Month: June 2016

DeutscheBank, DeutscheBank unter wasser?

The IMF has warned that Deutsche Bank poses one of the biggest risks to global markets. Full credit to Zero Hedge for searching the 2012 Annual Report to find that notional amounts of derivatives exceeds $72 trillion. Not billion. Trillion.  Yes, the venerable German bank has over 20x Germany’s GDP in total derivatives exposures. I doubt anyone could overlook the fact that were Deutsche Bank to collapse the knock on effects would be enormous.

Paying premium prices for nearly worthless junk

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This chart shows the trend of credit ratings for ‘investment grade’ equities in the US by decile. Note the alarming trend of the highest rated companies declining as a percentage of total and the sharp uptick in deteriorating low ‘investment’ grade credit ratings. Yes, credit quality seems to be getting much worse.

For all of the turbo charged low interest rate environment set by central banks, the ‘real’ state of corporate financial health on aggregate continues to worsen despite near full employment, record level equity markets and every other word of encouragement from our politicians.

TINA (there is no alternative) certainly would back the theory that money is looking for a place to go. However if this is the state of the corporate sector at arguably the sweet spot of the economic cycle I shudder to think the state of potential bankruptcies that will come when the cycle takes a turn for the worse. This is a very bad sign.

If you don’t like the result, assassinate him?

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Well if this isn’t scraping the barrel of shoddy journalism I’m not sure what is. The supposed people who want to call for another referendum wrote these disgraceful tweets suggesting Farage be assassinated.

What led to it? Telegraph journo Carherine Gee wrote  “You know that time travel conundrum: would you kill baby Hitler? Same but Nigel Farage”

She should be sacked for writing such bile. The Twitterati showed their true colours supporting her suggestion. Having lost one politician to assassination not two weeks ago one would have hoped common sense at the very least might prevail. Sadly not.

Trump followers growing at 2x Hillary Clinton

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The mainstream media (MSM) is so desperate that in recent  popularity polls the results are so skewed to get a narrative to look as though Hillary Clinton will romp home may be rudely shocked when election time comes. Wouldn’t be the first time the MSM has completely lost touch with their readers. Quite frankly after 12 months of constant Trump bashing his supporters are switching off the MSM, not him.

I showed my Twitter follower study which has Trump smashing Clinton in growth. On June 21, Trump had 9.1mn followers. Today 9.38mn. Clinton had 7.02mn on June 21. Now has 7.16mn. So Trump added 280k to Clinton’s 140k – Trump growing followers of twice the rate in one week!  

‘Diversity’ needs to be chucked into the dustbin

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I’m sure those that celebrate diversity have automatically leapt to the conclusion that I am a bigot, racist and without doubt xenophobic to write such a thing. Not so although being white skinned probably helps paint a narrative that progressives will  immediately turn to promote their cause.  To turn the argument on its head (an argument I made in a previous post) my Facebook friends list covers every main religion, every race, every sexual orientation and a wide variety of age groups. It is such a culturally diverse list (and I am sure many others have it too) that we are already living the “diversity” dream of our own volition. Here is the bigger point, not once have I ever thought of these people as anything other than people. I don’t think of them as what they are, only who they are. The word diversity and all of the political correct nonsense surrounding it should be thrown into the nearest dustbin we can find. The fact we keep making such a huge storm in a teacup over people’s rights, feelings and protecting the growing number of fragile egos into ‘safe spaces.’

My two daughters are in the picture above. They are mixed race. 100% Japanese mother mixed with a mongrel that is me – Norwegian, Polish, British, Austrian, Scottish, Irish, Australian and so on. Interracial marriage has become much more commonplace. According to Pew Research, inter-ethnic and interracial marriage has grown from 3% in the 1980s toward 10% today. Another Gallup poll showed that those approving such marriages in the US had grown from 4% in 1959 to 90%+ today. I would argue that the trends of tolerance and diversity has been improving for a long time. Why more than ever are we having ‘diversity’ shoved down our throats? All this moral preening.

I was kind of surprised at how many Remain camp people instantly dragged out the xenophobia card. These repressed old white poor uneducated xenophobes (OWPUX). That somehow all immigrants in the UK were soon to be turfed out. No reasoned thought just that Britain would round them up and shut the door. Honestly, if companies in the UK had valuable immigrant employees it is natural they would sponsor them and even more natural for the government to make such transition simpler. Arguments again pointed that we needed more multiculturalism and many ‘Remain’ camp people had this guilt complex over being perceived racist. People openly saying the ‘deleted’ Facebook friends that voted ‘Leave’. If there was ever an action to admonish the principles of diversity this was it. Just shut down debate and free speech. Some people feel compelled to write posts in such tortured ways so as to not offend anyone. It is bullshit people. We must call it for what it is. We can’t get to the bottom of social problems if we are forever living in fear of our own shadows in social media. I think if you are not brazenly posting pictures of utter poor taste like with a rifle and Cecil the dead lion then let the free speech reign.

