Thursday, March 5, 2015

Today's Links

video Evil experts recommend car loans to buy stocks 

The US is sending 600 paratroopers to Ukraine by the end of this week. US 173rd Airborne Brigade Commander Colonel Michael Foster announced this at the Center for Strategic and International Studies in Washington, DC on Monday.

The activities he was referring to include massive wargames in Eastern Europe and naval exercises in the Black Sea. On Wednesday, warships from the US, Turkey, Italy, Canada and Romania started drills there.

Another example is the NATO military parade on February 24, held just 300 meters from the Russian border, in the Estonian town of Narva. About 140 pieces of armor and 10 times as many troops, including US soldiers, took part in that event.  

Throughout the Financial Crisis, and since, there has been one rule: bank bondholders will always be bailed out at the expense of everyone else. The sanctity of bank bonds reigned supreme, no matter what government and central banks had to do to keep it that way. Bank bonds weren’t allowed to be judged by the capital markets. They were simply untouchable. Underpaid and overtaxed workers would have to bail out bank bondholders when these recklessly managed banks collapsed.
That was the rule in the US when the Fed, and to a lesser extent the federal government, bailed out the banks. And that was the rule during the debt crisis in Europe.

But cracks appeared more recently. When SNS Reaal, fourth largest bank in the Netherlands, re-collapsed and was nationalized in early 2013, stockholders got wiped out, as were holders of junior bonds. That was new. It sent tremors through the system. It was the needle that pricked the Eurozone bailout bubble.

But holders of senior bonds were made whole. The bailout cost Dutch taxpayers €3.7 billion. The sanctity of senior bank bonds and their implicit taxpayer guarantees were maintained.
Austria now changed that. Banks would be allowed to go bankrupt. Even senior bondholders would get to eat the losses. And even states that had guaranteed these bonds would be allowed to go bankrupt to protect their taxpayers. A monumental change! What a novel idea to let bank bondholders relearn the notion of risk, and price it in.

7--Default Monday”: Oil & Gas Companies Face Their Creditors , wolf street

Also on Monday – it was “default Monday” or something – American Eagle Energy announced that it would not make a $9.8 million interest payment on $175 million in bonds due that day. It will use its 30-day grace period to hash out its future with its creditors. And it hired two additional advisory firms.
One thing we know already: after years in the desert, restructuring advisors are licking their chops.
The company has $13.6 million in negative working capital, only $25.9 million in cash, and its $60 million revolving credit line has been maxed out.
But here is the thing: the company sold these bonds last August! And this was supposed to be its first interest payment.

That’s what a real credit bubble looks like. In the Fed’s environment of near-zero yield on reasonable investments, bond fund managers are roving the land chasing whatever yield they can discern. And they’re holding their nose while they pick up this stuff to jam it into bond funds that other folks have in their retirement portfolio.

Not even a single interest payment!

Borrowed money fueled the fracking boom. The old money has been drilled into the ground. The new money is starting to dry up. Fracked wells, due to their horrendous decline rates, produce most of their oil and gas over the first two years. And if prices are low during that time, producers will never recuperate their investment in those wells, even if prices shoot up afterwards. And they’ll never be able to pay off the debt from the cash flow of those wells. A chilling scenario that creditors were blind to before, but are now increasingly forced to contemplate.

8--Putin Sounds the Alarm Over Budding 'Color Revolutions' in Russia, Moscow Times

President Vladimir Putin urged Interior Ministry officials on Wednesday to focus on smothering budding color revolutions, thus bolstering the current political climate by reinforcing a widespread fear of domestic enemies, analysts told The Moscow Times.

"We see attempts to use so-called 'color revolution technology,' ranging from organizing unlawful public protests to open propaganda of hatred and enmity on social networks," Putin said during Wednesday's expanded session of the Interior Ministry Board, according to the Kremlin's website.
"The aim is obvious — to provoke civil conflict and strike a blow at our country's constitutional foundations, and ultimately even at our sovereignty," he said, adding that "preventive work" should be done to counter the eventuality. ..

Some Muscovites who took part in Sunday's silent march in Nemtsov's honor were carrying white cardboard signs that said "Propaganda kills" in bold lettering, suggesting his death could have been the result of the vitriolic portrayal of opposition activists as members of the "fifth column" by pro-Kremlin propagandists. ...

Putin's message seems to have resonated with government entities close to the Kremlin.
A research body associated with Russia's Security Council is set to recommend the adoption of measures to counter the "destabilization of the internal political situation," the Kommersant newspaper reported Wednesday.

