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Create Your Own Argentine Default Swap For As Little As $5 & Watch It Outperform the Big Boys!

Bloomberg reports on Argentina today: 

The nation missed a deadline yesterday to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors from its last default in 2001. A U.S. judge ruled that the payment couldn’t be made unless those investors, a group of hedge funds led by Elliott Management Corp., got the $1.5 billion they claimed.

Argentina has about $29 billion of bonds sold in international markets and denominated in foreign currencies with so-called cross-default provisions. Under their terms, Argentina would have to pay back the entire balance -- plus unpaid interest -- if at least 25 percent of holders demand that their money be returned. The potential liabilities are equal to the country’s foreign reserves, which are already hovering close to an eight-year low.

Argentine bonds spiked 12% yesterday in anticipation of a deal. No deal materialized!

The price of Argentina’s $4.3 billion of bonds due in December 2033 soared yesterday by 11.8 percent to 95.57 cents on the dollar, the highest level since 2010. The bonds were quoted at 95.89 cents today, according to prices on Bloomberg at 11:08 a.m. in London. 

The Argentine peso will have to be devalued if the country is forced to make good on the debts. That throws gasoline on the already hot inflaton coals...

... The economy, already headed for its first annual contraction since 2002 amid 40 percent inflation, will suffer in a default scenario as Argentines scrambling for dollars cause the peso to weaken and activity to slump, according to Hernan Yellati, the head of research at Banctrust & Co.

Default Swaps soared, but I can show smaller and larger players alike how to make their own synthetic default swaps for a fraction of the costs the banks levy, and much more exact as well.

The country hasn’t been able to access international credit markets since its $95 billion default 13 years ago. Credit-default swaps to protect against losses from an Argentine default over the next three months had become the most expensive in the world yesterday, according to data compiled by CMA. The five-year contracts were quoted at a cost of $3.1 million plus $500,000 a year to insure $10 million of debt, CMA reported at 11 p.m. in London yesterday.

About $1 billion of Argentine sovereign debt is covered by the contracts, compared with $10 billion of Russian government obligations and $16 billion of Brazilian debt. The International Swaps & Derivatives Association is responsible for determining if a credit event has taken place to trigger payment to the holders. That decision would be taken by the association’s Determinations Committee, a group of 15 dealers and investors, only after a ruling has been requested by a trader.

This is how one will go about creating a very specific risk/reward profile through our UltraCoin client to speculate on/hedge against the Argentine situation... 








Propaganda Full Frontal: A Little High Level Intervention And This Is What Happens

While one can attribute the most recent AP tweeting faux pas to a missed English grammar lesson, when in the aftermath of the MH-17 crash, this:

BREAKING: Dutch military plane carrying bodies from Malaysia Airlines Flight 17 crash lands in Eindhoven.

— The Associated Press (@AP) July 23, 2014

... became this:

CLARIFIES: Dutch military plane carrying Malaysia Airlines bodies lands in Eindhoven.

— The Associated Press (@AP) July 23, 2014

 

there is no grammatical justification for why two days ago, AP did it again, when a "harshly" worded tweet by the AP:

As much of world watches Gaza war in horror, members of Congress fall over each other to support Israel: http://t.co/DepO2etLQS

— The Associated Press (@AP) July 29, 2014

... became this, just four hours later.

Many U.S. lawmakers strongly back Israel in Gaza war (revises wording in this @AP tweet: http://t.co/RZs5dh0m2L ): http://t.co/OvBKx75U6Z

— The Associated Press (@AP) July 29, 2014

One wonders how high the propaganda flag pole the objecting parties had to run, make that sprint, to get this "revised wording" blasted out, and just how many AP pink slips will appear in next week's not seasonally adjusted initial jobless claims print?








Is JPMorgan About To Bailout Argentina?

Update: According to Ambito the deal is a no go as Italian bondholders (and likely all others) claim that a private deal with a buyer of holdout bonds would also trigger the RUFO clause, thus making the deal meaningless and forcing Argentina to payout billions more. From Ambito:

Italian bondholders say a private agreement also would trigger the clause RUFO

 

The representative of a group of debt holders Argentina Italy, Tulio Zembo said that any agreement between private RUFO also would trigger the clause.

 

"I do not understand the idea of banks because that would trigger the RUFO" Economy Minister said yesterday. Please do not help us because it makes the situation worse," said Zembo in dialogue with Radio La Red

 

"All that is settlement discussion will have to olvidárselo until January 2015, because you can not argue," he said.

 

For the representative of Italian bondholders "the drama of a default is when the debtor is kneeling and can not pay, that would be a problem, here's a serious problem but should concentrate all legal guns to go," he said by way of conclusion.

* * *

With Argentine politicians explaining that "Argentina is not in default" and ISDA set to decide if last night's default is an 'official' trigger event for CDS, it appears Kirchner, Kicillof, and their (k)omrades may have found an angel. The initial 'bailout' plan, by which Argentine banks bought the holdouts defaulted debt (then promptly acquiesced to Argentina's old debt-swap agreement), failed last night; but, as WSJ reports, JPMorgan is in discussions to buy the defaulted bonds of Argentina's holdout creditors. While this would not impact the default decision (that is history), it would speed up the exit from default rapidly. Of course, JPM is not doing this out of love for Argentina, we suspect they are on the hook for a few billion CDS and need some cheapest-to-deliver bonds to help them through the settlement process.

 

It appears most have taken profits or unwound positions in CDS over the last few years but there remains around $20 billion notional outstanding in Argentina CDS

 

CDS has surged...on expectations of a trigger being called by ISDA


As WSJ reports,

Still, the bonds remain at lofty prices because some investors seem hopeful that Argentina can quickly emerge from default. Many were focusing on a potential private-sector solution. Argentine press has reported this week that private-sector banks are trying to hatch a plan to help Argentina pay off the debt.

 

...

 

J.P. Morgan is in discussions to buy the defaulted bonds of Argentina's holdout creditors, according to a person familiar with the matter.

 

Buying the bonds is one of many options, and the talks between J.P. Morgan and Argentine bondholders were still fluid, the person familiar said.

 

...

 

"The expectation of a bank deal is supporting bond prices," said Siobhan Morden, head of Latin America strategy at Jefferies LLC. "But it's difficult to trade these headlines when you're getting whiplashed" by sharp price moves in thin trading. "Most people have adopted their view, taken their positions, and waited to see what the final outcome will be," Ms. Morden said.

*  *  *

We note that a handful of Wall Street banks earlier this year pitched bond sales that would have paved the way for a deal between Argentina and its holdout creditors. Argentine officials didn't approve the proposals then... maybe they will now...








Peter Schiff And Doug Casey On The "Real" State Of The Economy

Submitted by Nick Giambruno of Doug Casey's International Man blog,

One of my favorite podcasts to listen to is The Peter Schiff Show (www.SchiffRadio.com).

Peter always does an excellent job of dissecting the latest economic news and cutting through the smoke and mirrors of government statistics.

Recently he had Doug Casey on his radio show to discuss what’s really happening with the economy. And it’s nothing close to what the talking heads in the financial media would have you believe.

I’m happy to bring this fascinating discussion to International Man readers. I think you’ll not only enjoy it, but you’ll also learn something too.

Until next time,

Nick Giambruno, Senior Editor
InternationalMan.com

Peter Schiff: Joining our program now is Doug Casey, and if you don’t know Doug, he is a libertarian economist. He is a bestselling financial author. He’s an international investor, entrepreneur, and founder/chairman of Casey Research. They publish a monthly newsletter, Casey International Speculator, and most recently Doug has produced a 30-minute documentary called Meltdown America, which I watched just yesterday on the Internet for free. I would encourage everybody to watch it. It’s a very entertaining half hour.

Doug, welcome to The Peter Schiff Show.

Doug Casey: Thanks, Peter. It’s my pleasure.

Peter: So in particular about your movie, which I thought was well done, the story that was most compelling to me was the interview with the gentlemen from Zimbabwe who had lived there most of his life. He was prosperous, had a business, and then had the foresight to read the writing on the wall, leave everything behind, and flee to Australia. He warned his friends—who made fun of him—and they then ended up having their property seized.

