Guest Post: The Real Story Of The Cyprus Debt Crisis (Part 2)

Perfectly timed given the Cypriot President's call for better terms, we look at what really went on to crush this tiny island nation...

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Not only is the bail-in a direct theft of depositors' money, the entire bailout of Cyprus is essentially a wholesale theft of national assets.

Here is Part 2 of our comprehensive account of the banking/debt crisis in Cyprus. As noted yesterday, the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter for two reasons:
1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises.
2. The official Eurozone resolution of the crisis may provide a template for future resolutions of other banking/debt crises.
It also matters for another reason: not only is the bail-in a direct theft of depositors' money, the entire bailout is essentially a wholesale theft of national assets. This is the inevitable result of political Elites swearing allegiance to the European Monetary Union.
I am honored to present Part 2 of Cyprus resident John H. Morgan's report.

The Cyprus Bank Deposit Bail-in

On 16 March 2013, the noose was tightened around Cyprus. Emergency Liquidity Assistance (ELA) was cut off. Banks remained closed while the Government negotiated with the Eurogroup of European finance ministers to save the Cyprus banking system. President Anastasiades announced the first proposal to the nation: he would tax all bank deposits in Cyprus to fund the recapitalisation of Laiki Bank. This plan was rejected by the Cypriot Parliament as it infringed the guarantee on all insured deposits up to €100,000. The Minister of Finance visited Russia to ask for financial assistance, to no avail.

On 25 March 2013, as Greece celebrated Independence Day, it was announced that Laiki Bank would be wound up and Bank of Cyprus would be restructured. All Cypriot depositors in Laiki Bank and Bank of Cyprus who held more than €100,000 would be forced to pay for Cypriot bank losses and withdrawals, mostly sustained in Greece (the so-called “bail-in” of depositors). Bank of Cyprus would be responsible for paying back Emergency Liquidity Assistance provided by the European Central Bank to Laiki Bank. It would also assume liability for all Laiki insured deposits up to €100,000.

The value of uninsured deposits over €100,000 held by Cypriot Banks came to €38bn (billion) out of a total €68bn in deposits. The governor of the Central Bank of Cyprus stated that 70% of all uninsured deposits were held by foreigners. There are an estimated 60 000 British citizens, 30,000 Russian citizens and 10,000 other European nationals living in Cyprus. Together with Cypriot-domiciled foreign firms (such as German shipping companies), they had deposited €30bn in Cypriot banks.

Cypriot Banks were closed for 10 days to prevent a bank-run. Their overseas branches stayed open to preserve a semblance of normality and avoid triggering a bank-run on Greek banks. Cash was rapidly withdrawn from the British, Greek and Russian branches of the Cypriot banks. The value of the assets held by the Greek branches of the Cypriot Banks was €23bn. These assets received huge haircuts as they were traded for €9.2bn of Emergency Liquidity Assistance (ELA). The ELA was provided by the European Central Bank to replace money withdrawn from Cypriot Banks via their Greek branches. To prevent further losses in Greece, the Central Bank of Cyprus was ordered to sell the Greek operations of the Cyprus Banks in a fire-sale.

Piraeus Bank of Athens paid €524m (million) for the remaining Greek assets of Laiki Bank, BoC and Hellenic Bank. The purchase was funded by the European Central Banks’ European Financial Stability Fund (EFSF), using Piraeus shares as collateral. The boards of Laiki Bank and BoC resigned immediately as they had been kept out of negotiations. The governor of the Central Bank of Cyprus confirmed that the deal was stitched together by the Cypriot and Greek governments and the Eurogroup of finance ministers. Piraeus Bank of Athens was even awarded a €3.1bn write-back on the purchase price for buying impaired assets. It recorded its first profit in years.

This massive mark-down of assets owned by Cypriot bank shareholders and bondholders (worth 75% of Cyprus’ annual GDP), was hushed up. Once again, Cyprus banks had been forced to make crippling sacrifices to support Greece’s ailing economy. Within weeks of the deal, the CEO of Piraeus Bank of Athens was in Cyprus touting for business.

In a radical departure from accepted practice, two major groups of creditors, financial institutions and government agencies, were exempted from the bail-in haircuts. This meant that Central Banks were refunded their liabilities ahead of uninsured depositors. The ECB would get 100% of its €9.2bn ELA and the Bundesbank would get 100% of its €7bn TARGET2 liability.

These loans had been given to Cypriot Banks to replace the cash withdrawn when depositors moved their money elsewhere, especially to Germany. Technically, ELA is no different from a bank bailout, apart from costing 4% interest compared to 2.5%. The TARGET2 component of the Eurosystem shifts Euros back to European banks whose deposits have been depleted by interstate transfers, in effect giving them a loan.

Under the Troika deal, the liquidity provided by the European Central Bank and Bundesbank would be refunded first. Uninsured depositors would receive worthless bank shares to replace the cash and assets confiscated to cover Central Bank liabilities. It would have caused massive scandal in the EU if Cyprus commercial banks defaulted on the liquidity assistance provided by European Central Banks. Politically, it was much easier to raid the uninsured deposits of Cyprus account-holders after accusing them of money-laundering.

This ruthless action by the Eurogroup reassured taxpayers of Germany, Finland, Netherlands and Austria, who saw Northern economies carrying ever-increasing risks of default by Southern European banks and governments. Currency controls were put in place to staunch the movement of capital out of Cyprus. Nevertheless, billions of Euros are leaving Cyprus on a monthly basis.
As a reward for its compliance with the conditions set by the Troika of lenders, the government of Cyprus was granted a soft loan of €10bn by the European Stability Mechanism and IMF. €4.1bn was made available to roll over Cyprus external sovereign debt; €3.4bn was given to President Anastasiades to spend on governance; €2.5bn could be used to re-capitalize Cyprus’ smaller banks, Hellenic Bank and the Co-op Bank.

The Cyprus government must start repaying the loan and interest back after 10 years. The interest bill will exceed €3bn. This will be enough time to fund loan repayments from offshore gas revenues, expected to be earned from 2018 onwards.

External bond-holders of Cypriot Government debt will be repaid 100% of their investment, courtesy of Cypriot taxpayers. This vindicates the promise made by EU Economic and Monetary Affairs Commissioner Olli Rehn of Finland. In a January 2013 interview with Handelsblatt daily, Rehn reassured financial markets that there would be no haircuts on Cyprus Government Bonds.
However, President of the European Central Bank, Mario Draghi, announced in May 2013 that Cyprus banks may use Cyprus Government Junk Bonds “guaranteed by the Cyprus Government, with the agreed haircuts” as collateral for ECB funding.

