Time for a Plan (Perpetual) B, says Jefferies.
The Bank of Japan is running out of government bonds to buy.
The central bank’s would-be counterparties have become increasingly unwilling to sell the debt that monetary policymakers have pledged to buy, and the most recently issued 30-year Japanese bond didn’t record a single trade during a session last week as existing owners opted to hoard their holdings.
The central bank in the land of the rising
pricessun has set a target of 80 trillion yen ($733 billion) in government bond purchases per year in its continued attempts to slay deflation, an amount that’s more than double the pace of new bond issuance planned by the Ministry of Finance and about 16 percent of gross domestic product. Continue reading
When you run out of magical intervention tricks in your bag the best way to handle the inevitable is a controlled demolition. Although the crisis is far from over, it alleviates the pain for the short-term time being. You know the situation is dire when the Communist Capitalists force investors to stay in by banning all selling of stocks for months, forcing you to shoulder the loss, in order to stem the tide.
Last week, China destroyed its stock market in order to save it. Faced with a crash in share prices from a bubble of its own making, the Chinese government intervened ruthlessly, and recklessly, to turn those prices around. Its heavy-handed approach seemed to work, for the moment, but only by severely damaging far more important goals and ambitions.Prior to the crash, China’s stock market had enjoyed a blissful disconnect from reality. As China’s economy slowed and corporate profits declined, share prices soared, nearly tripling in just 12 months. By the peak, half the companies listed on the Shanghai and Shenzhen exchanges were priced above a preposterous 85-times earnings. It was a clear warning flag — one that Chinese regulators encouraged people to ignore. Then reality caught up.
At first, when prices began to fall, the central bank responded by cutting interest rates and bank reserve requirements — measures to inject more money that had never failed to juice the market. But prices continued to fall. Then the government rallied the major brokerages to form a $19 billion fund to buy shares and waded directly into the market to buy stocks too. A few stocks rose, but most fell even further. Continue reading
As we have repeated since January, and certainly on numerous occasions over the weekend, at this point the only variable is what the ECB will do: will it give insolvent Greek banks more aid, or will it increase its ELA collateral haircut (or even withdraw it altogether), the ramifications of which action would have a dire impact on contagion within the rest of the periphery but most certainly on both the Greek financial system as well as Greek society which is now facing an indefinitely period of capital controls. Continue reading
It was almost three years ago to the day when Zero Hedge first explained the biggest problem facing Europe when it comes to unconventional monetary policy: the lack, not scarcity, but outright shortage of collateral.
Initially, our focus was on private-sector collateral, and if one had to summarize the key difference between the US and Europe in one chart, it would be this one, showing that while in the US the split between secured and unsecured funding was roughly even, in Europe, some 90% of corporate funding was on bank loan books, with only 10% in the form of (unsecured) corporate bonds (which also explains why in Europe NPLs, aka bad bank debt is by far the biggest problem facing the financial industry). Continue reading
Just what the market had hoped would not happen…
- *ECB SAYS IT LIFTS WAIVER ON GREEK GOVERNMENT DEBT AS COLLATERAL
- *ECB SAYS IT CAN’T ASSUME SUCCESSFUL CONCLUSION OF GREECE REVIEW
What this means simply is that since Greek banks are now unable to pledge Greek bonds as collateral and fund themselves, and liquidity is about to evaporate, the ECB has effectively just given a green light for Greek bank runs, as suddenly it has removed, both mathematically but worse politically, a key support pillar from underneath the already bailed out Greek banking system, (or merely a negotiating move to let Greece see just what kind of chaos this will create ahead of the big D-Day on Feb 25th when ELA could be withdrawn). Continue reading
The first time the phrase Emergency Liquidity Assistance, or ELA, was used in the context of Greece was in August 2011, when Greece was imploding, when its banking sector was on (and past) the verge of collapse, and just before the ECB had to unleash a global coordinated bailout with other central banks including global central bank liquidity swap and unleash the LTRO to preserve the Eurozone.
As a reminder, this is what happened back then: “In a move described as the “last stand for Greek banks”, the embattled country’s central bank activated Emergency Liquidity Assistance (ELA) for the first time on Wednesday night.”
“Although it was done discreetly, news that Athens had opened the fund filtered out and was one of the factors that rattled markets across Europe. At one point Germany’s Dax was down 4pc before it recovered. The ELA was designed under European rules to allow national central banks to provide liquidity for their own lenders when they run out of collateral of a quality that can be used to trade with the ECB. It is an obscure tool that is supposed to be temporary and one of the last resorts for indebted banks.” Continue reading
One of the most important Zero Hedge posts of the last few years was “The “Muddle Through” Has Failed: BCG Says “There May Be Only Painful Ways Out Of The Crisis”” where The Boston Consulting Group (BCG) helped explain how the economic establishment is trying everything to move the system further with ever more cheap money and debt, why this will fail, and the inevitable wealth taxes that will be imposed to refloat the system from the ashes.
One of the authors of the infamous “Back to Mesopotamia” report (if 1984 is the instruction manual for political leaders, then this is the instruction manual for monetary leaders) was BCG senior partner Daniel Stetler, now blogger, and author “Debt In The 21st Century” who sees debt and leverage as the main factors driving wealth and inequality – a fact clearly overlooked by Piketty. Continue reading
Back to finance. Poland did exactly what I and a few others have been warning about for years with regards to private retirement accounts and pensions. Poland confiscated 50% of all private pension funds last week. PRIVATE pensions.
As Warren Pollock and I have been screaming, one of the largest chunks of collateral left in the system is private retirement money, both in the form of 401(k)s and IRAs and in private pension accounts. In the U.S., the latest data for 2012 shows that there are now $10.5 Trillion in private 401k and IRA holdings, with another $9 Trillion in pensions and annuities.
The regime has been fairly open about its plans to “nationalize”, read CONFISCATE, this collateral and implement a system of “mandatory retirement savings accounts”, which will be just another confiscatory redistribution into the hands of the oligarchs and their cronies. This what Poland just did. This is what MF Global was in its essence. This is what Cyprus was, except the Cypriot confiscation was done to demand deposit accounts instead of retirement accounts, which is now termed a “bail-in” – but it is all of the same stripe, namely the utter destruction of the notion of private property and the redistribution of all wealth into the hands of the oligarchs. In Poland, the private pension paradigm has now also been destroyed because no one will want to put money into a private pension after this knowing that it can and will be stolen by the government at any time with zero redress. Continue reading