Doug: Yes, it’s an absolutely true story, of course. I’ve spent a lot of time in Zimbabwe and before that in Rhodesia over the years. I think the first time I went there was in 1976. His story is quite accurate about what happened in Zimbabwe, but it’s happened in a number of places in the world, and it’s going to happen in other places in the future. This is because most people don’t realize that as big as their investment risks are today with many markets being overinflated and so forth, their biggest risks are actually political risks. The biggest danger to you is your own government. In his case it was the Zimbabwe government. I guess most of the people listening now are Americans, and actually the US government is like a predator stalking us on the African plains.

Peter: What really is compelling about the story and what people should really take to heart is the attitude that pervades is that, well, it’s not going to happen here. It can’t happen here. People don’t want to think about that worst-case scenario. They want to assume that things are going to be okay, and if somebody is warning about this potential doomsday, that is the person whom they ridicule, who they say, oh, you’re crazy, that’s never going to happen, and, it happens in places like Zimbabwe. But expand on it, because it’s happening in America.

Doug: Well look, I hate to sound like a Cassandra, a gloomy Gus. I hate to say the sky is falling, and I know you do too. But you’ve got to be realistic. I don’t call it America anymore. I call it the US because although America is a fantastic idea, a wonderful idea, America as a concept is rapidly disappearing from the land area called the United States. So yeah, I hate to sound gloomy, because there are lots of reasons for optimism that we can recount. We have more scientists and engineers alive today now than we’ve had in all previous history put together. So that’s cause for optimism. But there is a lot of cause for real pessimism certainly in the short term, in the next decade or so in the US, and it could get worse from there. So you and I are pretty much on the same page economically, and it makes me a little uncomfortable having to be gloomy, but I have to be. I have to assess the facts.

Peter: Yeah, you can’t ignore the facts. So you don’t like to say that the sky is falling, but then if you see it falling, you don’t want to just pretend that you don’t see what you see because that’s worse. I mean, it’s better to warn about the catastrophes. Maybe your warnings could help put into effect policies that might avert the catastrophe, or if you can’t do that, at least help as many people as possible prepare for it in advance so that they don’t get hit by surprise.

Doug: Yes, although I greatly discount the odds of things changing because policies and governments have a momentum of their own. Imagine a village at the bottom of a valley, and that 100 years ago collectivism and statism started out as a small snowball, and now that snowball has turned into a giant avalanche. Now once it gets to the giant avalanche stage, you can’t stop it. So I’m afraid that the village at the bottom of the valley is going to be smashed, so you’ve got to run for high ground. I don’t think we can stop it at this point. The trend is too entrenched, too far in motion, and the fact that 50% of Americans are reliant upon the government for their income alone is a guarantee of bad things to come.

Peter: Yeah, and Doug, you have been an observer, a critic of this trend that has been ongoing in America for a long time. I mean, it’s not like we suddenly find ourselves on the precipice of disaster. We’ve been on that precipice for a long time. It’s kind of amazing that we haven’t fallen over just yet, but it’s been a long time building. Even my dad was in this camp back in the ‘70s, issuing warnings. But what do you see today that might make you think that this is the endgame? I mean there can’t be another couple of decades where you’re going to be sounding the alarm.

Doug: Yeah, that’s a very interesting point, Peter. When do we reach the actual endgame as opposed to just an accelerating downturn? I would say that it started in 2007. I think that’s the endgame because the Fed’s balance sheet—which is the best indicator of how much actual new money they’re creating—has gone from $500 billion to $4.5 trillion just in the last five years, and they’re still creating more. So they’ve shot all their arrows and when the economy turns down again—and I think it is in process of doing that now—there’s nothing they can do. They have already reduced interest rates to near zero, the Chinese and the Japanese aren’t buying any more government debt, and the official number is $500 billion a year of deficit now, so the Federal Reserve is going to be printing up money wholesale. This is a very scary thing, so yeah, I think we actually have reached the actual edge of the precipice.

Peter: And the amazing thing, too, and you point this out is they’re telling us we’ve been in a recovery for five years. This means statistically we’re also getting close to the next recession. Just by the probability, how long the expansion has been, yet we’ve never begun a recession where rates are still at zero. We’ve never begun a recession while they are still stimulating us from the previous recession. And nobody seems to worry about the outcome of entering a recession from the position that we are in right now.

Doug: And the numbers that they crank out to make everybody feel good are almost as phony as the numbers that the Argentine government cranks out. I live in Argentina most of the year and there, the Cristina Fernández government says well, we only have 10% inflation. But everybody knows that it’s 30 to 40%. And here they say we have 1-2% inflation. I would say that inflation is realistically in the 8-10% range here in the US—and it’s going much higher.

Peter: And that makes a lot more sense to me, given what I’m observing in the actual economy. The critics who argue that that’s impossible, that the people who think that inflation is more than 2-3% percent, they say they must be wrong, because that would mean that the economy has not experienced any legitimate economic growth. And to that I would say, absolutely, it hasn’t. The growth is all a fantasy. It’s all a result of the assumption that there is no inflation, when there really is because what we have is inflation masquerading as economic growth. But the bottom line is the economy is really contracting, that’s why the labor force is shrinking, that’s why we’re using less energy, that’s why the people’s standard of living is going down, and real incomes are falling and job opportunities are disappearing. It’s because we’re in a recession and no one wants to admit it.

Doug: You are absolutely right, and from this point it is going to get much more obvious and get much worse. I just wonder what the social consequences are going to be when the economy goes into a free-fall again, maybe by the end of this year. I think certainly next year. I mean it’s an open question whether people will riot.

Peter: You can already see the frustration. I often joke, if this is the Obama recovery, imagine how bad the recession is going to be. And you know, we’re running these deficits. The president is bragging now that the deficit is finally below $1 trillion, that it might be $600-700 billion, but that’s the deficit in the recovery. If we slip into a legitimate or acknowledged recession, where are the deficits going to go, $1.5 trillion, $2 trillion? And how can we possibly finance that when the world is already saturated with the debt that we’ve issued to stimulate us out of prior recessions?

Also, I’ve got to get to gold and silver, something that I know you’ve been advocating for a while. When it comes to gold and silver, I’ve never seen an environment where you have so many central banks embracing inflation as a goal, that they want more inflation, and they somehow think that it’s going to help the economy; and at the same time you have complete complacency on the part of investors to any of the risks associated with inflation that all these central bankers are promising to create.

Doug: As you are well aware, Peter, it was Lenin who said the best way to destroy a country is to debauch its currency. It’s perverse and idiotic what all the central banks around the world are doing at this point. But some are worse than others. The Europeans are out of control. The Japanese are out of control. The Chinese Central Bank and of course the Fed here in the US are out of control. So that’s one reason why I continue accumulating gold. It’s the only financial asset that’s not simultaneously somebody else’s liability.

Peter: Yeah, and you’ve been a buyer for a long time, a regular buyer and holder of metals. What do you think it’s going to take, though, to convince the skeptics who are so in love with paper and who make fun of the gold bugs for their irrational obsession with this obscure obsolete yellow metal? What do you think it is going to take for the mainstream to start buying into gold and silver, and of course the mining stocks?

Doug: I think it’s going to take a financial and economic collapse. I hate to say it, but I think we are on the edge of something that is much worse than what we had in 2008 and 2009. I look around the world at places where you can put your capital, real estate is overpriced, the stock market is greatly overpriced, the bond market is in a historic bubble, that’s about the best short sale I can think of in the world. So what are you left with? Gold is not a giveaway the way it was in 2001 at $250 an ounce, but it is reasonably priced, so I’m going to continue to buy it. I think there’s going to be a panic into gold, quite frankly.

Peter: You know, Doug, I think it could be just as big a giveaway now. If you look at the cost of production of gold today versus what it was 12 years ago, it costs a lot more to produce gold, and if you look at the amount of money that the central banks have created over the past 12 years and the amount of money that they are threatening to create, I think you could make a case that gold is cheaper now at $1,200 than it was at $300.

Doug: Well, when you look at the cost of mining new gold, there are about 80 million ounces produced every year, and there are perhaps six billion in total existence. Most of the mining companies in the world, the big ones like Barrick and Newmont, it’s not profitable for them to produce gold even at $1,300 an ounce when you consider all the costs of mining. So yes, I wouldn’t argue with you.

Peter: You talk about a bubble in assets like stocks and real estate. The irony of it is, the professional investors who are happily paying ridiculous valuations for stocks, the only bubble that they can identify is the one that doesn’t exist—except in their minds—and that is the bubble that they see in gold.

