprom. Ces négociations intervenaient quelques mois après la chute du régime libyen (et la perte financière importante liée pour Moscou) mais elles se sont visiblement arrêtées lorsqu’il y a un mois le département d’Etat américain a tout simplement mis en garde Athènes contre une coopération énergétique avec Moscou et déconseillé une cession de DEPA à Gazprom qui «permettrait à Moscou de renforcer sa domination sur le marché énergétique de la région». Empêcher une plus grande intégration économique Russie-UE est-il vraiment dans l’intérêt de l’Europe aujourd’hui alors que le président chinois vient de faire sa première visite internationale à Moscou avec à la clef une très forte intensification de la coopération politique, militaire mais aussi et surtout énergétique entre les deux pays ?
En sanctionnant ainsi directement les actifs russes dans les banques de Chypre, c’est la Russie qui est directement visée et touchée. Bien sur les Russes ont logiquement des visées et elles sont bien plus importantes que la simple exploitation du gaz offshore dont le consortium russe Novatek a été exclu de façon assez inexpliquée. D’après l’expert en relations internationales Nouriel Roubini, la Russie vise simplement l’installation d’une base navale sur l’île (ce que les lecteurs de RIA-Novosti savent depuis septembre dernier) et que 
les Russes pourraient tenter de monnayer en échange d’une aide financière à Nicosie.


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Chypre : La voix de la Russie


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A ce titre, les négociations russo-chypriotes n’ont pas échoué contrairement à ce que beaucoup d’analystes ont sans doute hâtivement conclu. Mais Chypre ne se trouve sans doute pas suffisamment dans la sphère d’influence russe au vu de la dimension de tels enjeux. Il faudrait pour cela qu’elle quitte l’UE et rejoigne la Communauté économique eurasiatique, comme l’a clairement indiqué Sergueï Glaziev, le conseiller du président Poutine.
Il faut rappeler que Sergueï Glaziev avait au début de cette année dénoncé la «guerre financière totale que mènent les pays occidentaux contre la Russie aujourd’hui». Une guerre financière qui semble confirmée par les dernières menaces de la BCE envers la Lettonie pour que celle-ci n’accueille pas d’éventuels capitaux russes qui pourraient vouloir sortir de Chypre.


Sur le plan extérieur, Chypre reste un maillon crucial pour la Russie dans le cadre de son retour au Moyen-Orient et en Méditerranée, mais aussi dans le cadre de ses relations avec l’Occident. Sur le plan intérieur, le pouvoir russe peut enfin montrer qu’il est décidé à maintenir ses objectifs de lutte contre l’offshorisation de l’économie russe, dont Vladimir Poutine avait fait un point essentiel, dans son discours de fin d’année 2012. C’est dans cette optique que le groupe public russe Rosneft vient d’indiquer qu’il allait rapatrier de plusieurs zones du monde réputées offshore les actifs hérités lors de l’acquisition de son concurrent anglais: TNK-BP, notamment de Chypre et des Caraïbes.
Au cœur du monde orthodoxe, la fin du rêve européen?
Mais pendant qu’Occident et Russie s’affrontent par territoires interposés au cœur de la Méditerranée (Grèce, Syrie, Chypre…) le peuple chypriote et les dizaines de milliers de travailleurs anglais et est-européens immigrés à Chypre vont payer la facture et sans doute traverser des années difficiles,.
Alors que la Bulgarie a récemment  interrompu ses négociations d’intégration à l’euro, la Grèce continue à s’enfoncer dans l’austérité. A Chypre aujourd’hui, selon les derniers sondages, 67% des habitants souhaitent désormais que leur pays quitte la zone euro, l’UE, et se rapproche de la Russie, une position soutenue activement par l’église orthodoxe chypriote.
Au cœur de la Méditerranée et du monde orthodoxe, le rêve européen semble toucher à sa fin.

Infographie : Conséquences possibles pour l'économie Russe














jeudi 28 mars 2013

You Can’t Be Serious



Beginners Guide to the Death of Euro



John Mauldin's latest -
on Cyprus he is spot on... 
- one can skip the Right Wing talk of rectitude and the be edits of taxing the poor and some of the comparisons with the US financial sector are misleading- 


I admit to being surprised by Cyprus. Oh, not the banking crisis or the sovereign debt crisis or the fact that its banks were eight times larger than the country itself or even the fact that the banks were bloated with Greek debt that had been written down. I wrote about all that a long time ago. What surprised me was that all the above was apparently a surprise to European leaders.




