One of these things is not like the others...
With The Fed's reported inflation hovering around 1.0% - enabling monetary policy so easy, it could work in the Bunny Ranch - we thought the average Joes of America might need reminding of just what is devouring their wages...
Remember though, thank nice Mr.Obama for creating this 'tax' (silver lining - 'consuming' all that healthcare insurance will do wonders to maintain the US GDP) and do not complain about how tough it is 'getting by' because that is cynical and you wouldn't want to be labeled a realist doom-and-gloomer.
Remember, vote for Hillary so your rates can continue to rise because she's promised to continue Obama's policies.
Now shut up and eat your soylent green.
You know everything is going to hell when the Chinese government officially tells banks not to call-in non-performing corporate loans or to cease lending to non-paying companies; and that is precisely what China has just done!
CHINA ASKS BANKS NOT TO SUSPEND, CALL IN LOANS TO COS.: DAILY. The Chinese bankruptcy cycle is officially on hold
— zerohedge (@zerohedge) August 3, 2016
And now the follow up by Valentin Schmid of Epoch Times
China Banking Regulator Tells Banks to Evergreen Loans of Troubled Companies
On the surface, China is talking the reform talk. But is it also walking the walk? There are many examples to demonstrate it isn’t. The most recent one is a directive from the China Banking Regulatory Commission (CBRC) to not cut off lending to troubled companies and evergreening bad loans. This first reported by The Chinese National Business Daily on Aug. 4.
“A Notice About How the Creditor Committees at Banks and Financial Institutes Should Do Their Jobs” tells banks to “act together and not ‘randomly stop giving or pulling loans.’ These institutes should either provide new loans after taking back the old ones or provide a loan extension, to ‘fully help companies to solve their problems,'” the National Business Daily writes.
“It’s big news. A couple of weeks ago they were threatening Liaoning Province to cut off all lending to them if they didn’t tighten loan standards,” said Christopher Balding, a professor of economics at Peking University in Shenzen. “This is a pretty significant turn-around for them to do and it indicates how significant the problem is.”
The official reform narrative is espoused in this Xinhua piece which claims China has to reform because there is no Plan B. “Supply-side structural reform is also advancing as the country moves to address issues like industrial overcapacity, a large inventory of unsold homes and unprofitable ‘zombie companies.'” Clearly resolving the bad debt of zombie companies is not high on the priority list.
Goldman Sachs complained in a recent note to clients that companies can default on payments and often nothing happens. The investment bank notes that companies like Sichuan Coal default on payments of interest and principal for weeks or months and then maybe pay creditors later. The company in question defaulted on 1 billion yuan ($150 million) worth of commercial paper in June but made full payments later during the summer, a somewhat arbitrary process.
Another case is Dongbei Special Steel, which missed at least five payments on $6 billion of debt since the beginning of the year, but has done nothing to resolve the problem. This is why creditors wrote an angry letter to the local government to help resolve the issue.
According to Goldman Sachs, Dongbei was the reason Liaoning Province came under pressure:
“A bondholders meeting took place … with bondholders requesting that the [regulators] halt fundraising by the Liaoning provincial government and the enterprises in Liaoning province, and that institutional investors should stop purchasing bonds issued by the Liaoning government and the enterprises in Liaoning province. According to news reports, this demand stems from disappointment in progress by the provincial government in resolving Dongbei Special Steel’s debt problems, with a lack of information and no clear resolution plan.”
“Going forward, we do expect this trend to continue, with more defaults given our expectation of slower growth in the second half, and continued uncertainties on how these defaults are resolved.”
With the blessing of the regulator, Goldman’s prediction is probably correct. The investment bank notes that 11 out of 18 high-profile defaults have not been resolved since the first official default of a Chinese company by Chaori Solar in 2014.
Christopher Balding thinks the directive shows how serious the debt situation has gotten. “This does indicate that there is a relatively significant pressure on the system and people aren’t making their payments. ‘Look, don’t rock the boat and push people into default.’ To say it so publicly or bluntly is amazing.”
