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"Hong Kong Risks Losing Its Role As A Financial Capital," Deutsche Bank Chief Economist Warns

"Hong Kong clearly has its work cut out holding on to its role as the entry way to [investing in] mainland China," warns Deutsche Bank's Chief Economist Taimur Baig as he reflects on the civil disobedience this weekend. Even before this weekend's riots, Baig believes "Hong Kong will have to shape up," and while his base case suggests the unrest will not have a major detrimental effect on the economy per se, he fears it will add to investor angst - and along with macro uncertainty - leaves Hong Kong more precariously positioned than Singapore as Asia's major financial capital.


Spot The Total Logic Fail

It appears the leadership in Spain has reached its panic-point. Following Catalonia's President Artur Mas signing of a decree calling for an ultimately democratic referendum on independence for the region, Spanish Prime Minister Rajoy uttered this mind-numbing phrase:


It appears Rajoy's perspective on democracy and the will of the people is a little different as the situation has become serious enough that he has gone full-Juncker.

As The BBC reports,

"Catalonia wants to speak," he said after signing on Saturday. "Wants to be heard. Wants to vote. Now is the right time and we have the right legal framework to do so."


The referendum's two questions


"Do you want Catalonia to be a state?"


"If so, do you want Catalonia to be an independent state?"


Soon after the decree was signed, the Catalan hash tag EstemConvocats9N ("We called it for 9 November") became the highest trending topic on Spanish Twitter.


Until recently, few Catalans had wanted full independence, but Spain's painful economic crisis has seen a surge in support for separation, correspondents say.


There is resentment over the proportion of Catalan taxes used to support poorer regions.

And Rajoy is clearly concerned...


Then followed that up these 2 stunners!!!


And concluded...


So in summary:

1. The Catalans want to exercise a right to democratically vote for their independence.


2. But Spanish PM Rajoy say a vote is anti-democratic and against the law


3. And then adds that laws can be changed through democratic means... (like voting for independence?)

Lost in translation?

Martin Armstrong Warns The West "Sanctioning Russia Is A Big Mistake"

Judging from the plunge in stocks and the Ruble and along with proclamations that Russia is "isolated" (when it is clearly not), The West's sanctions appear to be achieving their goals (propaganda-wise). However, Martin Armstrong warns "politicians just keep making the same mistakes over and over again," as he explains, to the people of Russia, "sanctions only make Putin stronger for they allow him to point to the West as the evil empire."


Via Armstrong Economics,

Politicians just keep making the same mistake over and over again.


They perpetually turn to sanctions bankrupting private business with no respect whatsoever as the USA is wiping out farmers in Europe.

But worst of all, there is not a single incident where sanctions have EVER worked even once. They often remain in place beyond a decade even as in Iran, but there is no change in politics.

Sanctions only make Putin stronger for they allow him to point to the West as the evil empire that covertly toppled the Soviet Union with a CIA plot.


The most popular T-Shirt in Russia says: "This particular tree [which is also the name of a weapon] is not afraid of sanctions."

The one in the middle says: "Sanctions? Don’t make our Iskanders laugh" (Iskander SS-26 Stone is the missile system shown).

The Mickey Mouse Club would be nice if there were really qualified people instead of questionable lawyers.


Hong Kong's Luxury Shopping Street Right Now

The protests in Hong Kong continue to spread. The following images from Causeway Bay - one of HK's most affluent neighborhoods with many higher-end stores - show calm and well-organized protesters  (carrying slogans such as "Democracy is now here", "Occupy Hong Kong", and "We Are Not Enemies") have blocked a long section of a major thoroughfare called Hennesy Road (and have created first aid posts to attend to any injured). Locals report virtually no police presence for now, but that is likely to change as night turns to early morning.




h/t Tinky

Russia’s Gokhran Buying Gold Bullion In 2014 and Will Buy Palladium In 2015

Russia’s Gokhran Buying Gold Bullion In 2014 and Will Buy Palladium In 2015

Gokhran, the Russian precious metals and gems repository, said it has been buying gold bullion in 2014 and will likely to start buying palladium bullion in 2015, Interfax news agency reported this morning, citing the head of Gokhran, Andrey Yurin.

GOKHRAN, Russian State Precious Metals and Gems Repository

Gokhran has been buying gold bullion on the Russian market this year and has no plans to sell palladium from stock in 2014 , Yurin said.  

Gokhran’s palladium reserves are a state secret and analysts try to guess the level each year but they are widely believed to have been depleted according to Reuters.

Gokhran was influential on global platinum group metals (PGMs) markets in the 1990s and 2000s, when its palladium stocks, accumulated during the 1970s and 1980s, came to the market, depressing prices.

Gokhran is the State Precious Metals and Gems Repository which is a state institution under the Russian Ministry of Finance. It is responsible for the State Fund of Precious Metals and Precious Stones of the Russian Federation. It is responsible for the purchase, storage, sale and use of precious metals, precious stones, jewellery, rocks, and minerals by the State Fund.

Russia again added to its growing and increasingly substantial gold reserves in August, with the Russian central bank purchasing  232,510 ozs (7.23 tonnes) and bringing its total gold reserves to 35.769 million ozs or 1,112.5 tonnes.

Likewise, the National Bank of Kazakhstan purchased a very large 795,213 ozs or 24.7 tonnes in August bringing its total gold reserves to 5.848 million ozs (181.9 tonnes).

Palladium is already in a structural deficit and this new source of demand should result in palladium continuing to see gains in the coming months.

Today’s AM fix was USD 1,217.75, EUR 955.71 and GBP 750.54 per ounce.

Friday’s AM fix was USD 1,222.25, EUR 958.70 and GBP 749.11 per ounce.

Gold fell $3.50 or 0.29% to $1,217.50 per ounce and silver climbed $0.11 or 0.63% to $17.63 per ounce Friday. Gold and silver were both down on the week at 0.01% and 1.51% respectively.

Gold in Singapore was essentially flat, trading around the $1,219/oz level and remained tethered to this level in London trading. Palladium gained about 1% while silver and platinum were largely unchanged.

The dollar hit a four year peak against a basket of currencies this morning and this is pressuring the precious metals.

Gold Down 5.2% In September and Headed For Quarterly Loss Of Over 8%
September has been a poor month for precious metals. Gold is down 5.2%, despite it being gold’s strongest month from a seasonal perspective. The price fall means that gold is heading for the first quarterly loss this year.

Silver has fallen by a larger amount and is down 9.6%. While platinum is 8.3% lower.

Palladium’s 12.7% drop this month means that it is on track for its worst monthly performance since September 2011. It remains higher for the year and is 12.5% higher than the low in January 2014 at $693/oz.

Demand for physical gold could be affected by the Chinese holiday period that begins this week, MKS note this morning.

"Beginning on Wednesday this week we have Chinese Golden Week commencing, which will keep Chinese markets shut between 1-8 October," it said. "Given the natural support derived from Chinese physical demand, their absence over this period, combined with another strong payrolls figure expected this Friday, could heap added pressure on the gold. This is a very similar scenario to last year where gold was aggressively sold by speculators during the absence of the Chinese."

Gold in USD - 5 Years (Thomson Reuters)

Canny buyers  in Asia and globally will use further price weakness to dollar cost average into gold.



Brazil Crashes As Rousseff Regains Lead

Having rallied exuberantly on the back of hopes a reform-hungry hot-money-flow-encouraging Silva would take the Presidency in Brazil, a new poll this morning shows encumbent Rousseff back in the lead... and Brazilian markets are rapidly unwinding their exuberance. The Ibovespa is down 5% - its biggest drop in over 3 years. Brazil swap rates have spiked over 50bps and bonds bleeding as USDBRL jumps over 3 handles (to weakest since 2008). It appears just 48 hours after a strong rally on Friday, as markets 'efficiently' knew everything was great, Rousseff has realised a few well-placed, well-executed poll results and everything changes.


As Bloomberg reports,

Datafolha poll late Friday showing President Rousseff lead widening before Oct. 5 elections and amid broad USD strengthening.


Rousseff 4ppt ahead of Silva in runoff, up 2ppt vs previous poll; lead widens to 13ppt from 7ppt in 1st round: Datafolha


Record TV channel may release new Vox Populi poll, taken Sept. 27-28; last Vox poll showing Rousseff lead narrowing contrasts with Datafolha results


New polls from Datafolha and Ibope expected from tomorrow 

And this happens...


Individual stocks are getting crushed:


Stocks Tumble; High-Yield Credit Risk Spikes To 1-Year Highs

It appears the post-PIMCO-effect is not wearing off. Having had a weekend to soak up the reality of what outflows will mean for Gross' old shop, credit markets are once again flashing bright red this morning as managers reach for protection ahead of expected redemptions which would force selling into an illiquid market. High-yield spreads are 25bps wider at their highest since early Oct 2013. Equity futures are legging lower with the weakness.



Which is dragging stocks lower...


Bigger picture, things have rolled over quickly..


and for those who defend the ongoing equity exuberance of the S&P by noting that their buyback-funding is investment grade backed and high-yield is in trouble due to liquidity and technicals... think again.... the entire corporate bond market is turmoiling...


Charts: Bloomberg

China Finally Speaks On Hong Kong Protest: "Opposes Illegal, Destabilizing Activities"

With the biggest Hong Kong protest in recent history taking place over the weekend, and continuing indefinitely because one thing is certain: the local student demands for more democracy and the ouster of HK chief executive CY Leung will not be met, what everyone has focused on is what China's response, call it crackdown, to the breakout of violence will be. After all, while algos and the Fed's liquidity tsunami have priced in pretty much everything short of (or including, according to some) World War III, a repeat of Tiananmen square could well be large enough to where it registers as a slight downtick in the Fed's balance sheet, pardon the S&P 500.

Hong Kong Chief Executive CY Leung

So for all those eager to track the progression of China's responses to the protests, here is the first official statement via CRIEnglish:

China's central government is describing the so-called Occupy Central movement in Hong Kong as an "illegal gathering."


At the same time, mainland authorities say they're confident authorities in Hong Kong are able to handle it.


The Occupy group in Hong Kong is opposed to the new plans for universal suffrage in the city.


Hong Kong Chief Executive CY Leung says the Hong Kong government considers the Occupy movement illegal.


At the same time, Leung says his government plans to continue moving forward with the consultation process.


"And in so far as consultations and the question of constitutional development is concerned, it is also important to bear in mind that we have to operate within the framework of the stipulations of the Basic Law and the National People's Congress Standing Committee's decisions because these are the legal and constitutional frameworks for Hong Kong's constitutional developments to go forward in."


Protests this weekend in Hong Kong turned ugly, with police being forced to use tear-gas to disperse demonstrators who were trying to push through police lines.

For now China is merely escalating the verbal rhetoric, and is hoping that the student will get bored and go home. Which they won't. So what happens then? Well, the following post should provide some insight...

Despite 2nd Slowest Income Growth In 2014, Spending Rises Most Since March Driven By Subprime, Car Sales

Mission releverage accomplished. Personal Income rose 0.3% in August (very slightly below Bloomberg's median estimate), the 2nd slowest growth of the year. Personal spending however jumped 0.5%, beating the 0.4% expectations, and its equal best growth since March. What was spending focused on? Why autosales, which accounted for about half of the spending. And what funded this spending? Why subprime car loans of course; it sure wasn't the real disposable income per capita which was a paltry $37,684 in August.

This is how the income and spending looked like:


2nd miss in a row and 2nd lowest growth in income this year.


But spending jumped (thank you Subprime bubble 2.0)


Finally, following several revisions and even more months of constant increases in the US savings rate, August finally saw a drop, from 5.6% to 5.4%, just as Goldman hinted to the Department of Commerce should happen late last week. 