While there is much to not like about what European leaders have done since the onset of their crisis some five years ago, they have demonstrated a prodigious ability to kick, poke, and massage the can down the road, to defuse crisis after crisis, and to indefinitely postpone the inevitable. They have demonstrated a remarkable ability to spend taxpayers’ and others’ money in order to keep Europe and the euro more or less in one piece. At every step they have been keenly intent on maintaining trust in the system. That they have been successful in keeping a majority of citizens in favor of the Eurozone and the euro, even in countries forced to endure serious austerity, must be recognized.
However, the shock in Cyprus reveals an absolute lack of preparedness in dealing with a problem that had festered for several years. By now it should be no surprise to anyone that sovereign nations can default, that banks can go bankrupt under the weight of defaulted sovereign debt, and that banks can be too large for some countries to bail out. That a clear and consistent response to Cyprus should have been worked out in the halls of Brussels and the ECB seems so, well, reasonable. Clearly, the large depositors in Cypriot banks, the majority of whom were Russian (according to Financial Times reports) thought the Eurozone had a plan. In fact, the apparent assumption, bordering on religious faith, that Eurozone leaders would not allow depositors in Cypriot banks to lose one euro, is almost touching. This snafu is going to have repercussions that spread far beyond this tiny island nation. Let’s look at a few of the implications.

You Can’t Be Serious
When we woke up to the Eurozone pronouncement that all depositors in Cypriot banks, no matter the size of their deposits, would take a loss my reaction was somewhat akin to John McEnroe shouting, “You can’t be serious!” to a line judge whose call he infamously questioned.
While there was no official deposit guarantee in place in Europe, the implicit guarantee was €100,000, a number that had become all but sacred during the recent banking crisis. To wake up and find that European leaders not only did not consider this protection to be implicit but also planned to demand losses from all depositors, was quite the shock. I think this may have been the single worst “call” by European leaders since the beginning of the crisis in 2008.
Let’s look first at what actually transpired. Cypriot banks held deposits of roughly €68 billion, four times the size of the total national GDP, while the total size of the banks was roughly eight times GDP. The “Troika” seemed to feel that Cyprus needed €17 billion in bailout money to be able to handle the crisis. But after finding hundreds of billions for Greece and Spain, they were only able to offer tiny Cyprus €10 billion (€10 billion is the equivalent of offering the US $8 trillion, give or take a few euros, just to keep it in perspective), and demanded that depositors in Cypriot banks be levied for most of the remaining €7 billion. They offered a formula by which small depositors would lose somewhat less than 10% and large depositors somewhat more (the actual number varied day by day).
The Cypriot parliament totally rejected the Eurozone proposal. Not one vote was cast for the deal. And when you look at the numbers, as any politician does, you can see why. This is an island of 1.1 million men, women, and children. There are (were) 370,000 bank accounts, with 360,000 of those containing fewer than 100,000 euros (per Dennis Gartman). In the recent presidential elections in Cyprus, there were 445,009 voters and a voter turn-out rate of 81%. Thus, a huge majority of voters had accounts with less than €100,000 in them. Call me cynical, but I think any politician could figure out which side of this fence to land on.
It now appears that “only” €5.8 billion is needed for the bailout, so the 10,000 or so accounts holding more than €100,000 will be docked an average of €580,000. “The tottering banks hold 68 billion euros ($88 billion) in deposits, including 38 billion ($49 billion) in accounts of more than 100,000 euros – enormous sums for an island of 1.1 million people, which could never sustain such a big financial system on its own.” (NBC World News).
On the surface it looks like large depositors will lose about 15%. And if the Financial Timesis right (and the betting line is heavily on their side), a significant majority of that money is Russian. Much of the remainder is tax-haven money (more on that later). “Not so bad,” you might think; “things could be worse.”