The notice did include a modifier stating that the companies to be supported “must have a good outlook in terms of either their products or services and have restructuring values,” and that the “the development of the companies should be in line with the macro-economic policy, industrial policy and financial supporting policy of the country.” How serious banks will take this modifier is open to debate.
Overall bankruptcies in China have surged 52.5 percent in the first quarter of 2016 compared to a year earlier with 1028 cases being reported by the Supreme People’s Court. Most cases that are resolved involve small companies with few employees. The small firms are liquidated rather than restructured, according to the Financial Times. As we have seen there is another measure applied to larger companies, much to the dismay of Goldman Sachs:
“A clearer debt resolution process … would help to pave the way for more defaults, which in our view are needed if policymakers are to deliver on structural reforms.” If they want to deliver.
So now, even though corporations are actually insolvent, actually Bankrupt, China has told its banks to keep the money flowing. Reality has just been suspended in matters financial within China.
Editor’s Comment: No one knows how much longer they can prop up the system and keep appearances. But one thing that is undeniable is how deep the financial crisis really goes. Nearly every Western nation is much more fragile than it appears on the surface; the exposure to derivatives, and the unsustainable system is headed for disaster – and there is no way to contain, stop or “fix” it.
Unfortunately, the perpetrators who have set us up for a fall are likely to escape in their golden parachutes before the disaster hits, and devastation spreads rapidly deep into the fabric of society. What is now a difficult time can and likely will become a nightmare where jobs are gone, money is inflated and worthless, and the real assets have been swindled. The patchwork solutions of the past financial crisis won’t hold, and the big one is falling upon us all like a ton of bricks.
The Looming Financial Crisis Nobody Is Talking About, But Should Be
by Shaun Bradley
The world has been captivated by a continuous stream of disturbing and shocking headlines. Seemingly every other day, different terrorist attacks, police assassinations or political stuntsignite the public into an emotional frenzy. But as fear shuts down critical thinking, banks that control Europe’s financial system are entering a death spiral. Despite what establishment media narratives push, the most dangerous threat to our way of life isn’t a religious ideology or political divide.
The real risk is a contagion that is undermining the core of the financial system, and the interconnectedness of the globalized economy we live in makes containing the problem nearly impossible. Concerns that used to be isolated to the failing state of Greece have now engulfed the rest of the PIIGS nations. If these dominos continue to fall in Europe, the momentum could carry the destruction to every corner of the globe.
Italian banks are the latest on the chopping block in the wake of Brexit. For years, they have been acknowledged as a weak link in the economic chain, but they now face stress tests that could expose the scope of their internal problems. The oldest bank in the world, Monte Dei Paschi, is at the center of the controversy, with an expected shortfall of over 3 billion euros.
Other big names, like UniCredit, are in equally bad shape. Wells Fargo recently found that nearly 15% of all loans held by Italian banks could be at risk of default, a staggering figure to attempt to unwind. Further, England’s departure from the E.U. has sparked questions over the future of the euro — and Italy could be the catalyst for an all out breakdown of confidence. If panic begins to grip the Italian people, things could escalate quickly, potentially triggering bank runs.
Mihir Kapadia of Sun Global Investments explained the current situation in a recent article:
“A perfect storm of slow or zero Italian economic growth, low interest rates and politically connected, often corrupt, lending have combined to create a situation where the Italian financial system is in need of a large rescue.“
The head of the European Central Bank, Mario Draghi, wasted no time reassuring the markets and downplaying the significance of the hurdles ahead. Draghi is a former governor to the Bank of Italy, and he recently came out in full support of a ‘public backstop’ for the toxic loans. The public backstop suggested is the political term for shafting the taxpayer. Governments and banks alike have no problem shifting the responsibility of the debt onto the citizens, all while chastising them about how excessive their entitlement programs are and framing the greed of everyday people as the root of the issue. For the elites, it is much easier to use austeritymeasures, inflation, and shaming of the public to deflect blame from themselves than it is to take ownership for their own corrupt actions.