This means that uninsured depositors will pay off much of the Cyprus Government debt as the value of Cyprus Government Bonds has been written down. The ECB has agreed to accept lower quality Asset-Backed Securities as collateral. Uninsured depositors will lose yet more of their funds in order to pay out the billions of Euros of insured deposits that are being painstakingly withdrawn within the constraints of capital controls.

Slowly, brick by brick, the last remaining wealth of Cyprus is being wrung from its soil and auctioned off. Central banks are extracting every ounce of gold from an island that was once renowned for its copper in Roman times.


Economic Effects of the Cyprus Bank Deposit Bail-in

Cypriot businesses have seen their working capital plundered. The country is increasingly reverting to a cash-economy with a consequent dive in tax revenues. Provident funds, including those of bank-employees, have been severely impaired.

Most companies have cut wages, leading to severe distress among families who are paying off housing loans. This is intended to achieve the Troika’s goal of “internal devaluation”. By cutting labour costs, it is hoped to make Cyprus as competitive as countries like Germany.

Cyprus Airways is undergoing restructuring. Half of its staff have been retrenched. €20m in severance pay will be paid out of future airline revenues as the European Commission has barred the state from subsidising a commercial airline. The three Lufthansa consultants in charge of the restructuring are set to receive €1.3m. The remaining staff will suffer a 25% salary cut.

Even charities have not been spared a deposit haircut. Soup-kitchens for the legions of unemployed rely on constant donations of food from the public. The Cyprus Olympic Committee has lost €600,000 from the bail-in.

In an act that beggars belief, the Cypriot Parliament has levied a 30% tax on the interest earned from bank deposits. This has made Cypriot banks totally uncompetitive and deposits are tapering off. Money is being deposited offshore and ELA requirements of the Bank of Cyprus are increasing. The Central Bank of Cyprus announced that €6.34bn or 9.96% of deposits were withdrawn from domestic banks in April 2013. Deposits had dropped by €14.23bn or 19.87% since April 2012. (This fall, in one year, is equivalent to 80% of Cyprus’ annual GDP.)

In another measure which defies logic, a property tax was insisted on by the Troika of international lenders. The government aims to extract maximum tax revenue by inflating property prices by the annual rate of consumer price inflation since 1980. Currently, property prices are at an all-time low. This tax will further depress the property market and withdraw large amounts of liquidity from the battered economy.

The reasons are not hard to fathom. A week after the Memorandum of Understanding was signed with the country’s lenders, President Anastasiades apologised to State employee unions that he had been forced to cut their salaries and pensions. He assured them that there would be no further cuts. The Minister of Finance assured government employees that their benefits would be maintained by reducing state expenditure on infrastructure. The opening of a new medical faculty at the University of Cyprus, costing €100m, would be funded, as it formed part of an election pledge.

Between January and May 2013, unemployment in the Cyprus private sector increased from 52,000 (11.8%) to 71,000 (16.1%), the steepest increase in the European Union. The EU has warned that Cyprus runs the greatest risk of social upheaval of all European countries.


Economic and Political Prospects for Cyprus post-2013

Unable to devalue its currency to remain competitive, unable to print money to buy its citizens’ assets and stimulate its moribund economy, the Republic of Cyprus has come to realise that membership of the Eurozone is a poisoned chalice. The island has been cast adrift from Europe and left to sink or swim.

NATO continues to frame the geopolitical agenda of the Eastern Mediterranean, as it did when Turkey was allowed to invade the island in July 1974. In May 2013, two months after the Cypriot government had ceded control of its economy to the Troika of international lenders, Prime Minister Erdogan of Turkey listed 5 demands to President Barack Obama of the USA. One of those demands was that none of the estimated €200 billion of Cyprus offshore oil and gas reserves be sold to Russia. A week later, the Secretary General of NATO, Anders Fogh Rasmussen, warned the leaders of Cyprus that the island must settle the Cyprus Problem before it drills for oil and gas.

There is no need to bribe NATO member Turkey with trillions of cubic feet of hydrocarbons from the Levantine Basin to facilitate settlement of the Cyprus Problem. Turkey can use its military superiority to seize the island and its gas reserves. Despite reassuring noises that America will defend American energy companies drilling for hydrocarbons off the Cyprus coast, it is likely America would support its strategic ally Turkey, rather than side with insignificant Cyprus. In a display of solidarity, NATO allies in Europe have moved Patriot missiles to Turkey’s border with Syria.

Europe and Turkey are about to sign the aptly named “European Readmission Treaty” whereby Turkey has agreed to become a dumping ground for illegal migrants who have entered the EU through Turkey from countries to its east. This goes a long way towards reassuring German and French voters that the European Empire is spreading eastwards, rather than the Ottoman Empire spreading westwards.

During 2013, in a sign of Europe’s softening stance on Turkey, the European Court of Justice accorded Turkish Law primacy in settling all land restitution claims on the island of Cyprus.
Greek and Turkish speaking Cypriots have been promised a €200 billion bonanza from the discovery of hydrocarbons off the Cyprus coast. The use of most of the gas revenues to bankroll multinational energy conglomerates and to offset State “borrowings” will go largely unnoticed: a drop in the vast ocean of political corruption.

copyright 2013 by John Henry Morgan; all global rights reserved in all media

John Morgan is the director of a company based in Larnaca, Cyprus. He owns property in Cyprus and has lived there since 2004. He comes from the United Kingdom. He has also worked in Europe, Africa and the Middle East.


The 2013 Cyprus Deposit Bail-in: POSTSCRIPT

"I run a Cypriot marine & diving company operating in the UAE in the Middle East. We have had €400,000 (a 90% retention) frozen by the Bank of Cyprus which was all the money we had to finish mobilizing for the final stage of a project. We desperately need that money to finish our mobilization and complete the project. We must finish the project in order to receive payment for all the work we have already done. We are now without funds in an Arab country that imprisons debtors and we have debts. We can't pay the salaries and wages of our people, and soon won't have enough money to feed them. We stand to lose our marine and equipment assets if we can't pay our debts. We are in very serious trouble and all the pleading and demands that at least some of our funds are released are ignored. We are desperate. We are the only company in this sort of trouble according to the Cypriot Ambassador. There is no protection for foreign nationals in this country. We need our money, we need help. Can you help us please by investigating or publishing our story?"Christopher M Penny

Bank of Cyprus starts process of turning uninsured deposits into stocks

Dubai Business Directory Listing for COMBINED DIVING & INSPECTION SERVICES

China Joins The Broken „Keynesian Multiplier“ Club

A week ago we showed a chart from Charles Gave which does a terrific job at explaining why the modern economic "science", in conjunction with the Fed's negative rate environment, have failed at their ultimate stated mission - to stimulate growth. The reason: the Keynesian multiplier, which has tracked the nominal US GDP 7yr average change with a very high correlation, is now negative. From Gave: "shows that the marginal efficiency of public debt, at least in the US (public spending in emerging markets from a low base usually improves productivity) has been declining structurally since 1981. And it seems that this marginal efficiency has now reached a negative level."

