Aug 28

The Great Unwind, China Begins Dumping Treasuries (Sprott Money):

US Treasuries-2

charts from: http://www.globalpost.com/dispatch/news/regions/americas/united-states/150204/chart-us-foreign-debt

Behind the scenes is an event unfolding that has the market shaking in its boots. Yet you don’t hear this discussed by the mainstream media, let alone investment bankers.

The reason? It is an event that has been talked about throughout China’s rise to prominence. It has been pondered and feared by Western bankers and politicians. The event I am talking about is the dumping of US treasuries by China. Continue reading »

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Aug 27

Chinese Wall in the Mist

It’s Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington (ZeroHedge, Aug 27, 2015):

As Bloomberg reports, “China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter. Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales.”

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Aug 27

What China’s Treasury Liquidation Means: $1 Trillion QE In Reverse (ZeroHedge, Aug 27, 2015):

The size of the epic RMB carry trade could be as high as $1.1 trillion. If China were to liquidate $1 trillion in reserves (i.e. USTs) in order to stabilize the yuan in the face of the carry unwind, it would effectively offset 60% of QE3 and put around 200 bps of upward pressure on 10Y yields. So in effect, China’s UST dumping is QE in reverse – and on a massive scale.

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Aug 27

Putin

Russia Refuses To Participate In Ukraine Debt Restructuring (ZeroHedge, Aug 27, 2015):

War-torn Ukraine has reportedly reached a restructuring deal with a group of creditors headed by Franklin Templeton, according to the country’s finance minister Natalie Jaresko. The terms of the agreement call for a 20% writedown and a reprofiling that includes a maturity extension of four years and an across-the-board 7.75% coupon. Vladimir Putin isn’t interested.

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Aug 25

Devaluation Stunner: China Has Dumped $100 Billion In Treasurys In The Past Two Weeks (ZeroHedge, Aug 25, 2015):

On August 11, China devalued its currency, and in the subsequent 3 days the onshore Yuan, the CNY, tumbled by some 4% against the dollar. Then, as if by magic, the CNY stabilized when China started intervening massively, only this time not through the fixing, but in the actual FX market.

This means that while China has previously been dumping reserves as a matter of FX policy, after August 11 it was intervening directly in the FX market, with the intervention said to really pick up after the FOMC Minutes on August 19, the same day the market finally topped out, and has tumbled into a correction since then. The result was the same: massive FX reserve liquidations to defend the currency one way or the other.

And yet something curious emerges when comparing the traditionally tight, and inverse, relationship between the S&P and the Treausry long-end: the tumble in stocks has not been anywhere near as profound as the jump in yields. In fact, the 30 Year is wider now than where it was the day China announced the Yuan devaluation.

20150825_30YSPXWO

Why is that?

We hinted at the answer on two occasions earlier (here and here) and yet the point is so critical, and was missed by virtually all readers, that it deserves to be repeated once again: as part of China’s devaluation and subsequent attempts to contain said devaluation, it has been purging foreign reserves at an epic pace. Said otherwise, China has sold an epic amount of Treasurys in the past two weeks.

How epic? We turn it over to SocGen once again: Continue reading »

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Aug 21

Paul-Krugman-Keynesians-Fail

You can’t make this stuff up!


–  Paul Krugman “What Ails The World Right Now Is That Governments Aren’t Deep Enough In Debt” (ZeroHedge, Aug 21, 2015):

This was written by a Nobel prize winning economist without a trace or sarcasm, irony or humor. It is excerpted, and presented without commentary.

From the NYT:

Debt Is Good

… the point simply that public debt isn’t as bad as legend has it? Or can government debt actually be a good thing?

Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt. Continue reading »

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Aug 19

More Trouble In Turkey As Lira Plunges To New Lows, Bond Yields Soar (ZeroHedge, Aug 18, 2015):

On Monday, Turkey’s lira plunged to new lows against the dollar as coalition talks between prime minister and AK Party leader Ahmet Davutoglu and nationalist MHP leader Devlet Bahceli broke down. The result, AKP won’t be able to form a coalition government after elections in June saw the party lose its parliamentary majority for the first time in 12 years.

In the absence of a coalition, the country will go back to the polls – likely in November – where President Recep Tayyip Erdogan hopes heightened violence between Ankara and the PKK will translate into a stronger showing for AKP.

