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Showing posts with label credit crisis. Show all posts
Showing posts with label credit crisis. Show all posts

Tuesday, November 15, 2016

Got gold? Italy's Monte dei Paschi bank begins bail-ins for bond holders

Bail-ins can no longer be said to be limited to just Cyprus now as on Nov. 15, a major Eurozone country just facilitated the confiscation and subsequent haircut of bond holders owning the bank's subordinated debt.

Italy's albatross, and the world's oldest operating bank which goes back to the days before the discovery of the New World, was finally forced to capitulate to stave off insolvency by cutting staff and conducting a bail-in of certain bond-holders of the bank's debt.

Ever since the bank failed the ECB's latest stress test this summer, when it was advised that it needs to raise billions in capital, only to see the process fizzle with virtually no willing sources of new cash emerging due to the opaque labyrinth of the bank's bilions on NPLs, Italy's third largest, most insolvent, bank has been hoping to avoid a debt conversion, out of fears it may spook retail bondholders across the capital structure, and in other Italian banks, who may perceive the move even if touted as "voluntary" as a creditor bail-in. Which it technically is. 
Earlier today, the bank's board bet on Monday to set the terms for a bond-to-equity conversion that is part of the lender's capital boosting plans. As part of its sweeping restructuring, Monte Paschi was planning to lay off a tenth of its staff, shut branches and sell assets to win investor backing for a 5 billion euros ($5.4 billion) cash call, its third recapitalisation in as many years. The key part, however, due to the lack of new investor interest was the previously leaked voluntary conversion of its subordinated debt, whose successful execution would limit the amount of new funds needed.
So while we wait to learn if Monte Paschi will be successful in raising the critical outside cash, here is what Monte Paschi's bail-in, pardon debt conversion will look like, according to sources including Ansa, Bloomberg and Reuters: 
  • Monte Paschi approves voluntary debt-to-equity swap offer
  • Offer to target subordinated bonds for total outstanding amount of 4.289 billion euros; will offer between 20-100 percent of nominal value in bond swap offer
  • Holders of ~€4.5 billion of subordinated bonds will be able to convert them to shares
  • Bank is also considering possibility of launching conversion into equity of 1 billion euros of Fresh 2008 bonds
  • Senior bonds not included in the voluntary conversion plan
  • The bank is also considering conversion plan for EU1b of hybrid bonds
  • The conversion price is seen at 85% of nominal value for riskier Tier 1 bonds, according to Ansa sources.
  • The Conversion price is seen at 100% of nominal value for less risky Tier 2 bonds
  • Monte Paschi will acquire €700m of MPS Capital Trust II securities, also Tier 1, at 20%
  • It will also acquire seven series of BMPS subordinated debt at 100%
Offer open to investors classified as “qualified investors” only for Upper Tier 2 securities - Zerohedge
Monte Dei Paschi is not the only European bank experiencing insolvency issues, but they could be opening the door for institutions like Deutsche Bank to have to follow suit since EU rules negate the possibility of a government funded taxpayer bailout.

When you take into account what occurred late last week in India, where their government abruptly eliminated higher denomination bills to attempt to force their citizens to keep their money solely in a bank, and couple this with the instability of banks all across Europe, the world is once again teetering on the potential of another credit crisis, only this time it will be your money that is used to bail them out unless you learned the lessons of 2008 and have your wealth stored in something much more tangible.

Got gold?

Saturday, September 24, 2016

Perfect storm for gold is now in place as asset bubbles created by central banks are on the cusp of imploding

Central banks around the world no longer are tied to their original mandates of stemming inflation, and formulating monetary policies that aid in keeping unemployment at low levels.  Instead, their 'new' mission has been to prop up assets at all costs, even if this means buying them hand over fist in every market available.

Leading up to the 2008 Credit Crisis, central banks had used low interest rates to create artificial bubbles in housing, equities, and securities.  And when they burst in October of that year, their reactions were to simply double and triple down on these failed policies, and add in tens of trillions of dollars in money printing to ensure these types of assets not only rose to new highs, but would be protected from ever crashing again.