The good news, at least over the past two decades, is that for all the failings of globalization, there were other developing countries and regions around the world, that had the credit capacity to inject debt momentum into their and, in an infinitely fungible world, the global economy. This is why China was so instrumental as a growth counterweight during the great financial crisis following the Lehman failure.

There is, however, a problem: as the chart below shows, China now has a Keynesian multiplier problem of its own. Even as the Chinese politburo and the PBOC have been injecting an ever increasing amount of credit into the private sector - the primary source of Chinese growth - the incremental GDP growth has been trending lower, and lower, and lower...

  • The good news: unlike in the US, the multiplier is not yet negative, as there still is some GDP reaction in response to every "credit impulse."
  • The bad news: each successive GDP response is weaker and weaker, even as the credit injection has no choice but to be larger and larger.

Which begs the question: is this why the PBOC has been so hesitant to ease once more, even as the inflation in the real estate market largely courtesy of foreign central bank liquidity injections by the Fed and BOJ which wash ashore on the mainland, well-aware such liquidity injections would have to be far greater than any before to achieve the same economic growth results?

And what happens to global inflation rates once China, which will ultimately have to ease to prevent the complete collapse of its banking sector, does proceed with proving that it is precisely the negative Keynesian multiplier that will be the great undoing of the Keynesian school of economics?

Luckily, once the BOJ's reflation experiment fails, and after China repeats the soaring inflation days of 2011 only to tighten all over again, there is still Europe. The only problem with Europe is that as we showed recently, credit creation is already record low and absent the ECB openly monetizing debt to inject reserves and boost stocks, there is little hope.

Finally, if Bernanke is indeed on the way out, which even more dovish ex-Goldmanite will replace Mario Draghi, as the onslaught for the final reflation attempt reaches its climax?

Futures Ramp Higher Ahead Of Key FOMC Announcement As Nikkei Regains 13,000

First it was the "most important" payroll print in years, then the "most important" retail sales number, and now we are just days ahead of the "most important" FOMC statement in years as well, as the fate of the centrally-planned markets lies in the hands of Bernanke's decision to taper, or not to taper. The main catalyst for now still appears to be an ongoing wrong interpretation of Hilsenrath's Thursday blog post in which some still see reaffirmation by the Fed that it won't taper, when all the Fed's mouthpiece said is that the short-end would be anchored even as the long-end is allowed to rise. Looking at the well-known no volume levitation futures action, which in the overnight session has wiped out all of Friday's losses and then some simply due to a 2.73% rise in the Nikkei overnight back above 13,000 driven by the USDJPY briefly regaining 95.00, the market has made up its mind (if only for the time being) that whatever decision the Fed takes regarding the monthly level of liquidity injection is a bullish one. At least until it changes its mind next.

Speaking of Hilsenleaks, the WSJ’s "Fed watcher" was back on the newswires on Sunday evening suggesting that the evolution of these forecasts could provide a strong clue as to the Fed’s tapering intentions. The Fed’s latest projections, made in March this year, saw real GDP growth of around 2.6% for 2013 and 3.2% for 2014. In terms of unemployment, the Fed projected a rate of around 7.4% in 2013, improving to around 6.9% in 2014. If and how these forecasts change could send an important signal about the Fed’s near term intentions. Hilsenrath writes that if the Fed maintains confidence in their economic forecasts, it could signal they think they're on track to begin pulling back on QE later this year.

Heading into the North American open, stocks in Europe are seen broadly higher, with telecoms and industrial sectors leading the gains. The Italian benchmark stock index has underperformed, with Saipem shares trading sharply lower, which in turn weighed on its major shareholder ENI after the company cut its EBIT guidance (again) due to significant deterioration in its Algeria business. The session so far has been characterized by distinct light volumes as market participants refrained from making directional bets ahead of the key FOMC meeting. On that note, Fed watcher Hilsenrath wrote that officials at the Fed are unlikely at this meeting to change their USD 85bn per month bond buying program and that what they say about the economy will send important signals about what they expect to do in the future. Looking elsewhere, overnight in Asia the Nikkei 225 index settled with decent gains and crucially above the key 13,000 level as the USD/JPY edged back towards the 95.00 level. However, a firmer spot failed to support the price action in the options market, where the shorter-dated implied vols remained under-pressure. Going forward, market participants will get to digest the release of the latest Empire Manufacturing report, as well as the NAHB report for the month of June.

SocGen looks at the key overnight macro catalysts:

The financial markets have hit some turbulence triggered by uncertainty in the lead-up to the Fed and the ECB releasing their monetary policies.
What will the Fed do? The market's current nervousness, synonymous with possible disturbances given the approach of tapering, could prompt the Fed to postpone any announcements. On the other hand, improving economic indicators appear to confirm the scenario of an exit. The focus should thus be on the FOMC Tuesday and Wednesday, especially since there will be a press conference afterward along with the presentation of the Fed's new forecasts. We doubt that Ben Bernanke would lay all his cards on the table this week.

Meanwhile, Asia is worrisome. Chinese indicators have been lukewarm. In addition, the BoJ's policy is raising more and more questions about its capacity to control the volatility it ignited on JGBs. The government's timid measures announced last week, along with promises of more substantial measures in the autumn, are anything but a bazooka.

Against this backdrop, and as long as uncertainty remains on both fronts, additional profit-taking on previously overbought assets is highly likely. Nevertheless, we continue to believe that this profit-taking phase will end up losing steam.

In all, even if it is chaotic, the uptrend in long-term US rates remains firmly in place: we are not changing our target of a 10-year Treasury yield of 2.75%. As for the forex market, we still think that the USD will strengthen in the second half: the EUR/USD should then be on its way to our year-end target of 1.20 while the USD/JPY should head toward 110.

