"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money."
Daniel Webster
The War on Cash (and serfs.)
How: Start by withdrawing the large
banknotes and work your way down to the smaller ones. Be sure to use plenty of scare
stories of mobsters and terrorists as cover. Under no circumstances let the
public know that it’s central bankster mismanagement of the Great Nixonian
Error of fiat money, communist money, that set off the casino capitalism, that
went bust in 2007-2009.
"All previous attempts to base money solely on intangibles such as credit or government edict or fiat have ended in inflationary panic and disaster."
Donald Hoppe
ECB may finally deal a deathblow to the €500 bill
Published: Feb 11, 2016 2:41 p.m. ET
Is the end nearing for the 500-euro note, beloved of gangsters, money
launderers and tax evaders? The likelihood that the valuable bill could soon be struck out of the euro family may be rising after Benoît Coeuré, a member of the European Central Bank’s executive board, told French daily Le Parisien that arguments for keeping the €500 bill are becoming “less and less convincing.”
“We are actively considering the question and will take a decision shortly,” he said in the interview. “The competent authorities increasingly suspect that they are being used for illegal purposes, an argument that we can no longer ignore given the importance of the fight against money laundering and terrorist financing.”
The issue of big notes has been discussed for years, and some bankers and economists have called for a ban on the €500 note (worth about $567) in the name of fighting organized crime and terrorism.
It moved back into the spotlight after Peter Sands, a senior fellow at the Harvard Kennedy School, published a paper on the topic earlier this month. The former chief executive of British bank Standard Chartered PLC argued that ditching notes of that caliber would make it harder for terrorists, money launderers, traffickers and tax cheats to move large sums of money around without detection.
A Colombian woman arriving at Bogotá’s airport was caught last year after having swallowed 64 latex-covered capsules, each containing five $100 bills, according to the Financial Times. And authorities at London’s Heathrow airport caught a smuggler two years ago who had 40 €500 notes in her underwear and intended to fly to Turkey to meet an ISIS sympathizer, the paper said.
“It’s not often that you come across a policy proposal that is simultaneously easy-to-implement, has a powerful positive impact, and very limited downside. Eliminating high denomination notes is one such idea,” Sands said in the paper.
He also called for the abolishment of the U.S. $100 bill.
Some countries have taken such steps. Canada retired its $1,000 note back in 2000 because it was believed to mainly be used in criminal transactions, while Singapore withdrew its $10,000 note in 2014 to combat financial crime.
However, the ECB until now has largely defended its issuance of the €500 notes. In 2012, ECB boss Mario Draghi described the high-denomination euro bank notes as fulfilling “an important role as a store of value and are a last resort for storing assets both within the euro area and abroad.”
The €500 note is the second-highest currency denomination within G-10 countries, just after the 1,000 Swiss franc bill (worth about $1,029). And some eurozone countries cherish cash. According to a Europol report from last year, the Central Bank of Luxembourg issued notes equivalent to 194% of GDP in 2013, sharply higher than the 16% recorded in Germany and 4% in France.
“Cash remains criminals’ instrument of choice to facilitate money laundering, in spite of the rapidly changing face of criminality and the rise of cybercrime,” Europol said. “Although not all use of cash is criminal, all criminals use cash at some stage in the money laundering process,” it added.
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Why: Because the banks never really
recovered from the system crash of 2007-2009, and with a new recession arriving
the banks are going bust again. The Great Nixonian Error of fiat money is
coming to its central bankster mismanaged end, and they think that negative
interest rates will drive the public into holding cash and precious metals.
Central banksters can’t let the serfs have cash.
"Increasingly, the wealth of the modern world has come to be represented by financial assets rather than real assets, and this to me is a very unhealthy situation, because financial assets are inherently unstable. Financial assets (currencies, bonds, mortgages, stocks, bank credit, etc.) can be quickly and violently reduced in value, or destroyed completely by either inflation or deflation."
Donald J. Hoppe
Here's what coco bonds are and why investors are freaking out about them
Feb. 11, 2016, 9:11 AM
After
a rally on Wednesday, banking stocks are falling hard again Thursday.Deutsche Bank is down over 3% in Frankfurt, Credit Suisse is down over 6% in Switzerland, and in London HSBC is down over 4%, Lloyds is down over 4%, Barclays is down over 5%, and Royal Bank of Scotland is down over 4%.
It means bank stocks have reverted to the trend of the year so far: falling.