Europe, US Stocks Slide: 10 Year Bid Back Under 2.50%

10Y yields are back below 2.50% and the entire Treasury complex is flattening (erasing post-GDP losses) as fears over Catalan independence and Hong Kong protests spark safe-haven buying around the world. Gold is up, back over $1220 (pre-GDP levels) and Bunds are well bid yet the USD is fading modestly this morning driven by EUR and JPY strength. European periperhals bond risk is on the rise and stocks are mostly lower with Germany's DAX back below its crucial 50DMA. US equity futures are all red - retracing the entire Friday mini-melt-up in the afternoon (and catching back down to credit reality).


US equity futures have erased the late Freiday meltup gains and are back at pre-GDP levels...


They tried their best to rally stocks with some USDJPY momo...


Treasuries have erased post-GDP losses and 10Y is back under 2.50%


USD is losing steam this morning...


Gold has broken back above pre-GDP levels...


European stocks are weak, as the DAX drops below its 50DMA and into the red year-to-date...


Charts: Bloomberg

*  *  *

As FTN noted, Financial markets are becoming more sensitive to their own price reactions and leaving fundamentals to the side

Trading isn’t thin, but it remains confused across the key markets.


Only currency moves have clear explanations on most days, while stocks and bonds produce the answer ‘because’ to the daily question of why did they go up or down”

New Global Crisis Imminent Due To “Poisonous Combination Of Record Debt And Slowing Growth", CEPR Report Warns

"Deleveraging? What Deleveraging?"

No, that's not the title of a Zero Hedge article from 2011, 2012, 2013 and so on (because we have written on the concept of global "deleveraging" simply because there has been none). It is, however, the title of the 16th Geneva Report on the world economy, released this morning by the Center for Economic Policy Research, which merely confirms, once again, everything we have said, namely that while the Fed's liquidity injections have boosted the stock market, everyone else has been levering up as much as possible, with corporations once again in debt to record levels using easy debt proceeds to buyback their own stock (and push their equity-linked exec comp into the stratosphere), while consumers have loaded up on term debt, mostly in the form of student loans, to pay for their increasingly unaffordable lifestyle (and certainly not for tuition or textbooks), while defaulting, not deleveraging, on mortgages.

That's what we call it. The Geneva Report has far harsher words. Here is an excerpt via the FT:

A “poisonous combination” of record debt and slowing growth suggest the global economy could be heading for another crisis, a hard-hitting report will warn on Monday.

The 16th annual Geneva Report, commissioned by the International Centre for Monetary and Banking Studies and written by a panel of senior economists including three former senior central bankers, predicts interest rates across the world will have to stay low for a “very, very long” time to enable households, companies and governments to service their debts and avoid another crash.

The warning, before the International Monetary Fund’s annual meeting in Washington next week, comes amid growing concern that a weakening global recovery is coinciding with the possibility that the US Federal Reserve will begin to raise interest rates within a year.

So here is lie #1, debunked: "One of the Geneva Report’s main contributions is to document the continued rise of debt at a time when most talk is about how the global economy is deleveraging, reducing the burden of debts."

It got so bad in recent years, we thought everyone is so stupid they no longer grasp the concept of debt fungibility in an intimately interconnected, globalized world. Thankfully, the Geneva guys get it: "Although the burden of financial sector debt has fallen, particularly in the US, and household debts have stopped rising as a share of income in advanced economies, the report documents the continued rapid rise of public sector debt in rich countries and private debt in emerging markets, especially China.

And this is where the report tells us what it really thinks:

It warns of a “poisonous combination of high and rising global debt and slowing nominal GDP [gross domestic product], driven by both slowing real growth and falling inflation”.


The total burden of world debt, private and public, has risen from 160 per cent of national income in 2001 to almost 200 per cent after the crisis struck in 2009 and 215 per cent in 2013.


“Contrary to widely held beliefs, the world has not yet begun to delever and the global debt to GDP ratio is still growing, breaking new highs,” the report said.

What widely held beliefs? We have been saying this since 2010! In fact, we have also been saying what one of the report's main authors says next, namely that the "solution" to every growth crash in the past has been... drumroll... more debt!

Luigi Buttiglione, one of the report’s authors and head of global strategy at hedge fund Brevan Howard, said: “Over my career I have seen many so-called miracle economies – Italy in the 1960s, Japan, the Asian tigers, Ireland, Spain and now perhaps China – and they all ended after a build-up of debt.”


Mr Buttiglione explained how, initially, solid reasoning for faster growth encourages borrowing, which helps maintain growth even after the underlying story sours.


The report’s authors expect interest rates to stay lower than market expectations because the rise in debt means that borrowers would be unable to withstand faster rate rises. To prevent an even more rapid build-up in debt if borrowing costs are low, the authors further expect authorities around the world to use more direct measures to curb borrowing.

Oh come on: even the IMF figured it out. Recall: "Global debt markets have grown to an estimated $100 trillion (in amounts outstanding) in mid-2013 (Graph C, left-hand panel), up from $70 trillion in mid-2007." Is everyone else really that dumb they can't do simple math?

Anyway, about debt rates: lower for longer. Got it. Can we now stop all that BS about the Fed hiking rates already?

Oh, and yes, there is a bubble:

Although the authors note that the value of assets has tended to rise alongside the growth of debt, so balance sheets do not look particularly stretched, they worry that asset prices might be subject to a vicious circle in “the next leg of the global leverage crisis” where a reversal of asset prices forces a credit squeeze, putting downward pressure on asset prices.

At this point we hope ZH regulars are yawning, because none of the above, which apparently goes according to conventional wisdom, is new, especially for those who recall: Deutsche Bank: "We've Created A Global Debt Monster", to wit:

We've created a global debt monster that's now so big and so crucial to the workings of the financial system and economy that defaults have been increasingly minimised by uber aggressive policy responses. It’s arguably too late to change course now without huge consequences. This cycle perhaps started with very easy policy after the 97/98 EM crises thus kick starting the exponential rise in leverage across the globe. Since then we saw big corporates saved in the early 00s, financials towards the end of the decade and most recently Sovereigns bailed out. It’s been many, many years since free markets decided the fate of debt markets and bail-outs have generally had to get bigger and bigger.


This sounds negative but the reality is that for us it means that central banks have little option but to keep high levels of support for markets for as far as the eye can see and defaults will stay artificially low. As such we remain bullish for 2014. However it’s largely because we think the authorities are trapped for now rather than because the global financial system is healing rapidly. So as well as EM being very important for 2014, we continue to think the Fed taper pace is also very important. If the US economy was the only one in the world then maybe they could slowly taper without major consequences. However the world is fixated with US monetary policy and huge flows have traded off the back of QE and ZIRP so it does matter. We have suspicions that the Fed may have to be appreciative of the global beast they've helped create as the year progresses.

In other words: all of this is super bullish because the system will continue to collapse and need more bailouts. The Bizarro world Bernanke created truly is a fascinating place.

Stunning Drone Clip Reveals Massive Size Of Hong Kong Protest

Ferguson was for amateurs.

For those curious why the Hong Kong protests over the weekend have sent shivers across the world's capital markets, pushed the Hang Seng 2% lower, and impacted both European and US futures, not to mention leading to worries that China may get involved any second and result in another Tiananmen square event, the following clip from HK's Apple Daily, taken by a drone, shows just how massive the demonstrations, which according to some estimates involved just why of 100,000 people, taking place in Hong Kong are.

As Mashable adds, "far from a small protest by a limited number of outspoken citizens, the video shows just how large the movement to preserve Hong Kong's democratic elections has become. Currently, the protests have grown so large that parts of Hong Kong's business district have been brought to a standstill, prompting the temporary closure of 17 local banks. In addition to the drone footage, Apple Daily has also posted a live video stream of the protests, allowing the world to watch as events develop in real time."

Bank CEOs are the New Drug Lords

Bank CEOs are the New Drug Lords. Here is a list of some of the banks managed by Bank CEOs, aka the new Drug Lords, that were fined billions of dollars for fixing LIBOR rates and stealing money from clients: Lloyds Bank, RP Martin, Barclays, Deutsche Bank, Royal Bank of Scotland, Société Générale, JP Morgan, Citigroup, Barclays, United Bank of Switzerland and Rabobank. Here is a list of some of the banks in which the Bank Lords fixed FX rates and are currently negotiating fine amounts with the UK Financial Conduct Authority (FCA): Citigroup, HSBC, Royal Bank of Scotland, Barclays, JP Morgan and United Bank of Switzerland. HSBC had to pay nearly $2B in fines after its Bank CEO was allegedly caught overseeing the laundering of $7B in drug money for the notoriously violent and ruthless Sinaloa drug cartel and committing a wide array of other crimes like laundering $290MM from Russian mobsters that told HSBC bankers that their vast profits came from a “used car business”. I say "allegedly caught", because every time this happens, the bank CEO, in this case, HSBC CEO Stuart Gulliver, inevitably denies ever knowing that the cartel he was overseeing was laundering dirty blood money. The Bank Lords issue these ridiculous denials despite the fact that every independent investigator not on a Bank's payroll that investigates banks' money laundering schemes arrive at the same conclusion as Jose Luis Marmolejo, the former head of the Mexican attorney general’s financial crimes unit: "[The money laundering] went on too long and [the bank CEOS] made too much money not to have known.” And what about HSBC's $2B assessed fine for laundering this blood money? In response to meaningless fines like this that never change banker behavior, Martin Woods, former senior anti-money laundering officer at Wachovia bank, implored, "What does the settlement do to fight the cartels? Nothing – it doesn't make the job of law enforcement easier and it encourages the cartels and anyone who wants to make money by laundering their blood dollars. Where's the risk? There is none." That is why HSBC is not the only cartel that houses bankers who have been caught laundering blood money in recent years. Wachovia Bank, Citigroup, Banco Santander, and Bank of America bankers have all been caught leading their banks in participation of this dirty deed as well. According to Paul Campo, head of the U.S. Drug Enforcement Administration’s financial crimes unit, drug traffickers used Bank of America to finance their drug smuggling operations for 10 tons of cocaine and laundered drug money through Bank of America accounts in Atlanta, GA, Chicago, IL, and Brownsville, TX from 2002 to 2009.


So how do Bank Lords get away with their dirty deeds scot-free? This month, explosive evidence contained in 47.5 hours of secret recordings from Goldman Sachs whistleblower and former New York Federal Reserve employee Carmen Segarra provides the answers we already knew. Bank Lords have been buying off judges and regulators after already buying off cops (JP Morgan CEO Jamie Dimon “Gifts” Largest Donation Ever to NYPD of $4.6MM). When Fed regulators asked Segarra to alter minutes of meetings in which Goldman Sachs bankers' immoral behavior was discussed in order to cover up the truth and to lie about the content of these meetings, Segarra decided to secretly record her meetings with her bosses. Below are some of the revelations contained in the transcripts of those secret recordings:


In one meeting Segarra attended, a Goldman employee expressed the view that "once clients are wealthy enough, certain consumer laws don't apply to them."

After that meeting, Segarra turned to a fellow Fed regulator and expressed how surprised she was by that statement -- to which the regulator replied, "You didn't hear that."

When Segarra discovered multiple conflicts of interest in Goldman Sachs deals between Goldman Sachs bankers and their clients that led to deals being struck that would be the equivalent of insider trading in the stock market and consequently discovered Goldman Sachs had no “conflict of interest” policy, her boss harassed her and demanded of Segarra, "Why do you have to say there's no policy?"

When Segarra complained to her legal and compliance manager, Jonathon Kim, of how her discoveries were being handled and told Kim that “even when I explain to [my superiors at the New York Federal Reserve] what my evidence is, they won’t even listen”, Kim reacted in an equally morally bankrupt manner as Segarra’s superiors, advising Segarra “to be patient” and to “bite her tongue.”


