Central Perk: 16 ian. 2014

joi, 16 ianuarie 2014

Mish's Global Economic Trend Analysis

ECB Waters Down 2014 Stress Tests Second Time; Yet Another Sham Stress Test
Christine Lagarde Warns of Lord Voldemort, Hopes to Put Deflation Ogre in a Bottle
Singapore Set for Icelandic-Style Property Bubble Meltdown; Hype or Reality?

ECB Waters Down 2014 Stress Tests Second Time; Yet Another Sham Stress Test

Posted: 16 Jan 2014 01:17 PM PST

Bloomberg reports ECB Said to Favor 6% Capital Requirement in Stress Test when it puts them through a simulated recession later this year, said two euro-area officials.

Strict Rules Revisited

With a hat tip to ZeroHedge, let's flash back to an October 23 Bloomberg report: ECB Capital Definition Tougher in Stress Test Than Review

The European Central Bank said it will use stricter rules when stress testing banks' balance sheets next year than it will to study their assets, as it seeks to prove its credentials as the region's financial supervisor.

While the ECB confirmed that it will require lenders to have a capital ratio of 8 percent, what qualifies as capital will change over the course of the three-part assessment, the central bank said in an e-mailed statement.

Ignazio Angeloni, who is head of the ECB's financial stability directorate, said in Frankfurt "We've got a feasible but safe capital cushion of 8 percent. We want the exercise to encompass all the main sources of risk."

What About Sovereign Bonds?

Are Sovereign bonds a major source of risk? One would think so. At least one should think so.

Yet, just today, the ECB whitewashed sovereign bonds as a no risk item.

Via translation from El Economista please consider Most of the public debt held by banks not penalized in the stress test.

What looked like was going to be a strict stance of the European Central Bank (ECB) regarding sovereign debt portfolios of financial institutions, is not so.

Until now it was expected that institution had to rate all sovereign bonds "according to the risk they pose to the banks' capital." Given that requirement, banks could be forced to provision capital against potential risks from the exposure.

But now ECB president Mario Draghi, says debt that banks hold to maturity will not have to be set at market value or penalized.

"The ECB will not force European banks to adjust to market value of sovereign debt portfolios that are classified as held to maturity. However, we will penalize banking exposure to bonds contained in the trading book, i.e., those that are available for immediate sale."

Another Sham Stress Test

As a result of that preposterous trading-book rule, banks will shift 100% of their sovereign bonds to their hold-to-maturity bucket, at least for the duration of the test.

Thus, not only have we seen a 25% reduction in capital that banks have to hold, effectively all sovereign bonds are deemed to be risk-free for the test.

Listen to what Ignazio Angeloni, head of the ECB's financial stability directorate says today: "At first sight the 6 percent target looks manageable and less ambitious than what people might have expected. However, given Draghi has been very explicit in willing to carry a tough and credible stress test, this might also imply that the macro adverse scenario the ECB will apply will be much more severe than what the EBA did last time."

Angeloni Translated: "At first glance it appears we watered down the stress tests. And we did do just that. However, the tests are still credible, because we say they are".

Recall what Mario Draghi said in October. "Banks do need to fail to prove the credibility of the exercise. If they do have to fail, they have to fail. There's no question about that."

Draghi Translated: "If banks have to fail, they have to fail. However, our mission is to make sure the stress tests are weak enough so that no banks fail or only a token number of hand-picked banks fail. We have not yet decided on the number, but we can guarantee you, it won't be big."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Christine Lagarde Warns of Lord Voldemort, Hopes to Put Deflation Ogre in a Bottle

Posted: 16 Jan 2014 10:50 AM PST

In a speech at the National Press Club in Washington, IMF managing director Christine Lagarde stated "If inflation is the genie, then deflation is the ogre that must be fought decisively."

With that sentence Lagarde did something most central banks won't: discuss Lord Voldemort, the deflation ogre, by name.

Please consider Christine Lagarde warns of growing threat of deflation.

"With inflation running below many central banks' targets, we see rising risks of deflation, which could prove disastrous for the recovery," said Ms Lagarde, in a speech at the National Press Club in Washington. "If inflation is the genie, then deflation is the ogre that must be fought decisively."