This week's latest sell-off has been driven by a scare over so-called coco bonds that were issued after the 2008 financial crisis by banks and haven't been thought of too much since.
Here's a handy explainer as to what's actually going on.
What are coco bonds?
Coco bonds are a type of debt with strings attached. The coco in the name is short for "contingent convertible," which means in some circumstances the debt converts into equity — rather than the bank owing you money, you suddenly own a little bit of the bank.The contingent part of the bonds depends on how much cash the banks have. If a bank's capital falls below a certain level the switch is flipped and the bonds turn into shares. Because of this risk, coco bonds carry a higher yield than normal bank bonds.
Coco bonds were cooked up after the financial crisis as a way to prevent banks from needing any more state bailouts. If banks were getting into trouble and running low on cash, the bonds would convert, solving two problems — the bank's debt burden lessens and its capital buffers are boosted.
Lloyds is the biggest coco-bond issuer in the UK, with $14.5 billion (£10.7 billion) of the paper issued from 2009 to 2015, according to Moody's.
Why are people worried?
Put simply, investors are worried they won't get their money back.There are growing fears that banks like Deutsche Bank and Santander won't be able to meet coupon payments — interest on the debt.
The Independent writes:
A recent move by the European Central Bank to publish an obscure test of bank risk, known as the Srep ratio, has driven the recent upset in the market. The results have stoked fears in the minds of credit analysts about whether recent market shocks — ranging from low oil prices to the slowdown in China — could inadvertently cause banks to breach rules which would prompt regulators to stop them paying Coco coupons.
These same capital breaches could also turn the coco bonds into equity, which is falling in price and not something fixed-income investors want.
As a result of these growing fears the price of coco bonds has plummeted in recent weeks. Meanwhile the price of credit-default swaps — a sort of insurance that pays out if banks don't pay up on the bonds — has jumped.
Banks, meanwhile, have been defending their balance sheets and insisting everything is OK. Deutsche Bank's CEO, John Cryan, says the lender is "absolutely rock solid," while Credit Suisse's boss, Tidjane Thiam, has also been talking up his bank's balance sheet.
We’ll end with ominous signs of rising
systemic distress again, and the central banksters pushing on a string, out of
ammo, road and talent. A cashless society it has to be, in those crooks mind.
Stay long fully paid up physical gold and silver, held outside of failing banks
and dodgy MF Global’s. I have every confidence in our snake bit central
banksters to quickly mess up even a cashless financial system, with an eventual
return to a metallic monetary system at some point in the century ahead.
Protect your children and grandchildren.
"Our balance sheet is not weakened at all."
Bear Stearns CEO Alan Schwartz, March 13, 2008. Bust March 17,
2008.
Midnight In The Garden Of Fallen Angels—-Mind The BBBs
by Genevieve LeFranc • February 11, 2016
---- Of late, investors have been witnessing more than their fair share of angels being cast out of the Investment Grade (IG) firmament to the bond market’s answer to the netherworld, that is, a high yield, or ‘junk’ credit rating.
More than
any single factor, the size of the market should place IG on investors’ radar
screens. Deutsche Bank tallies the size of the outstanding market ended January
at $5.3 trillion, more than double 2007’s $2.4 trillion. The bulk of the
growth, meanwhile, has come from the lowest-rated segment of the market, or BBB
on Standard & Poor’s scale. Once the threshold to BB-rated and below is
crossed, a given IG bond is branded a fallen angel.
BBB-rated
IG debt issuance has skyrocketed, ending January at $2.2 trillion, up from $802
billion in 2007. Tellingly, the pristine end of the scale, bonds rated AA, has
actually shrunk to $511 billion from $526 billion over the same period.
The very
composition of the IG market has undergone tremendous change since the last
time the credit cycle turned, which by all appearances it is doing now. The
riskier tilt within the IG universe should raise a red flag for investors who
should not accept calming historical comparisons to prior cycles at face value.
Set aside
macroeconomic indicators for a moment. Based purely on the amount of extra
compensation investors were receiving for owning IG bonds, the Federal Reserve
knew it was playing with fire by hiking rates in December. In market parlance,
this premium is called the spread, or the difference between a corporate bond
and a comparable risk-free Treasury.
For some
unfathomable reason, the Fed saw fit to begin the current rate hiking campaign
with spreads at double the average level that prevailed at the onset of the
past three hiking campaigns. In Morgan Stanley’s estimation, IG spreads were at
two percentage points on December 16th, twice the average of one percentage
point at the inception of the rate hiking cycles of February 1994, June 1999
and June 2004.