So now that we know that Bank Lords buy out morally-challenged regulators, cops and judges in return for carte-blanche to continue committing crimes, rig markets to collect undeserved and unearned kickbacks, and launder drug cartel money from violent cartels that murder 10,000 people a year (the Sinaloa drug cartel), is there really even a line in the sand that separates Bank Lords and Drug Lords, or have Bank Lords become the new Drug Lords?


Let’s take a closer look into the increasingly similar worlds of drug cartel and bank cartels. The last market bubble will not be Chinese or Thai real estate bubble, the US stock market, the US student loan bubble or the Social Media bubble. If we take a look at the political cartoon to the left, drawn more than a century ago in 1907, we find that Bank CEOs have been engaging in the same nefarious deeds ever since they were able to put the global banking system on the fractional reserve banking platform. Banker immorality, having multiplied and grown for over a century, will be the last bubble to pop. To illustrate what I am talking about, let me pose this singular question: “Is it possible to prove that a notoriously violent Drug Lord provided more positive value to society during his reign of terror than criminal Bank Lords like Jamie Dimon, Lloyd Blankfein & Stuart Gulliver are providing during theirs?” If we can make a strong case for a Drug Lord providing more social value and benefits than the largest Bank CEOs in the world, all else being equal, then this is the point when we know our future is dire, especially if we refuse to collectively revolt right now against the very banking system that enslaves us.

At first you may think that my aforementioned question is a ludicrous question. After all, how can the positive social benefits provided by a violent, murderous Drug Lord possibly exceed the social benefits, as non-existent as they may be, provided by the heads of the largest bank crime syndicates? Before we dismiss this question, let's seriously explore it and see what conclusions we may draw from this exercise.


Every large drug cartel in the world, whether it was Pablo Escobar’s infamous Colombian Medellín cartel in the 1980s or El Chapo Guzman’s notorious Mexican Sinaloa cartel of today, has required the logistical support of a sophisticated banking division not just to survive, but to truly thrive. In fact, without the support of a large global Bank CEO, the largest drug cartels in the world would quickly crash and burn and the Drug Lords would disappear. As we explain in the next section, it is simple to conclude that without the consent and help of global Bank CEOs, the world’s largest drug cartels would not be viable. In the 1980s through the early 1990s, Pablo Escobar chose the Italian Banco Ambrosiano and allegedly the Vatican Bank as well to launder billions of his dirty money, while in more contemporary times, El Chapo Guzman handpicked HSBC Bank USA as his preferred bank to launder his billions.


Murder and Crime: Drug Cartels v. Global Banks

During his reign of terror, Pablo Escobar ordered the murder of an estimated 4,000 people, including hundreds of police officers, judges, lawyers, journalists and anyone that dared to oppose his violent drug cartel. Escobar even allegedly tortured his own associates that proved to be disloyal to him. However, of the thousands of murders committed by Pablo’s cartel, it was likely that he did not commit the murders himself. Drug Lords are notoriously careful about committing homicidal acts that would provide the evidence prosecuting attorneys need to put them behind bars for a very long time. It is more than likely that a man like Pablo Escobar paid others to carry out his murders for him. However, Banco Ambrosiano and Vatican Bank executives, if they did indeed knowingly launder Pablo’s billions as has been alleged, share a significant measure of complicity in Pablo’s murders. Without having a bank to launder his money, there would have been no reason for Escobar to continue operating his cocaine cartel and murdering the people that opposed him. Likewise, one can successfully argue that HSBC CEO Stuart Gulliver and top HSBC bankers enabled many more murders than even Escobar. The Mexican Sinaloa drug cartel, whose money HSBC laundered, murdered an estimated 80,000 people during a four-year period, far more murders than Escobar’s empire ever carried out. Even though Banco Ambrosiano and HSBC Bank CEOs were not directly giving the orders to murder people, you must connect the dots between the Bank CEOs that launder drug cartel money and the crimes committed by these drug cartels because the dots can NOT be separated. Both actions are inextricably linked to one another, and without the services of money laundering willingly provided by the bank CEOs, the 80,000 murders committed by the Sinaloa drug cartel criminals would not occur.


Former anti-money laundering officer Martin Woods wholly supports the above argument: "Is it in the interest of the American people to encourage both the drug cartels and the banks in this way? Is it in the interest of the Mexican people? It's simple: if you don't see the correlation between the money laundering by banks and the 30,000 people killed in Mexico (actually, the Sinaloa drug cartel is thought to have murdered 80,000 as we've stated above), you're missing the point." After presenting evidence to Wachovia bank executives of their employees willingly laundering drug traffickers' blood money, to which Wachovia bank executives responded by telling him to shut up and by trying to get him fired, Woods understandbly quit his position with Wachovia in disgust, stating, "It’s the banks laundering money for the cartels that finances the tragedy.”

Here is a list of complaints Woods filed with the UK House of Commons, including accusations that the very regulatory agency that was supposed to aid his investigations to uncover truth, the UK Financial Services Authority (FSA), worked more against him than with him to clean up the crimes of the banking industry.


The only redeeming excuse that HSBC, Citigroup, Wachovia, and other Bank CEOs may have (that have collectively laundered billions upon billions of drug cartel blood monry) is a proven ignorance of these activities occurring within their banking operations. However, as I previously stated, this excuse as a legitimate one is extremely unlikely. An abundance of journalists and law enforcement agencies that have studied internal bank documents to understand the complexity of drug laundering operations of big global banks always reach the same conclusion. US Customs Agent Robert Mazur and Mexican journalist Anabel Hernández, after years of meticulous research, both concluded that bankers at the highest levels of the drug-laundering bank - the CEOs, COOs, and CFOs - all know about these operations beyond any reasonable doubt and that ignorance of these immoral and illegal activities is nearly impossible. When I was as a Private Banker for a large global banking firm many years ago, the top policy that was always stressed for all accounts, but in particular, any account that involved a steady stream of large and frequent cash deposits, was KYC, or Know Your Client. It was absolutely incumbent upon the banker to visit the operations, and "kick the tires" per se, of any account that generated large cash deposits to confirm the legitimacy of the cash flow. If the source of these large cash deposits could not be determined, then all such accounts were to be immediately terminated. Thus when men like HSBC CEO Stuart Gulliver professes complete ignorance of laundering billions of cash for drug cartels, I have to concur with Mazur and Hernández's assessment, as the top experts in money laundering schemes, that it would have been nearly impossible for Gulliver not to know.

In conclusion, I would place Escobar in the category of "violence inflicted upon society", just slightly above global Bank CEOs because the drug lords are the ones giving the direct orders to murder tens of thousands while Bank CEOs are only enabling these murders through their drug laundering operations. However, banks must receive a black mark for willingly participating in extremely profitable, criminal drug laundering operations that leave a trail of tears and misery, as people like Martin Woods, Robert Mazur and Anabel Hernánde have all made it crystal clear through their work that it is near impossible for a Bank CEO not to willingly approve these types of extremely profitable operations that create tens of thousands of homicides. Furthermore, the comparison between Bank Lords and Drug Lords is made even more apropos when we examine some of the "turf wars" Bank Lords engage in when committing their crimes. Drugs never leave a drug-infested neighborhood when a corner dealer or even a regional distributor is murdered. Rather, a competing Drug Lord will fill the void left by a competitor's demise and opportunistically expand his criminal empire by providing product distribution in regions where a void may develop. Likewise, when Deutsche Bank was recently forced to vacate one of the 12 seats in the gold & silver rigging game in London, Citigroup swooped in and took control over Deutsche Bank's vacated turf.


Quality of Life/Social Contributions: Drug Cartels v. Global Banks

Cocaine cartel Drug Lord Pablo Escobar, at the height of his cartel, was believed to have supplied an astounding 75% of the entire world’s cocaine, as strong a monopoly on cocaine as is the US military-protected Afghan poppy fields that recently supplied between 95% to 98% of all heroin distribution today. Pablo’s cocaine empire was so far reaching that Roberto Escobar, one of Pablo’s closest brothers, estimated Pablo’s annual profits to be in the range of $20 billion a year. According to the United Nations Commission on Narcotic Drugs, in 1982, cocaine usage peaked in the United States at about 10.5 million users. Historically, the US has accounted for roughly 40% of all global cocaine users. Using these figures, we can roughly estimate total global recreational cocaine use at 26.25 million users at the height of cocaine’s popularity in the early 1980s. Now let’s factor in the worst possible case scenario for every single one of these 26.25 million cocaine users. Let’s assume, in the worst possible case scenario, that not a single one of them was a functional recreational cocaine user and that every single one of these global cocaine users caused stress and trouble for at least 10 other family members and friends, so that 26.25 million X 10, or 262 million people were adversely affected in some social manner by cocaine users. Since Escobar supplied 75% of all cocaine users at the peak of his operations, in a worst possible case scenario with ludicrous worst possible case assumptions, one would conclude that Escobar had a negative social impact on 75% of 262 million, or 196 million people, in this world. Now you may think to yourself, “Wow, that is a lot of people for one cartel to negatively affect” and you would be correct.


But yet, if we compare the negative social value of Pablo Escobar’s drug cartel versus that of the criminal Central Bank cartel, it simply pales in both magnitude and lasting effect. In 1982, during the peak years of Escobar's operations, the global population was about 4.6 billion people. The decisions that the Central Banking cartel made back then negatively affected not 196 million people as did Pablo’s empire under a worst-case scenario, but exceeded this worst-case scenario by 4,404,000,000 people. Why does the negative reach of the Central Banking cartel extend so much further than that of a drug cartel? To begin, the Central Banking cartel’s fractional reserve banking policies drain the purchasing power from the savings of every single person on on the planet – fathers, mothers, sons, and daughters, aunts, uncles, grandmothers, and grandfathers. Ever since their existence, Central Bankers have created massive amounts of new money through a process called fractional reserve banking that has created annual inflation rates that far exceed any annual cost of living adjustments (COLA) that any nation's citizens receive from their employers. Thus every year, the Central Banking cartel robs the wealth of every single man, woman and child on earth and deliberately makes every single human being’s life on this planet less enjoyable and more difficult. To compare apples to apples, we simply use the 4.6 billion global population figure that existed at the height of Escobar’s drug empire to estimate the negative-reach of the Central Banking cartel. Fractional reserve banking policies employed by every global commercial banker on earth makes it impossible for large percentages of people that dwell in poverty to ever move out of poverty, and these policies adopted systemically by Bank CEOs in the global banking system cause millions of people worldwide to lose homes, jobs, and emotional stability.


Most people don’t understand the above facts about fractional reserve banking policies because governments release bogus “official” inflation statistics through the banker-owned press and media. For example, in the US, the official government rate of inflation in September 2013 was 1.5% and was reported by the US government to be 1.6% for the entire 2013 fiscal year. However, the inflation rate in the US is only so low because, as ludicrous as this sounds, bankers literally have stripped out the largest components of inflation from the equation they use to calculate inflation. A comparable lie would be if you stripped out all components of heat from a heat index and reported that it was -30 Celsius at noon in the Saharan dessert during the hottest month of the year. If you take an honest equation for inflation, as others like John Williams of have done, then we know inflation rates were more than 9%, or more than 6 times higher than the “official” US government inflation rate of 1.5%. In 2002, none other than the Chairman of the US Central Bank, Alan Greenspan, stated, “The price level in 1929 was not much different, on net, from what it had been in 1800. But in the two decades following the abandonment of the gold standard in 1933, the consumer price index in the United States nearly doubled. And in the four decades after that, prices quintupled. Monetary policy, unleashed from the constraint of domestic gold convertibility, had allowed a persistent over issuance of money.” In essence, Greenspan stated that in just 60 years, prices had increased by 10 times due to fraud committed by Central Bankers and their deliberate “persistent over issuance of money" - fraud that negatively affected every human being on Planet Earth.