Doug: Yes, that’s right. The real bubble is in the bond market, and the bond market is much bigger than the stock market, so when the bubble in bonds bursts, it’s going to be very ugly. I’ve got to make a distinction, and I think you will agree with this. I’ve bought gold my whole life. I’ve never sold one ounce because I buy it for safety, for savings, prudence, and insurance. But I’ve also been very involved in gold stocks for many years, and gold stocks are a different animal than gold itself, and I treat them as a speculative vehicle because gold stocks are perhaps the most volatile class of securities in the world. The Vancouver Stock Exchange, which trades about 1,500 supposed gold companies, regularly goes up ten for one and then collapses 95%. As we speak at this time, it’s at a cyclical bottom. So I think it’s an extremely high-potential speculation to get into gold stocks at this time.

(Editor's note: You may want to check out our Casey International Speculator publication which specializes in finding high-potential speculative opportunities in junior mining companies.)

Peter: Yeah, I agree with you. Of the nations that you travel to, which would you consider to be the most stable, maybe the ones that offer the best not only investment opportunity, but opportunity to live if you want to leave the United States?

Doug: Well, the fact of the matter is that all over the world these governments collude with each other in these clubs they belong to like the United Nations, the IMF, and the OECD, and they are all going in the wrong direction, which is to say more state power, more taxes, and more control. I’ve been to most of the countries in the world, and where I spend most of my time is in Argentina. The people there are used to stupidity from their government and despise their government.

Peter: Well, that’s for sure, Doug. They are prepared for stupidity, unlike Americans who are going to be surprised by it.

Editor’s Note: Be sure to check out www.SchiffRadio.com for more on Peter’s superb radio show. Also, don’t forget to catch our new free documentary Meltdown America, which discusses how to survive an economic collapse with examples from Zimbabwe, Argentina, and Yugoslavia. You won’t want to miss it.








Forget Ebola, Florida Issues "Flesh-Eating Bacteria" Public Health Warning

As Ebola spreads mercilessly across the world, it appears Florida has a problem that sounds just as awful. As CBS reports, Florida health officials are warning beachgoers about a seawater bacterium that can invade cuts and scrapes to cause flesh-eating disease. At least 11 Floridians have contracted Vibrio vulnificus so far this year and two have died, according to the most recent state data.

 

 

Not exactly great news for Florida beach season...

Vibrio vulnificus –- a cousin of the bacterium that causes Cholera –- thrives in warm saltwater, according to the U.S. Centers for Disease Control and Prevention. If ingested, it can cause stomach pain, vomiting and diarrhea. But it can also infect open wounds and lead to “skin breakdown and ulceration,” according to the CDC.

 

“Since it is naturally found in warm marine waters, people with open wounds can be exposed to Vibrio vulnificus through direct contact with seawater,” the Florida Department of Health said in a statement.

 

...

 

Florida isn’t the only state to report Vibrio vulnificus infections. Alabama, Louisiana, Texas and Mississippi have also recorded cases, and a 2013 outbreak linked to contaminated shellfish sickened at least 104 people in 13 states, according to the CDC.

 


ABC News | More ABC News Videos

The CDC's advice:

  • Avoid exposing open wounds to warm saltwater, brackish water or to raw shellfish
  • Wear protective clothing when handling raw shellfish
  • Cook shellfish thoroughly and avoid food contamination with juices from raw seafood
  • Eat shellfish promptly after cooking and refrigerate leftovers







How Argentina Became A Bad Debtor

Following this evening's lengthy finger-pointing lecture from Argentina's Kicillof, Argentina formally defaulted. Shortly thereafter the hoped-for private bank bailout deal also failed leaving the default process likely to take a while. So how has Argentina defaulted three times in the last 28 years?

Submitted by Nicolas Cachanosky via the Ludwig von Mises Institute,

This is a complex case that has produced different, if not opposite, interpretations by analysts and policy makers. Some of these interpretations, however, are not well-founded.

How Argentina Became a Bad Debtor

An understanding of the Argentine situation requires historical context.

At the beginning of the 1990s, Argentina implemented the Convertibility Law as a measure to restrain the central bank and put an end to the hyperinflation that took place in the late 1980s. This law set the exchange rate at one peso per US dollar and stated that the central bank could only issue pesos in fixed relation to the amount of US dollars that entered the country. The Convertibility Law was, then, more than just a fixed-exchange rate scheme. It was legislation that made the central bank a currency board where pesos were convertible to dollars at a “one to one” ratio. However, because the central bank had some flexibility to issue pesos with respect to the inflow of US dollars, it is better described as a “heterodox” rather than “orthodox,” currency board.

Still, under this scheme, Argentina could not monetize its deficit as it did in the 1980s under the government of Ricardo Alfonsín. It was the monetization of debt that produced the high inflation that ended in hyperinflation. Due to the Convertibility Law during the 1990s, Carlos Menem’s government could not finance the fiscal deficit with newly created money. So, rather than reduce the deficit, Menem changed the way it was financed from a money-issuance scheme to a foreign-debt scheme. The foreign debt was in US dollars and this allowed the central bank to issue the corresponding pesos.

The debt issued during the 1990s took place in an Argentina that had already defaulted on its debt six times since its independence from Spain in 1816 (arguably, one-third of Argentine history has taken place in a state of default), while Argentina also exhibited questionable institutional protection of contracts and property rights. With domestic savings destroyed after years of high inflation in the 1980s (and previous decades), Argentina had to turn to international funds to finance its deficit. And because of the lack of creditworthiness, Argentina had to “import” legal credibility by issuing its bonds under New York jurisdiction. Should there be a dispute with creditors, Argentina stated it would accept the ruling of New York courts.

Many opponents of the ruling today claim that Argentina’s creditors have conspired to take away Argentine sovereignty, but the responsibility lies with the Argentine government itself, which has established a long record of unreliability in paying its debts.

 

The Road to the Latest Default

These New York-issued bonds of the 1990s had two other important features besides being issued under New York legal jurisdiction. The incorporation of the paripassu clause and the absence of the collective action clause. The paripassu clause holds that Argentina agrees to treat all creditors on equal terms (especially regarding payments of coupons and capital). The collective action clause states that in the case of a debt restructuring, if a certain percentage of creditors accept the debt swap, then creditors who turn down the offer (the “holdouts”) automatically must accept the new bonds. However, when Argentina defaulted on its bonds at the end of 2001, it did so with bonds that included the paripassu clause but which did not require collective action by creditors.

Under the contract that Argentina itself offered to its creditors, which did not include the collective action clause, any creditor is entitled to receive 100 percent of the bonus even if 99.9 percent of the creditors decided to enter a debt swap. And this is precisely what happened with the 2001 default. When Argentina offered new bonds to its creditors following the default, the “holdouts” let Argentina know that under the contract of Argentine bonds, they still have the right to receive 100 percent of the bonds under “equality of conditions” (paripassu) with those who accepted the restructuring. That is, Argentina cannot pay the “holdins” without paying the “holdouts” according to the terms of the debt.

The governments of Nestor Kirchner and Cristina Kirchner, however, in another sign of their contempt for institutions, decided to ignore the holdouts to the point of erasing them as creditors in their official reports (one of the reasons for which the level of debt on GDP looks lower in official statistics than is truly the case).

It could be said that Judge Griesa had to do little more than read the contract that Argentina offered its creditors. In spite of this, much has been said in Argentina (and abroad) about how Judge Griesa’s ruling damages the legal security of sovereign bonds and debt restructuring.

The problem is not Judge Griesa’s ruling. The problem is that Argentina had decided to once again prefer deficits and unrestrained government spending to paying its obligations. Griesa’s ruling suggests that a default cannot be used as a political tool to ignore contracts at politician’s convenience. In fact, countries with emerging economies should thank Judge Griesa’s ruling since this allows them to borrow at lower rates given that many of these countries are either unable or unwilling to offer credible legal protection to their own creditors. A ruling favorable to Argentina’s government would have allowed a government to violate its own contracts, making it even harder for poor countries to access capital.

We can simplify the case to an analogy on a smaller scale.

Try to explain to your bank that since it was you who squandered your earnings for more than a decade,you have the right to not pay the mortgage with which you purchased your home.

 

When the bank takes you to court for not paying your mortgage, explain to the judge that you are a poor victim of evil money vultures and that you have the right to ignore creditors because you couldn’t be bothered with changing your unsustainable spending habits.