Well, actually they are worse. Some EZ officials suggest that the losses of large depositors could range up to 40%, and the Cypriots themselves suggest 30%. That is because if you are a Greek bank with a Cyprus branch your deposits are exempt from the levy. The logic behind that decision is just too arcane to explain in a brief letter that prides itself on rational explanations. Which is another way of saying that I actually couldn’t understand it myself. But then, I’m just a country boy from West Texas, not a European financial wizard.
Things keep spiraling down in the Eurozone. One of the founding principles of the Eurozone was that a euro anywhere within the zone would be as good as one anywhere else. Euros would flow freely. All for one and one for all.
Except that now euros in Cypriot banks are no longer equal. Not only are they going to be “taxed” (or whatever euphemism they end up choosing – they’re still debating that one – but if it were your account you might call it theft), but deposits will be subject to capital controls. Reports coming out of Europe this morning suggest that banks in Cyprus will stay closed until at least Thursday. It is not clear when you will actually be able to take your money and leave the sunny shores of Cyprus.
Cypriot banks will remain closed until Thursday, the government announced on Monday night, as President Nicos Anastasiades acknowledged that the country had come “a breath away from economic collapse” before its last-minute bailout.  Speaking after he agreed a €10bn international rescue that includes the restructuring of the island’s two biggest lenders with losses for bigger depositors, Mr Anastasiades also said capital controls would be imposed but as a “very temporary measure that will be gradually relaxed”.
We will eventually learn what time frame a Cypriot politician has in mind when he says “temporary.” And Mr. Anastasiades may have been speaking optimistically to the press. Other Cypriot politicians were rather less sanguine. From Dennis Gartman this morning:
They (bank depositors) knew for certain, however, that they were going toface massive losses when Mr. Averof Neofytou, the deputy president of the ruling Disy Party, said that those large depositors “Will [have to] wait for many years before they see what percentage they will get back from their savings – 30 percent, 40 percent, 50 percent, 60 percent, it will be seen….”
The Serious Unintended Consequences
Basel III standards require European banks to increase their deposit ratios. This European response to Cyprus is going to make that harder for banks in smaller European countries to accomplish. Very tiny Luxembourg has banking assets 13 times the country’s GDP. Yes, I know that Luxembourg’s banks are the very epitome of solid banking and that the majority of those assets are loans to central banks and other credit institutions, but there is no way on God’s green earth that Luxembourg as a country could even begin to think about backing its banks. Of course, everyone knew that before this crisis, but if you are the treasurer of a large corporation, how soundly do you sleep at night after Cyprus? And God forbid you have an account in one of the peripheral countries. In the case of Ireland, the lesson was that the money would be found to back the banks, even if taxpayers suffered. But now? New rules for new times. And then you open The Financial Tim es this weekend and read (emphasis mine):
The chairman of the group of eurozone finance ministers warned that the bailout marked a watershed in how the eurozone dealt with failing banks, with European leaders now committed to “pushing back the risks” of paying for bank bailouts from taxpayers to private investors.
Jeroen Dijsselbloem, president of the eurogroup, was speaking after Cyprus reached its 11th-hour bailout deal with international lenders that avoids a controversial levy on bank accounts but will force large losses on big deposits in the island’s top two lenders.
Evidently, Jeroen interprets the term private investors to mean depositors with over €100,000 in a bank. That has to be unsettling to anybody who has diligently saved for decades and is now retired and depending on those funds for sustenance. And for corporations that run a payroll account through a bank? The thought that you could see a lifetime of work building a business go down in an unelected bureaucrat’s blink of an eye would keep me up at night. I do not think most corporate financial types see their deposits as an “investment” in the bank.
One of my favorite reads is Kiron Sarkar (who variously lives and writes daily in London, Ireland, and India). I talk and correspond frequently with Kiron. He is a retired but verysenior investment banker with deep European political and business connections in many countries. As we say in Texas, he is “wired.” (You can subscribe to his letter athttp://sarkargm.com.) He shot out a special note on the rather incendiary comments of Mr. Dijsselbloem. I have seen other comments similar to these (but less well-said), expressing various levels of disbelief about the timing of Dijsselbloem’s remarks, but here’s what Kiron had to say:
Reuters quotes the Chairman of the EZ Finance Ministers, Mr Dijsselbloem, as having said:
“If there is a risk in a bank, our first question should be OK, what are you in the bank going to do about that? What can you do to recapitalise yourself? If you can’t do it, then we will talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank and, if necessary, the uninsured deposit holders.”
He is also reported as having said, “It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them. The risks might come towards them”. These are very likely to be personal remarks, rather than an EZ finance minister’s policy statement, but these comments suggest:
  • Uninsured depositors in EZ countries may well be bailed in in the future, ie Cyprus is a precedent;
  • EZ countries with large banking sectors will have to reduce their size and restructure;
  • EZ countries are seeking to shift risks away from the public sector and onto the banks; and
  • Bail-ins will reduce the need to use the ESM funds to recap banks, a policy which was proposed just under 1 year ago.
These are INCENDIARY remarks, especially given the timing and debacle over Cyprus.  What happens to Malta? Slovenia is in trouble. Luxembourg has a massive banking sector, though it is an AAA-rated country. All 3 are in the EZ. I realize that Mr. Dijsselbloem is new to the job and has little to no experience of the financial services sector (why was he appointed, you may well ask), but to make such comments, especially at this time, is the height of irresponsibility. The comments Reuters reports seem accurate, as the FT carries similar quotes.