If you were a 20-year-old young adult that had just graduated college with a starting $30,000 a year salary in 1933, by 1993, just 60 years later, you would have to be earning an annual salary of $300,000 just for your salary to have the SAME purchasing power as your 1933 salary. In other words, you would have had no better a quality of life in terms of purchasing power, earning $300,000 a year in 1993 than you would have had earning just $30,000 a year in 1933 due to the Central Bank cartel’s destruction of currencies. Furthermore, since Alan Greenspan was using the bogus US government “official” rates of inflation to make his calculations, the above example I’ve provided actually UNDER-ESTIMATES the reality of the negative social impact of the Central Banking cartel as $300,000 1993 dollars would actually have LESS purchasing power than $30,000 1933 dollars. Of course, other tangibles such as better technology in 1993 versus 1933 would grant one a better overall quality of life, but technological advances that create improvements in quality of life are certainly not attributable to bankers.


If you’re old enough to remember growing up in a time where your father was the sole breadwinner of your household, your mother stayed at home and raised you, you had 2, 3, or even 4 other siblings, and no one was ever without food or clothes and you were considered middle class, that “middle class” life today has all but vanished and has become extinct thanks to the global scam of fractional reserve banking. And we can all thank the criminal Central Bank cartel, as well as their shills and misinformation agents such as Warren Buffet, Charlie Munger, Bill Gates, Jamie Dimon, etc. for this new, much more miserable reality. It amazes me that even when ex-bankers like Greenspan make admissions of their criminal negative impact upon society, that those working within the banking industry still refuse to process the inherently immoral nature of the crime syndicate for whom they work, such is the utter success of bankers’ centuries-old propaganda campaigns.


Economic/GDP Contributions, Drug Cartels v. Global Banks

Let’s assume that the creation of debt has a net negative overall affect on society (as debt creation drains the wealth of individuals) while the creation of GDP has a net positive affect on society. In the past 15 years, G7 Central Bankers created $7 of debt for every $1 of GDP that they contributed to society, resulting in a net negative [-$6] contribution. In the late 1980s through the early 1990s, drug lord Pablo Escobar “came to control 75 percent of the global [cocaine] market, with [drug] revenues from trafficking equivalent to [a positive] +5 percent share of the country’s GDP.” (Source: Garcio -Bario, Constance. “U.S. War on Drugs in Colombia is Ravaging Farmers and Land”, 2 March 2004. Common Dreams Newscenter). In fact, Pablo Escobar always declared, at every opportunity afforded him, his belief that he was helping Colombia’s economy more than he was hurting it: "The entire economy benefits from drug money; those who traffic and those who do not. If a drug trafficker builds a house, the peasant who cuts the wood for it benefits from that." Unfortunately, it is exactly this flawed belief of Escobar's that valued money over all other factors, including morality, that the vast majority of today’s global Bank CEOs have embraced. Though there is no honor in the above statement, whether you agree with it or not, in regards to economic contributions to society, it is obvious that Escobar's drug cartel produced far more value in terms of GDP for society than bank cartels.


Goodwill, Drug Cartels V. Global Banks

Pablo Escobar, during the height of his drug cartel’s success, was credited with being directly responsible for pulling thousands of his countrymen out of poverty and providing them with jobs. With his billions of drug cartel money, Escobar built schools, hospitals, fútbol fields, and churches and even sponsored many little-league community fútbol teams. Escobar even built housing developments with his blood money and gave thousands of units to poor people rent-free. Of course, these actions were not all altruistic by any means as Pablo’s dealers also were known for widely distributing cocaine in the same housing developments that Escobar built for the poor. Thus, by giving away these apartments, Escobar was ensuring himself of a steady supply of customers. Despite these obvious contradictions, for all the goodwill that Pablo generated in Colombia, he was revered by thousands in his country as a saint during the height of his empire and still is today. However, to many others, he was and still is a monster.


While I am sure that Jamie Dimon, Lloyd Blankfein, Brian Moynihan, Stuart Gulliver, Michael Corbat, Hank Paulson, Ben Bernanke, Peter Zöllner, Christine Lagarde, Mario Draghi, and Mark Carney have all made sizeable donations in their communities at some point and to civic-minded organizations like hospitals and schools and the arts, their more prominent donations seem to be to the police state that can ensure that their rule of corruption will continue. JP MorganChase CEO Jamie Dimon’s well–publicized 2011 $4.6 million payoff to the New York Police Department coincided with a violent police crackdown on Occupy Wall Street protests of Wall Street’s biggest and most corrupt banks, including JP Morgan. Never in a thousand years would hundreds of thousands of the poorest people in any community anywhere in the world call Bernanke, Saint Ben, Blankfein, Saint Lloyd, Moynihan ,Saint Brian, or Dimon, Saint Jamie. Exploring this topic exposes the ludicrous nature of the inseparable relationship between Drug Lords and Bank Lords. If Bank CEOs did not launder Pablo’s money, Pablo would not have been able to build his schools, churches, medical facilities, homes and community recreational centers. Thus, are Bank CEOs contributing to society because they enable Drug Lords to provide thousands of jobs in their communities?


Global Wars: Drug Cartels v. Global Banks

In the category of war and war crimes, who inflicts more harm upon humanity – Drug Lords or Bank CEOs? Though we know that Drug Cartels are drains on the financial resources and budgets of many governments worldwide due to the “War on Drugs” that governments wage upon them, these wars are limited in scope and finances, and are just a drop of water in the ocean when compared to the wars that are financed by Central Banks. Furthermore, the "War on Drugs" is a false war whose true purpose is not to eradicate drugs from neighborhoods but to enrich various parties involved in executing the War on Drugs, namely the military industrial complex, government officials and bankers. Criminal bank cartels are the first enablers of every major war in world history, and other than defense contractors, the largest war profiteers of any global industry. In some instances, the Central Bankers are even alleged to have instigated and encouraged wars to fulfill their own political agendas.


In Tragedy and Hope: A History of the World in Our Time (1966), Dr. Carroll Quigley, a Professor of History at Georgetown University, and US President Bill Clinton’s mentor, wrote:


“[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the Central Banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.”

Dr. Quigley stated that the key to the Banking Cartel’s success was to control and manipulate the currency supply of a nation while lying to and informing the public that their government was in control of the currency supply. Thus it is no coincidence that five countries the US has invaded in the last decade – Lebanon, Iraq, Libya, Somalia and Sudan – all are not member states of the Bank for International Settlements (BIS), the Central Bank of Central Banks – while a sixth the US attempted to invade before being rebuffed by Russia’s Putin, Syria, is also NOT a member state of the BIS.


Although many American children have falsely been taught in schools that the Revolutionary War started with a protest against prohibitive taxes on tea and stamps known as the Boston Tea Party, Benjamin Franklin correctly explained that it was the inability of the Colonists to get the power to issue their own money, permanently out of the hands of King George III and the international bankers, that was the prime reason for the Revolutionary War. However Ben Franklin was incorrect about his perceived success of the American Revolutionary War, because the Rothschild banking families still maintained control over America’s currency supply after the so-called “revolutionary” war ended.


French leader Napoleon Bonaparte stated: “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” In response to Napoleon’s rich understanding of the nefarious objectives of powerful banking families, the Rothschild banking cartel funded the Franco-Prussian war to allegedly put an end to Napoleon’s rule of France.


During the Civil War, US President Abraham Lincoln stated: “The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, and more selfish than bureaucracy. It denounces as public enemies all who question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe.” President Lincoln was murdered on April 14, 1865, less than two months before the Civil War ended.


35th US President John F. Kennedy was intent on shutting down the US Federal Reserve and the IRS due to the same realizations of his predecessors that the Central Banking cartel was nothing more than a crime syndicate posing as a legitimate entity and signed Executive Order 1110 on June 4, 1963 that stopped the creation of US Federal Reserve Notes, removed the power of the Rockefellers, JP Morgan, Rothschilds, Warburgs, et al from creating currency in the United States, and returned the power of coining currency to the US Treasury, with the intent of forever retiring criminal fractional reserve currency from use inside the United States. Just five months later, JFK was murdered and his successor, Lyndon B. Johnson, immediately cancelled Executive Order 1110 and reinstated criminal fractional reserve banking in the United States.


To this day, the private banking families that own the US Federal Reserve are the principal financiers of all modern wars, including wars in Libya, Somalia, Iraq, Afghanistan, etc. , providing the war appropriation funding to governments for which governments must pay these bankers interest. When estimates of the US-Iraq War alone have been in the $2 trillion range, it is self-evident that bankers are making out like bandits from funding such wars. Furthermore, as Central Bankers create massive amounts of money (debt) out of thin air to fund major wars, it is self-evident that the creation of 2 trillion new dollars just to fund the Iraqi War has a hugely negative impact upon world citizens as it destroys the purchasing power of all existing dollars in circulation. In other words, every major war leaves the citizens of the nations involved in that war, as well as all global holders of the two currencies used in the warring nations, poorer and in a worse economic state. Though it is beyond the scope of this article, if you research current global geopolitical tensions between Russia, China and the US by following the trail of money, you will discover that this too has originated from disputes over the desire of Federal Reserve bankers to maintain US dollar hegemony and to prevent the petro-Yuan from replacing the petro-dollar in international trade.


Furthermore though we have informed you earlier in this article that Pablo Escobar was believed to have been responsible for over 4,000 murders whereas El Chapo Guzman was believed to have been responsible for over 80,000 murders, these despicable inhumane statistics still pale in comparison to the more than 4,486 US soldiers killed, more than 1 million Iraqis killed, 3.5 to 5 million refugees, and 15 million Iraqis living in poverty, created from the singular US-Iraq War (Source: Since Drug Wars to bring down Pablo Escobar don’t come anywhere close to creating the massive level of debt from just one war that Central Banks fund, nor do they come close to the numbers of murders that intense political wars cause, it is apparent that not even Drug Lords can compete with Bank Lords when it comes to spreading misery through the vehicle of global war.


Just a hundred years ago, it was common knowledge among the people that any war in which their leaders entangled them was going to cheapen the currency held in their savings, and consequently, the majority of people always fiercely contested every war and insisted on diplomacy over war whenever possible. Today, it is a sad state of affairs when bankers, through the vehicle of nationalism, have been able to convince people to cheer for their own economic demise, as state announcements of war against other nations are often met with zombie-conditioned, nationalistic chants of “[insert country name here]” versus the thoughtful intelligent protests over currency devaluations that used to meet every single build-up to war just a couple of generations ago.


In conclusion, we have summed up the societal value of a drug cartel like Pablo Escobar’s cocaine empire versus the societal value of Global Banking/ Central Banking Crime Syndicates in the below chart.



In every category above, the Drug Lord causes less damage to humanity than Bank Lords. When the negative social value of a violent murderous Drug Lord can be successfully argued to be far less than the negative social value created by a sociopathic Bank Lord, we have truly reached the crossroads to determine our future. Either we all stand united and take action starting today to topple the current immoral and misanthropic global banking system, or we resign ourselves, our children and our grandchildren to another century of slavery and tyranny. The collective choice is ours to make.

If you really care about the future of this world and the future of your children and grandchildren, I implore you to please send this article to every single person you know that works for a large global bank to enlighten them about the atrocious, horrific crimes that are being committed by their leaders. Robert Mazur, an anti-money laundering expert that works closely with US law enforcement agencies is on record as stating that "the only thing that will make the [bank CEOs] properly vigilant to what is happening is when they hear the rattle of handcuffs in the boardroom." As there could not have possibly been a stronger, air-tight case made in the favor of pre-meditation and prior knowledge of money laundering against HSBC CEO Stuart Gulliver and other top executive HSBC bankers, and even this "can't fail" case failed to jail any HSBC banker, it is obvious that the only way to stop the crimes of the new Bank Lords is through grass-roots activism.