 

When the judge rules against you, try to explain to the world in international newspapers how the decision of the judge is an injustice that endangers the international banking market (as the Argentine government has been doing recently).

Try now to justify the position of the Argentine government.








Why The 10Y Yield Is Heading To 1.5% In 1 Simple Chart

Submitted by Gavekal via Advisor Perspectives,

Last week we wrote that the bond market is following perfectly the reduction of QE with new 1-year lows and with today's bond moves that trend is still firmly in place.

In what may seem counter intuitive, treasury bond yields have had a high positive correlation with the rate of Federal Reserve asset purchases. When the rate of Fed asset purchases rises, bond yields rise, and vice versa. If one thinks of Fed asset purchases as stimulative to growth and inflation expectations (the two components that make up risk-free bond yields) then this positive relationship makes sense.

In the charts below we measure the rate of Fed asset accumulation by measuring the three month difference in the size of the Fed's balance sheet. Since the Fed has scripted out the end of QE, we can easily model out how this rate of change will proceed for the remainder of the year.

We then compare the rate of change in Fed assets to the 30-year bond

 

the 10-year bond... 1.5% by year-end

 

and junk spreads inverted

 

The link between Fed asset accumulation and these various bond yields is unmistakable, especially for longer duration bonds, and this simple model shows how even lower bond yields may be in the offing as the Fed puts on the breaks. For junk bonds, this seems to portend higher spreads, which may help to put the recent widening of spreads in context.

*  *  *

So - tapering is tightening on risk assets...








Ebola Epidemic Update: US Citizen Dies In Nigeria, Virus Poses Threat To Britain, Liberia Declares State Of Emergency

In a world rife with geopolitical calamities, it is easy to forget that west Africa is currently suffering the worst Ebola epidemic in history. Here are the latest updates:

  • State Department has confirmed that one U.S. citizen died from Ebola in Nigeria after being infected in Liberia. 
  • Victim who died in Lagos was bound for U.S., and was an American citizen 
  • U.K. Foreign Secretary Philip Hammond said the virus poses a threat to Britain, and will hold an emergency meeting.
  • Ebola center run by Americans closed after Liberia disturbances
  • Two Peace Corps volunteers under observation after coming into contact with individual who later died of Ebola
  • Sierra Leone’s top Ebola doctor dead after contracting virus
  • Hong Kong woman tests negative for Ebola
  • Gabon measures to prevent Ebola outbreak: Police checks at borders, airports, land crossings
  • Latest death toll in West Africa is 672, as of July 27 release: WHO

More about the formerly anonymous person who died over the weekend in Nigeria after collapsing at the airport and turns out was a US citizen:

An Ebola victim who was allowed to board an international flight was an American citizen on his way home to the United States, it has emerged.

Patrick Sawyer worked for the Liberian government and was visiting his sister there when he developed symptoms while on a plane to Nigeria. He was quarantined on arrival in Lagos and died on Friday.

 

His wife, Decontee, 34, who like Mr Sawyer is originally from Liberia, currently at the heart of the terrifying Ebola outbreak, said he had been due to travel on to America where he could have become Patient Zero in a US epidemic.

 

The 40-year-old father-of-three is believed to have contracted the disease from his sister, whom he was caring for without knowing she had Ebola.

 

Mr Sawyer took two flights to get to Nigeria from Liberia, where he had attended his sister's funeral. The first took him from Monrovia to Lome in Togo, where he boarded a plane to Lagos. He collapsed at the airport on landing.

 

The Nigerian authorities have closed the hospital he was treated at, First Consultants Hospital in Obalende, one of the busiest parts of the city with a population of around 21 million.

 

Manifests of the passengers and crew who travelled on the same flights as Mr Sawyer have yet to be released.

 

His job involved promoting trade in West Africa and he was on his way to a conference in Lagos from where he planned to travel back to the US when he fell ill with vomiting and diarrhea. 

 

Fellow passengers on his plane were given warnings about the disease’s symptoms, which can include bleeding from the nose and mouth, but were allowed to continue on their journeys.

And a focus on Liberia, which has rapidly become the epicenter of the latest breakout, and which has escalated the Ebola response to a near national emergency level, deploying police to prevent Ebola clashes, quaranteening of communities, closing schools and giving non-essential government staff a 30 day leave, and announcing that people who raise prices on soap, chlorine, sanitizers, buckets will be prosecuted. More from Reuters:

Liberia will close schools and consider quarantining some communities, it said on Wednesday, rolling out the toughest measures yet imposed by a West African government to halt the worst outbreak on record of the deadly Ebola virus.

 

On Wednesday, Liberian health officials said an isolation unit for Ebola victims in Liberia's capital, Monrovia, was overrun with cases and health workers were being forced to treat up to 20 new patients in their homes. Dozens of local health workers, including Sierra Leone and Liberia's leading two Ebola doctors, have died treating patients.

 

"This is a major public health emergency. It's fierce, deadly and many of our countrymen are dying and we need to act to stop the spread," Lewis Brown, Liberia's information minister, told Reuters. "We need the support of the international community now more than ever. We desperately need all the help we can get."

 

Security forces in Liberia were ordered to enforce the action plan, which includes placing all non-essential government workers on 30-day compulsory leave.

 

The U.S. Peace Corps said on Wednesday it was temporarily withdrawing 340 volunteers from Liberia, Sierra Leone and Guinea and that two of its volunteers had been isolated and were under observation after coming in contact with a person who later died of the Ebola virus. The Peace Corp has 102 volunteers in Guinea, 108 in Liberia and 130 in Sierra Leone working in education, health and agriculture. 

 

The State Department has confirmed that one U.S. citizen died from Ebola in Nigeria after being infected in Liberia. Two other American aid workers infected with Ebola, Dr. Kent Brantly and missionary Nancy Writebol, are in serious condition, but they have shown slight improvement. They were part of a team in Liberia from North Carolina-based Christian relief groups Samaritan's Purse and SIM.

 

Liberian President Ellen Johnson Sirleaf said in a speech posted on the presidency's website that the government was considering quarantining several communities based on the recommendation of the health ministry. http://www.emansion.gov.lr/

 

"When these measures are instituted, only healthcare workers will be permitted to move in and out of those areas. Food and other medical support will be provided to those communities and affected individuals," she said, adding that all markets in border areas are to be closed.

 

White House spokesman Eric Schultz told reporters that President Barack Obama had been briefed on Tuesday by his homeland security adviser, Lisa Monaco, and that the White House was monitoring the deadly outbreak.

 

"The CDC (U.S. Centers for Disease Control and Prevention) has said this is not a risk to the United States at this time," Schultz told reporters traveling with the president back to Washington from Kansas City, Missouri. He said the U.S. government had increased assistance to countries battling Ebola.

 

Schultz said the White House would proceed with a planned U.S.-Africa Leaders Summit in Washington Aug. 4-6 that about 50 Africa leaders are expected to attend to discuss trade and investment between the United States and Africa.

 

Liberia's President Surleaf said she would not be attending the summit but that Vice President Joseph Nyuma Boakai and a few cabinet ministers "whose presence are absolutely necessary" would attend.

 

"We have no plans to change any elements of the U.S.-Africa Leaders Summit as we believe all air travel continues to be safe," Schultz said.

Source: Bloomberg








Our Totalitarian Future - Part 2

Submitted by Jim Quinn of The Burning Platform blog,

In Part One, I asked questions your keepers don’t want to answer truthfully, while providing the contextual setting for how our over-populated world is progressing relentlessly towards a future of war and totalitarianism.

Totalitarianism Now

“Where the republican or limited monarchical tradition is weak, the best of constitutions will not prevent ambi­tious politicians from succumbing with glee and gusto to the temptations of power. And in any country where numbers have begun to press heavily upon avail­able resources, these temptations cannot fail to arise. Over-population leads to economic insecurity and so­cial unrest. Unrest and insecurity lead to more con­trol by central governments and an increase of their power. In the absence of a constitutional tradition, this increased power will probably be exercised in a dictatorial fashion.” Aldous Huxley – Brave New World Revisited – 1958

         

Huxley wrote his dystopian masterpiece in 1931 before the rise of Stalin, Hitler and Mao and their murderous totalitarian empires, sustained by torture, mass murder, surveillance, and fear. Orwell wrote 1984 in 1948, after living through the nightmare of World War II and witnessing the malevolent systematic terrorism inflicted upon innocent populations by psychopathic tyrants like Hitler and Stalin. World War II killed 65 million people. Stalin’s purges killed 20 million Russians, and Mao murdered 45 million of his own people. It appeared that Orwell’s gruesome vision of a future of brutality, surveillance, and fear would come true.