* * *

Finally, and as usual, Jim Reid does the full overnight event recap:

Strap in, hold on and get ready for what the market has turned into a crucial two-day FOMC meeting and subsequent Bernanke press conference on Wednesday. If that's isn't enough to get you excited then we also have the G8 leaders' summit today and tomorrow and the latest flash PMIs from around the world on Thursday.

Back to Bernanke, it’s worth being aware of what we've heard from the Fed over the last month and what the market has reacted to. In the recent JEC testimony (May 22nd) Bernanke continued to emphasise ongoing labour market weakness. However in the subsequent Q&A he said tapering “could” happen before Labor Day after responding to a question. The market pounced on this comment even if that maybe wasn't Bernanke's intention. However this reaction was in some respects supported by the FOMC minutes from the May 1 meeting, (also released on May 22nd). They were surprisingly hawkish and showed that a "number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by the time showed evidence of sufficiently stronger and sustained growth”. So there is definitely some debate within the Fed but the data 6 weeks on from this meeting is still inconclusive. We suspect that this week Bernanke will continue to say tapering will happen at some point, could happen this year but will be data dependant and that we are still a long way off from removing the very easy policy stance the Fed has in place. We still think that the Fed will struggle to taper very much and very early but the debate is now going to be around for a while.

This week’s FOMC will also be interesting from the perspective that the Fed will be providing an update on economic projections for 2013-2015. Indeed, the WSJ’s Jon Hilsenrath was back on the newswires on Sunday evening suggesting that the evolution of these forecasts could provide a strong clue as to the Fed’s tapering intentions. The Fed’s latest projections, made in March this year, saw real GDP growth of around 2.6% for 2013 and 3.2% for 2014. In terms of unemployment, the Fed projected a rate of around 7.4% in 2013, improving to around 6.9% in 2014. If and how these forecasts change could send an important signal about the Fed’s near term intentions. Hilsenrath writes that if the Fed maintains confidence in their economic forecasts, it could signal they think they're on track to begin pulling back on QE later this year.

Turning to overnight markets, Asian stocks are starting the week on the front foot led by an 2.3% and 1.4% gain in the Nikkei and Hang Seng respectively. In Japan, real estate equities (-1.7%) are the only sector in the Nikkei to trade lower. This comes after Reuters reported that the BoJ is considering expanding its REIT asset purchases above its target of JPY140bn, in a sign that the BoJ may be responding to recent market movements (Reuters). However the incremental purchases are said to be relatively small at JPY10bn, which probably explains the disappointing price action in J-REITs this morning. USDJPY is trading 0.5% higher this morning at 94.8. Chinese stocks (Shanghai Composite –0.1%) remain near a six-month low after the Chinese finance ministry failed to sell all of its bonds at an auction on Friday, the first time in nearly two years that it has fallen short of its bond sale target (FT). The failed auction is being blamed on strained liquidity in the interbank funding market. Meanwhile Central Huijin, China's main holding company for state-owned financial institutions, intervened to buy the stocks of two Chinese FIs on Friday in a bid to boost market sentiment.

While the Fed and Bernanke will be taking the limelight this week, we also have a fairly big week of economic data and global/regional summits. First up will be a two-day G8 leaders’ summit commencing today in Northern Ireland. The Fed and the BoJ’s monetary policy are likely at the top the agenda but the meeting will be missing one key figure in the form of Bernanke who is presumably tied up with this  week’s FOMC. President Barack Obama and Angela Merkel meet in Berlin on Wednesday following the G8 meeting.

In the US, this week’s data calendar starts with an update on Monday’s empire manufacturing followed by Tuesday’s CPI, housing starts and building permits, and ending with Thursday’s Philly Fed, existing home sales and flash PMI. On the micro-side, it’s also worth watching Fedex’s Q4 earnings report on Wednesday where the company’s outlook is usually scrutinised by markets for signals on near-term demand.

Across the Atlantic, the European data calendar gets off to a slow-ish start with Euroarea April trade (Mon) and the German ZEW survey (Tues) ahead of Thursdays flash PMIs. Consensus estimates are for a PMI composite Euroarea reading of 48.1, or 0.4pts higher than last month’s 47.7. The market is also calling for a 0.3-0.5pt improvement across the German and French manufacturing and service PMIs. The Eurogroup/ECOFIN meeting starts on Thursday with the expected agenda including latest reviews of the Greek, Irish, Portuguese and Spanish loan programs. Across the Channel, Chancellor Osborne is expected to use his annual Mansion House speech on Wednesday to confirm that the government is looking to privatise Lloyds and RBS banks. The BoE’s latest meeting minutes are released on the same day.

We have a quieter week ahead in Japan with May trade data together and the BoJ’s quarterly flow of funds report due on Wednesday. BoJ Governor Kuroda speaks on Friday at the annual meeting of the National Association of Shinkin Banks. In China, HSBC’s flash manufacturing PMI (prev: 49.2) is out on Thursday, following an official update on nationwide property prices on Tuesday.

Fed and Flash PMIs Dominate the Week Ahead

The Federal Reserve meeting that concludes Wednesday is the most important event of the week. There are now few participants, if any, that expect the Fed to reduce its long-term asset purchases now or even next month. Many see the September as a more likely time frame and a recent poll found the median expectation for tapering to take place in October.

There are three aspects of the Fed's meeting that will garner attention. First is the statement itself. We suspect there will be little there to suggest change in QE. There are unlikely to be significant changes in the economic assessment. There may be some minor tweaks in the language. For example, the easing of price pressures may be noted in stronger terms that the last statement's recognition that inflation was "somewhat below" the FOMC's long-term objective.

Second, the Fed will provided updated forecasts. These may be more important than usual as it is part of the Fed's forward guidance. If the Fed is to taper off its asset purchases, ideally, it would be reflected in anticipation of quicker growth, a faster decline in unemployment, and/or high inflation. Yet, we expect little change in the forecasts, and, if anything, it may shave this year's growth forecast from the 2.3%-2.8% pace forecast in March. The unemployment rate was forecast at 7.3%-7.5% this year and in May it stood at 7.6%. We look for little change there. The core PCE deflator forecast was 1.5%-1.6%. In April it stood at 1.1%. There does seem to be scope for the Fed's forecasts to be shaved a bit.