As I have repeatedly stated in this article, when the Bank CEOs know that there is zero risk of going to jail, even after they are caught, or of suffering any negative repercussions from continuing to bathe in blood money, they will never cease engaging in the types of crimes that drags the world further into darkness. And even if Nanex's Eric Scott Hunsader did say tongue-in-cheek that he would "put everything he had in Goldman Sachs because these guys can do whatever they want" after listening to the secret tapes whistleblower Carmen Segarra made of her conversations with her bosses and between her colleagues and Goldman Sachs executives, there are surely a lot of people that will act on such knowledge to help these Bank CEOs become even more powerful and wealthy (i.e. buying their stock instead of divesting, closing deals with them, etc.). In fact, today's Bank Lords enjoy a level of special immunity from prosecution against their crimes that no Drug Lord in history ever was able to secure, and this makes the Bank Lords even more powerful than the Drug Lords they are replacing in the global crime syndicate. And this is why only we can really force significant change and stop the transformation of the big bank CEOs into the next Pablo Escobars and El Chapo Guzmans. Please participate in raising awareness about this extremely important issue and help us to light up the darkness by sending this article to every friend or acquaintance you know that works for a large global bank and ask them to follow their consciousness and morality.



About the author: JS Kim is the Managing Director of SmartKnowledgeU, a fiercely independent investment research, consulting and education firm. Learn how to combat banking corruption with targeted wealth preservation strategies and read our SmartWealth fact sheet to learn how you can win a free membership to our newest service, the SmartKnowledgeU SmartWealth Progra (an alternative educational program that breaks down how global capital markets really operate), coming soon. Follow us on Twitter, subscribe to ourYouTube Channel and join our LinkedIn group.

Frontrunning: September 29

  • This is why the locals are furious at the US: U.S-led raids hit grain silos in Syria, kill workers (Reuters) explaining this
  • Billions Fly Out the Door at Pimco: About $10 Billion Is Withdrawn After Departure of Gross (WSJ)
  • Pimco’s Ivascyn Takes on Gross With Unconstrained Fund (BBG)
  • Revealed - the Troika threats to bankrupt Ireland (The Independent)
  • Private Bad Debt Build-Up Casts Shadow on Greek Rebound (BBG)
  • Fed Questions Bank Maneuver to Reduce Hedge Funds' Dividend Taxes (WSJ)
  • Yuan-Euro Direct Trading Begins Tomorrow as China Promotes Usage (BBG)
  • Geneva Report warns record debt and slow growth point to crisis (FT)
  • Greenberg Team to Grill Bernanke, Geithner on AIG Bailout (BBG)... sadly only metaphorically
  • Draghi Devaluing Euro Cheers ECB as Inflation Seen Fading (BBG)
  • EU to Publish Details of Probes of Tax Deals Benefiting Apple, Fiat (WSJ)
  • UBS does what it does best. rat: Swiss bank UBS says it has started FX settlement talks (Reuters)
  • Iran builds surface-to-surface missile (AP)
  • More hookers, more blow: Sex and drugs boost UK economy  (Telegraph)
  • Phoning 'home': what your mobile may be giving away (Reuters)


Overnight Media Digest


* Pimco suffered roughly $10 billion of withdrawals following the Friday departure of co-founder Bill Gross, a sign of how quickly Gross's surprise move is reshaping the bond-investing landscape. (

* Large banks generate more than $1 billion a year in revenue by helping hedge funds and other clients reduce taxes through a complicated trading strategy that has drawn criticism from U.S. authorities. Known as "dividend arbitrage," the strategy is run largely from London, where the banks temporarily transfer ownership of a client's shares to a lower-tax jurisdiction around the time when the client expects to collect a dividend on those shares. (

* Maurice "Hank" Greenberg is challenging the government's crisis-era bailout of American International Group, the company he built into a global financial-services powerhouse. (

* Marvel Entertainment LLC has settled a lawsuit bound for the Supreme Court that pitted the comic-book company against the family of the artist who helped create superheroes such as Spider-Man, Iron Man and the Incredible Hulk. (

* Microsoft Corp's first Manhattan flagship store is coming to Fifth Avenue. The software company confirmed that it will be setting up shop at 677 Fifth Ave. as it continues to expand its retail presence and take more control over its consumers' shopping experience. The Fifth Avenue store has been five years in the making, Microsoft executives said. (

* SoftBank Corp is in talks to buy or otherwise link up with DreamWorks Animation SKG Inc, people familiar with the negotiations said, a deal that could help the Japanese company and the Hollywood studio as they seek new ways to compete with rivals world-wide. (



* The European Commission will accuse Apple Inc of benefiting from illicit state aid in Ireland, based on preliminary findings of an investigation into tax deals.

* Air France-KLM pilots called off on Sunday a two-week strike that had cost the airline more than 250 million euros($317.18 million).

* Sophie Turner Laing, former managing director of content at BSkyB, is to head the world's largest independent TV production group, formed by the three-way merger of Endemol, Shine and Core Media.

* The London Stock Exchange Group Plc is attempting to increase the number of listings of African companies in the UK, which follows strong interest coming from institutional investors from the region.

* British entrepreneur Hugh Osmond has acquired restaurant chain Strada from Tragus Group through his investment vehicle Sun Capital in a 37 million pounds deal.



* Tobacco companies are putting out among the strongest health warnings in the fledgling e-cigarette industry, going further even than the familiar ones on actual cigarettes, a leading cause of death. It has left the industry's critics scratching their heads and deeply skeptical. (

* The United States Department of Agriculture plans to announce Monday that it will spend $52 million to support local and regional food systems like farmers' markets and food hubs and to spur research on organic farming. (

* Facebook Inc plans to roll out a rebuilt ad platform, called Atlas, on Monday that will allow marketers to tap its detailed knowledge of its users to direct ads to those people on thousands of other websites and mobile apps. (

* A third Allergan Inc's shareholder, Jackson Square Partners has come forward to insist that the Botox maker not agree to an all-cash acquisition that would thwart a takeover offer before a special meeting scheduled for Dec. 18. (

* A group of New York hedge funds that sued Argentina is now asking a New York court to lower the temperature a little on the long-running and acrimonious dispute. The group, led by Paul Singer's NML Capital, appealed on Friday to Judge Thomas Griesa of the Federal District Court in Manhattan to allow Citigroup Inc to make a $5 million payment to bondholders by a Tuesday deadline. (

* Hundreds of other writer, who publicly protested Inc's actions, now want the Justice Department to investigate Amazon for illegal monopoly tactics. (

* An audience measurement system being introduced on Monday will allow individual magazines to capture broad consumer engagement for the first time, whether it is a fan watching a Cosmopolitan fashion video on a mobile phone or a reader looking at a favorite new recipe from Bon Appétit on Pinterest. (



THE GLOBE AND MAIL ** Canadian opposition MPs are expressing concerns about the government's handling of Canada's deepening role in the war against Islamic State militants as Prime Minister Stephen Harper appears ready to seek parliamentary approval to once again send the country into a Middle East conflict. (

** Promising a "fresh start" for Ontario's Progressive Conservatives party after four election losses, Barrie MP Patrick Brown is making his leadership bid official. Brown has been steadily building his bid in recent months, with a formal launch in his riding on Sunday. (

** Canada's big tobacco companies are accusing the plaintiffs in a Quebec lawsuit of attempting to use the courts to do what Parliament doesn't dare: ban the sale of cigarettes. (


** Canadian taxpayers will likely be on the hook for millions of dollars to keep the country's aged CF18 fighter jets flying into the next decade because of delays in finding a replacement aircraft, secret documents show. (

** A week after the Scottish referendum, German President Joachim Gauck has created a minor stir in Quebec by remarking that he is happy Quebec never separated from Canada. Gauck underlined the importance of Quebec in a united Canada in a speech on Saturday in Quebec City. (

** Canadian warehouse retailer XS Cargo Co began its final liquidation sale over the weekend and will close its 50 stores in eight provinces across Canada after making a failed bid to restructure this summer. (




- The ruling Communist Party of China and the State Council, the cabinet, in a joint decree banned party and government officials from holding meetings at scenic spots in the latest official move to crack down on corruption.


- The government is likely to step up its targeted monetary easing in the fourth quarter of this year after it posted a slew of weak economic data of late, analysts say.

- Preparations have been completed for the launch of the Shanghai-Hong Kong connect, which will allow investors in the two cities to invest in each other's stock market, after the Shanghai Stock Exchange conducted the third round of tests in its computer system designed for the programme over the weekend.


- The value of assets managed by 100-plus Chinese brokerages is expected to exceed 10 trillion yuan ($1.6 trillion) next year after it jumped to more than 7 trillion yuan around the end of July from 5 trillion yuan by the end of last year, thanks to the government's efforts to encourage innovations by securities houses.


- Participants at the ongoing Beijing-Tokyo Forum have called upon media professionals in China and Japan to provide a more balanced and objective view of each other's country to help prevent Sino-Japanese relations from deteriorating further.

- Yuan activities are accelerated across European financial centres, including London, Paris and Luxembourg, signalling a big step forward in the internationalisation of the Chinese currency and Europe's crucial role in supporting the process.


- U.S. lingerie brand Victoria's Secret, owned by L Brands Inc, has won 500,000 yuan and a public apology from a Chinese investment management firm that used its trademark at a store and at lingerie shows, a Shanghai court ruled.



The Times

** British Prime Minister David Cameron suffered a double hammer blow last night as he lost a second MP to Ukip and a minister to a sex scandal on the eve of the Conservative party conference. In a move that pitched the prime minister's European policy into turmoil, Mark Reckless defected to Nigel Farage's party and immediately called a by-election, accusing Cameron of "letting the country down". (

** General Lord Richards, former head of the UK military warned this weekend that ISIS, also known as Islamic State, will never be defeated by air attacks alone and western governments are wrong to rule out deploying their own ground troops. (

The Guardian

** Air strikes continued to target Islamic State positions near the Kurdish town of Kobani and hubs across north-east Syria on Sunday, as the terror group moved towards a new alliance with Syria's largest al-Qaida group that could help offset the threat from the air. (

** Hong Kong police fired teargas grenades and launched baton charges as tens of thousands of protesters flooded the streets around the government complex in Admiralty - a bustling commercial area in downtown Hong Kong - leading authorities to divert bus routes and shut down a subway station late on Sunday. (

The Telegraph

** The investigation into a 250 million pound black hole in Tesco's profits is centring on the culture of the retailer, with concerns that managers may have been pressurised into using improper practices. A source said there were fears there had been a "corruption of virtues" among staff and that the key to the investigation was establishing "what led people to do these things" and "why people didn't say things earlier." (

** Crossrail, the high-speed train service that will stretch across central London, is already adding value to homes along its route, even though it is not due to open for business for four years. Europe's largest infrastructure project has driven house prices up by 96 pct over the past decade, according to a study by the online estate agent eMoov, which also estimated that the average price of property near the route would rise another 36 pct by 2020. (

Sky News

** A monster truck crashed into a crowd in the Netherlands, killing two adults and a child and wounding a dozen more. The vehicle had been attempting a stunt during a car show in the eastern city of Haaksbergen. (

** Defence Secretary Michael Fallon has rejected claims Britain's role in the fight against Islamic State is a "token" gesture, as he confirmed RAF Tornados are now flying daily over northern Iraq. He told Sky's Murnaghan programme the United States welcomes the contribution of six aircraft to the mission. (

The Independent

** Belgrade was placed under lockdown on Saturday night as Serbia's first Gay Pride march in four years took place under the watchful eye of tanks and special forces. (

** Mark Reckless, the ex-Conservative MP that defected to Ukip on Saturday, looked to have cancelled a planned walkabout to celebrate his move with leader Nigel Farage after a negative reaction in his Rochester constituency. (


Fly On The Wall Pre-Market Buzz

Domestic economic reports scheduled for today include:
Personal income for August at 8:30--consensus up 0.3%
Personal spending for August at 8:30--consensus up 0.4%
Pending home sales index for August at 10:00--consensus down 0.5%