Instead, Huxley’s vision gained ground in the post war world of cheap oil, mass production, consumerism, and TV advertising. It was found that government through terror works on the whole less well than government through the non-violent manip­ulation of the environment and of the thoughts and feelings of individual men, women and children. Propaganda, amusements, materialism, easily accessible debt, and relentless media messaging convinced the masses to love their enslavement and never dream of revolution. It worked as long as energy and debt remained cheap and plentiful.

The 4.4 billion increase (157%) in the world’s population since Huxley’s warning in 1958 is attributable to vast supplies of cheap easily accessible oil, natural gas and coal, which have allowed technological and agricultural advancements that have vastly expanded food production, water purification, global transportation, and medical advancements. With the peak in traditional worldwide oil production reached around 2005, and modest subsequent production increases obtained only by mining tar sands, fracking shale and drilling in deep water at much higher production costs, the era of cheap plentiful energy has come to an end.

Propaganda and storylines about vast reserves and energy independence fail to acknowledge the concept of Energy Returned on Energy Invested (EROEI). Once it requires investing more than one barrel of oil in energy to extract one barrel of oil, the game is over. We are approaching the limits of growth because our remaining energy resources will require much more capital investment and higher prices for companies to make that investment. Oil prices were $25 per barrel when George Bush and the neo-cons launched their Iraq Freedom campaign in 2003. Eleven years later, with U.S. oil production at 44 year highs and consumption at 2000 levels, a barrel of oil is over $100 per barrel. The combination of increased demand from developing countries, vastly higher production costs, and global unrest in the areas of the world storing “our” oil under their sand will put a floor on prices, with spikes upward as resource wars flare up around the globe.

It is not a coincidence that the world economic system collapsed in 2008 after oil prices topped $140 per barrel. World food prices also spiked to all-time highs in 2008. The surge in food prices in 2011 to new highs was the impetus for the Arab Spring and social unrest across the Middle East and Africa. The FAO World Food Index spiked to levels only exceeded in 2011 earlier this year. Oil prices have surged as high as $106 and have averaged over $100 in 2014. Do you think it is just a coincidence that social unrest across the Middle East, Africa, Asia and Europe has surged in the last few months? Rising prices and the increasing scarcity of food, water and energy resources push the desperately poor towards revolution.

 

Societal strife, economic decline, poverty, lawlessness, and resource deprivation in third world countries result in dependency upon a central authority to sustain the masses. In the poorest countries without a long history of democracy, the people turn to a strong leader to save them. Before long too much power is accumulated in too few hands and totalitarian regimes are born. The world is awash in the blood spilled by dictators (North Korea, Egypt, Cuba, Saudi Arabia, Zimbabwe, Iran, Tunisia, Syria, Sudan) and presidents in name only (China, Vietnam, Nigeria, Turkey, Ukraine, Venezuela, Russia, Argentina).

Dreadfully poor people with no hope for a better future turn to radical religion, extremist ideas, and psychotic leaders. A full belly trumps freedoms and liberties. It is not surprising that despots proliferate in the poorest countries with the highest population growth rates. The so called developed world in the U.S. and Europe had been able to sidestep and even take advantage of these developing countries until the 2008 financial collapse. The oligarchs have treated the third world as slave plantations to be reaped, plundered and pillaged. Their banker solution to a crisis caused by the fraudulent issuance of debt products has been to redouble their looting and pillaging campaign through the issuance of even more debt in order to further enrich themselves at the expense of the many.

Huxley saw it beginning to happen even during the late 1950’s:

“Meanwhile impersonal forces over which we have almost no control seem to be pushing us all in the direction of the Brave New Worldian nightmare; and this impersonal pushing is being consciously acceler­ated by representatives of commercial and political organizations who have developed a number of new tech­niques for manipulating, in the interest of some minor­ity, the thoughts and feelings of the masses.” Aldous Huxley – Brave New World Revisited – 1958

I think Huxley underestimated the lengths to which a minority of criminal wealthy bankers, their crony capitalist corporate co-conspirators, and feckless bought off politicians would go in their sociopathic manipulation of the masses to gorge themselves upon the world’s resources and wealth. In 1958 the manipulators only had TV in its infancy and independent newspapers published by journalists who attempted to report the truth. They’ve come a long way baby.

The Deep State, Silent Government, Oligarchs, TPTB, or whatever term you want to employ to our Brave New World Controllers have mastered the art of propaganda, manipulation, distraction, and social engineering to such an extent the majority of Americans have come to love their techno-narcissistic, debt saturated, welfare/warfare, surveillance state. When a minority of evil minded men gain control of a nation’s currency, own and control the few remaining propaganda news outlets, run the mega-corporations selling toxic poison processed food and iGadgets to the masses on debt issued by Wall Street banks, pay-off the politicians writing legislation and tax codes, and brainwash the youth through government controlled education, your Brave New World nightmare has arrived.

Huxley believed that over-population was not an immediate threat to the personal freedoms of Americans and Europeans due to their long history under democratic constitutions. Of course our national debt of $276 billion in 1958 was only 57% of our annual GDP of $482 billion. The population of 175 million could easily be sustained, with ample supplies of energy, food and jobs. The standard of living for families rose consistently and an economy based upon savings, capital investment, and producing things flowed wealth across all classes – raising all boats. Banks accumulated deposits from citizens and leant money to small businesses. There were no stock options, derivatives, stock buybacks, or trading profits. People borrowed sparingly and saved for the things they wanted.

Huxley predicted trouble by the beginning of the twenty first century if the population of the U.S. continued to outpace the available resources to support that population. He was right again. The party ended in 2000.The National Debt has soared to $17.6 trillion, or 104% of GDP in 2014. Why did the debt go up by a factor of 64 while GDP only advanced by a factor of 35? In 1958, prior to the blossoming of the welfare/warfare state, there were little to no unfunded liabilities. Today the total exceeds $200 trillion. A country adding debt at this astronomical rate is a country consuming far more than it is producing. Depletion of resources, overconsumption, and economic decline lead to debt expansion and centralized government control. When 20% of all households depend upon food stamps to survive, your country has too many mouths to feed and a failing economic system designed to serve the oligarchs and impoverish the peasants.

Consumer debt outstanding in 1958 totaled $48 billion, all non-revolving debt mainly for auto purchases. The credit card did not exist. Consumer debt outstanding today totals $3.2 trillion. Has this 6,667% increase in consumer debt benefitted the average person or Jamie Dimon and his ilk? Is it a rational choice of consumers in a free capitalist market or is it a result of coordinated actions by the banking cabal and their captured government benefactors to enslave the masses in debt while keeping them dumbed down and distracted by electronic gadgets produced in slave labor camps overseas under the guise of globalization? Huxley didn’t anticipate Federal Reserve bankers and cowardly captured politicians purposefully inflating away 88% of the U.S. dollar’s purchasing power as they expanded the welfare/warfare state through monetary manipulation, abandonment of gold backed currency and unfettered debt expansion. The result is real wages haven’t advanced in the last 40 years, while corporate profits reach record heights and a small cadre of oligarchs reap the rewards of debt enslavement of the many.

 

The Ponzi scheme system created by the invisible “leaders” of the supposedly free developed world required never ending growth to support the never ending issuance of debt in order to keep the fleecing of the masses operation running smoothly. This is where increasing population and resource depletion have thrown a monkey wrench into their printing press operation. The autocrats harvested energy and minerals resources from third world countries, while utilizing the catch phrase of globalization, as a cover for their wage arbitrage mechanism to continue their worldwide pillaging scheme. The Ivy League educated moguls are extremely smart when it comes to figuring out new and creative ways to screw the common folk, but their unparalleled hubris and arrogant disregard for humanity blind them to the ultimate consequences of their malevolent machinations. There will be blood and they will not escape unscathed. War is coming, but not the war they anticipate.