With central bankers afraid even to mention the word "deflation", Ms Lagarde's remarks make her the first high-profile policy maker to give warning that extremely low inflation in rich countries could result in the kind of falling prices that have dogged Japan's economy for two decades.

Ms Lagarde's comments were echoed by Charles Evans, president of the Chicago Fed. "The recent news on inflation has not been good," he said in a speech on Wednesday. "Inflation is too low and is running well below the FOMC's 2 per cent target."

Time to Unbottle the Inflation Genie

Clearly Lagarde wants to unbottle the inflation genie. How do I know the inflation genie is in a bottle? Well the ECB told us so in December of 2005.

Here is proof the monster was captured:

The above images is from a self-serving ECB video that attempts to brainwash school kids and teachers about ECB definition of "price stability".

The wizards' main worry now is "You-Know-Who" and "He-Who-Must-Not-Be-Named".

At a recent conference of economic wizards, Lagarde dares to speak the unspeakable: "Lord Voldemort is on the loose".

Charlatans or Wizards?

In reality, charlatans like Christine Lagarde and all the alleged central bank wizards would not know "price stability" if it flew up and bit off their noses.

For a thorough trashing of the propaganda spouted by the central bank wizards, please see Money as Communication: A Purposely "Non-Educational" Fallacious Video by the Atlanta Fed

Looking for Real Economic Wizards?

I am pleased to again mention that John Hussman is a speaker and host of the second annual Wine Country Conference will be held May 1st & 2nd, 2014.

We have an exciting lineup of speakers for this year's conference.

John Hussman: Founder of Hussman Funds, Director of the John P. Hussman Foundation which is dedicated to providing life-changing assistance through medical research
Steen Jakobsen: Chief Economist of Saxo Bank
Stephanie Pomboy: Founder of MacroMavens macroeconomic research
David Stockman: Ronald Reagan's budget director, best-selling author, former Managing Director of The Blackstone Group
Mebane Faber: Co-founder and the Chief Investment Officer of Cambria Investment Management
Jim Bruce: Producer, Director, and Writer of Money For Nothing: Inside the Federal Reserve
Chris Martenson: Reknown speaker and founder of Peak Prosperity
Mike "Mish" Shedlock: Investment advisor for Sitka Pacific and Founder of Mish's Global Economic Trend Analysis

In addition, we expect confirmation from a number of other highly respected fund managers and speakers. This year's event is two days and will include additional "break-out" groups.

For speaker bios, please check out Wine Country Conference Speakers.

This Year's Cause: Autism

$100,000 of the money raised last year came from a generous matching grant from the John P. Hussman Foundation.

Some of us in the industry who have done well are making an effort to make a difference. John Hussman is at the very top of that list.

One of John's kids has severe autism. This year, all net proceeds will go to support autism programs.

Conference Details

For further details about the 2014 conference, please see Wine Country Conference May 1st & 2nd, 2014

Nothing Like It!

This event is not just another "come and hear someone talk" kind of thing. Attendees and their significant others can expect an educational, fun, and relaxed time.

Last conference, we arranged wine tours. They were a big hit. We will do so again. One of the wine estates we visited had a Bocce Ball court. On a couple of miracle shots, I won both games I played.

Stay an extra day and golf or travel. I did. The conference hotel is a fun place in and of itself.

Unlike many other conferences, you will have easy access to speakers.

Want to chat with me, Steen, John, or anyone else at the conference? You will have an easy chance.

Not only do we have an excellent lineup of speakers, you will have an opportunity to meet with them, have intimate discussions on important investment topics, with a lot of fun on the side, including wine tours and great wine.

There's nothing like it in the investment business. And your money goes to a great cause! What can be better?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Singapore Set for Icelandic-Style Property Bubble Meltdown; Hype or Reality?

Posted: 15 Jan 2014 11:23 PM PST

Several people sent me emails regarding an economic pending bust in Singapore.

Given that it's easy enough to accept or discard such ideas based on preconceived notions, I asked a friend who lives in Singapore for his comments.

First, please consider the article Why Singapore's Economy Is Heading For An Iceland-Style Meltdown.