Akorn (AKRX) upgraded to Outperform from Sector Perform at RBC Capital
Baidu (BIDU) upgraded to Buy from Neutral at UBS
Chico's FAS (CHS) upgraded to Outperform from Perform at Oppenheimer
Energy Transfer Partners (ETP) upgraded to Overweight at Morgan Stanley
FedEx (FDX) upgraded to Outperform from Market Perform at Cowen
Janus Capital (JNS) upgraded to Equal Weight from Underweight at Morgan Stanley
LRR Energy (LRE) upgraded to Buy from Hold at Stifel
Nationstar (NSM) upgraded to Buy from Neutral at Sterne Agee
Nike (NKE) upgraded to Outperform from Neutral at Credit Suisse
Pearson (PSO) upgraded to Outperform from Underperform at Macquarie
Philips (PHG) upgraded to Buy from Hold at ING Group
Rent-A-Center (RCII) upgraded to Buy from Hold at KeyBanc
Sonic Automotive (SAH) upgraded to Overweight from Equal Weight at Morgan Stanley
Universal Health (UHS) upgraded to Outperform from Market Perform at BMO Capital
Voya Financial (VOYA) upgraded to Strong Buy from Outperform at Raymond James


Avery Dennison (AVY) downgraded to Neutral from Overweight at JPMorgan
EV Energy (EVEP) downgraded to Hold from Buy at Stifel
F5 Networks (FFIV) downgraded to Neutral from Outperform at RW Baird
KapStone (KS) downgraded to Hold from Buy at KeyBanc
QR Energy (QRE) downgraded to Hold from Buy at Stifel


L'Oreal (LRLCY) initiated with a Market Perform at Wells Fargo
McKesson (MCK) initiated with an Overweight at Barclays
NTT DoCoMo (DCM) initiated with an Underweight at JPMorgan


Encana (ECA) said it will acquire Athlon Energy (ATHL) for $58.50 per share or $5.93B
Lenovo (LNVGY) to close acquisition of IBM's (IBM) x86 server business on October 1
Standard Chartered Hong Kong (SCBFF) temporarily suspended certain branches until further notice
Daiichi Sankyo to acquire Ambit Biosciences (AMBI) in a transaction valued up to $410M
Allergan (AGN) holder Jackson Square Partners against large acquisition (VRX, ACT, SLXP)
NiSource (NI) announced plans to separate into two publicly traded companies


Companies that beat consensus earnings expectations last night and today include:
Applied Genetic (AGTC)

Companies that missed consensus earnings expectations include:
Cal-Maine Foods (CALM), Cesca Therapeutics (KOOL)


EU to accuse Apple (AAPL) of illegal Irish tax dealings, FT reports
Softbank (SFTBF) in talks to acquire DreamWorks Animation (DWA), Hollywood Reporter says
Citigroup (C), JPMorgan (JPM) meet with FCA to settle forex rigging probe, WSJ reports (BCS, HSBC, UBS, RBS)
Microsoft's (MSFT) CEO vows to fully cooperate in China's antitrust probe, Reuters says
Demand for Apple's (AAPL) iPhones waning in China, NY Times reports (AMZN) to launch grocery delivery in NYC, Re/code reports
Royal Dutch Shell (RDS.A), BP (BP) in running for Abu Dhabi oil deal, Telegraph says
JetBlue (JBLU) shares could jump 50% in about a year, Barron's says
Constellation Brands (STZ) looks expensive, Barron's says
Allianz (AZSEY) to suffer from PIMCO outflows, Barron's says (JNS)


ConAgra (CAG) files automatic mixed securities shelf
Covenant Transportation (CVTI) files $100M mixed securities shelf
El Paso Electric (EE) files automatic mixed securities shelf
Retail Opportunity Investments (ROIC) files to sell 3.13M shares for holders
Sabra Health Care (SBRA) files to sell 6M shares of common stock

Stocks Slide On Hong Kong Protests, Catalan Independence Fears

While the bond market is still reeling from Friday's shocking Bill Gross departure, and PIMCO has already started to bleed tens of billions in redemptions (see "Billions Fly Out the Door at Pimco About $10 Billion Is Withdrawn After Departure of Gross"), stocks which may have been hoping for a peaceful weekend after Friday's ridiculous no volume ramp in the last two hours of trading, got hit by a double whammy of first Catalan independence fears rising up again after Catalan President Mas signed a decree committing Catalonia to a referendum bid on November 9th, leading to a move wider in Spanish bond yields, and second the sharpest surge in Hong Kong violence in decades, which led to a 2% drop in the Hang Seng, are now solidly lower across the board, with the DAX dropping below its 50 DMA, while US equity futures are printing about 9 points lower from Friday's close despite another epic ramp in the USDJPY which flited with 110 briefly before retracing to 109.50, and also threaten to push below the key technical support level unless the NY Fed's "Markets group" emerges out of its new Chicago digs and buys up enough E-minis to restore confidence in a rigged market.

Turning to the Asian session overnight, the focus is mostly on the pro-democracy demonstrations in Hong Kong over the weekend in which protestors opposed Beijing’s decision to rule out fully democratic elections in HK in 2017. The protest later escalated into Sunday evening as tear gas and pepper sprays were used against demonstrators. Into Monday morning HK time, thousands of protestors are reported to still remain near government’s main offices although there are some signs that the unrest is spreading with fresh demonstration sites being sighted away from the Central/Admiralty district. Hong Kong has closed down schools in neighbouring districts affected by the demonstrations. More than 200 bus routes have been cancelled or diverted and some subway exits in protest areas have been blocked. Several banks have suspended operations in affected areas. China’s People's Liberation Army (PLA) in Hong Kong said that it was confident the city's administration could handle the protests (BBC). The movement in HK has also brought out supporters in Taiwan which saw hundreds of people gathering in Taipei in support of the movement in HK (WSJ). The situation remains rather fluid ahead of the China’s National Holiday 1 October.

Within the first hour of trade, the DAX-future fell below the 50DMA at 9496 and last Friday's lows as political woes knock confidence across the continent. The possibility of Spain going through a phase of political uncertainty (as was the case in the UK throughout the Scottish Independence bid) rose over the weekend after the Catalan President Mas signed a decree committing Catalonia to a referendum bid on November 9th. This resulted in a widening of the SP/GE 10yr yield spread to the tune of 5bps and some underperformance in the Spanish IBEX-35 as large cap banks BBVA and Banco Santander lead the decline.

Looking at the day ahead, personal income/spending, pending home sales and the Dallas Fed Manufacturing survey are the main releases in the US. We have a fairly quiet day today in Europe but things will pick up over the course of this week. Indeed preliminary inflation readings for September are due today (for Germany) and tomorrow (for Euroland and Italy). Following the 0.4% final print on euro inflation in August today’s and tomorrow’s releases will attract much interest and could further stoke the QE debate (more below for DB's change of view on this). Away from European inflation prints the other key release will be US payrolls on Friday. On that the market is expecting a +215k and +210k print for the headline and private payrolls in August whilst the unemployment rate is expected to remain unchanged at 6.1%. Staying in the US we will also get the Chicago PMI on Tuesday, the ISM manufacturing and ADP report on Wednesday, and factory orders on Thursday. Back to Europe, besides the inflation reading we also have the final PMI estimates (Wed for manufacturing and Fri for services) along with the revision to Euro area GDP (Wed) but the real focus will likely be on the ECB meeting this Thursday.

Market Wrap:

  • Hang Seng down 1.9% to 23,229
  • S&P 500 futures down 0.4% to 1968.5
  • Stoxx 600 down 0.1% to 342.1
  • US 10Yr yield up 1bps to 2.53%
  • German 10Yr yield up 1bps to 0.99%
  • MSCI Asia Pacific down 0.7% to 141
  • Gold spot up 0% to $1218.9/oz

Bulletin headline summary from RanSquawk and Bloomberg

  • Political disharmony rears its ugly head in Europe, as Catalan independence fears knock Spanish assets lower and the far-right gain access to the upper house of Parliament in France for the first time
  • Regional German CPIs indicate the disinflation trend in Germany may have bottomed, however negative Spanish CPI affirms the argument for further action from the ECB
  • Looking ahead, US Personal Income/Spending crosses the wires at 1330BST/0730CDT, followed by Pending Home Sales at 1500BST/0900CDT
  • Treasuries mostly steady overnight after 2Y and 5Y closed higher Friday on speculation the departure from Pimco of Bill Gross, who favored those sectors in bond funds he managed, will be followed by redemptions.
  • Stocks fell around the world and the dollar strengthened to a four-year high as U.S. economic data boosted the outlook for higher interest rates
  • Daniel Ivascyn, Pimco’s new Group CIO, is about to go head to head with Bill Gross in the fastest-growing segment of fixed income: unconstrained funds
  • The ruble weakened to a new record low, approaching the level at which Russia’s central bank said it would intervene to support the currency
  • Pro-democracy protesters vowed to press ahead with demonstrations unless Hong Kong’s top official steps down, with thousands of people surrounding government offices after violent clashes paralyzed the city center
  • Standard Chartered and HSBC were among banks that shuttered some branches in Hong Kong as pro-democracy protesters remained on the streets following weekend clashes with police
  • Turkish President Recep Tayyip Erdogan called for the establishment of a “secure zone” inside Syria to repatriate Kurdish refugees who fled to Turkey to escape an Islamic State onslaught
  • President Obama said U.S. airstrikes in Iraq are an example of the country leading a coalition to aid an ally, not a direct confrontation with Islamic State militants
    Sovereign 10Y yields mostly higher, led by Greece, Italy and Spain. USD strengthens to highest since June 11, 2010. Asian, European stocks mostly lower. U.S. equity-index futures drop. WTI crude lower, gold higher, copper falls

US Event Calendar

  • 8:30am: Personal Income, Aug., est. 0.3% (prior 0.2%)
    • Personal Spending, Aug., est. 0.4% (prior -0.1%)
    • PCE Deflator m/m, Aug., est. -0.1% (prior 0.1%)
    • PCE Deflator y/y, Aug., est. 1.4% (prior 1.6%)
    • PCE Core m/m, Aug., est. 0.0% (prior 0.1%)
    • PCE Core y/y, Aug., est. 1.4% (prior 1.5%)
  • 10:00am: Pending Home Sales m/m, Aug., est. -0.5% (prior 3.3%)
    • Pending Home Sales y/y, Aug., est. -1.4% (prior -2.7%)
  • 10:30am: Dallas Fed Manufacturing Activity, Sept. 10.5 (prior 7.1)
  • 11:00am: Fed to purchase $2b-$2.5b notes in 2021-2024 sector


Asian equity markets traded mixed with notable underperformance in the Hang Seng (-1.9%) after pro-democracy protests in Hong Kong dramatically escalated after riot police resorted to using force including firing tear gas at crowds. The Nikkei 225 (+0.5%) was underpinned by a weaker JPY after trading at a 6yr low against the greenback.


Following German regional CPIs, the German curve trades a touch steeper ahead of the National figure at 1300BST/0700CDT as the modest uptick in most of the inflation numbers lessens the case for immediate intervention from the ECB. As such, focus shifts to the ECB press conference on Thursday, where Draghi is expected to be quizzed on the most recent dismal TLTRO take up. The political uncertainty has not been limited to Spain though, as the FR/GE spread had widened by as much as 0.4bps (circa 1.1%) after Marine Le Pen's right-wing National Front party gained further ground in the 170 seat French upper house of parliament on Sunday.

Pan Euro Agg month-end extensions +0.08yrs (Prev. +0.03yrs), 12-month average +0.07yrs (IFR)

RANsquawk sources report large Sterling month-end extensions, ranging between +0.28yrs to +0.31yrs – Unconfirmed. Note, that this is much higher than the monthly average of +0.05yrs, but broadly in-fitting with this time last year at +0.33yrs.