The definition of totalitarianism is a political system in which the state holds total authority over the society and seeks to control all aspects of public and private life wherever possible. Our two party farce of a political system is aligned to control our lives through laws, regulations, rules, bylaws, procedures, tax codes, taxation, inflation, and debt, enforced by government apparatchiks, bureaucrats, politicians, bankers, police state thugs, and when all else fails – the military. While the masses were distracted by facebooking, texting, twittering, instagramming, taking selfies, playing Words with Friends, engaging make believe enemies on their PS3 or Xbox, watching the Kardashians on one of their 700 cable TV stations, or shopping for Chinese produced crap at one of our 1.5 million cookie cutter chain retail boxes, those in control of this country covertly turned the nation into a surveillance state while militarizing local police forces. They know the endless growth story is over. Our oppressors fear the repercussions when the masses realize it’s all been a big lie and they are left impoverished and hungry. They are attempting to instigate foreign wars, while preparing for the coming civil war.

The confusion, chaos, mayhem and war currently shaking the foundations of our planet are a direct result of too many people jammed into too small of a space with too few resources and too few opportunities for economic advancement. Poor, deprived, hungry people with nothing to lose begin to lose it. Revolution, civil unrest, radicalism, the rise of extremists and despots, and totalitarian regimes are the result. The invasion of Iraq was about oil. The overthrow of Gaddafi was about oil. The ongoing attempt to overthrow Assad is about a natural gas pipeline to Europe in order to isolate the Russians. The Ukrainian coup is about Russian natural gas and oil. The sanctions and saber rattling over Iran’s nuclear program is really about their oil. The United States is utilizing their military industrial complex and CIA assets to instigate turmoil and war around the world in an effort to gain control over the dwindling energy resources in the Middle East and Africa. Russia and China are blocking U.S. efforts at every turn, as the world inches ever closer to a major resource war.

Huxley’s Brave New World dystopian America had a good run from 1950 until 2000. Our keepers kept us fat, dumb, distracted, and in debt up to our eyeballs. Since 2000 Orwell’s 1984 dystopian Surveillance States of America seems to be taking shape, under the watchful eye of our very own Big Brother, the NSA. Fear, punishment, slogans (See Something Say Something) and appeals to non-thinking patriotism have replaced freedom, liberty, individual rights, the Constitution, personal responsibility for our own lives and questioning authority. The propagandists created the War on Terror as a way to keep the ignorant masses fearful and cowering behind the skirts of Big Brother. The 2008 financial collapse was another crisis that couldn’t go to waste. The Federal Government has expanded the spending of your tax dollars by 40% since 2007. The DHS concentrates on the internal enemy – you. The military industrial complex creates new foreign enemy threats every day – Hussein, Gaddafi, Ahmadinejad, Assad, and now Putin.

The monetary and fiscal policies of the country have remained in permanent crisis mode because the Ponzi scheme can’t be maintained without a constant debt fix. As our permanent state of crisis devolves into war, our remaining liberties will be stripped away in the name of safety, security and unquestioned support of the state. Huxley knew that we would consume, obey and submit until dictatorship became almost inevitable. Will you sit idly by while a small cabal of power hungry men destroys our country? Will you send your sons off to wars manufactured by tyrants as cannon fodder to further enrich the military industrial complex? Will you make a stand when they begin to round up subversives, dissenters, and malcontents under the guise of protecting you from domestic terrorists? Will you choose liberty and freedom over repression and descent into captivity and totalitarianism? The choice is yours.

“But liberty, as we all know, cannot flour­ish in a country that is permanently on a war footing, or even a near-war footing. Permanent crisis justifies permanent control of everybody and everything by the agencies of the central government. And permanent crisis is what we have to expect in a world in which over-population is producing a state of things, in which dictatorship becomes almost inevitable.” Aldous Huxley – Brave New World Revisited – 1958

 

Are you a believer?

“One believes things because one has been conditioned to believe them.” – Aldous Huxley – Brave New World

Or a truth seeker?

“You shall know the truth and the truth shall make you mad.” – Aldous Huxley








Argentina Defaults

It's all over but the crying: having explained Argentina's position (i.e. not giving to so-called vulture funds), Economy Minister Kicilloff explains:

  • *KICILLOF SAYS HEDGE FUNDS NOT WILLING TO GIVE DELAY ON RULING
  • *KICILLOF SAYS HARD TO BELIEVE ARGENTINA IN DEFAULT IF HAS FUNDS
  • *KICILLOF SAYS ARGENTINA CAN'T COMPLY WITH COURT RULING
  • *HOLDOUTS DIDN'T ACCEPT ARGENTINE OFFER: KICILLOF

As Bloomberg notes, by defaulting today, Argentina may trigger bondholder claims of as much as $29 billion -- equal to all its foreign-currency reserves. Just remember that the last 2 days have seen 'smart money' buy Argentine bonds and stocks to all-time record highs.

 

Some color on what next (via Bloomberg):

If the overdue interest on Argentina’s dollar-denominated securities due 2033 isn’t paid by July 30, provisions in bond indentures known as cross-default clauses would allow the nation’s other debt holders to also demand their money back immediately. The amount corresponds to Argentina’s debt issued in foreign currencies and governed by international laws.

 

In a default, even a temporary one, Argentina’s economy will contract and the odds of a crisis are high, according to Marcos Buscaglia, an economist at Bank of America Corp. Money demand will become unstable as Argentines scramble for dollars, causing the peso to slump, he wrote in a report today.

“Argentina’s current weak fiscal, monetary and external conditions make the probability of the situation spinning out of control quite high,” he wrote. “Argentina’s payment capacity should not be taken for granted if it defaults.”

  • *ARGENTINA'S RUFO CLAUSE PROHIBITS MAKING BETTER OFFER: KICILLOF
  • NEW YORK-ARGENTINA'S ECONOMY MINISTER KICILLOF REPEATEDLY CALLS HOLDOUT INVESTORS "VULTURE FUNDS
  • KICILLOF SAYS HOLDOUTS WOULD REAP 300% PROFIT IN DEBT SWAP
  • KICILLOF SAYS HEDGE FUNDS WANT MORE AND WANT IT NOW

*  *  *

All those equity and bond gains - which hit an all time high - today, gone.

Oops:

 

Finally, we aren't the only ones who are let down by today's anticlimatic development. Compare and contrast with this 2001 announcement when Argentina announced is last default: a far more exuberant affair.

 








Thank You Obamacare - California Health Insurance Costs Spike Up To 88% In 2014

If you like your disposable income... forget it. Health-care insurance premiums for individuals in California rose between 22% and 88% in 2014 from last year, even after the federal health-care overhaul. This has led, as Bloomberg reports, to Proposition 45 - a bill that would grant regulatory say on proposed premium increases. "Unless Proposition 45 is passed we are going to continue to see dramatic year-over-year increases," warned Insurance Commissioner Dave Jones.

 

As Bloomberg reports,

Insurance Commissioner Dave Jones said, a Democrat, is pushing a statewide ballot measure for November known as Proposition 45 that would give him regulatory say on proposed premium increases. The measure is opposed by insurance companies, which have said that it would actually cause rates to rise while harming the quality of care.

 

“Unless Proposition 45 is passed or some other law is enacted to provide health-insurance rate regulation and the requirement that health insurers and HMOs justify their rates, we are going to continue to see dramatic year-over-year increases,” Jones said in a telephone briefing with reporters.

 

The California health-care insurance exchange, called Covered California, is expected to announce its 2015 rates later this week. Jones said he expects those increases to be “modest at best” because insurance companies will want to avoid providing voters reason to approve Proposition 45.

 

The insurance commissioner is using this misleading report to promote a ballot measure that would give him vast new powers over health care decisions,” said Robin Swanson, a spokeswoman for the campaign against the initiative, Californians Against Higher Health Care Costs. “Our coalition of doctors, nurses, labor unions and health care providers opposing the measure thinks that giving one politician the power to override decisions made by the state’s successful health exchange is the wrong approach to controlling costs.”

*  *  *
Seems like everything's going according to plan for Obamacare...








Profile Of A Sanctioned Russian Billionaire: Putin's Judo Coach

Via The Moscow Times,

Fortune has smiled on judo coach Arkady Rotenberg, bringing his businesses Google-like growth and a key role in staging the Winter Olympics. It has now brought down on him the wrath of the U.S. government.

Rotenberg says his success has nothing to do with personal favors from his childhood sparring partner and Russian President Vladimir Putin, and has denounced this week's Ukraine-linked sanctions on his companies as an affront to the spirit of free enterprise.