The political turmoil, rising violence, and general EM malaise have hit the country’s currency hard and on Tuesday, Turkey’s central bank left rates unchanged prompting further weakness in the lira which had already fallen earlier in the session after Emine Nur Gunay, Davutoglu’s chief adviser, hinted that a rate hike was not in the cards.

20150818_TRY

Meanwhile, 10-year yields have spiked to their highest levels in nearly a year and a half. Continue reading »

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Aug 16

Yuan Devaluation Sparks Biggest Crash In US Corporate Bonds Since Lehman (ZeroHedge, Aug 16, 2015):

Just two days ago we warned of the dramatic disconnect between equity insurance and credit insurance markets – at levels last seen before Bear Stearns collapse. As the Yuan devaluation shuddered EURCNH carry traders and battered European assets, US equity markets stumbled onwards and upwards, impregnable in their fortitude with The Fed at their back no matter what. However, US corporate bond markets were a bloodbath…

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Aug 15

Dominos countries

“China, Australia, Brazil, Canada, Sweden – it is beyond us how anyone can declare the crisis isn’t spreading. Be prepared – there are going to be lots of opportunities to both make and lose money. But first, you have to recognize what is happening.”


The Crisis Is Spreading: China, Australia, Brazil, Canada, Sweden… (ZeroHedge, Aug 15, 2015):

Earlier today, we posted an excerpt from IceCap Asset Management’s latest letter to investors focusing on the farce that is the Greek bailout #3, which can be summarized simply by the following table…

greece next steps

… and Keith Dicker’s assessment which was that “for Greece, it’s mathematically impossible to repay its debt” and that the Greek “economy continues to plummet to deeper depths and is now -33% less than where it was in 2008.”

But the truth is that for all the endless drama, Dicker continues, “the Greek debt crisis isn’t THE crisis. Rather it is simply a symptom of a much larger global debt crisis.” Continue reading »

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Aug 15

angela-merkel

Study: Germany made €100bn profit on Greek crisis (Keep Talking Greece, Aug 10, 2015):

What? I don’t believe it! Rea-lly? Germany made a 100 billion euro profit on Greek crisis? No, kidding? HA! And yes, so it is! A study conducted by a German Economic Institute has shown that every time investors got bad news about Greece, they rushed to Germany’s ‘safe haven’ with the effect that the interest rates on German government bonds were falling!

“Greece’s biggest creditor Germany has made a huge profit on the country’s debt crisis over the last 5 years as it saved through lower interest payments on funds borrowed amid investor “flights to safety.”

Each time investors got bad news about Greece, they rushed to the ‘safe haven’ of Germany, with the interest rates on German government bonds falling, according to the study from the private, non-profit Leibniz Institute of Economic Research, Agence France-Presse reported Monday. Continue reading »

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Aug 08

It’s a controlled demolition.

WTC-7-collapse


Bernanke_normal

When A Train Wreck Is No Accident (International Man):

“In spite of all the rhetoric, we will go deeper in debt, the Fed will print more money, and the value of the dollar will continue to plummet.” – Ron Paul

Never in history have the economic and political structures been so manipulated by those who are responsible for their safekeeping; never has so much been at stake, in so many countries, and facing collapse, all at the same time.

The great majority of people in the First World recognise that the world is passing through an economic crisis. However, most are under the impression that there are some pretty smart fellows running the show and all they need to do is tweak the system a bit more and we’ll return to happy days.

Not so. The “smart fellows” who are in charge of fixing the problem are in fact the very same people who created it. Continue reading »

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Aug 07

Surprised-baby


Here Comes The Next Crisis “Nobody Saw Coming” (ZeroHedge, Aug 7, 2015):

When borrowing become prohibitive (or impossible) and raising taxes no longer generates more revenues, state and local governments will have to cut expenditures.

Strangely enough, every easily foreseeable financial crisis is presented in the mainstream media as one that “nobody saw coming.” No doubt the crisis visible in these three charts will also fall into the “nobody saw it coming” category.

Take a look at this chart of state and local government debt. As we noted yesterday, nominal GDP rose about 77% since 2000. So state and local debt rose at double the rate of GDP. That is the definition of an unsustainable trend.

state-local-govt-debt8-15

As noted earlier in the week, state and local taxes have soared 75%. While this would be no big deal if wages and salaries had risen by 75% in the same time frame, but earnings have barely kept pace with inflation (38% since 2000). Continue reading »

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Aug 06

Emerging Market Mayhem: Gross Warns Of “Debacle” As Currencies, Bonds Collapse (ZeroHedge, Aug 6, 2015)

Things are getting downright scary in emerging markets as a “triple unwind” in credit, Chinese leverage, and loose US monetary policy wreaks havoc across the space. Between a prolonged slump in commodity prices and a structural shift towards weaker global trade, the situation could worsen materially going forward.