At the end of the day, Mr Dijsselbloem is, of course, right; but to say something like this, especially at this time, well …
[Now this is the key paragraph and takeaway. Read twice. – John]
Essentially, why will anyone keep more than E100k in any EZ bank – indeed, why deposit any amount in certain EZ banks, as the value of the EZ  bank-deposit guarantee is worthless in a number of cases, as a number of the peripheral EZ countries can’t afford to pay up. I repeat, the EZ bank deposit “guarantee” is not a joint and several responsibility across the EZ; it is the responsibility of individual EZ countries.
If these comments are not withdrawn/clarified, the weaker EZ banks in the troubled countries, in particular, are going to come under severe pressure. Even if withdrawn/clarified, this is yet another self-inflicted wound. The euro has declined materially since these statements by Mr Dijsselbloem were published by Reuters and the FT.
The euro has declined to US$1.2873 at present and continues to weaken. The European banking sector is being hit – no surprise. The peripheral countries (Spain and Italy) are also being hit, in particular. Bond yields of the safer countries are declining, unsurprisingly, whilst the yields in the EZ peripherals are rising. Italy and Spain look to be under pressure. A number of you may now understand why I am so negative on the EZ.
As I noted, Basel III makes it more necessary than ever for Eurozone banks to retain depositors, but this action on Cyprus will make getting large deposits more difficult for many banks. Note that less than 4% of depositors account for almost 60% of the deposits in Cypriot banks. Banks need those large depositors if they are going to grow their capital base to the required standards.
And it is here that things just keep on getting worse by the day. Because in a continent in which there is no confidence whatsoever: no confidence in the banks, no confidence in the financial system, no confidence in end demand, no confidence in any reported data, no confidence that one's deposits won't be confiscated tomorrow, and last but not least no confidence that a sovereign nation won't just hand over its sovereignty to the Troika tomorrow, nobody is willing to take on additional loans and obligations. This can be seen in the dramatic divergence between European money creation (blue line), and the bank lending to the private sector (brown), which is at or near an all time record year over year low. So much for restoring confidence in Europe.

This unfortunate business underscores one of the most significant problems in the Eurozone, which is the lack of a collective deposit-insurance scheme. I wrote pessimistically about that topic over a year ago when European leaders promised they would create a Eurozone-wide deposit-insurance mechanism. That initiative has gone nowhere, primarily because the Germans have opposed it. (Ironically, so did Cyprus.)
Let me state this very clearly: if something as seemingly straightforward and necessary as deposit insurance cannot be achieved, then how can there be any hope for deeper fiscal union? And fiscal union will be necessary before all is said and done if the Eurozone is to survive.

Who's next ?


One bank total balance sheet is not worth another one.


High banking exposure such as Luxembourg have only little risks. Banks have fantastic assets there in private management for example and their liabilities are constituted of stable guaranties. They almost do not make short / long operations , little of loans, the risk currencies is taken by the client etc. These banks do not live on spreads, but on commissions. Many make no prets. These are establishments of private banking.

No comparisons with the structural bankrupt monsters and under drip.

Switzerland is mixed.

We find in Switzerland private banks and Cantonal banks which in fact are establishments of private banking or of family office services or careful credit, without mismatching, who are not vulnerable. On the other hand, we have universal banks such as UBS or Credit Switzerland which are very exposed. It is these banks which are subjected to risk and to pressures.


"How can you even think that French debt could be at risk?”