In other
words, investors were demanding twice the level of protection they had
previously required and were all but shouting, “Danger Ahead!” And yet the Fed
pulled the trigger. It’s more than a matter of kowtowing to a bond market hissy
fit. The Fed’s own in-house research warned against making a rash move in a
paper that was published last April.
Former
Fed governor Jeremy Stein of Harvard along with two Fed staffers, David
Lopez-Salido and Egon Zakrajsek concluded the following in the seminal
Credit-Market Sentiment and the Business Cycle:
“When our
sentiment proxies indicate that credit risk is aggressively priced, this tends
to be followed by a subsequent widening of credit spreads, and the timing of
this widening is, in turn, closely tied to the onset of a contraction in
economic activity.”
The
authors then go on to slam the nail into the coffin: “Unlike much of the
current literature on the role of financial frictions in macroeconomics, this
paper suggests that time-variation in expected returns to credit market
investors can be an important driver of economic fluctuations.”
Now, all
of that may have read like gobbledygook to you if your eyes haven’t already
glazed over. But it’s imperative to grasp the translation. Credit was as
“aggressively priced” as it has ever been – recall that the average yield in
the junk bond market hit 4.9 percent in June of 2014. Those are the same kinds
of yields that investment grade sported just a few years earlier.
The
“contraction in economic activity” is otherwise known as a recession. As for
the timing, the paper pegged the “onset” of recession to be about two years
after yields hit their lows and thus prices their highs. That puts us at about
now for said “onset.”
But don’t
lose sight of the biggest point the paper makes, that “credit market investors
can be an important DRIVER of economic fluctuations.” In other words,
uncontrolled feeding frenzies in the bond market can actually cause recessions.
Pardon
the all caps and bolding but these are serious indictments of quantitative
easing gone wild – and they come from inside the very institution that
encouraged the unleashing of animal spirits in the first place.
Query
Corporate America’s balance sheet centurions, a.k.a. Chief Financial Officers,
and they’ll report that the debt was simply too cheap to not binge and binge
alike.
The
ultimate consequences, according to Morgan Stanley’s (MS) recent initiation of
coverage of the IG market, remain to be seen. On the plus side, leveraged
buyout activity peaked out at $186 billion in this cycle, a fraction of 2007’s
$434 billion peak. On the flipside, though, is the debt-financed stock buyback
orgy, the merger and acquisition spree and weak earnings to say nothing of the
idiosyncratic bond market body blow, the meltdown in the energy sector.
More
The Shipping Industry Is Suffering From China’s Trade Slowdown
So many boats, so little cargo as Chinese exports and imports drop.
February
11, 2016 — 8:32 PM GMT
When
business slows and owners of ships and offshore oil rigs need a place to store
their unneeded vessels, Saravanan Krishna suddenly becomes one of the
industry’s most popular executives. Krishna is the operation director of
International Shipcare, a Malaysian company that mothballs ships and rigs,
and these days he’s busy taking calls from beleaguered operators with excess
capacity. There are 102 vessels laid up at the company’s berths off the
Malaysian island of Labuan, more than double the number a year ago. More are on
the way. “There’s a huge demand,” he says. “People are calling us not to lay up
one ship but 15 or 20.”
Shipbuilders,
container lines, and port operators feasted on China’s rise and the global
resources boom. Now they’re among the biggest victims of the country’s slowdown
and the worldwide decline in demand for oil rigs and other gear amid the oil
price plunge. China’s exports fell 1.8 percent in 2015, while its imports
tumbled 13.2 percent. The Baltic Dry Index, which measures the cost of shipping
coal, iron ore, grain, and other non-oil commodities, has fallen
76 percent since August and is now at a record low. Shipping rates for
Asia-originated routes have dropped, too, and traffic at some of the region’s
major ports is falling. In Singapore, the world’s second-largest port,
container traffic fell 8.7 percent in 2015, the first decline in six years.
Volumes at the port of Hong Kong, the fourth-busiest, slid 9.5 percent
last year. Beyond Asia, the giant port of Rotterdam in the Netherlands
recorded a dip in containerized traffic for the year.
More
In central banking as in diplomacy,
style, conservative tailoring, and an easy association with the affluent count
greatly and results far much less.
J. K. Galbraith.
Finally for those with time on their hands this weekend.
http://www.theatlantic.com/business/archive/2016/02/america-in-1915/462360/
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