#ecb

A special place in hell

Ah, the EU. With comments like this from EU Co-President Donald Tusk it sure feels like a warm and embracing place to return to. Supposedly the 17.4 million Brits that voted to leave the EU are equally deserved of a reservation in hell too. His comments perfectly sum up the manner in which the EU thinks of sovereign democracy. It doesn’t. It proves yet again to the British as to why there is absolutely no need to be part of this unelected federation by the back door.

Leaving without a deal is the best outcome because it is the one which the EU least desires. It is the one which outwardly shows other sovereign nations within the EU that the grass is greener outside. Such a scenario puts massive pressure on Brussels to reform, which is what it should already be doing.

Project Fear continues to make the case for the dangers of No Deal. Even the Bank of England has brazenly promoted the idea that GDP would fall 8% in such a scenario. It is concerning that the central bank could credibly put its name to such shonky projections. Ironic that former BoE Governor Mervyn King believes the opposite.

Do we not question as to why PM Theresa May – who should have already resigned – heads back for the umpteenth time to the renegotiation table, the EU has flatly rejected within 5 seconds of an amendment proposal being floated? So much for open dialogue and discussion. Recall the first version of Brexit was signed off by the EU inside of 45 minutes.

Why would the Brits want to be part of a body that flatly refuses to yield any ground on anything? Anyone with common sense can see that locking the UK inside the customs union is not only a betrayal of democracy but a sure fire way to trade itself into a worse position than it began with. It’s like requesting the EU to lock them in prison, hand the keys over to the Brussels guards and believe they will be let out when they’re ready to go.

Italy proves the ECB Thinks some banks more equal than others

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The ECB proves it is powerless to push member states into banking solutions. It is in fact nothing more than an accomplice. No sooner had the ECB turned a blind eye to a bailout of two banks last week, this week saw the world’s oldest bank likely to get the same treatment.  The state-backed rescue of Banca Monte dei Paschi di Siena SpA may be approved by the European Commission as soon as today.

EU approval would pave the way for the third recapitalization of an Italian bank by the state this week. Last month, European authorities and Italian officials reached an agreement in principle on a rescue plan that may include a capital increase of about 8.3 billion euros ($9.4 billion) and the sale of about 26 billion euros of bad loans through securitization. Monte Paschi was forced to seek state aid after it failed to raise capital from investors in December.

All it shows is that for all the rhetoric of bail-ins and tough talk, the ECB has no choice but to let member states handle their own affairs. Italy has a banking sector with 20% NPLs with up to 50% in southern parts of the country.

In reality it shows up the ECB to be powerless to control its members. While the US can openly state it is paring back its balance sheet, the ECB has to be content with rolling over and playing dead. At the same time Italy sets precedents that become the benchmark for others to follow. Must be food for thought for all the banks that have been forced to bail-in…-all banks are equal…some more equal than others!

Rick Santelli rants at central banks and yells “don’t help anymore”

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I don’t often watch CNBC but Rick Santelli made absolute sense when he tore into US Fed Chairman Janet Yellen over her plan to potentially buy equities to support the market like the Bank of Japan does now. Yellen still will have to get approval from Congress to embark on such a journey but it goes against her statement during the FOMC press conference where she boldly claimed “we’re not a body subject to group think”. Santelli correctly pointed out that price discovery would be ruined by such action.

As we know from Japan’s experience, the BoJ has had zero impact on consumer behaviour by buying equities and ruined market dynamics by becoming the largest shareholder in a growing number of companies. If they keep up the good work Japanese corporate’s will become state owned enterprises.

Going back to the Fed. Last week I wrote that Yellen’s language beggars belief. On the one hand she talks about the faster pace of economic growth all the while the Fed cuts long term and 2016 growth to 1.8%. Not one week later the NY Fed has cut 2016 growth to 1.4%.

Im amazed at how blind markets can be. Equitie markets continue to sustain lofty heights based on slowing aggregate earnings, worsening credit ratings and a complete failure by central banks to restore confidence.