It is not just tiny Cyprus or even Spanish banks that will be looked at with growing worry by large depositors. Let’s examine this note from David Stockman on European banking, and in particular French banks:



BNP-Paribas is the classic example: $2.5 trillion of asset footings vs. $80 billion of tangible common equity (TCE) or 31X leverage; it has only $730 billion of deposits or just 29% of its asset footings compared to about 50% at big U.S. banks like JPM; is teetering on $500 billion of mostly unsecured long-term debt that will have to be rolled at higher and higher rates; and all the rest of its funding is from the wholesale money market , which is fast drying up, and from repo where it is obviously running out of collateral.
Looked at another way, the three big French banks have combined footings of about $6 trillion compared to France’s GDP of $2.2 trillion. So the Big Three French banks are 3X their dirigisme-ridden GDP… By contrast, the top three U.S. banks which are no paragon of financial virtue – JPM, BAC, and C – have combined footings of $6 trillion or 40% of GDP.  The French equivalent of that number would be $45 trillion for the U.S. banks.  Can you say train wreck!
It is only a matter of time before these French and other European banks, which are stuffed with sovereign debt backed by no capital due to the zero risk weighting of the Basel lunacy, topple into the abyss of the shadow banking system where they have funded their elephantine balance sheets. And that includes Germany, too. The German banks are as bad or worse than the French. Did you know that Deutsche Bank is levered 60:1 on a TCE/assets basis, and that its Basel “risk-weighted” assets are only $450 billion, but actual balance sheet assets are $3 trillion? In other words, due to the Basel standards, which count sovereign and other AAA assets as risk free, DB has $2.5 trillion of assets with zero capital backing!
This is all a product of the deformation of central banking and monetary policy over the last four decades and the destruction of honest capital markets by the monetary central planners who run the printing presses. Furthermore, this has fostered monumental fiscal profligacy among politicians who have been told for years now that the carry cost of public debt is negligible and that there would always be a central bank bid for government paper. Perhaps we are now hearing the sound of some chickens coming home to roost.
Yes, yes, I know: “John, how can you even think that French debt could be at risk?” But if you look at France’s income and balance-sheet statements, as if France were a stock rather than a country, you might not be so sure. Might I suggest that a good trade would be to be long German government debt, short French debt? Essentially, this is a bet that France will be worse off than Germany in the coming years, which seems like a good wager right now. And in a French debt crisis (well within the realm of possibility) that trade could work both ways! Just saying …
We will wrap up with this note that just hit my inbox from Louis Gave. (I am up late, as usual, and Louis writes from Hong Kong, where it is early). Remember that Louis is French as you read this.
So we now know that, in Europe, big depositors are the first in the line of fire to ensure that small depositors do not suffer losses. Needless to say, this raises the question of who wants to be a big depositor in a weak bank in a country undergoing a secondary depression?...

EU policymakers are probably not evil henchmen set on destroying the financial industry (even if it often looks that way from the City of London). The more likely explanation is that EU policymakers are simply ignorant of how financial markets work. For example, the fact that the two largest Cypriot banks’ London branches have remained opened through the past week, allowing large depositors to take out millions of euros, hints that Europe's policymakers are simply clueless when it comes to how financial markets work. This also means that whatever pound of flesh the EU thinks it will be getting by wiping out the large depositors could turn out to be on the light side.
Or, for a second example of cluelessness, what could rival yesterday's declarations by the Dutch finance minister that the Cyprus bailout set a new “template” on how to deal with bust banks, namely make the rich depositors pay for the little depositors? What large depositor in a troubled bank in a country going through a secondary depression will want to stick around for that deal? We would venture that the next time that "solution" is applied, the eurocrats will find that the large depositors will not have waited around to get fleeced. In fact, as mentioned above, it might not even work this time (i.e., Cyprus), let alone the next one.