Third, Bernanke will hold his post-meeting press conference. We expect his prepared remarks to avoid specifics about tapering, except to note that 1) tapering is not the same as tightening and 2) the Fed's decision is data dependent.   We see the recent tapering talk as an effective exercise of forward guidance that succeeded in removing or at least diminishing the risk of asset bubbles being fueled by the Fed's continued purchases.

The ECB has also been engaged in a successful forward guidance exercise.  The talk of being "open-minded" about a negative deposit rate appeared to have helped give the 25 bp refi rate cut greater impact insofar as it suggested the ECB can still do more.  This week's main euro zone data will be the flash PMIs.  They are expected to confirm an improving cyclical outlook. 

The ECB also suggested it was looking at potential ways to help facilitate lending to small and medium sized businesses.  Yet this increasing looks like something for the governments rather than the central bank.  Before the weekend the four largest euro area members (Germany, France, Italy and Spain) agreed to look at mobilizing the European Investment Bank (EIB) that can channel funds through state development banks for SMEs.

Sterling is trading near four-month highs.  It reports inflation figures this week and retail sales.  They are both expected to tick up.  CPI has been trending lower since late 2011, but is sticky in the 2.2%-2.7% range.  Retail sales have been soft, declining five of the last seven months and three of the last four.  Minutes from the MPC meeting early this month will be released, but given that Carney takes the reins in a couple of weeks probably denies the minutes of having much market impact. 

The Reserve Bank of Australia also publishes the minutes from its recent meeting.  While scope exists for additional easing, the market has moved away from a July cut.  We anticipate an August rate cut and a rate cut in Q4.

In addition to the Federal Reserve's meeting, the Swiss National Bank and Norway's central bank meets this week.  We expect both to announce no change in policy. 

The G8 Summit kicks off today.  The EU agreement before the weekend paves the way to launch a trans-Atlantic free trade talks.  Moreover, with Europe moving away from its austerity thrust, this blunts a potential criticism.  Ironically, the US, which has been critical of Europe's austerity emphasis, has the tightest fiscal policy within the G8 this year.   Japan may come under pressure to implement structural reforms after Abe's "third arrow" was a bit of a dud, disappointing those who anticipated bolder action.  However, it is politics, and especially responding to developments in Syria that may be the most divisive, though Russia seems isolated within the G8. 

Japan reports May trade figures near midweek and another large trade deficit is expected.  After improving on a seasonally adjusted basis in March and April, some widening is expected.  While exports are likely to improve for the third consecutive month, import growth also continues.  The weaker yen appears to be lifting the value of imports more than exports. 

Among the emerging markets we note that India left rates steady today, as expected.  Turkey's central bank meets tomorrow and no change is expected.  South Africa reports CPI and current account figures on Wednesday.  The flash Chinese PMI is due Thursday.

Hard Hitting, Bleeding Edge Research Results In 2nd High Level Ouster/Resignation In The UK & Euroland

For the past two months I have been releasing heretofore unseen documentation, proof-backed allegations and logical assertions throwing light on what I view to be gross misrepresentations, attempts at financial reporting prestidigitation and what I consider to be outright fraud in the Irish and UK banking system. BoomBustBlog has been the only source of such information and except for a few outliers, the MSM has literally refused to run stories on this. 

Alas, even though mainstream editors, producers and reporters are trying to ignore what the BoomBust has done, massive shock waves have shaken loose those at the very top of the power structure. Unfortunately, much of what is going down is beyond the ken of the hoi polloi due to the taboo nature of the most important message that I convey. 

Remember what happened when I initially dropped the Irish bomb on the unsuspecting Irish public? The head of the Irish Central Bank Regulatory Authority unexpectantly resigned...

reggie middleton on irish banksreggie middleton on irish banks



So, what happens when you bring the Fiery Sword of Economic Truth to the UK and Ireland???



Here's the answer to that question in the form of another surprise (not) to all BoomBustBloggers. After my multiple expose's on RBS...

  1. I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets!
  2. Who is RBS? Royal BS... or the Royal Bank of Scotland
  3. Taxation Without Representation: UK Taxpayers Schooled on What US Students Are Taught In 3rd Grade

We see Reuters reporting: RBS shares slump after shock ousting of CEO Hester. Surprise! Surprise!

 Royal Bank of Scotland shares fell seven percent on Thursday after the surprise ousting of CEO Stephen Hester left investors questioning who would steer the part-nationalized bank through to an eventual privatization.

Isn't this just one helluva string of coincidences that as I uncover dirt and grime, we get these "unexpected" and "unforeseen" ousters and resignations days and weeks afterward. If I didn't know better, I'd think someone busted these guys doing something naughty... Nahh! Couldn't be!

I know more than a couple of UK taxpayers who'd much not rather pay Irish bad debts. I decided to rub a little salt in the UK wound by throwing some arithmetic illumination on the situation via an embedded Irish bad bank tax calculator...

The app below allows the UK Taxpayer to calculate for themselves exactly what their individual contribution (pro rata) is to the government bailout of RBS.

I've taken the liberty of pre-populating the input fields for you, but if you don't agree with the numbers then by all means insert your own!

Then there's still that Cyprus'd thingy... 

While the inclusion of large savers in future bank bailouts is now widely accepted, significant differences still remain between member states.

While the new rules governing bank resolution were first intended to come into place in 2018, since the Cypriot bailout there have been calls from senior EU figures such as European Central Bank president Mario Draghi and EU economics affairs commissioner Olli Rehn to introduce the new regime as early as 2015.

The Irish presidency of the European Council is hoping to reach a common position by the end of next month.

The little app below calculates what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity???



Other hard hitting pieces on the resurgent EU banking crisis

Bob Janjuah: Markets Are „Tepper’d Out So Don’t Get Sucked In“

Via Nomura's Bob Janjuah,

Referring back to my last note from 26th March (Bob's World: Post-Cyprus Tactical Update):

A – At best I give myself 5 out of 10 in terms of the accuracy of my main tactical call detailed in the above note. The S&P rallied to 1597 in early April, and then sold off 63 points (4%) to 1534 in Q2 before recovering. I was looking for a 5% to 10% sell-off from 1575 to around 1450/1475.


B – I score myself more highly for the 2nd key call I made back in March, which was that once we cleared a consecutive weekly close above 1575 in the S&P, we’d see new nominal all-time highs with the S&P trading in the high 1600s. I had thought we’d get there in Q3, but as it happens we have seen a (to date) Q2 high print of 1687 (22nd May). So maybe that deserves 7 out of 10? My sense that positioning and sentiment was set-up to get to extremes and chase/buy any dip seems to have played out pretty well.