New regulations passed by the E.U. prevent bailout-style action similar to what the U.S. implemented during the 2008 crisis, meaning the only other option on the table is to use customer accounts to re-capitalize, otherwise known as a bail-ins. We saw a test run of this a few years ago in Cyprus, which led to the confiscation of all personal funds exceeding 100,000 euros. In this trial, the seizures only affected the very wealthy, so there was little major outrage; most accounts over the threshold were also held by foreigners, particularly from Russia.
But in such a future scenario, private savings accounts, retirement funds, and IRAs of average citizens could be stolen by the banks — without compensation — to cover their bad investments. Although it would be devastating for Italy to have to implement these tactics to save their failing institutions, the real fireworks would be the effects such a move could have on other key banks and foreign nations.
As time passes, red flags continue to emerge that point to a terminal diagnosis for the system as a whole.Deutsche bank is by far the most crucial in the E.U., as it supports the union’s powerhouse economy of Germany. In the last year alone, however, their stock price has plummeted more than 60%, bringing the total decline to 90% since its peak in 2007. The bank also just announced its plan to close over 188 branches and cut 3,000 jobs in the coming months. The rebound in the American financial sector over the last seven years never manifested in Europe; instead, the value of their banks continued to grind lower, perpetuated by political ineptitude and central bank manipulation. Germany is the last strong economy left to prop up the crumbling trade bloc in Europe, and without its stability, this grand experiment is doomed to fall apart at the seams.
If those signs aren’t bad enough, Deutsche has also become the poster child for the ominousderivatives bubble. It, alone, has amassed an exposure of over $75 trillion dollars in these risky devices, which is almost equal to theannual GDP of the world. This problem is by no means isolated to the European markets; the U.S. banks also drank the kool-aid, and believe it or not, helped create a quadrillion dollar mess.
The empty promises made by financial managers are only as good as the public’s confidence in them. Before the subprime mortgage crisis, it seemed like there wasn’t a care in the world — until everyone got spooked and headed for the exits at once. If a similar stampede occurred today, the implications would be far worse. The amount of money needed to pay out on the outstanding derivative contracts doesn’t even exist, and the CIA’s factbook states that broad money, including all paper currency, coins, checking, savings, and money market accounts, equals just over 80 trillion dollars — a mere fraction of the what it would take to cover theexposure of the banks.
“I regard very large derivative positions as dangerous. We inherited a modest sized position at [Berkshire’s reinsurance vehicle] Gen Re in a benign market and we lost about $400m just trying to unwind it with no pressure on us whatsoever. So I think it does continue to be a danger to the system.”
The derivative market is one of the most obscure in all of finance. Instead of buying a share of a company, or a commodity like oil or corn at a future price, a derivative has no value on its own. Its entire worth is derived from the performance of other parts of the market. It is essentially a side bet on the price movements of real assets. If the major banks, like Deutsche, were to go under, all of those derivatives would be wiped out and could light the fuse on this economic time bomb.
Even George Soros has commented on the ongoing crisis in the E.U., saying:
“Europe’s leaders must recognize that the EU is on the verge of collapse. Instead of blaming one another, they should pull together and adopt exceptional measures.”
The Italian banking crisis and the ballooning derivative market may seem like a trivial issue that is out of sight and out of mind, but the black hole it could open up would destroy our way of life. Thinking about these possibilities can be terrifying, but there are steps that can be taken to ensure individuals at least have an insurance plan in place. Becoming educated on the financial system we’re living in is paramount to having the foresight needed to take action.
Developing technologies like Bitcoin and other cryptocurrencies have created an entirely new monetary system that isn’t subject to the corruption of the broken centralized model. These peer-to-peer networks can secure wealth while allowing unprecedented mobility and anonymity. Other forms of stable money, like gold or silver, also play a key role in financial independence. There are few assets with zero counter-party risks, and precious metals allow each individual to become their own central bank.
Being self-reliant is also a powerful tool; not being dependent on someone else in a worst-case scenario is crucial to thinking clearly when financial panic breaks out. There is no antidote for the potential chaos bearing down on us, but building strong relationships, obtaining basic skills, and stockpiling the necessities of daily lifecan provide peace of mind and preparedness.