Following personal U.S. visa bans and asset freezes imposed on Rotenberg and his younger brother Boris last month, the new measures against pipeline construction firm Stroigazmontazh, or SGM, and banks SMP and InvestCapitalBank have, if nothing else, thrust the media-shy sportsman into the spotlight.

SGM, 51-percent owned by Arkady Rotenberg, saw revenues grow by a factor of nearly 50 after its creation in 2008 from several units sold by Gazprom. In four years, working for the state-run energy giant and others, it had laid 11,600 kilometers of pipeline — enough to reach all the way from his and Putin's native St. Petersburg to the Pacific. And back.

   

SMP, in which he and his brother each have a 38-percent stake, has also done well. With assets of 208 billion rubles ($5.8 billion) and about 100 branches it stands only 35th on a ranking by Interfax. But with assets growing 52 percent in the year, it is one of the fastest growing banks in Russia.

In a rare interview in 2012, he told Forbes, which puts his current wealth at $4 billion, that Putin did him no favors in securing public contracts: "Vladimir Vladimirovich doesn't protect me," he said.

But there were other benefits, he added: "If people didn't give me all this publicity, calling me a 'Friend of Putin', then my business would be worse. And so it's growing well".

The U.S. Treasury noted: "Both brothers have amassed enormous amounts of wealth during the years of Putin's rule."

It estimated the Rotenbergs' personal wealth grew by $2.5 billion in just the last two years and that Arkady Rotenberg's firms had secured $7 billion of contracts for the Winter Olympics Russia hosted at Sochi in February, part of what the Treasury called the brothers' "support to Putin's pet projects".

A spokesman for the Rotenbergs and SGM called the sanctions "illegitimate, because they undermine the very spirit of free enterprise and business".

Crony Capitalism

Arkady Rotenberg first sparred with Putin in their home city, then known as Leningrad, in the 1960s. He founded a judo club there and made Putin honorary president in 1998, two years before the former KGB agent took over in the Kremlin.

Rotenberg's enterprises have now made him the 27th richest man in Russia, according to Forbes, which estimates his firms won $28 billion in state contracts over the past five years.

For Putin's critics, that personal tale of good fortune, however, is symbolic of "crony capitalism" that they say has been the hallmark of Putin's 14-year rule. "This is privileged insider business," said Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington.

SGM says on its website that it implements "the most important strategic projects" of state-controlled Gazprom. These include the Southern Corridor, a network of pipelines that will supply gas to Gazprom's flagship South Stream pipeline to southern Europe.

According to the Ruslana database, and confirmed by SGM, the group's revenues have been growing by $2-3 billion a year — reaching $10.7 billion in 2012, up from $235 million in 2008. Assets grew to $5.3 billion from $370 million over the period.

An SGM spokesman said U.S. sanctions would not have a great impact as it mainly operates in Russia but that they would hurt some U.S. firms that supply it with construction equipment.

SMP said that the sanctions had hurt the bank's operations but were not causing direct losses. It said it was fulfilling all its obligations to clients and had no liquidity problems.

Another of Arkady Rotenberg's interests, Mostotrest, which calls itself Russia's biggest builder of transport infrastructure, has also grown strongly on the back of state contracts but has avoided the U.S. Treasury sanctions.

It is 38.6-percent owned by a firm controlled by Rotenberg and his son Igor and saw 2013 revenues rise 24 percent to 117 billion rubles ($3.3 billion) with another three times that much in outstanding orders. Heavily involved in the Sochi Games and also building a $3.4-billion motorway from Moscow to St. Petersburg, 92 percent of its orders are from public entities.

"It is the contractor of choice," said Kevin Whyte, analyst at VTB Capital in Moscow. "In any country and in any sector you need good relations with your clients. And in this sector the state typically accounts for the vast majority of orders."








"Gold Could Go To Infinity" - Ron Paul

“I Still Believe In Gold” - Ron Paul

Dr Ron Paul, the popular Presidential candidate and America and the world's most popular libertarian voice, told CNBC yesterday that he “still believes in gold” and that “gold could go to infinity.”


Former U.S. Representative Dr Ron Paul told CNBC's Jackie DeAngelis and the Futures Now Traders that the long-term case for gold remains firmly intact.

Dr Ron Paul:

“Timing is the only thing. I remember watching gold when it was 35 dollars an ounce and we thought if it ever hit a hundred dollars, the world would come to an end. And then a thousand dollars, so; no, it's good as long as we continues to do this <print money> , you know, it could go to infinity because when people just leave the dollar, who knows what …”

“But that won't happen if we finally wake up and do something.  But if we can keep this together, if the money managers can keep it together and it doesn't collapse, yes, gold is gonna keep creeping up, but, you know, as weak as gold looks right now, it's up a hundred dollars for this year so…”


Jackie DeAngelis:


“It's roughly I think up 8% year-to-date. It's not a horrible move for gold but I think a lot of people were expecting to see a little bit more, especially with the instability that we're seeing in terms of the geopolitical situation. A lot of conflict around the world -- you'd expect gold to be higher right now.”


Ron Paul:

“Yeah, but if you understand the subjective theory of value, you don't get too concerned about that because, yes, increasing the money supply weakens the dollar and a weaker dollar raises the price of gold and it's a long term measurement. But you can't measure, you can't say that the money supply went up a certain amount, and gold is going to go up, so there's a subjective element in that.”

“But long term...and economic law says, if you keep printing a lot of paper money, the value of that dollar and currency will go down, and things and most prices will go up and indeed gold always goes up against that currency.”

“But you don't, I don't get in the business of saying in a year or two or three it's going to be two or three or four thousand dollars because it really challenges the basic fundamental beliefs of the Austrian school, to make these kinds of predictions.”


The interview about gold can be watched here




In another interview with CNBC, Dr Paul reaffirmed his view that the nation's monetary and fiscal policies would result in massive inflation. He warned of a stock market crash and of the risk that currency debasement will lead to the continuing devaluation of the dollar.

Ron Paul has long said America should "end the Fed," and he made that case once again on Tuesday.
 

** Record Low Gold Bar (1 oz) Premiums **

"One thing you have to do is get rid of the Fed, because of the Fed “spin” that leads to volatility in markets. Referring to the statements and spin by Federal Reserve governors, now Janet Yellen, he said that in fact  it is a “very inefficient way to operate a market, to have one individual make one statement, and put so much weight on it.”

“In short term, it's very, very real, because people are going to make it or break it, you know, on this interpretation. But that has nothing to do with the free market, nothing to do with building capitalism, and savings, and the things necessary to have a growing economy."








Obama Sued: House Authorizes Lawsuit Against President With 225-201 Vote

Argentina defaults; Russia, Ukraine, Libya, Israel, Gaza, Iraq all in a state of (hot or otherwise) war, the worst Ebola epidemic in the history of Africa, and now Obama is getting sued.

MT: @AP_Politics MORE: House authorizes GOP-led plan to sue Obama alleging he exceeded constitutional powers http://t.co/iaTx9KeVeG

— The Associated Press (@AP) July 30, 2014

And from Reuters:

The Republican-led U.S. House of Representatives on Wednesday cleared the way for the launch of a lawsuit accusing President Barack Obama of overstepping his authority in carrying out his landmark healthcare reform law.

 

The 225-201 vote, along party lines, to authorize the suit will allow House lawyers to draft legal documents over a five-week summer recess starting on Friday.

 

It cements the action as a lightning rod for months of bitter campaign rhetoric from both Republicans and Democrats ahead of November elections that will determine the political control of Congress next year.

 

The suit is expected to claim that Obama exceeded his executive authority in making unilateral changes to the Affordable Care Act, known as Obamacare.

And then this:

Pres Obama intends to thumb his nose at the House lawsuit bill by signing another Executive Order tomorrow on federal contractors.

— Mark Knoller (@markknoller) July 30, 2014

"He is not going to back away from his efforts to use his authority to solve problems & help American families," says WH official of POTUS.

— Mark Knoller (@markknoller) July 30, 2014

If this doesn't send the S&P to new record highs tomorrow, the Fed better find another market to rig.

Incidentally, for those confused, this is nothing but more theater. If the GOP, i.e., the orange folding lawnchair, really wanted to go after Obama, they would have impeached.

Meanwhile, somewhere in the bowels of the Kremlin, Putin is cackling like a madman.