When we look at today’s mainstream media (MSM), we couldn’t get a poorer representation of how people really think. In recent times, think of how often they have totally missed the point yet carry on as if they are experts. Global Financial Crisis – the mainstream media were cheerleaders without nearly a single open minded thought of the calamity that awaited. They completely missed Brexit. They’re completely missing Trump and even now in the midst of calling him a bigot, racist, fascist etc he has the highest support from black, Hispanic and gays than any other Republican candidate in history. Hardly the result if these people believed The Donald was that. The recent media polls now are so skewed to get a narrative to look as though Hillary Clinton will romp home will be rudely shocked when election time comes. I showed my Twitter follower study which has Trump smashing Clinton in growth. On June 21, Trump had 9.1mn followers. Today 9.38mn. Clinton had 7.02mn on June 21. Now has 7.16mn. So Trump added 280k to Clinton’s 140k – twice the rate in one week!  In fact Brexit was the same. ‘Vote Leave’ had slightly more followers than ‘RemaIN’. 

The MSM completely jumped over the Orlando massacre trying to avoid using ‘radical Islam’ despite evidence so incontrovertible. In the ‘bleeding heart world of the diversity crowd’ they lit up monuments around the world and ‘prayed for LGBT rights’. Are you kidding me? Gay provocateur Milo Yiannopoulos  smacked these progressive liberals  in the head after the Orlando tragedy saying their LGBT pacifism is solving nothing and worse it is not doing anything to change the minds of the morons that would commit such crimes.

People have to open their eyes and stop giving into this misguided altruism. I am shocked at how many are so swayed by such empty rhetoric and propaganda. You’re already diverse and the more diversity junkies try to publicly divide us into more and more minorities

In Australia, several university students are the victims of a secret trial over racial discrimination law 18C. It is so out of whack. It is so shameful in its persecution of innocent people who potentially have their futures severely damaged by the outcome. The Australian wrote, “Human Rights Commission staff and president Gillian Triggs were accused in a racial hatred case yesterday of “stooping” to a ­regrettable low in a desperate ­attempt to “avoid scrutiny of their shameful conduct” against university students…The students are accused of ­racial hatred for writing Facebook posts [unfounded] which caused offence to Ms Prior after she had turned them away from the computer lab in the Oodgeroo Unit in May 2013. Ms Prior went on stress leave and is seeking more than $250,000 damages after not working for almost all of the past three years.” This culture of victimology must stop.

This push for diversity in Australia has plunged new depths where our Diversity Council is trying to say that the use of the innocuous term “guys” is inappropriate workplace behaviour – What they hey? Does the Thought Police really need to butt into our office life? 99.9% are aware of the do’s and don’ts of the workplace. Each company has its own culture and diversity already but even CEOs of companies like Unilever are openly championing their progressive attitudes to diversity. I couldn’t care less. I am diverse and I don’t need others trying to indoctrinate me into a forced narrative I don’t believe in. I don’t think any more or less of Unilever because of it. Although in electronic job applications nowadays, you are often asked about ethnicity, sexual orientation and so on. I almost wonder falsely writing that I’m LGBT probably gives me a leg up because companies are petrified to be slandered as ‘bigoted’. How can the prove me wrong? Just like Lester Burnham did in American Beauty.

In Victorian schools, the Marxist government is having cross-dressing days for young children so they can role play the opposite sex for a day. Is the average 7 year old mature enough to understand?  Young teenagers are asked to role play (as one choice) a 17yo old bisexual girl who has had 15 sexual partners mostly unprotected because she is drunk. So our schools are endorsing illegal behaviour (underage drinking). Boys will also have the option to dress in female school uniform if they wish. As a parent there is no way in the world I would accept such education for my kids sneakily taught under the guise of ‘Safe Schools’ which is sold as anti-bullying. The founder and former head of the programme said preventing bullying wasn’t the aim – it is all about gender fluidity. The ironic thing is the Premier of Victoria who has pushed this Safe Schools program sends his kids to schools that aren’t signed up for the program. Father Eusebios, the Abbot of the Pantanassa Greek Orthodox Monastery, told some of the families at a forum in Belmore last month of the confusion and anxiety the new sex education classes are creating for children. He said, “I had a 13-year-old child come to me who tells me he’s been told to go home and find a picture of a male celebrity on the internet and explain to the entire class why he is sexually attracted to that male and he says to the teacher ‘I can’t do this’ and she removes him from the classroom.”

You get the point? While the political correctness mob go out of their way to promote multi-culturalism, diversity and equality at every turn, they merely categorise more people into more boxes which creates the exact opposite result. We are already a multi-cultural society. If the diversity vultures wish to live the real dreams of multi-culturalism instead of focusing on those that are already doing it, try focusing on those cultures that don’t value it and don’t share reciprocal values. Rant over.