A chain of events has been set in motion that will expose the massive fraud world banks and governments have perpetuated on their citizens. When fear porn is being promoted on the major networks, keep in mind the real threats to freedom and security will not be openly announced. The focus on the lone nutjob that kills 20 or the spread of deadly pandemics, for example, is nothing but propaganda aimed at shifting attention to things that are uncontrollable. Ensuring the masses feel helpless and in need of the government’s protection is priority number one for the ruling class. Talking heads and hedge fund managers will be eternally optimistic on the outlook for the future, even as the collapse becomes undeniably obvious. Problems for the European Union will continue to build, and the risk of the disease spreading to other economies increases by the day. Unfortunately, this Ponzi scheme system we built our societies on has left us vulnerable to any well-timed black swan event.
This article was written by Shaun Bradley and originally published at The Anti-Media.org.
The Dow Jones Industrial Average has declined 8 of the past 9 days, including the past 7 days straight. The index has only given back 1.5% in that time, but the consistent downward moves do not portend good things on the horizon.
According to Tom Leveroni of Nautilus Investment Research, this is only the 10th time since the start of the 20th century that the Dow has had such a downward streak and it historically has had negative connotations.
"Asterisk aside, this pattern has not been good historically," said Leveroni in a note to clients Wednesday morning. "The Dow closed lower 1 month and 1 year later in 6 of the 9 occurrences since 1900 with 5 signals precisely marking cyclical tops (1901, 1919, 1966, 1976 and 1987). "
The historical average loss for the Dow after a 8 for 9 day losing streak over the last nine times this happened was 0.94% in the next week, a loss of 4.42% over the next 3 months, and a 6.39% loss over the next 6 months. The worst such loss was a 31.06% drop after a signal on November 14, 1919.
Leveroni, however, also believes in the contrarian's constant refrain: this time it's different.
"For now, we are merely reporting this observation. For now, it does not trump the many bullish factors we have cited over the past few months and we still expect any further decline here will be a buying opportunity," Leveroni concluded.
It happens all the time now: On Monday, Salesforce, after trying to buy LinkedIn but getting outbid by Microsoft, bought the San Francisco startup Quip Inc., which has “about 40 people,” as the company says. Quip’s product is what it calls a “productivity platform for teams that allows them to be more connected, more collaborative and get more work done,” or what TechCrunchcalls “a cloud-based word processing app.”
Quip was founded in 2012 by Bret Taylor (co-creator of Google Maps, CTO of Facebook, “responsible for the like button,” and now on the board of Twitter) and Kevin Gibbs (“led engineering and product at Google and brought Google’s App Engine to market”).
Given this sort of pedigree, Quip had VCs and other investors standing in line, wagging money: It raised $15 million in July 2013 and $30 million in October 2015. Among these investors was Salesforce Ventures.
Salesforce is now paying a ton of money for the rest of Quip. TechCrunch: “We understand from two sources very close to the deal that the total price is $750 million.”
This includes $582 million in Salesforce stock, plus the undisclosed current value of the investment Salesforce had made in Quip previously.
Quip will be the 9th company Salesforce has acquired over the past 12 months, according to CrunchBase, and the 41st since 2006!
They’re all doing it – publicly traded companies with inflated stock prices and a relentless passion for overpaying because they can: they use their inflated shares as currency of which they can print an endless number; and they use acquisition accounting to convert real expenses into “non-cash charges” that everyone is going to ignore.
Compared to some of the crazy deals a couple of years ago, $750 million for a company with “about 40 people” and an app sounds almost reasonable.
But as this corporate buying spree of startups continues, the IPO market has fizzled.
There have been 54 IPOs through July this year, down 54% from 118 deals during the same period in 2015, according to Dealogic. These IPOs raised $11.5 billion, down 50%. It was the worst year-to-date since 2009.
Lest we forget, 2015 had already been a down year: Compared to the same in period 2014, the number of deals and the amount raised have both plunged by about 70%.
The LASCO C3 solar observatory is giving us a dramatic view of a Comet or an Asteroid, some say "the size of planet Neptune" diving into the Sun today.
Watch it's dramatic demise via the Solar Observatory HERE