Monday, December 15, 2014

1--Ruble gets hammered, Morningstar


Russia's central bank on Thursday raised its key interest rate to 10.5% from 9.5%, and its deposit rate to 9.5% from 8.5%, in an effort to halt the ruble's slide. However, economists broadly agree such a move isn't enough.
"In my view, the risk of a full-scale currency crisis is still high and the Bank of Russia may have to use all tools at its disposal to stem ruble rout," said Piotr Matys, a currency strategist at Rabobank. He said he had been expecting a 2.5-percentage-point increase in the key interest rate. "The decision taken proved insufficient."

Strategists at Sberbank also said that they weren't convinced that the rate increase would have a significant impact.
"Unless the Central Bank decides to step in with bolder actions, we wouldn't expect its policy adjustments to alter the ruble's trajectory," they write in a note.
The ruble was battered earlier this year by geopolitical conflict and resulting sanctions, but its decline has been exacerbated in recent months by the oil-price shock, especially after the 12-member Organization of the Petroleum Exporting Countries last month rejected calls for drastic action to cut their output. Around 50% of Russia's annual budget revenue stems from oil and gas exports.


An economic cycle is coming to an end, a cycle that began in the early 1970s with the birth of what Yanis Varoufakis calls the “global minotaur,” the monstrous engine that ran the world economy from the early 1980s to 2008. The late 1960s and the early 1970s were not just the times of oil crisis and stagflation; Nixon’s decision to abandon the gold standard for the U.S. dollar was the sign of a much more radical shift in the basic functioning of the capitalist system. By the end of the 1960s, the U.S. economy was no longer able to continue the recycling of its surpluses to Europe and Asia: Those surpluses had turned into deficits. In 1971, the U.S. government responded to this decline with an audacious strategic move: Instead of tackling the nation’s burgeoning deficits, it decided to do the opposite, to boost deficits. And who would pay for them? The rest of the world! How?

By means of a permanent transfer of capital that rushed ceaselessly across the two great oceans to finance America’s deficits: The United States has to suck up a half-billion dollars daily to pay for its consumption and is, as such, the universal Keynesian consumer who keeps the global economy running. This influx relies on a complex economic mechanism: The United States is “trusted” as the safe and stable center, so that all others, from the oil-producing Arab countries to Western Europe to Japan, and now even China, invest their surplus profits in the United States. Since this “trust” is primarily ideological and military, not economic, the problem for the United States is how to justify its imperial role—it needs a permanent state of war, offering itself as the universal protector of all other “normal”—as opposed to “rogue”—states.....


From the Centre for Research on Globalization’s blog:
America is on a war footing. While a World War Three Scenario has been on the drawing board of the Pentagon for more than 10 years, military action against Russia is now contemplated at an ‘operational level.’ We are not dealing with a ‘Cold War.’ None of the safeguards of the Cold War era prevail. The adoption of a major piece of legislation by the U.S. House of Representatives on Dec. 4, 2014 (H.R. 758) would provide (pending a vote in the Senate) a de facto green light to the U.S. president and commander in chief to initiate—without congressional approval—a process of military confrontation with Russia. Global security is at stake. This historic vote—which potentially could affect the lives of hundreds of millions of people worldwide—has received virtually no media coverage. A total media blackout prevails.  On December 3, the Ministry of Defence of the Russian Federation announced the inauguration of a new military-political entity which would take over in the case of war. Russia is launching a new national defense facility, which is meant to monitor threats to national security in peacetime, but would take control of the entire country in case of war.


3---Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge?


Much of the recent energy boom has been financed with junk debt and a good portion of that junk debt ended up in collateralized loan obligations. CLOs are also big users of credit default swaps, which was an important target of the Dodd Frank push-out. In addition, over the past 6 months banks were unable to unload a portion of the junk debt originated and so it remained on bank balance sheets. That debt is now substantially underwater. To hedge, banks are using CDS. Hedge funds are actively shorting these junk debt financed energy companies using CDS (it’s unclear where the long side of those CDS have ended up – probably bank balance sheets and CLOs).


Finally, junk financed energy companies have been trying to offset the falling price of oil by hedging via energy derivatives. As it turns out, energy derivatives are also part of the DF push-out battle.
Conditions in the junk and energy markets are pretty dire right now as a result of the collapse in oil, as you know. I suspect there are some very anxious bank executives looking at their balance sheets right now.

Since the derivatives push-out rule of Dodd Frank was scheduled to go into affect in 2015, the potential change in managing their exposure may be causing a lot of volatility for banks now – they need to hedge in large numbers at the best rates possible. Is it possible that bank concerns (especially Citi and JP Morgan) about the potential energy-related losses are why Dodd Frank has to be changed now?

naked capitalism



Most provocatively the legislation authorizes the distribution of $350 million in military aid to the Kiev regime over the next three years. Included in this potential cache are anti-tank and anti-armor weapons, grenade launchers, mortars, machine guns, as well as surveillance drones. The Obama administration has so far resisted official calls from the regime in Kiev for the distribution of lethal military aid....