Within the first hour of trade, the DAX-future fell below the 50DMA at 9496 and last Friday's lows as political woes knock confidence across the continent. The possibility of Spain going through a phase of political uncertainty (as was the case in the UK throughout the Scottish Independence bid) rose over the weekend after the Catalan President Mas signed a decree committing Catalonia to a referendum bid on November 9th. This resulted in a widening of the SP/GE 10yr yield spread to the tune of 5bps and some underperformance in the Spanish IBEX-35 as large cap banks BBVA and Banco Santander lead the decline.


After holding their ground for much of last week, the energy complex has stayed the course on Monday, within USD 1.00/bbl of last week’s highs at USD 93.86/bbl. Overnight, copper slumped 0.8% to its lowest level in 3 months as broad-based USD strength and doubts over growth in Chinese demand continue to weigh on the industrial metals complex. This was particularly evident in Dalian iron ore, which fell 3.8% to a fresh contract low on ongoing oversupply and Chinese slowdown worries. Nickel fell further after Philippine lawmakers clarified last week they won’t seek an ore-exporter ban for at least 7 years and aluminium fell 0.2%, its first monthly drop in 8.

* * *

DB's Jim Reid completes the weekend event recap

Apart from still decent fundamentals and ultra low defaults, everything seems to have transpired against HY in the last few weeks and months. Friday again saw the US credit market under some pressure due to concerns about the future direction of funds formerly managed by Bill Gross. His career move shocked the market and left it selling first and asking questions later. The US CDX IG index widened 4bps (a big intra-day move in this environment) on the news before settling 2bps wider on the day at around 63.5bp. The CDX HY was nearly a point lower before closing broadly unchanged at a cash price of around 106. In Europe we saw Main and Xover moved by around 3bps and 10bps respectively. Quarter end pressures in what is already a balance sheet constrained world in fixed income also seems to be weighing on the credit at the moment. In other markets, equities ended Friday on a positive note with the S&P 500 (+0.86%) perhaps supported by an upward revision in US Q2 GDP and also a rebound in Apple’s share price (+2.9%). The Dollar continued to rise whilst Treasuries were a little softer supposedly not helped by good data and Gross’ move.

Turning to the Asian session overnight, the focus is mostly on the pro-democracy demonstrations in Hong Kong over the weekend in which protestors opposed Beijing’s decision to rule out fully democratic elections in HK in 2017. The protest later escalated into Sunday evening as tear gas and pepper sprays were used against demonstrators. Into Monday morning HK time, thousands of protestors are reported to still remain near government’s main offices although there are some signs that the unrest is spreading with fresh demonstration sites being sighted away from the Central/Admiralty district. Hong Kong has closed down schools in neighbouring districts affected by the demonstrations. More than 200 bus routes have been cancelled or diverted and some subway exits in protest areas have been blocked. Several banks have suspended operations in affected areas. China’s People's Liberation Army (PLA) in Hong Kong said that it was confident the city's administration could handle the protests (BBC). The movement in HK has also brought out supporters in Taiwan which saw hundreds of people gathering in Taipei in support of the movement in HK (WSJ). The situation remains rather fluid ahead of the China’s National Holiday 1 October.

The market reacted negatively to the above with the Hang Seng and the HSCEI benchmarks both down around 1.7%. Although off their intraday lows, the move has also effective unwound all of the Hang Seng’s YTD gains so far. The declines have been largely led by Consumer and Property sectors on concerns of weaker retail and investment sentiment ahead. China, however, is holding up fairly well with the Shanghai Composite up 0.4% as we type. Indonesia is also underperforming with both local equity and currency markets weaker after the outgoing parliament passed a law last Friday to scrap direct elections for mayors and governors.

Credit markets are also weaker overnight with Asian benchmark IG curves around 4-5bps wider across the board. China CDS and benchmark cash bonds are around 5bps wider not helped by the situation in HK. In currency markets, the NZD fell below 78 cents against the USD for the first time in about a year after the RBNZ told the market that it sold a net NZ$521m in August (the biggest sale of such since July 2007). The AUD is also under pressure as the currency tested its January lows at around 87 cents against the Greenback. On the brighter side of things, India’s BBB- sovereign rating was reaffirmed by S&P with its Negative outlook also revised to Stable. Whilst this helps remove any lingering uncertainty of a potential downgrade by the rating agency the situation in HK/China is still largely the key market driver in Asia for now.

Looking at the day ahead, personal income/spending, pending home sales and the Dallas Fed Manufacturing survey are the main releases in the US. We have a fairly quiet day today in Europe but things will pick up over the course of this week. Indeed preliminary inflation readings for September are due today (for Germany) and tomorrow (for Euroland and Italy). Following the 0.4% final print on euro inflation in August today’s and tomorrow’s releases will attract much interest and could further stoke the QE debate (more below for DB's change of view on this). Away from European inflation prints the other key release will be US payrolls on Friday. On that the market is expecting a +215k and +210k print for the headline and private payrolls in August whilst the unemployment rate is expected to remain unchanged at 6.1%. Staying in the US we will also get the Chicago PMI on Tuesday, the ISM manufacturing and ADP report on Wednesday, and factory orders on Thursday. Back to Europe, besides the inflation reading we also have the final PMI estimates (Wed for manufacturing and Fri for services) along with the revision to Euro area GDP (Wed) but the real focus will likely be on the ECB meeting this Thursday.

Hong Kong Stocks Tumble Erase 2014 Gains, Volatility Soars As Protests Freeze City: Full Summary

The Hong Kong protests, which we covered over the weekend, and which took a dramatic turn for the worse overnight when thousands of students camped out and demand universal suffrage on the city streets and were in turn tear-gassed and arrested en masse by the local riot police demanding students disperse or else, and where the leader of the student protest, Joshua Wong - who had been previously arrested and was released on Sunday night - has openly called for the resignation of Hong Kong Chief Executive Leung Chun-ying in an interview with Hong Kong Cable TV, have done the unthinkable: they have impacted financial markets and the "wealth effect" transmission mechanism of the local billionaires.

Here as a summary of the latest market activity via Bloomberg:

  • Hang Seng Index declines 2.25% after falling as much as 2.5%, most since Feb. 4; erases YTD gains
  • MSCI Hong Kong Index drops as much as 3.2%, most since Nov. 2011
  • HSI Volatility Index surges as much as 27%, most since Aug. 2011
  • HKD weakens as much as 0.09% against USD to HK$7.7648, most since Dec. 2011
  • Hong Kong 1-yr rate swap rises 3 bps, most since June 2013
  • Chinese Yuan falls 0.24%, most since March 20, to 6.1415 per dollar.
  • Yuan 12-mo. forwards drop 0.25% to 6.2596 per dollar after falling by as much as 0.34%, most since March 12
  • Fitch says events in past 24 hrs won’t significantly affect ratings;
    says unlikely that protests will be on wide enough scale and last long
    enough to have material effect on H.K.’s economy and financial
    stability: Fitch’s Colquhoun


  • Galaxy Entertainment leads decline in Macau casinos
  • Luk Fook leads drop in retailers, developers amid protests; Luk Fook shuts 4 stores, Chow Sang closes 6 stores
  • Protests will have negative impact on retailers: UBS
  • Wharf tumbles most in 16 months amid protests
  • Swire Beverages workers strike to support protesters
  • Ctrip sees mainlanders’ travel to HK unaffected by protests
  • 36 bank branches closed as of 10:30 HK time: HKMA
  • Quicktake: Hong Kong Tries to Cut Path From Liberty to Democracy: QuickTake


  • H.K. dollar will “inevitably” be under pressure on weakened investor confidence amid political instability, says Daniel Chan, analyst at Brilliant & Bright Investment; interest rates could spike amid potential fund outflows
  • “Sentiment will be bad,” said Arthur Kwong, HK-based head of Asia Pacific equities at BNP Paribas Investment Partners. “Unfortunately, the macro fundamentals are weak already.”
  • Retailers and tourism-related cos. may be among most affected on speculation protests will deter mainland tourists from visiting H.K. during National Day holidays, said Gavin Parry, managing director of Parry International Trading
  • Financial shares may also come under pressure, said Ronald Wan, chief China adviser at Asian Capital Holdings
  • Dickie Wong, executive director of research at Kingston Financial, said HSI may fall to about 23,000, or 2.9% below its last close, in the “short term”
  • “The markets were not counting on anything extreme to happen,” said Govert Heijboer, HK-based chief investment officer of True Partner Advisor. “Whether it immediately moves or not, implied volatilities will rise in Hong Kong given this additional uncertainty.”
  • Protests may deter mainland investors from buying Hong Kong shares when the exchange link starts, said Daniel Chan, analyst at Brilliant & Bright Investment
  • “If this concludes in a few days, impact on markets and the economy will be limited, especially with a few holidays ahead,” says Mari Oshidari, strategist at Okasan Securities Group. “But this will make it hard for people to buy in a market that’s lacking positive news to begin with. People in Hong Kong are serious about this issue, and there’s a political risk this may happen again.”

In fact, the threat to the wealth effect is so big, the local central bank had to step in. From the FT:

Hong Kong’s quasi central bank implemented emergency measures on Monday morning as the battle between Hong Kong democracy activists – many of whom spent the night camped on the streets – and police made itself felt on the territory’s businesses and markets.


The Hong Kong Monetary Authority acted after a tense night that saw tear gas and pepper spray used in a failed bid to clear tens of thousands of protesters from a central business district.


Several banks, including HSBC and Standard Chartered, shuttered a handful of branches. The Hong Kong dollar weakened 0.07 per cent against the greenback – to which it is tightly pegged – in early trading, bringing it to a six-month low. The benchmark Hang Seng Index opened 1.4 per cent down at 23,359.

The locals appear undaunted by a possible Beijing crack down. At least undaunted for now:

For most of Sunday, the situation inside the barricaded area had been peaceful. Martin Lee, the founder of the Democratic party, and Jimmy Lai, the media tycoon who owns the anti-Beijing Apple Daily, joined the thousands of students present.


“We don’t expect them [Beijing] to back down but we have to persist with our civil disobedience,” said Mr Lai. “If we don’t persist or resist, then there’s no hope.”


While people in Hong Kong frenetically used social media to spread news about the protests, there was much less reaction on Weibo as the Chinese government blocked any mention of “Occupy Central” on the Twitter-like service.


During the afternoon, it was difficult to use mobile phone services in the protest area, leading to speculation that the government had blocked networks to prevent reporting from the scene.

Finally, while the US was quick to share in its punditry when Ferguson happened in Ferguson, when it moves to China and any word out of place can put US-Sino relations back years, suddenly the White House is all too quiet on the topic of human rights:

So far the US and UK have said very little about protests. Many people believe that the UK wants to avoid hurting trade relations with China. The Foreign Office said it was “important for Hong Kong to preserve and exercise them [rights and freedoms] but it needs to be done within the law”.


Rory Stewart, the Conservative chairman of the cross-party defence committee, said: “We have a special relationship with Hong Kong and we need to find a way of putting as much energy as we can, politically and diplomatically, into supporting them.”

Yes, yes, now... how does one say BTFD in Hong-Kongese(sic)?

"The Ingredients Of A Market Crash": John Hussman Explains "Why Take The Concerns Of A Permabear Seriously"

Extracted from John Hussman's "The Ingredients of a Market Crash"

Why take the concerns of a “permabear” seriously?

The inclination to ignore these concerns is understandable based on the fact that I’ve proved fallible in the half-cycle advance since 2009. That’s fine – my objective isn’t to convert anyone to our own investment discipline or encourage them to abandon their own. Somebody will have to hold equities through the completion of this cycle, and it’s best to include those who have thoughtfully chosen to accept the historical risks of a passive investment strategy, and those who have at least evaluated our concerns and dismissed them. The reality is that my reputation as a “permabear” is entirely an artifact of two specific elements since the 2009 low, but that miscasting may not become completely clear until we observe a material retreat in valuations coupled with an early improvement in market internals.