Ahhh... the folly of men.

Unfortunately for economies, the natural laws that govern the Invisible Hand of markets will always have the final say, just as nature is always more powerful than any technology humanity can create to try to stop its exponential power.  (See New Orleans and Katrina)  And despite the Fed, ECB, and Bank of Japan using every tool they could dream up, including outright buying of stocks, mortgage backed securities, sovereign bonds, and corporate bonds, they have been unable to stop the specter of deflation and stand on the threshold of seeing the mother of all bubble implosions about to take place.

Gold will likely soar to a record within five years as asset bubbles burst in everything from bonds to credit and equities, forcing investors to find a haven, according to Old Mutual Global Investors’ Diego Parrilla. 
The metal is at the start of a multi-year bull run with a “few thousand dollars of upside” in a world of “monetary policy without limits” where central banks print lots of money and low or negative interest rates prevail, said Parrilla, who joined the firm as managing director of commodities last month. He’s worked at Goldman Sachs Group Inc. and Bank of America Merrill Lynch. 
“As some of the excesses in other asset classes get unwound, gold will perform very strongly,” said 43-year-old Parrilla, who has almost 20 years experience in precious-metals markets. The “perfect storm scenario will mean that gold will perform best when other classes are doing worst.” - Bloomberg
We saw this month that neither the Federal Reserve, the European Central Bank, nor the Bank of Japan could come up with any new monetary policies that could sate the market's thirst for more, nor their demand for higher and greater yields.  Which means that unless these 'Masters of the Universe' are willing to initiate ultimate protocols, such as taking the banning of cash from the blackboard to the boardroom, the inevitable result will be a bursting of all these asset bubbles and an explosion for gold that will make its $1940 high in 2011 look like pocket change.

Tuesday, August 30, 2016

As the new housing bubble gets ready to burst, gold will be the beneficiary as it was in 2007

The new housing bubble the Fed helped create through its policies of cheap money and stimulus is a bit different than the one that burst in 2007, but the consequences will be very similar.

From 2004-07, low interest rates and sub-prime lending fueled a housing bubble that engulfed buyers from nearly every level of the economic ladder.  From ninja loans (no income, no job) which helped families living below the poverty level to buy 'McMansions' costing over $600,000, to home builders racing to put up new communities by the thousands which didn't even have enough buyers to fill, the result was a complete collapse of the housing market, and spawned the Credit Crisis that nearly collapsed the global financial system.

However today's new housing bubble is quite different, but just as spectacular nonetheless.  Because instead of low income Americans being the buyers in the market like in 2004, today the majority of buyers are foreigners with billions of dollars to spend, and the willingness to purchase property no matter how overpriced it is.

And like in 2007, this bubble has suddenly hit the skids and is now bursting as areas such as the Hamptons, Aspen, Miami, Vancouver where even the rich are finding it impossible to sell in an environment of shrinking buyers.