The bill also authorizes sanctions to be placed on individuals that make investments in special Russian crude oil projects; sanctions against Gazprom if it is determined to be withholding significant natural gas supplies from any NATO member state as well as Ukraine, Moldova or Georgia; and additional licensing requirements on exports from Russia’s energy sector....

According to the latest figures from the UN, more than 4,600 people have been killed and more than 10,000 wounded in fighting between Ukrainian forces and pro-Russian separatists in eastern Ukraine. The November ceasefire has largely held, with the last week seeing some of the lowest numbers of casualties since the outbreak of the conflict.
Fighting broke out in eastern Ukraine not long after a US and German supported fascist-backed coup ousted the democratically elected President Victor Yanukovich in February after he refused to sign an Association Agreement with the EU.
The UN estimates that more than 1 million people have been displaced since fighting began in April. More than 540,000 Ukrainians have been internally displaced and another 560,000 externally displaced, with the majority fleeing to Russia.


7--Oil's Crash Is the Canary In the Coal-Mine for a $9 TRILLION CRISIS, zero hedge
Dollar rally makes it harder to pay back borrowed dollars


8---Wall Street’s Revenge, by Paul Krugman, Commentary, NY Times:


One of the goals of financial reform was to stop banks from taking big risks with depositors’ money. ... If banks are free to gamble, they can play a game of heads we win, tails the taxpayers lose. ..


Dodd-Frank tried to limit this kind of moral hazard in various ways, including a rule barring insured institutions from dealing in exotic securities, the kind that played such a big role in the financial crisis. And that’s the rule that has just been rolled back. ...
What just went down isn’t about free-market economics; it’s pure crony capitalism. And sure enough, Citigroup literally wrote the deregulation language that was inserted into the funding bill.
Again, in itself last week’s action wasn’t decisive. But it was clearly the first skirmish in a war to roll back much if not all of the financial reform. And if you want to know who stands where in this coming war, follow the money: Wall Street is giving mainly to Republicans for a reason. ... 
9--A Foreign Policy of Russophobia, Pat Buchanan


10--Energy firms in crisis amid collapsing oil prices, insolvencies treble, RT

A Pullback From Junk Bonds Can Be Harbinger That Risk Is Being Reassessed
 

The oil bust is exposing cracks in the $1.3 trillion junk-bond market, putting pressure on a key source of corporate financing and potentially crimping economic growth.
U.S. junk-bond prices have fallen 8% since late June, according to data from Barclays PLC. One-third of that drop has come this month alone, putting the market on track for its worst annual performance since the financial crisis.
While much of the stress has been in the energy sector on the heels of the sharp decline in oil prices, lately the woe is spreading across the junk market.
Each of the 21 high-yield sectors in a U.S. junk-bond index tracked by J.P. Morgan Chase & Co. registered losses in the five days ended Dec. 9.


“Oil prices have crushed the energy sector and it’s leaking elsewhere,” said Andrew Herenstein, co-founder of Monarch Alternative Capital LP, which manages $5 billion and is among the largest investors in distressed debt.
Debt is generally deemed to be distressed when investors view it as at high risk of missing bond payments or of a restructuring, at least at some point.
A pullback from junk bonds is often a harbinger of a broader reassessment of risk across financial markets, raising the possibility that investors could turn more wary of stocks and other assets.
Skeptics warned earlier this year that the junk market was becoming overheated, pointing to the risk of a larger-than-expected retreat.


A raft of postcrisis rules have hit securities-dealing banks, hampering the ability of those middlemen to cushion a selloff, especially in risky assets. Many say the changing role of those dealers is exaggerating the price drops, raising the risk of indiscriminate selling, or “fire sales.”
“The problem with high yield is often that investors have to sell what they can, not what they want to,” said Peter Tchir, managing director at Brean Capital LLC, an investment bank and asset manager.
The junk selloff comes as investors are uneasy about the global economy and Federal Reserve interest-rate increases that many expect to begin next year.
Junk bonds, like stocks, have mostly proved resilient, bouncing back after modest pullbacks. Both these bonds, and stocks, could again resist a deep drop.



12--Congress Authorizes War With Russia, sic semper tyrannis 

The United States Congress, silently, speedily and with no public debate has passed a motion authorizing the supply to Ukraine of American lethal weapons and other forms of support which ratchet up, in my opinion, the probability of a direct military confrontation between NATO and Russia.

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