C – The 3rd and last main call I made was that – based on (poor) fundamentals, (in my view) dangerously loose global central bank policy settings, increasing complacency towards risk and blind faith in central bank ‘puts’ amongst investors, and the sense that positioning and sentiment can and needs to be at (even more) absolute extremes as a pre-condition to any major market move – it would not be until late 2013 or early 2014 before we see the onset of the next major (-25% to -50%) bear market. Time will reveal all on this call, but for now I continue to hold this view.


D – To clarify further, I feel that the current dip that began with the S&P at 1687 in late-May, sparked by moves in rates and rates volatility in Japan and by the Fed ‘taper’ talk, is not the big one. Risk became way overbought from late 2012 and through the first 5 months of 2013, so a 5% to 10% correction (see A above) in, for example, the S&P (from 1687) should and will, I think, be considered normal and healthy – and will be a dip that is also bought (into C above)

Of course things change all the time and I would have to be an (even bigger than usual) idiot to ignore all the Fed ‘taper’ and Japan talk.

Here is what I think matters:

1 – There can be no doubt in my view that the global growth, earnings, incomes and fundamental story remains very subdued. But at the same time financial markets, hooked on central bank ‘heroin’, have created an enormous and – in the long run – untenable gap between themselves and the real economy’s fundamentals. This gap is getting to dangerous levels, with positioning, sentiment, speculation, margin and leverage running at levels unseen since 2006/2007.

2 – The Fed knows all this. The Fed also knows that it was held at least partially responsible for creating and blowing up the bubble that burst spectacularly upon us all in 2007/2008. But very importantly, the Fed now has explicit and pretty much full responsibility for regulation of the banking and financial sector.

3 – As such, and as discussed by Jeremy Stein in February (remember, Mr. Stein is a Member of the Board of Governors of the Fed), the Fed now de facto has a new duel mandate based on (the trade-off between) what I’d call Nominal GDP (or macro-economic stability), and Financial Sector Stability (or what I’d simply label as system-wide ‘leverage’ levels).

4 – This means first and foremost that while growth, inflation and unemployment all matter a great deal, the Fed cannot now either allow, or be perceived to allow, the creation of any kind of excessive leverage driven speculative (asset) bubbles which, if they collapse, go on to threaten the financial stability of the US. Imagine if this Fed were to allow a major asset bubble to blow up and then burst anytime soon (say within the next two or three years). This time round Congress and the people of the US would be able to place the entire blame on the Fed – probably with some justification – and, if the fallout approached anything like that seen in 2008, then it would mean, in my view, the end of the Fed as we currently know it.

5 – Turkey’s do not vote for Christmas, nor is Chairman Bernanke or any other member of the Fed willing, in my view, to take such a risk. Back in Greenspan’s day he could always blame asset bubbles on someone else – even though leverage either in and/or facilitated by the banking/finance sector is always at the heart of every asset bubble. But this get-out has now explicitly been removed from the list of options open to the Fed going forward.

6 – So for me, ‘tapering’ is going to happen. It will be gentle, it will be well telegraphed, and the key will be to avoid a major shock to the real economy. But the Fed is NOT going to taper because the economy is too strong or because we have sustained core (wage) inflation, or because we have full employment - none of these conditions will be seen for some years to come. Rather, I feel that the Fed is going to taper because it is getting very fearful that it is creating a number of significant and dangerous leverage driven speculative bubbles that could threaten the financial stability of the US. In central bank speak, the Fed has likely come to the point where it feels the costs now outweigh the benefits of more policy.

7 - As part of this, the lack of sustainable growth in the US (much above the weak trend growth of 1% to 2% pa in real GDP which has been the case for some years now) is very telling. And, while I can’t be 100% certain, at least some members of the Fed and other central bankers must be looking with concern at recent developments in Japan whereby the BoJ’s independence has, for all practical purposes, been consigned to history, and which has a two decade head start with respect to QE. At least some members of the Fed may be worrying about the future of the Fed and the US if they persist with treating emergency and highly experimental policy settings as the new normal.

8 – The Fed will hope that markets heed its message and that we gradually, through the normalization of yields (in the belly of the curve) and rates volatility (higher!), move aggressively over optimistic financial market asset valuations somewhat closer to what is justified by rational and sustainable real economic fundamental metrics. Rather than being based on some circular and self-serving ‘risk premium’ delusion, which is almost completely predicated on the bogus time-inconsistent assumption of a continuous and never to be removed Fed/central bank put on yields and rates volatility.

9 – The sad likelihood is that markets – which are suffering from an acute form of Stockholm Syndrome - will listen and react too little too late. This could give us the large 25% to 50% bear market I expect to see beginning in late 2013 or early 2014, rather than a more gradual correction. In part, this is because markets will not believe – until it is too late – that the Fed is actually taking away its goodies. Further, it’s because positioning and sentiment among investors just always seems to go to extremes, way beyond most rational expectations, before they correct in spectacular style. Think Chuck Prince and his dancing shoes.

10 - Crucially I suspect that the Fed will be so conflicted/whip-sawed by, and suitably vague in its response to data that it ends up watering down its tapering message a little too often and a little too much, thus encouraging one or two more rounds of ‘buying the dip’. This would reflect the new dual FED mandate and because we are living through an enormous and never seen before global policy ‘experiment’. Furthermore, we are probably going to see Bernanke be replaced come January 2014. I don’t actually think it matters who will replace him – anyone different is a risk and a new uncertainty for the market. In the unlikely event that Bernanke signs up for another term, I don't think that the coming shifts and changes will be reversed, but I tend to feel that the transition phase would be a little less fraught with risk and volatility, as Chairman Bernanke has credibility and the confidence of the market.

11 – So, going back to C & D above, we can certainly see a dip or two between now and the final top/the final turn. But it may take until 2014 (Q1?) before we get the true onset of a major -25% to -50% bear market in stocks. We also need to be cognizant of the Abe/BoJ developments. Along with the Fed, ‘Japan’ is one of the two major global risk reward drivers. The ECB response to (core) deflation and the German elections, and weakening Chinese & EM growth and the indebtedness of China & EM, will also matter a great deal.