Going one step beyond the ignorance of how financial markets work, what seems profoundly shocking is the lack of recognition of this ignorance. Place yourself back in the fall of 2008. As the financial crisis was unfolding, the likes of John Mack, Jamie Dimon, John Thane and other banking heads were asked to meet at the New York Fed, the US Treasury or even the US Congress on a regular basis to explain what was unfolding (and what they planned to do about it). Meanwhile, how many times have the heads of Santander, Intesa, SocGen, Deutsche Bank, etc., been called in to explain what was going on, or for them to give their views on what should be done? If asked, perhaps these CEOs would have said that:
a) European banks are much more dependent on deposits than their US counterparts.
b) Owners of large deposits are likely to be more risk averse and much more active in moving their money than small retail savers (for whom moving money from one country to the next presents high costs and almost insurmountable hurdles). And this for obvious reasons: a 40% haircut on $1,000 is unpleasant but it's not going to change anyone's life. But a 40% haircut on a pensioner's life savings of $500,000 will have a huge impact—and a 40% haircut on any middle-sized company's $10mn payroll will be enough to bankrupt the business. In fact, this simple reality brings us back to Mark Twain's advice that it is always better to tax poor people as there are so much more of them—unfortunately, Europe keeps going the other way, with devastating consequences.
c) For these reasons, regulators and governments have never in living memory allowed big banks to default on their depositors, regardless of the wording of formal deposit insurance contracts. If this implicit guarantee is now removed in Europe (and it sure looks like it has been), then we should expect a big shift of large deposits out of the banks and into government bonds or credit market instruments.
d) This will prove very problematic, especially given the new Basel III regulations which encouraged a funding model whereby banks should rely more on deposits and less on bonds.
e) As savings shift out of banks and into credit markets, the "German bank" model based on bank-financing of industrial companies and long-term creditor-debtor relationships will inevitably erode, to be replaced by the Anglo-Saxon model credit-market financing along with the short-termism which it implies.
In other words, the law of unintended consequences is at work: the eurocrats will end up with exactly the opposite of the financial system they wanted. Either that, or the European banks will end up having to be nationalized in great numbers. These two possible outcomes seem to be the logical consequence of the EU's very unfriendly financial sector policies.
Louis is right. If you are a large depositor, you HAVE to be thinking about what country your deposits are in and how safe the actual bank is. Even if a bank is seemingly safe, is that any comfort? Is there any evidence that the depositors in Cyprus are better off being in one bank than another when the entire country’s banking system has seemingly failed? Was every bank in Cyprus bankrupt at the same percentage rate? Who’s to say, if BNP Paribas has problems, that a few finance ministers in Brussels would not demand that Societe Generale and Credit Agricole should be penalized, since they are in the same country? What is the logic here? Or is Cyprus a one-off because most of the losses are Russian and who really cares about those commies anyway? Except that the next time, comrade, it might be your bank account that is deemed expendable.
If you run a family office, large corporation, or just your own small pension account, you are not exercising reasonable prudence if you are not asking yourself, what are the risks as of today? You’re calling European friends and trying to figure out what the new rules are. Who made these decisions and why?
After spending hundreds of billions and not flinching from potentially printing perhaps trillions of euros to shore up the periphery, the Eurozone leaders now balk at a mere €5.8 billion and raise questions about their whole enterprise? Over German politics? You can’t be serious.

This may one day rank up there with “Let them eat cake” in the politically tone-deaf department. Merkel may have risked the entire euro experiment over local politics, after writing such large checks in prior situations. The Eurozone response to Cyprus indicates serious ignorance of how financial systems operate. Trust is an ephemeral thing. It is hard to build and maintain and can be so easily squandered. I suggest you go back and read (if you have not) the recent posting in Outside the Box of Dylan Grice’s masterful essay on trust.
Last-second insert, which I haven’t done in years, but this seems important:
As my editors and tech staff are literally ready to send this letter out, reports are starting to come across my desk that Russian depositors are finding ways to get money out of Cyprus, through branch banks in other countries. The ECB has supposedly told Latvia not to take Russian-flight money if they expect to join the Eurozone. Haircut estimates are ranging to 50%. If a lot of Russian money actually goes, it could be closer to 100%. I offer a few links, one from Reuters and one from ZeroHedge. I see some other reports and can’t completely separate rumor from fact, but Reuters is usually reliable and has a policy of multiple sources.
No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis – Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus – have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors. (Reuters)
So, while one could not withdraw from Bank of Cyprus or Laiki, one could withdraw without limitation from subsidiary and OpCo banks, and other affiliates? Just brilliant. (Zero Hedge, citing the above Reuters quote)
If this is true (and Reuters makes it sound real), so much for sticking it to the Russians. This could escalate into something ugly. 