Like Iceland in its heyday, Singapore's economic stability and vitality – on the surface at least – has made it the envy of the world at a time when most Western economies are languishing with feeble growth, and high rates of unemployment and poverty. Singapore's booming finance and real estate-focused economy has earned it the moniker "The Switzerland of Asia", and finance professionals from all over the world are flocking to work there to take refuge from the hard-hit financial sectors in their home countries. Singapore's unemployment rate is a mere 1.8 percent even as the country's red hot construction sector has been attracting overseas workers, and a growing number of wealthy citizens are hiring domestic helpers from neighboring countries like the Philippines and Indonesia. The ranks of Singapore's wealthy are growing rapidly thanks to the country's asset bubbles, which is helping to fuel a luxury consumption boom in everything from high-end apartments to exotic supercars.

Even though Singapore is no longer an emerging market nation, I consider its bubble economy to be part of the overall emerging markets bubble that I have been warning about due to its strategic role and locationin Southeast Asia, which is also known as ASEAN (Association ofSoutheast Asian Nations). My recent reports on Malaysia, Thailand, the Philippines, and Indonesia show that the entire region is caught up in a massive bubble, and Singapore is benefiting from this bubble by acting as ASEAN's financial center.

Extremely low interest rates in the West and Japan, combined with the U.S. Federal Reserve's multi-trillion dollar quantitative easing or QE programs resulted in a $4 trillion torrent of speculative "hot money" that flowed into emerging market investments from 2009 to 2013. An international carry trade arose in which investors borrowed significant sums of capital at rock-bottom interest rates from the U.S. and Japan, and directed the proceeds into high-yielding emerging markets assets with the intention of profiting from the difference in interest rates or the spread.

Hot money inflows, combined with central bank policies that allow currency appreciation to temper inflation, have contributed to an approximate 22 percent increase in the value of the Singapore dollar against the U.S. dollar since the financial crisis:

Foreign direct investment (net inflows, current dollars) into Singapore immediately surged to new highs after the financial crisis:

Why Singapore Has A Dangerous Credit Bubble

Like many countries that have experienced economy-wide bubbles and busts – including the U.S. from 2003 to 2007 – Singapore currently has a ballooning credit bubble that is helping to drive economic growth and create an illusion of prosperity. Ultra-low interest rates are the primary reason why credit bubbles inflate in the first place, and Singapore's bubble is no exception to this pattern.

An idiosyncrasy of Singapore's interest rate policy makes their low interest rate-fueled credit bubble particularly acute: Singapore's benchmark interest rate, known as the Singapore interbank offered rate or SIBOR, is tied to the U.S. Fed Funds Rate for the purpose of minimizing large swings in the U.S. dollar-Singapore dollar exchange rate.

Unfortunately, there are extremely dangerous side-effects of Singapore's interest rate policy ever since the U.S. Federal Reserve has pursued its zero interest rate policy, or ZIRP, after the financial crisis in 2008. Near zero interest rates, which are intended to boost depressed economies like the U.S.', are much too low for fast-growing economies like Singapore's.

Hype or Reality?

There is much more to the article, but what appears above is sufficient to understand the claim.

While I do not have firsthand knowledge regarding Singapore, one of my regular contacts "Richard" lives there. I sent Richard the above link and asked about his views.

He responded ...

Hello Mish

It's very funny you should have sent me this. Not ten minutes ago I read the attached article in the daily paper refuting the exact same article that you sent.

Unfortunately, your article is accurate and the daily paper is delusional.

When I arrived in Singapore in 2009 and secured a realtor to help me find an apartment, he told me that Asians were coming from all over the continent with large wads of cash in hand, begging him to find some property. Anything. Anywhere. All they wanted was some property in Singapore to invest in.

Eventually I found an apartment, 1,800 sq ft, with a $4.8 million appraised value! (It's probably really worth about $750,000 max). I had to pay $9,800 per month in rent!

When the Asian meltdown comes, it will be catastrophic for prices of everything in Singapore. And I think it's teetering on the precipice.

Hope that answers your question!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

How to Multitask Like a Boss

Posted: 16 Jan 2014 06:11 PM PST

The Longest Legged Lady in the World

Posted: 16 Jan 2014 08:48 AM PST

20 year old Alexandra Robertson is 1.85 cm (6ft 1") tall and her legs that are an amazing 119cm (47") of that height. She beat the previous record holder, Anastasia Strashevskaya whose legs were measured at 106cm (42").