For those who understand and appreciate our work, I discuss these two elements frequently because a) I think it’s important to be open about those challenges and to detail how we’ve addressed them, and b) it’s becoming urgent to clarify why we view present conditions as extraordinarily hostile, and to distinguish these conditions from others that – despite an increasingly overvalued market – our current methods would have embraced or at least tolerated more than we demonstrated in real-time.

For us, the half-cycle since 2009 has involved the resolution of two challenges.

The first: despite anticipating the 2007-2009 collapse, the timing of my decision to stress-test our methods against Depression-era data – and to make our methods robust to those outcomes – could hardly have been worse. In the interim of that “two data sets” uncertainty, we missed what in hindsight was the best opportunity in this cycle to respond to a material retreat in valuations coupled with early improvement in market internals (a constructive opportunity that we eagerly embraced in prior market cycles, and attempted to embrace in late-2008 after a 40% market plunge).

The second: I underestimated the extent to which yield-seeking speculation in response to quantitative easing would so persistently defer a key historical regularity: that extreme overvalued, overbought, overbullish market conditions typically end with tragic market losses. Those extremes have now been stretched, uncorrected, for the longest span in history, including the late-1990’s bubble advance. My impression is that the completion of the present market cycle will only be worse as a result.

The ensemble approach we introduced in 2010 resolved our “two-data sets” challenge, and was more effective in classifying market return/risk profiles than the methods that gave us a nice reputation by 2009, but our value-conscious focus gave us a tendency to exit overvalued bubble periods too early. During the late-1990’s, observing that stock prices were persistently advancing despite historically overvalued conditions, we introduced a set of “overlays” that restricted our defensive response to overvalued conditions, provided that certain observable supports were present. These generally related to an aspect of market action that I called trend uniformity. In the speculative advance of recent years, we ultimately re-introduced variants of those overlays to our present ensemble approach.

As I observed in June, the adaptations we’ve made in recent years have addressed both of these challenges. See the section “Lessons from the Recent Half-Cycle” in Formula for Market Extremes to understand the nature of these adaptations. When we examine the cumulative progress of the stock market in periods we classify as having flat or negative return/risk profiles (and that also survive the overlays), the chart looks like the bumpy downward slope of a mountain. Present conditions are worse, because they feature both a negative estimated return/risk profile and negative trend uniformity on our measures. The cumulative progress of the stock market under these conditions – representing less than 5% of history – looks like the stairway to hell, and captures periods of negative market returns even during the bull market period since 2009. The chart below shows cumulative S&P 500 total returns (log scale) restricted to this subset of history. The flat sideways sections are periods where other return/risk classifications were in effect than what we observe today.

Though we’ve validated our present methods of classifying market return/risk profiles in both post-war and Depression-era data, in “holdout” validation data, and even in data since 2009, there’s no assurance they’ll be effective in the current or future instances. As value-conscious, historically-informed investors, we remain convinced that the lessons of history are still relevant. Our efforts have centered on embodying those lessons in our discipline.

While all of these considerations are incorporated into our approach, we’ve had little opportunity to demonstrate the impact we expect over the course of the market cycle. Applied to a century of historical market evidence, including data from the present market cycle, we’re convinced that the adaptations we’ve made have addressed what we needed to address.

Our concerns at present mirror those that we expressed at the 2000 and 2007 peaks, as we again observe an overvalued, overbought, overbullish extreme that is now coupled with a clear deterioration in market internals, a widening of credit spreads, and a breakdown in our measures of trend uniformity. These negative conditions survive every restriction that we’ve implemented in recent years that might have reduced our defensiveness at various points in this cycle.

My sense is that a great many speculators are simultaneously imagining some clear exit signal, or the ability to act on some “tight stop” now that the primary psychological driver of speculation – Federal Reserve expansion of quantitative easing – is coming to a close. Recall 1929, 1937, 1973, 1987, 2001, and 2008. History teaches that the market doesn’t offer executable opportunities for an entire speculative crowd to exit with paper profits intact. Hence what we call the Exit Rule for Bubbles: you only get out if you panic before everyone else does.

Meanwhile, with European Central Bank assets no greater than they were in 2008, and more fiscally stable European countries quite unwilling to finance the deficits of unstable ones, the ECB has far more barriers to sustained large-scale action than Draghi’s words reveal. Moreover, to the extent that the ECB intends to buy asset-backed securities (ABS), which have a relatively small market in Europe, the primary effect (much like the mortgage bubble in the U.S.) will be to encourage the creation of very complex, financially engineered, and ultimately really junky ABS securities that can be foisted on the public balance sheet. Watch. In any event, even if such monetary interventions continue indefinitely, I have no doubt that we’ll have the opportunity to respond more constructively at points where we don’t observe upward pressure on risk-premiums and extensive deterioration in market internals.

I should be clear that market peaks often go through several months of top formation, so the near-term remains uncertain. Still, it has become urgent for investors to carefully examine all risk exposures. When extreme valuations on historically reliable measures, lopsided bullishness, and compressed risk premiums are joined by deteriorating market internals, widening credit spreads, and a breakdown in trend uniformity, it’s advisable to make certain that the long position you have is the long position you want over the remainder of the market cycle. As conditions stand, we currently observe the ingredients of a market crash.

"I Am Putting Everything In Goldman Sachs Because These Guys Can Do Whatever The Hell They Want"

When we first covered the Carmen Segarra lawsuit alleging the capture of the NY Fed by Goldman Sachs back in October 2013, we didn't have much hope for justice to get done. We said that "while her allegations may be non-definitive, and her wrongful termination suit is ultimately dropped, there is hope this opens up an inquiry into the close relationship between Goldman and the NY Fed. Alas, since the judicial branch is also under the control of the two abovementioned entities, we very much doubt it."

Sure enough, the lawsuit was dropped (and no inquiry was opened) but not before it became clear that the very judge in charge of the case, U.S. District Judge Ronnie Abrams, was herself conflicted, after it was revealed that her husband, Greg Andres, a partner at Davis Polk & Wardwell, was representing Goldman in an advisory capacity. Curiously, before she assumed her current office in March 2013, back in 2008 Abrams returned to Davis Polk herself as Special Counsel for Pro Bono. She had previously worked at the firm from 1994 to 1998. For the full, and quite amazing, story of how the "Judge" steamrolled Segarra's objections reads this Reuters piece.

As a result of this fiasco, some wondered just how far do Goldman's tentacles stretch not only at the money-printing (i.e., NY Fed) level, not only at the legislative level (see "With Cantor Down, Which Other Politicians Has Goldman Invested In?"), but at the judicial as well.

And then, on Friday, the Segarra case against the Federal Reserve branch of Goldman Sachs got a second wind, when as a result of another disclosure, ProPublica revealed "How Goldman Controls The New York Fed in 47.5 Hours Of "The Secret Goldman Sachs Tapes." That is to say, nothing new was revealed per se, because as anyone who has read this website for the past 6 years knows just how vast Goldman's network is not only at the Fed, but in that all important other continent too, Europe.

Sadly, just like a year ago, so this time too, we are reluctant to say anything will change. In fact, there is too much at stake, for Goldman to drop the reins and disassociate from the NY Fed: for pete's sake, the president of the NY Fed is a former Goldman employee - does it get any more conflicted than that?!

But, wait, Goldman will do penance by "prohibiting its bankers from buying stocks"... the horror. Luckily at least purchasing politicians and Fed presidents is still perfectly allowed.

In fact, what has become clear to everyone is that aside from yet another dog and pony show (led by, you guessed, it the head dog and ponier herself, Elizabeth Warren), not only will nothing change, but in fact the best way to take advantage of a broken, corrupt, sinking system, is to join it. And the best summary of just that sentiment was released over the weekend by Nanex' Eric Hunsader as follows:

After listening to I'm putting everything in $GS - because these guys can do whatever the hell they want

— Eric Scott Hunsader (@nanexllc) September 26, 2014

Curious what made up Eric's mind? Then fast forward to minute 24 to hear what it sounds like when a top Fed official "questions" Goldman Sachs:


But before we put this topic to bed, here is Raúl Ilargi Meijer explaining why "The US Has No Banking Regulation, And It Doesn’t Want Any"

* * *

It is, let’s say, exceedingly peculiar to begin with that a government – in this case the American one, but that’s just one example - in name of its people tasks a private institution with regulating not just any sector of its economy, but the richest and most politically powerful sector in the nation. Which also happens to be at least one of the major forces behind its latest, and ongoing, economical crisis.

That there is a very transparent, plain for everyone to see, over-sized revolving door between the regulator and the corporations in the sector only makes the government’s choice for the Fed as regulator even more peculiar. Or, as it turns out, more logical. But it is still preposterous: regulating the financial sector is a mere illusion kept alive through lip service. Put differently: the American government doesn’t regulate the banks. They effectively regulate themselves. Which inevitably means there is no regulation.

The newly found attention for ProPublica writer Jake Bernstein’s series of articles, which date back almost one whole year, about the experiences of former Fed regulator Carmen Segarra, and the audio files she collected while trying to do her job, leaves no question about this.

What’s going on is abundantly clear, because it is so simple. The intention of the New York Fed as an organization is not to properly regulate, but only to generate an appearance – or illusion – of proper regulation. That is to say, Goldman will accept regulation only up to the point where it would cut into either the company’s profits or its political wherewithal.

What the ‘Segarra Files’ point out is that the New York Fed plays the game exactly the way Goldman wants it played. Ergo: there is no actual regulation taking place, and Goldman will comply only with those requests from the New York Fed that it feels like complying with.

In the articles, the term ‘regulatory capture’ pops up, which means – individual – regulators are ‘co-opted’ by the banks they – are supposed to – regulate. But the capture runs much larger and wider. It’s not about individuals, it’s a watertight and foolproof system wide capture.

The government picks a – private – regulator which has close ties to the banks. The government knows this. It also knows this means that its chosen regulator will always defer to the banks. And when individual regulators refuse to comply with the system, they are thrown out.

In one of the cases Segarra was involved in during her stint at the Fed, the Kinder Morgan-El Paso takeover deal, Goldman advises one party, has substantial stock holdings in the other, and appoints a lead counsel who personally has $340,000 in stock involved. Conflict of interest? Goldman says no, and the Fed complies (defers).

The lawsuit Segarra filed against the NY Fed and three of its executives was thrown out on technicalities by a judge whose husband was legal counsel for Goldman in the exact same case. No conflict of interest, the judge herself decides.

This is not regulation, it’s a sick and perverted joke played on the American people, which it has been paying for it through the nose for years, and will for many years to come. Sure, Elizabeth Warren picks it up now and wants hearings on the topic in Congress, but she’s a year late (it’s been known since at least December 2013 that Segarra has audio recordings) and moreover, it was Congress itself that made the NY Fed the regulator of Wall Street. Warren has as much chance of getting anywhere as Segarra did (or does, she’s appealing the case).

The story: In October 2011, Carmen Segarra was hired by New York Fed to be embedded at Goldman as a risk specialist, and in particular to investigate to what degree the company complied with a 2008 Fed Supervision and Regulation Letter, known as SR 08-08, which focuses on the requirement for firms like Goldman, engaged in many different activities, to have company-wide programs to manage business risks, in particular conflict-of-interest. Some people at Goldman admitted it did not have such a company-wide policy as of November 2011. Others, though, said it did.

Let’s take it from there with quotes from the 5 articles Bernstein wrote on the topic over the past year. To listen to the Segarra files, please go to The Secret Recordings of Carmen Segarra at This American Life.

One last thing: Jake Bernstein’s work is of high quality, but I can’t really figure why he says things such as the audio files show: “a New York Fed that is at times reluctant to push hard against Goldman and struggling to define its authority”. Through his work, and the files, it should be clear that just ain’t so. Both the Fed’s policy and authority are crystal clear and ironclad.