                                                                                                                Link  MauldinEconomics  





mardi 26 mars 2013

Point Break - Revisited


An update of our long wave cycle see Point Break 


MACRO ANALYTICS: A Technical Update


Start 1m50 end 21.28



HOW DID THE GLOBAL ECONOMY GET HERE & WHERE IS IT HEADED?
The 14 Steps From Credit Expansion To Speculative Bust
An over-indebted, overcapacity economy cannot generate real expansion. It can only generate speculative asset bubbles that will implode, destroying the latest round of phantom collateral. The following clip succinctly links Charles Hugh-Smith's 14 points in the global endgame to the cycle of deflation from the business cycle, credit cycle, and more critically to the emerging version sought by our current slew of Central Bankers.

FOURTEEN POINTS:

  1. "Boost Phase" of Credit Expansion
  2. Overextended Credit Expansion and Over Capacity
  3. Financialization and Collateral
  4. Era of Financialization
  5. Growing Malinvestment
  6. Phantom Collateral from Asset Bubbles
  7. Bubble Implosions
  8. Impaired Debt and Policy Decisions
  9. Stalled Consumption
  10. Cheap Money Offered
  11. Shrinking Loans and Bank Speculation
  12. Search for Yield from Shrinking Pool of Productive Assets
  13. Increasingly Speculative Investments with high Risk
  14. Stagnation - Over-indebted, overcapacity with limited growth.

HOW THEY MAP TO THE CYCLE OF DEFLATION





It probably comes as little shock to our readers when we say that the global economy is far from healthy. Indeed, between the European Union’s unemployment problem, global worries over “competitive devaluation,” debt monetization, and uneasy political alliances, economic analysts the world over will tell you the same thing.

So this raises the big question: How are the world’s money leaders (i.e. central bankers) handling things? Where is this all headed? Charles Hugh Smith (of Of Two Minds fame) weighs in on the matter: “An over-indebted, overcapacity economy cannot generate real expansion. It can only generate speculative asset bubbles that will implode, destroying the latest round of phantom collateral.”
Smith, who has been closely following global events and trends, presents fourteen points summarizing his recent work on what he refers to as the “global endgame” [all block quotes via Of Two Minds]:

1. Production Boosted

In the initial “boost phase” of credit expansion, credit-based capital (i.e. debt-money) pours into expanding production and increasing productivity: new production facilities are built, new machine and software tools are purchased, etc. These investments greatly boost production of goods and services and are thus initially highly profitable.


2. Expansion Leads to Overcapacity

As credit continues to expand, competitors can easily borrow the capital needed to push into every profitable sector. Expanding production leads to overcapacity, falling profit margins and stagnant wages across the entire economy.

Resources (oil, copper, etc.) may command higher prices, raising the input costs of production and the price the consumer pays. These higher prices are negative in that they reduce disposable income while creating no added value.


3. People Turn From Material Investment to Financial Speculation
As investing in material production yields diminishing returns, capital flows into financial speculation, i.e. financialization, which generates profits from rapidly expanding credit and leverage that is backed by either phantom collateral or claims against risky counterparties or future productivity.
In other words, financialization is untethered from the real economy of producing goods and services.

4. Financial Speculation Is Profitable – At First
Initially, financialization generates enormous profits as credit and leverage are extended first to the creditworthy borrowers and then to marginal borrowers.

5. Financial Speculation Starts To Fall Apart
The rapid expansion of credit and leverage far outpace the expansion of productive assets. Fast-expanding debt-money (i.e. borrowed money) must chase a limited pool of productive assets/income streams, inflating asset bubbles.

6. Credit Continues to Expand
These asset bubbles create phantom collateral which is then leveraged into even greater credit expansion. The housing bubble and home-equity extraction are prime examples of this dynamic.

7. Credit Bubble Burst
The speculative credit-based bubble implodes, revealing the collateral as phantom and removing the foundation of future borrowing. Borrowers’ assets vanish but their debt remains to be paid.

8. Who’s Going To Pay Back Their Debts (Hint: Not Many)
Since financialization extended credit to marginal borrowers (households, enterprises, governments), much of the outstanding debt is impaired: it cannot and will not be paid back. That leaves the lenders and their enabling Central Banks/States three choices:
A. The debt must be paid with vastly depreciated currency to preserve the appearance that it has been paid back.
B. The debt must be refinanced to preserve the illusion that it can and will be paid back at some later date.
C. The debt must be renounced, written down or written off and any remaining collateral liquidated.