Japan’s moral hazard plan would be harakiri

I’ve said it before and I’ll say it again. Central banks are in such dire straits. ECB President Draghi admitted that he is merely doing what every other central bank is doing. Group think. Perhaps more telling is  Alan Greenspan has started to put himself into the public again saying we are in trouble. You know we are in really big trouble because he’s always ‘behind the curve’. My bigger concern is how the Central Banks cannot play moral hazard like the private sector has. If central banks decide to magically make debt disappear through a debt jubilee the financial devastation would be 100x worse than 1929.

The Japanese have been toying with a plan to wipe out the US$10 trillion of public debt by converting the JGBs they’ll buy with printed money into zero coupon perpetual bonds.The value of a zero coupon perpetual is mathematically zero. So in a heart beat the Japanese government debt gets written down to zero. The Bank of Japan has a $10 trillion asset which is now worth nothing. 200% of GDP gone in an instant. Mauldin also made this assertion that monetising all debt at once by all countries would be unthinkable but the only way you could do it.

Let’s entertain the premise if Japan did this. What would happen? Global markets run on confidence. Nothing more. Nothing less. Without confidence markets will fret. People forget that the Japanese government STILL needs to fund Y40-50 trillion every year to plug the hole in the deficit. Tax take is less than Y56 trillion. Expenditures, thanks to an ageing society are rising above Y100tn. That gap won’t close easily. Sure the BoJ could print that gap every year but honestly, how could Japan’s yen be worth anything if they printed $400-500bn per annum? That’s right Japan would press start on the printing presses and produce the GDP of Thailand or Austria or Sweden or Belgium or Taiwan. Does this pass any sniff test?

Japan imports 60% of its food. It imports most of its energy sources like coal or LNG. It imports iron ore and coking coal to make steel. They must pay these foreigners in their currency. What supplier would want to accept a currency where the central bank just prints it. No country would accept yen pricing. Yes, hyper inflation would be the result. 

The debt service costs of the Japanese banks would become extreme. The low interest fixed mortgages which drives bank income are funded by predominantly depositors. However to avoid the Japanese banks witnessing capital flight they would need to raise deposit rates to dizzying levels and even then as Mrs Watanabe realises the Japanese yen is becoming like the Zimbabwean dollar she’ll convert into another currency exacerbating the downward pressure. Japanese banks would quickly become insolvent. Then corporations would start collapsing causing widespread unemployment.

The Global Financial Crisis (GFC) of 2008 taught us about moral hazard. People just walked away from their interest only mortgages and left the taxpayer to clean up the mess. Moral hazard is not good under any circumstances but if central banks and governments start playing moral hazard by ‘walking away from debt’ then effectively you permanently ruin trust and financial markets are destroyed. Think about. If people think that the end game will always result in a bail out then moral hazard becomes the default. It is permanent helicopter money. There is absolutely zero incentive to act prudently. Everyone should have a $50mn home, a Rolls-Royce and not have to work for it. Simple economics means that this solution is completely untenable. In a sense paper money would be worthless, we would have full unemployment and society would cease to function.

Now before we start reeling off the resumes of the incredibly intelligent people who can mathematically prove theories like this, note that was exactly the same type of argument hurled at me back in 2001 when I heavily criticised Greenspan predicting he would lead the world off a cliff in 5 years. I was right and they were wrong. Central banks have no idea. Their policies are group think. They don’t live in markets. They don’t breath markets 24-7. The only thing Greenspan was right on was to say “The gut feel of the 55-year old trader is more important than the mathematical elegance of the 25-year old genius.” Ask any of your experienced financial sector friends and get them to give you their gut feeling in private (publically they’e always bullish) and their answer to an almost 100% degree will be funereal.

If Japan makes the move to make $10 trillion dollars disappear (i.e. the GDP of China, home to 1.2 billion people) it will be the biggest mass suicide the world has ever seen in financial markets. You can take that to the BANK.

Too big to fail?

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When looking at the state of the economy, a healthy banking system is generally a pretty good indicator. Look at the parlous state of global banks. This but a small selection but it is no wonder Frau Merkel is concerned about her beloved Germany. Its two venerable financial giants, Deutsche Bank and Commerz Bank are 2 notches above being declared non investment grade. Personally I don’t put much if any value in the ratings agencies. They are generally rearward looking. Markets are a far better judge and jury.

We often look to the biggest country in the Eurozone as the power house. However the share price performance since Jan 2010 show that the German banks are amongst the worst performers. So despite Lloyd shaving the same BBB+ rating to Deutsche Bank it has outperformed its German neighbour even including the belting on the Brexit vote.

Interestingly the Italians have just fired a E40bn bailout fund for its banks. We made the case that these bailouts contravened the ECBs own rules. Public recapitalisation of insolvent  banks by member states is not allowed at this juncture but I doubt that will get in the way. Zero Hedge sensibly argues that the E40bn is the collective write down needed on E200bn of sour loans. Once again taxpayers will be forced to pay for another bailout. The Italians are already in denial wiuthe the head of their banking association saying the Italian banks can manage on their own.