Hamptons:
One month ago, we said that "it is not looking good for the US housing market", when in the latest red flag for the US luxury real estate market, we reported that sales in the Hamptons plunged by half and home prices fell sharply in the second quarter in the ultra-wealthy enclave, New York's favorite weekend haunt for the 1%-ers. 
Reuters blamed this on "stock market jitters earlier in the year" which  damped the appetite to buy, however one can also blame the halt of offshore money laundering, a slowing global economy, the collapse of the petrodollar, and the drastic drop in Wall Street bonuses. In short: a sudden loss of confidence that a greater fool may emerge just around the corner, which in turn has frozen buyer interest.
Aspen:
The statistics are stunning: single-family home sales in Aspen are down 62% in dollar volume through the first-half of the year. Sales of homes priced at $10 million or more — almost always paid for in cash — are down 60%. Last year, super-high-end transactions accounted for nearly a third of sales volume in Pitkin County. 
“The high-end buyer has disappeared,” said Tim Estin, an Aspen broker whose Estin Report analyzes the Aspen-Snowmass real estate market. 
"Aspen has never experienced such a sudden and precipitous drop in real estate sales," according to the post.
Miami:
Luxury condo sales in Miami have crashed 44%. 
According to the latest report by the Miami Association of Realtors, the local luxury housing market is just as bad, if not worse, than the Hamptons and Aspen. 
The latest figures out of Miami this week showed residential sales are down almost 21% from the same time last year. But as bad as this double-digit decline may seem, it pales in comparison to what’s happening at the high end of the market. 
A closer look at transactions for properties of $1 million or more in July shows just 73 single-family home sales, representing an annual decline of 31.8%, according to a new report by the Miami Association of Realtors. In the case of condos in the same price range, the number of closed sales fell by an even wider margin: 44.4%, to 45 transactions.
Vancouver, Canada:
Needless to say, while most Vancouverites had long been priced out of the domestic real etate bubble - and some say were hoping for the recent substantial pullback in prices, if not outright crash - the biggest losers from this sudden, dramatic collapse, were foreign buyers, mostly the Chinese, whose aggressive, "buy at any price" money laundering "purchase tactics" have been duly documented on this website for the past year. 
The result was swift: as Bloomberg reports, China’s top envoy in British Columbia slammed the Canadian province’s new 15% tax on foreign home buyers, questioning the justification behind the hastily imposed measure
"Why a 15 percent tax? Why now? Why this rate? What’s the purpose? Will it work?"
Liu Fei, China’s infuriated consul general in Vancouver, said in an interview with Bloomberg. "The issue is how to help young people afford housing," she added. "I’m not sure even a 50 percent tax would solve the problem."
Back in 2007, the beneficiary of the crashing housing bubble was of course gold and silver.  And the collapse of housing was the catalyst which sparked the crisis of confidence that took gold to its new all-time high in 2011.

Image result for gold price chart 2007 to 2011

2016 saw the year begin with a huge move in gold, only to use the summer months to consolidate in the $1320 - $1350 range.  And just as we saw the price begin its historic move upward in September and October of of 2007 when the housing bubble finally burst, so too will we see the metals follow the same course as confidence in the financial system will bring in even more buyers than a decade ago.


Tuesday, March 1, 2016

Stock bubble: It now takes more credit to hold up stock prices today than it did just before crashes of 2000 and 2007

Last year was the year of the buyback in the stock markets, where corporations borrowed and spent trillions just to prop up their companies because earnings and revenues were no longer growing.  And for awhile this program was able to take the Dow, S&P 500, and the Nasdaq to new all-time highs.

But in May of 2015 things began to fizzle out, and while there would be a few rally's to counter any major selling, especially during the tumultuous months of July and August, the markets had reached their apex and the trend was fully set for a bear market that began in earnest in January of this year.

Yet perhaps most importantly for those hoping that Wall Street can calm the markets as we head into the 2nd quarter of 2016, an interesting piece of data was just compiled by Bill Holter that shows that corporations and central banks have reached their limit in being able to protect stocks from selling pressures as credit (debt borrowing) is now more costly than during the market peaks of 2000 (Dot Com) and 2007 (Housing Bubble, Credit Crisis) just prior to their collapses.
Just a short comment on a VERY BIG problem! The below chart shows “margin” balance on the NYSE with an inverted chart of the S+P 500 laid over it. 
NYSE-investor-credit-SPX-since-1995-inverted
Please notice the amount of credit being used to carry stocks now is significantly larger than it was at previous market tops in 2000 and 2007. Also, the amount of credit has begun to contract, this is a classic margin call being met …so far. The danger of course is as it always has been when margin builds like this. As the equity market pulls back, margin calls are issued and in some cases “forced sales” are done. This can, has in the past and most likely will occur and morph into a virtual loop where forced sales weaken prices, creating new margin calls and more forced sales in a negative feedback loop…otherwise known as a market panic. - Silver Doctors
What this all means in layman's terms is that when the market tilts completely downward, neither the Fed, nor the banks, will be able to provide liquidity to keep the markets propped up, with margin calls on their outstanding debt they already have causing stocks to unravel even more.