9. Consumption Has a Bit of a Problem
Since wages have long been stagnant and the bubble-era debt must still be serviced, there is little non-speculative surplus income to drive more consumption.

10. So How Do Central Banks Respond?
In a desperate attempt to rekindle another cycle of credit/collateral expansion, Central Banks lower the yield on cash capital (savings) to near-zero and unleash wave after wave of essentially “free money” credit into the banking sector.

11. Where Do Banks Turn Their Attention?
Since wages remain stagnant and creditworthy borrowers are scarce, banks have few places to make safe loans. The lower-risk strategy is to use the central bank funds to speculate in “risk-on” assets such as stocks, corporate bonds and real estate.

12. Debt Continues to Eat Away At Income/Assets
In a low-growth economy burdened with overcapacity in virtually every sector, all this debt-money is once again chasing a limited pool of productive assets/income streams.

13. Where Do You Think That Leads?
This drives returns to near-zero while at the same time increasing the risk that the resulting asset bubbles will once again implode.

14. Endgame?
As a result, total credit owed [remains] high even as wages remain stagnant, along with the rest of the real economy. Credit growth falls, along with the velocity of money, as the central bank-issued credit (and the gains from the latest central-bank inflated asset bubbles) pools up in investment banks, hedge funds and corporations.

Is the Secular Bear Market Coming to an end ? 
I suspect we are in for a harder long-term slog than the mere 3 year Bear market suggests.
Historically, this suggests an extended period of range bound trading as the highest probability long-term scenario in my view. I expect vicious rallies, and wicked sell-offs to occur — over shorter term cycles — within the larger timeline. Active management and capital preservation are going to be the key methods of outperformance.
Let’s put this into more specific quantitative terms. According to data from Fidelity:Average secular bull market lasted 21.2 years and produced a total return of 17.2% in nominal terms and 15.9% in real terms. The market’s P/E more or less doubled, from 10.1 at the start to 20.5 at the end.

Average secular bear market lasted 14.5 years and had a nominal total return of +1.0% and a real return of –2.3%. The market’s P/E compressed by an average of 9 points, from 20.5 at the start to 11.3 at the end.

Here we are, a few weeks away from the start of the 14th year of the secular Bear market that began March 2000. The question on more than a few peoples’ minds has been whether or not it is reaching its end.
To answer that question, we need to understand exactly what a secular bear market is. 


A Secular Bear Market is a long term cycle which typically begins after a long term bull market peak and crash. It is primarily characterized by strong, even excessive rallies and selloffs, all occurring within a broad trading range. Despite the strong rallies, markets often appear to be unchanged a decade or so into secular bears.
The psychology is one of compressing Price to Earnings multiples, as investors become increasingly unwilling to pay the same price for each dollar of earnings. There is often a general malaise to the broader society, sometimes encompassing political scandals and/or war.

On Main Street, there is a general disinterest in equities. Ratings for financial television and other media fall. Interest in non stock investments — especially Bonds, Commodities and Real Estate — rise.

To conclude that the Secular Bear is ongoing, we need to see a few factors:

— Are markets still rangebound? Have we made new highs in various indices?
— Are P/E multiples still contracting?
— Are financial news media ratings still falling?
— Is society generally pessimistic?
— Is Main Street still disinterested in equities?


Some of the answers to these questions are purely quantitative, and do not require any human judgment. A few of these do require a squishier answer. After 36 months or so of capital outflows from equity funds, we should not rush to judgment after the first month of inflows.
And there is a major caveat to this: The Fed’s extraordinary ZIRP/QE intervention creates an impression of inorganic gains. Without the unprecedented FOMC actions, I am unsure markets would be anywhere near current levels.

Regardless of your answer to our broad question, there is one thing that I believe to be clear: We are much closer to the end of this secular cycle than to the beginning. Many optimists — most notably, famed technician Ralph Acampora — believe the secular bear market has ended. Even skeptics have to agree that we are more likely in the 7th or 8th inning than earlier stages of the game. Only the “America is Japan” crowd thinks we are in the 3rd or 4th inning.

The key question for investors: Are you prepared to make changes to your portfolios?

LINK   The Daily Reckoning