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Aug 06

Is This Country Latin America’s Next “Argentina” (ZeroHedge, Aug 6, 2015):

Today, following another spike in negative news, it appears that the credit markets have finally woken up, and a quick look at Brazil’s CDS shows that following today’s spike to 314bps, the country’s implied default risk is back to levels last seen in April of 2009! We expect more credit market participants to notice the depressionary developments in brazil, and as the country’s CDS continue to blow out, many will start asking themselves: is Brazil the next Argentina?

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Aug 03

Puerto Rico broke

First Default By U.S. Commonwealth In History: Puerto Rico Fails To Make Required Debt Payment (ZeroHedge, Aug 3, 2015):

Over the weekend Puerto Rico was supposed to make a modest principal and interest payment of some $58 million due on Public Finance Corp. bonds, which however few expected would be satisfied. As a reminder, on Friday, Victor Suarez, the chief of staff for Governor Alejandro Garcia Padilla, said during a press conference in San Juan that the government simply does not have the money.

Moments ago Melba Acosta, president of the Government Development Bank, confirmed as much, when he announced that only $628,000 of the $58 million payment, or just about 1%, had been paid.

Below is the full statement from Acosta on the service of PFC Bonds: Continue reading »

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Aug 03

30Y Treasury Yield Plunges To 3-Month Lows As S&P Breaks Key Technical Support (ZeroHedge, Aug 3, 2015):

The carnage is contagious. The S&P 500 just broke down below its 50- and 100-day moving averages unable to hold the ubiquitous pre-EU-close ramp highs. Treasury yields have plunged since the weak spending and ISM data with the 5Y breaking below its 200-day moving average and 30Y yields testing 3-month lows

 …

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Aug 02

“The punchline: Sheng warned about the risks of local government debt, saying that 2 trillion yuan ($322.08 billion) in bond swaps may not be able to fully cover maturing debt, according to the report.

What he really said, as paraphrased by Bloomberg, is that “local governments tended to not report all their debts when audited in June 2013, thus the 2 trillion yuan debt swap plan arranged this year may not cover all debts due, Sheng cited as saying.”

Oops.”


 

china-property-bubble

As China Admits It Lied About Its Local Debt Levels, Local Billionaires Are Quietly Liquidating Their Assets (ZeroHedge, Aug 2, 2015):

It was almost exactly two years ago, when during China’s long-forgotten attempt to actively deleverage its economy (remember that? good times…) we commented on the country’s s first attempt to estimate what its local government debt is since June 2011.

This is what we said in July 2013: Continue reading »

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Jul 28

empty-piggy

The Disappearing Retirement Fund (International Man):

As a general principle, I’ve always tended to avoid entrusting others with my money. I’ve avoided funds, as they are often based upon investments that are peaking or close to peaking. I’ve avoided pension funds, as they’re often structured in a similar manner.

And whenever by law I’ve been required to be invested in such funds, they’ve rarely been successful over the long term. In the end, I would invariably have made more money by pursuing those investments that had great promise but at the time were unpopular (and therefore underpriced).

As dubious as I tend to be of conventional investment schemes (and those who broker them), I am doubly dubious of any government-run scheme. Governments, historically, have proved to be poor money managers, and politicians tend to place more value on big promises that garner votes than on delivering on those promises. Continue reading »

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Jul 24

In Latest Market Rigging Scandal, Wall Street Now Sued For Treasury Market Manipulation (ZeroHedge, July 24, 2015):

“Defendants used electronic chatrooms, instant messaging, and other electronic and telephonic methods to exchange confidential customer information, coordinate trading strategies.”

“Traders at some of these primary dealers talked with counterparts at other banks via online chatrooms and swapped gossip.”

Sound familiar?

Those quotes are from a 61-page complaint filed in the Southern District of New York wherein Boston’s public sector pension fund accuses all US primary dealers (the cabal of usual suspect dealer banks that transact directly with Treasury and “have a special obligation to ensure the efficient function” of what was formerly the deepest, most liquid market on the planet) of colluding to manipulate the $12.5 trillion US Treasury market.  Continue reading »

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Jul 22

It’s Not Just Greece: Total European Debt Hits New All Time High (ZeroHedge, July 22, 2015)

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