Last report from the ECB showed it took €18 to create €1 of GDP given all their asset purchases. This is the problem. Without money velocity the  central banks only highlight to themselves it is the wrong path yet they still watering the lawns with gasoline while smoking. 

The Central Banker’s karaoke song

Alan G

I was listening to World Party’s ‘Ship of Fools‘ today and thought a few changes to the lyrics would be quite apt for Central Bankers to sing…

We’re setting sail
To the place on the map where the economy  we think we can turn
Drawn by the promise of inflation and growth
By the light of the currency we burn
Drawn by the promise of the cycle from negative rates
Not the gold or the savings or pearls
It’s the place where we keep all the printing presses we need
We sail away from the plight of the world on this trip baby
Pay, they will pay tomorrow
They’re gonna pay tomorrow
They will pay tomorrow
Save us, save us from tomorrow
They don’t want to sail with this ship of fools, no no
Oh, save us, save us from tomorrow
They don’t want to sail with this ship of fools, no no
They want to run and hide

Right now
Lies and hope are gonna drive them over the endless sea
We will leave them drifting in the shallows
Drowning in the debts of history
Travellin’ the world, we’re in search of hope
But I’m sure we’ll build their Sodom like we knew we would
Using all their good people for our galley slaves
As our deflating boat struggles through the warning waves
But they will pay, they will pay tomorrow
They’re gonna pay tomorrow
They gonna pay tomorrow
Save us, save us from tomorrow
They don’t want to sail with this ship of fools, no
Oh, save us, save us from tomorrow
They don’t want to sail with this ship of fools, no
Where’s it comin’ from or where’s it goin’ to?
It’s just a, it’s just a ship of fools

Several EU banks headed for insolvency?

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Looks as though several European banks are headed for the dustbin. In the prelude to GFC1 we had words like NINJA loans (no income, no job or assets) which entered financial lexicon. Now the latest word for equity markets is TINA (there is no alternative).

ZeroHedge wrote on the folding of a Belgian bank

Belgium-based Optima Bank has been shut down by both the National Bank of Belgium (which also acts as the Belgian regulating body) as well as the ECB. According to the national supervisor, the bank would have been unable to meet its commitments to its clients and was forced to cease all banking activities after some potentially fraudulent transaction were unveiled.

It’s surprising to see the main media have tried to keep this silent as even the website of the National Bank of Belgium didn’t bother to issue the press release in English (whereas all other press releases on the home page can be read in English). There’s no statement from the ECB either, nor has this news been translated on the English version of website of the state-owned national television station.

The situation is so bad the regulator has already immediately tasked the special fund organizing the Deposit Guarantee Scheme to start paying out the clients of the bank, even though Optima Bank hasn’t filed a bankruptcy procedure just yet. The urgency of the need to pay the clients does indicate the situation is extremely bad and even though it’s a very small one (it had closed the savings accounts division last year), there are two more important things you need to keep in mind.

ECB’s left hand talking to the right?

LTUE

It is always amazing when the EU works out its own folly a decade too late. ECB President Draghi made the conclusion that the EU had a lot of wiggle room on the long term employment front and raising the participation rates in the labour market. The EU has around 12% unemployment but 50% of it is LT.

Draghi complained that the austerity in many countries is forcing monetary policy to bear a too big a load. Once again this seems like a cop out. The austerity comes from the regulation and inflexibility created by the EU which restricts Member States at the root level.

So once again the problems with some of the Southern Member States (Greece, Spain etc) we can see that LT unemployment has surged over the last decade because the EU is forcing austerity on it to make sure it can meet their imposed financial targets. The Greeks are resisting so the pressure on the people gets worse and the relative strength of the euro prevents its economy from being able to ignite the economy

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Youth unemployment, the backbone to help offset the ageing population Draghi worries about continues to rise in many parts of the Eurozone.

So once again we have a central bank looking to excuses to make up for the devil’s work of printing a way out of trouble. Don’t forget each euro of GDP requires almost 5 euros to achieve it…the EU project is fast running out of runway

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