As of today, my best guess is at least one major dip around Q2/Q3 (we may be in the middle of it now) as we seek more clarity around all of these drivers. My initial line in the sand for this dip is around S&P at 1530 and my major line is at S&P at 1450. A weekly close below 1450 S&P, in particular, would be extremely bearish. But I expect at least one more major buying of the dip come (late) Q3/Q4.I would not be surprised if we saw the S&P not just back up in the high 1600s, but perhaps even a 100 points higher (close to 1800!) before the next major bear market begins. It depends on who says what, and on the levels of extreme speculation and leverage. In other words, did we collectively learn our lesson from the events leading up to and including the global 07/08 crash? My 25+ years in financial markets lead me to believe, sadly, that the answer is almost certainly NO.

What I do know is that the longer we wait and the longer we put our faith in a set of time-inconsistent policies the greater the fallout will be from the forced unwind of the resulting speculative leverage extreme. This would come once the cost and availability of capital (i.e., rates volatility) ‘normalizes’. It would follow current policies that seek to force a mis-allocation of capital by mis-pricing the cost and availability of capital. I am confident that view is a correct read of the current state of affairs . And I think the Fed is telling us that they know this too. Ignoring this seemingly transparent signal from the Fed – by, for example, believing that the Fed will not have the courage to taper, or  that the BoJ and/or ECB can replace or even out do the Fed over the next year or so - could prove to be extremely dangerous for investors.

We are (I think) in a new volatility paradigm now. Cash will increasingly become King over the next year, even if I do still expect another round or two of dips that get bought during this period. Not getting too sucked in and/or too long illiquidity and/or overly invested in high-beta risks should all be avoided. Nimble tactical trading of risk should be the rule. An increasing focus on de-risking core balance sheet/portfolio should, over the next 12/18 months, hopefully set one up to take advantage of what I think will be another savage bear market in global risk assets over most of 2014.

If cash is too safe, then safety should be sought in the strongest balance sheets, whether one is investing in bonds, in credit, in currencies and/or in stocks. And, as a rule of thumb, (and excluding real house prices in the US) those things that have ‘gone up the most’ over the past few years are likely to be the things that ‘go down’ the most – so as well as equities, EM investors also need to be very careful. 

Stiglitz: Fed Fell into Trap of QE

It looks like we are on for a big whacking bubble to burst and this time it looks like it will hurt for a long time. What’s to blame this time? Not learning from our mistakes! If Ben Bernanke was one of the students sitting in Joseph Stiglitz class at Columbia Business School, either he would be bumped off the course or he would be re-sitting the exams. The Federal Reserve fell into the trap of doing exactly what got us into the crisis in the first place!

Now what? The result of that trap: we have been on an upper and now the markets are ready are 'feeling the burn'. What goes up always ends up coming down. This time you will hear the thud from Europe, from Japan and from the USA. It won’t just be in stereo, it’ll be in Dolby-surround and this time it’ll blast you out of your seats!

You only have to look at the charts for the Nikkei and the S&P 500. Quantitative Easing may have given a bit of respite. It may have given something for the markets to chew on. The trend of the market has been to the upside but in recent days that trend has been tested, the Nikkei has breached that trend line with strong volume. The S&P teeters on the edge, this line in the 'technical' sand will be broken by the fundamentals of economies facing the winds of economic change.

nikkei chart


The S&P 500 teeters on the edge of this 'line in the sand'.

S&P 500

S&P 500

June 18th-19th will be the time of reckoning Mr. Bernanke when there will be a Federal Reserve meeting and a summary of economic projections. One hint, just one tint of easing Quantitative Easing and your bubble will burst right then. The markets gave you a taste of things to come. If you look at the chart, the downturn corresponds exactly to the first time it was mentioned that there would be a tapering of QE4. Did you fall into the trap of what Mr. Stiglitz predicted, the trap of what actually got us into this crisis in the first place?

Abenomics might have been going on for months, but household consumption hasn’t increased significantly and it doesn’t look like it will. 15-year deflationary pressure on the Japanese economy has yet to be reversed. Experts say that the consumer prices will only manage to get a 0.1% rise and at a push 2% in 2014. The economy has expanded in Japan more in the past quarter than in the last year put together.

But Joseph Stiglitz already predicted that too. Quantitative Easing wasn’t going to lead to inflation or growth at all. How come Mr. Stiglitz got given the Nobel Prize, that he is a renowned professor and economist and yet the people that have the decision-making power don’t listen to what he has to say? Shout as he might, the Federal Reserve, theEuropean Central Bank, the rest of the monetary authorities around the western world and in Asia have gone against his advice.

Ben Bernanke

Ben Bernanke

Demand isn’t there at the moment in the economy. Production isn’t being utilized. Any monetary policy will only be temporarily of benefit to the market and keep them happy (as it has done for six months). But, it hasn’t stimulated growth and Stiglitz said that it wouldn’t. It was a trap to believe that it would. Inject as much money into the economy as you like, it won’t incite the banking system to lend more money to people, and people won’t be borrowing anyhow because they are not confident enough to do so. Create confidence and create production, then injecting money might make a difference. It’s the fiscal-side of things that needs changing. Divert the money that is being created into small banks that lend to small businesses and you will create an upturn. The big companies and the big banks are already doing well. But, it’s the big fish that are getting the largest maggots. Not the small-fry.

Stiglitz already predicted that the downside of Quantitative Easing was going to be a weak dollar.  That’s what we have. The Federal Reserve fell into that trap too. The downside is that stocks also rise. That’s what we have right now and it’s as plain as the nose on your face: maintaining the prices of shares artificially, means that the bubble will burst. You can see it throughout history time and time again.


There’re some out there (quite a few) that think that we are set for a crash and a big one to boot. There’re some out there (admittedly there will be more of these when it all goes horribly wrong!) that will be telling you “I told you so and long ago”. As far back as 2010 Joseph Stiglitz was saying that Quantitative Easing wouldn’t do any good (but temporary short-term gains) to the economy and that it could “only hurt”. He suggested that fiscal policy should be tackled first and only use buying bonds as a means of last resort to bring interest rates back down to acceptable levels if they were to rise. Quantitative Easing is nothing more than flash, showy injection, flesh on the bones, but very little to actually dig your teeth into.

Nobody ever listens to the people that stand alone and say it won’t work. Bernanke, the Federal Reserve, The ECB, Abe, they all have just one thing in common apart from the fact that they are together in this one. United we stand? The only thing that keeps them on track is that they are too far into it now to get themselves out. United we stand, yes. But, divided we fall. They won’t be sticking together as the scramble for the exit door when the bubble pops. Then, they will become just case studies at business schools in Economics Majors and Abenomics and Bernankonomics will be the things we shouldn’t do. Let’s try not to forget that!