Saturday, February 6, 2016

Foreign bartender hires take unemployment rate below 5%

As usual, today’s new job report from the Bureau of Labor Statistics isn’t what it seems, and proves once again that government reporting is simply a political tool for the state’s benefit rather than as a true barometer of the economy.  And all one simply has to do is look at how the Feb. 5 number came in far below analyst projections, yet the unemployment rate fell below 5% and to its lowest level in eight years.
And following a trend that started in 2009, and which has continued on the same path for the past six years, the vast majority of jobs created are low paying and part time service sector ones, with more given to foreign workers, both legal and illegal, than to American citizens.
foreign born workers 2
Read more on this article here...

Tuesday, December 15, 2015

Oil falls below $35 a barrel while natural gas drops to lowest level since 2002

Energy prices are not simply barometers of inflation and deflation, but they are also red flags that point towards recession in ways few other indicators can.  And when you couple the current declines in oil and natural gas with highs in inventories worldwide, the result is that the global economy is slowing way down, and no amount of hyperbole from the mainstream media can change this.
A few weeks ago, Dr. Jim Willie gave an interview in which he said one of his primary sources intimated that oil would eventually fall to around $20 per barrel, and this was on a day that prices were sitting around $41-42.  And in less than two weeks, the price has now fallen below $35 per barrel heading into the new year.

Read more on this article here...

Thursday, November 12, 2015

Corporate borrowing and stock buybacks reach the point of diminishing returns

Over the past two years, corporations in the U.S. have been manipulating their EPS (Earnings per share) by focusing on the number of share’s side of the equation, rather than increasing sales and revenue.  And while the new normal on Wall Street has been to exceed analyst’s estimated earnings per share, more often than not they have failed in beating Wall Street’s quarterly forecasts for overall earnings.
However, like the Federal Reserve finally reaching their own point of diminishing returns, where it now takes approximately $14 in newly printed dollars to create $1 of real GDP, the consequences for corporations borrowing extensively to buy back their own stock has now reached the point where default, bankruptcy, or even worse, a corporate takeover is a real possibility for a growing number of companies.

Read more on this article here...

Friday, October 30, 2015

The next reform Iceland is making is to give bank profits and proceeds to the people

First it was jailing the bankers who helped create the financial collapse in Iceland, and now their Ministry of Finance is planning on giving the people profits and proceeds from the banks in a new reform policy that could revolutionize the banking system.
Iceland has been the premier model for how the U.S. and Eurozone should have dealt with the banks and individuals who nearly brought down the global financial system seven years ago, and in less than a decade not only has the island nation paid off all its debt obligations to the IMF, but has emerged as the only economy that is growing on production rather than central bank intervention.

Read more on this article here...

Tuesday, September 17, 2013

Cyber attack warning: Banks beginning to delay payrolls and have extended electronic outages

On Sept. 16, a former head trader with the Royal Bank of Scotland (RBS) issued a new warning that a cyber attack on the banking system is a real and probably threat in light of the many recent electronic outages and delays in payroll processing.  Known under the pseudonyms V and the Guerrilla Economist, this high level insider has warned of  impending cyber attacks meant to mask liquidity and financial problems that threaten the entire banking system.



Read more on this article here...

Monday, March 5, 2012

Dylan Ratigan lays out the great con scheme of the banking system

If you've ever wanted to know how the credit crisis came about, and how the Fed, banks, and even government officials all participated in one of the great thefts of wealth in the history of the world, simply take a look at this 10 minute breakdown of how the scheme was perpetrated, and implemented to increase the money supply, use it to enrich the upper 1%, and then use $trillions in taxpayer money to bailout the system once that wealth was removed.



Video courtesy of 365Jamz and Activist Post