Foreign Secretary Warns Russian Sanctions "Will Hit UK Economy"

More blowback... UK Foreign Secretary Philip Hammond suggests imposing sanctions on Russia are a shared sacrifice that European nations must make. While the sanctions were "designed to maximize the impact on Russia and minimize the impact on EU economies," he warns his fellow Britons that, "It will affect our economy..." As RT notes, London will likely be hit hardest among the EU powers because of its intimate financial relationship with Moscow and we are already seeing UK home prices fall as oligarch flows slow.

As RT reports,

Foreign Secretary Philip Hammond said the measures had been “designed to maximize the impact on Russia and minimize the impact on EU economies.”

 

“It will affect our economy... but you can't make an omelet without breaking eggs, and if we want to impose economic pain on Russia in order to try to encourage it to behave properly in eastern Ukraine and to give access to the crash site, then we have to be prepared to take these measures,” he told Sky.

 

“We have spent a lot of time making sure the package is balanced so the pain is fairly shared across the big EU economies, but we can't expect to be able to do this without any impact at all on our own economies."

*  *  *

One wonders just how UK will cope when Putin really gets going...








Social Media Is Making People Dumber, Fears Elliott's Paul Singer

Excerpted from Elliott Management's latest letter to investors,

PROGRESS?

Some technology represents unquestioned progress, despite causing real challenges to the employment prospects of citizens who are made redundant. For example, recent advances in science and medicine have merely scratched the surface in terms of enhancing our ability to find cures for diseases in an increasingly focused way at sharply diminished cost. Also, the technology of moving people and goods in vehicles and organizing their movement on roads contains tremendous opportunities for cost and energy efficiencies, as do the areas of resource extraction, the development of alternative energy and the efficiency of food production. These are just a few obvious and impactful areas in which technological progress has lots of headroom for human betterment.

On the other hand, some technological progress is not really progress at all. Innovations in the technology of communications, including social media, provide increasingly powerful and robust platforms to disseminate information. Unfortunately, these same increasingly powerful and robust platforms are also used to spread information that is untrue, and to package information in tiny bits of faux-knowledge that (because of their sheer volume) leave little room for neither more comprehensive reading nor discussion and contemplation. This fact reinforces our view that young people need to be taught the basics as early as possible – of history, political science, philosophy and civilization. In the absence of that grounding, all of these Twitter and Facebook bits alight on a population that lacks the tools to sort or analyze what they are reading while scrunched over their Androids. (Interesting word, Android; maybe in a thinly-veiled joke, it is meant to describe the hooked users and not the device...)

The technology of communications also democratizes news and opinion. Although this development may seem positive at first blush, it also has some powerful negative aspects. Whatever one thinks about the “mainstream” media’s biases, there is at least a set of standards and professional codes of conduct that are more or less followed by established media outlets. Writers are edited, and editors seek to protect franchises against irresponsible communications. Bloggers, by contrast, do not really have to adhere to any such constraints, and making them hew to any standards of professional responsibility is difficult at best. The “blogosphere” effectively makes the dissemination of news and opinion a kind of dense windy fog.

[We assume Singer does not consider Zero Hedge among the 'dense windy fog' of blogs given its readership rivals most mainstream media, but rather the meme-du-jour vox populi]

This overabundance of information and opinion is not a positive development in our view (although we are certainly not suggesting it be curtailed or controlled by governments). Ask yourself the following set of questions: Do people seem better informed today in the developed world? Smarter? Is the discourse more sophisticated? The answer is a resounding “no” to all those questions. Modern communication modalities play a role in this sad fact, and so does modern education, particularly higher education, which in too many cases has eschewed foundational course materials in favor of self-indulgent or ideological navel-gazing.

*  *  *
One wonders whether social media (and perhaps the legalization of pot) is Huxley's Soma for the 21st Century... a nation of compliant robots numb to original thought.








Deal Or No Deal? Argentina Declared In Selective Default, Holds Press Conference - Live Feed

After an exuberant day in Argentine bond and stock markets, we are nearing a decision. With a handful of hours left until it's all over, various 'deal's have been proposed today from Argentine bankers as a last-minute rescue package. S&P has already decided that it's a done deal:

  • *ARGENTINA CUT TO SD FROM CCC- BY S&P
  • *ARGENTINA DEFAULTED ON $13B IN FOREIGN DEBT, S&P SAYS
  • *ARGENTINA MISSED $539M BOND PAYMENT, S&P SAYS

And now, Argentine Economy Minister Axel Kicillof will speak in a press conference at country’s consulate in Manhattan (ironically a block from the holdouts' office).

 

The hope:

"The idea is to get a stay (suspension of the court order) to reach January," said Ribeiro Mendonça. "Clearly there's a concern. There are no winners in a default scenario that brings lower levels of economic activity and a higher jobless rate. The banking sector is going to be the one that contributes the most because it is linked to the debt restructuring."

The reality from S&P,

"We are... lowering our long-and short-term foreign currency sovereign credit ratings on Argentina to selective default ('SD') from 'CCC-/C'," said the agency's release, "indicating that Argentina defaulted on some of its foreign currency obligations. At the same time, we are removing the 'CCC-/C' foreign currency ratings from CreditWatch, where they were placed with negative implications on July 1, 2014."

Things do not look good:

  • ARGENTINA'S LEAD LAWYERS BLACKMAN AND BOCCUZZI LEAVE TALKS, SAY NO COMMENT ON STATUS OF DEBT TALKS - REUTERS WITNESS

 

Press conference due to start at 515ET 530ET: (click image for link to live feed)


 

And for posterity's sake... here's the MERVAL recently...

 

and long-term...








Whole Foods Discovers Stock Buybacks, And It's Too Little Too Late: Stock Tumbles Again

A quarter ago, when we commented on the latest post-earnings collapse in Whole Foods stock, we said that "Whole Foods Misses, Lowers Guidance, Or What Happens When You Ignore Buybacks At The Expense Of CapEx", and broke down the results as follows:

.. the luxury grocery chain moments ago reported revenues of $3.32 billion, missing the $3.35 billion expected, and EPS which also missed expectations of $0.41, instead printing at $0.38. Adding insult to injury, WFM also cut comp store sales guidance lowering its previous fiscal year comp store guidance from 5.5%-6.2% to 5.0%-5.5%, cutting sales growth from 11-12% to 10.5%-11%, and also cut EBITDA from $1.32-$1.37 billion to $1.29-$1.32 billion.

Ok, the results were horrible, but one key thing was missing.

WFM continues to be a cash cow, generating tremendous amounts of bottom line cash. Which perhaps was its biggest failing as well - WFM reported that "year to date, the Company has produced $619 million in cash flow from operations and invested $362 million in capital expenditures, of which $207 million related to new stores. This resulted in free cash flow of $257 million. In addition, the Company has paid $82 million in quarterly dividends to shareholders and repurchased $117 million of common stock."

The problem was clear: "Alas, this is nowhere near enough shareholder friendly activity to keep investors happy in a New Normal in which buybacks tend to be far greater in amount than CapEx spending."

As expected, the stock promptly collapsed by 10%:


 

A quarter later, Whole Foods management seems to have read our lament and acted accordingly. On the chart below see if you can figure out which is the company's quarterly stock repurchase and capex activity without peeking at the legend:

 

Indeed, that red bar soaring from a negligible $55 million to a whopping $361 million is precisely what happens when a company realizes that its only recourse to "goose" EPS is to go full tilt buying back its stock in the open market.

And sure enough, when WFM reported earnings moments ago, it "magically" beat EPS expectations of $0.39, courtesy of its raging repurchasing activity, printing a $0.41 EPS.

However, that was as far as it went. Unfortunately, while this time Whole Foods remember to repurchase as much stock as it could, it missed the key metrics starting with comp store sales, which were +3.9% on expectations of 4.8%, but the biggest impact was the reduced full year guidance as follows:

  • Sales growth: 9.6-9.9%, down from 10.5-11.0%
  • Comp store sales growth: 4.1-4.4%, down from 5.0%-5.5%
  • Operating margin: 6.4%-6.5%, down from 6.5-6.6%
  • EPS growth: 3-4%, down from 3-6%.

And so on. The stock reaction:

So while we congratulate WFM management on finally figuring out that in the New Normal financial engineering is perhaps the only thing that matters to get the algo momentum ignition boost upon announcing earnings, next quarter it may want to pay some more attention to the underlying business model too.








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