Also read: Stiglitz Was Right: Suicide!

Originally posted Stiglitz: Fed Fell into Trap of QE

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Guest Post: The Core-Periphery Model

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

What assets will the core/Empire protect? Those of the core. What will be sacrificed? The periphery.

In periods of crisis, scarcity and instability, key resources flow from the periphery to the core. We can witness this in plants, which respond to drought by sacrificing peripheral foliage (that fueled growth in times of abundance) to save the core functions necessary to surviving the drought.

This core-periphery model has a number of interesting dynamics. One is that expanding the periphery yields diminishing returns, and so these high-cost, low-yield assets are jettisoned first just as a matter of prudent risk/asset management.
One example is a farming community based in a narrow valley served by a river. Crop production can be increased by carrying water up the sides of the valley to irrigate new high-maintenance terraced fields, but the farther the water must be carried, the lower the net energy gain of the crop.
In eras of scarce water, the marginal upland fields will be abandoned. In other words, systems shrink (or in the worst-case scenario, fail) from the periphery to the core.
We can see this dynamic is the Eurozone credit/debt crisis: the core-nation banks in Germany, the Netherlands and France feasted in times of plenty on periphery nations' sovereign debt and housing bubbles, reaping enormous profits by extending credit to periphery countries and their banking/housing sectors.
When collateral suddenly declined/became scarce and the yield on expanding debt reversed from positive to negative, the core Eurozone nations protected their banks at the expense of the periphery countries' banks and sovereign debt.
I covered this in depth (thanks to correspondent David P.) earlier this year:
Put another way: credit panics start in the periphery because that's where the risk and overshoot of debt to collateral are highest.
There is another overlay to the core-periphery model: neocolonialism. I explained this in The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012). The classic colonial model is a simple core-periphery dynamic: the core nation extracts commodities and low-cost labor from its colonies (the periphery) and sells its own high-margin manufactured goods to the captured-markets of its colonies.
It's tough to beat this wealth-accumulation scheme, but as overt colonization fell into disfavor/became too costly to profitably maintain, the model shifted to a financialization-neocolonial model in which credit from the core nation establishes a very real financial/political dominance in periphery nations.
In the Eurozone, we see how the assets and income streams of the periphery nations are transferred to the core nations' banks by one means or another--in the Eurozone, the European Central Bank and its proxies are being used as intermediaries.
American hegemony of the global financial system creates political, diplomatic and "soft" power. No wonder the stock markets of financial core countries such as the U.S., Germany, France and Japan have risen: global capital is exiting high-risk periphery nations and seeking the relative safety of dollar and euro-based assets.
In our pastoral valley analogy, it boils down to this: where do you want to control arable land--next to the river, or halfway up the mountainside?
The Pareto Distribution also plays a role in the core-periphery model. As I noted way back in 2007 at the height of housing bubble 1.0 (bubble 2.0 is now playing in housing markets everywhere), the core-periphery model of extending credit to skim ever-riskier returns leads to increasing vulnerability to Pareto-distribution effects: Can 4% of Homeowners Sink the Entire Market? (February 21, 2007)
The 4% of subprime homeowners who defaulted not only popped the housing bubble, they also triggered a meltdown in the global financial system. This dynamic can shuffle the core-periphery rings in a disconcerting fashion: countries that considered themselves securely in the core (for example, Spain and Italy) discover they're now in the inner ring of the periphery--still too valuable to sacrifice but no longer core.
We also see the core-periphery model in urban-suburban demographics. The efficiencies and amenities of city centers are more attractive to younger households than distant exurbs with expansive yards and long commutes. Even if gasoline were less costly, the time and hassle factor of commuting, multiple-auto ownership, etc. makes the core more attractive than the periphery.
Cash-strapped cities faced with difficult decisions on where to trim services inevitably choose to protect services to the high-density core and cut them in the lower-density periphery.
Proximity to the core lowers costs and risks: where do you want to control arable land--next to the river, or halfway up the mountainside? Yes, your land adjacent to the river may get flooded from time to time, but that risk is more than offset by the benefits in times of water scarcity.
What assets will the core/Empire protect? Those of the core. What will be sacrificed? The periphery.

Did the ECB Mega Bailout Just Hit the Wall?


Few analysts know or admit it, but the only thing that held Europe (and ultimately the financial system) together since May 2012 was the promise of unlimited bond purchases from the ECB.


The reason this worked was because traders poured into European bonds in an effort to front run the coming ECB purchases (much as they have done with Treasuries during every new QE plan in the US).


This in turn became a self-fulfilling prophecy as European bond yields fell which induced more buying… which resulted in politicians proclaiming that the EU Crisis was “over.”


However, none of the structural issues in Europe were solved in any way. And now we’re getting to the details of the ECB’s proposed plan. And they are… nothing. The ECB is asking Germany’s constitutional court to “OK” a plan to buy whatever the ECB wants…without providing any legal details around the deal.


Why is this? How can you ask for unlimited funds without providing any details? Even a mortgage requires contracts. Surely an unlimited bond-buying program would require mountains of documents?


The fact of the matter is that the ECB knows there is no such thing as “unlimited” buying. At some point the bond markets will reject intervention (much as they are in Japan today).


Instead, the ECB used the term “unlimited” because it wanted investors to “imagine” that everything was solved. But Europe doesn’t have much money.


Indeed, Germany initially was going to set the program’s limit at a little over €500 billion… that sounds like a lot, but when you consider that the EU sovereign bond market is over €11 TRILLION and growing monthly, this will only go so far.


Put another way, the entire “unlimited” promise by the ECB was a bluff. The markets are beginning to figure this out which is why Europe is heading back into Crisis.


Take a look at Spanish bank Santander: we have a series of lower highs since the peak in January 2013. Whenever we take out the trendline it’s game over.



Check out the Head and Shoulders forming in Italian bank Intesa Sanpaolo:



For market insights on how to prepare for the coming mess, visit us at:


Best Regards

Graham Summers


Bond Market Tremors Get Louder

It appears the cracks in the armor of the central bankers created by an over-enthusiastic BoJ's impact on the quadrillion JPY JGB markets are now rippling through the global market place. While every talking head that dares to speak has proclaimed the weakness in bonds as nirvana for equity bulls, it seems they were wrong, very wrong. As bond market tremors ignite everywhere, so equity markets come a little unglued at the prospect that the Fed, ECB, BoJ, and PBOC may not be so omnipotent after all...


Bond markets...


Stock Markets...


Charts: Bloomberg

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