9--Operation Falcon and the Looming Police State, Info Clearinghouse
 On 29th June, 1934, Chancellor Adolph Hitler, accompanied by the Schutzstaffel (SS), arrived at Wiesse, where he personally arrested the leader of the Strum Abteilung (SA), Ernnst Roehm. During the next 24 hours 200 other senior SA officers were arrested on the way to Wiesse. Many were shot as soon as they were captured but Hitler decided to pardon Roehm because of his past service to the movement. However, after much pressure from Hermann Goering and Heinrich Himmler, Hitler agreed that Roehm should die. At first Hitler insisted that Roehm should be allowed to commit suicide but, when he refused, Roehm was shot by two SS men. (

Later, Hitler delivered a speech at the Reichstag in which he justified the murders of his rivals saying:

"If anyone reproaches me and asks why I did not resort to the regular courts of justice, then all I can say is this: In this hour I was responsible for the fate of the German people, and thereby I became the supreme judge of the German people. It was no secret that this time the revolution would have to be bloody; when we spoke of it we called it 'The Night of the Long Knives.' Everyone must know for all future time that if he raises his hand to strike the State, then certain death is his lot."

The Night of the Long Knives is seen by many as the turning point where Hitler made it clear that he was above the law and the supreme leader of the German people.

10---Can Greece avoid going bankrupt this month? , Telegraph
Cash-strapped Athens may have been granted a temporary reprieve, but the country could join a list of international pariahs and default on its debt at the end of the month

11--Ukraine looks ready to default , marketwatch

It has been clear for a long time that Ukraine is a divided country where half the population supports the rebels and the other half supports the government in Kiev — as demonstrated by this map of the 2010 election, which brought Yanukovych to power. This map also suggests this conflict can quickly carry all the way to Odessa, which Russian ruler Catherine the Great (1729-1796) turned into a key trading hub for the Russian Empire. There is also an unhappy minority of Russians in a strip of Moldova adjacent to Ukraine, where Russian peacekeepers have been stationed for years. It is entirely possible they see this conflict as the opportunity to resolve their situation once and for all.

Perhaps because of all of the above considerations, Ukrainian government bonds are at all-time lows. When such a bear market in credit gets to prices like 44 cents on the dollar, this is the bond market saying that Ukraine will likely default. I am not sure the IMF would be putting more funds in a country that is in the middle of an intensifying civil war. The inversion between the one-year and five-year Ukrainian CDS has continued to widen past 2700 basis points, indicating rising chances of a sovereign default in 2015....

The Ukrainian Hryvnia (green line) has collapsed, and at last count is changing hands at 33.50 to the dollar (before this mess started, it was at 8 to the dollar). There is no telling where the currency is going. In order for it to stabilize, this conflict has to be over — and it is not close to being over yet. Currencies have this amazing ability to spiral out of control, resulting in a negative feedback loop where weakness in the currency causes more inflation, which causes more weakness in the currency.

12--Greece taps public sector cash to help cover March needs: sources, Reuters

13---Only mass default will end the world's addiction to debt, Telegraph

According to recent analysis by McKinsey Global Institute, global debt has increased to the tune of $57 trillion, or 17pc, since 2007, with little sign of a slowdown in sight. Much of this growth has been in emerging markets, which were comparatively unaffected by the financial crisis. Yet even in the developed West, private sector deleveraging has been limited and, in any case, more than outweighed by growing public indebtedness. The combined public sector debt of the G7 economies has grown by 40pc to around 120pc of GDP since the crisis began. There has been no overall deleveraging to speak of.

Where the West left off, Asia has taken up the pace, with a credit-induced real estate bubble that makes its pre-crisis Western counterpart look tame by comparison, much of it fuelled, as in Western economies, by growth in the shadow banking sector.

14--Russia Accuses U.S. of Plot to Oust Putin Via Opposition Aid, Bloomberg

15--Warren: Citigroup, Morgan Stanley, Merrill Lynch Received $6 Trillion Backdoor Bailout from Fed , WSOP

Warren addressed the secret loans that the Fed made to Wall Street during the financial crisis as follows:
“During the financial crisis, Congress bailed out the big banks with hundreds of billions of dollars in taxpayer money; and that’s a lot of money. But the biggest money for the biggest banks was never voted on by Congress. Instead, between 2007 and 2009, the Fed provided over $13 trillion in emergency lending to just a handful of large financial institutions. That’s nearly 20 times the amount authorized in the TARP bailout.
“Now, let’s be clear, those Fed loans were a bailout too. Nearly all the money went to too-big-to-fail institutions. For example, in one emergency lending program, the Fed put out $9 trillion and over two-thirds of the money went to just three institutions: Citigroup, Morgan Stanley and Merrill Lynch.
“Those loans were made available at rock bottom interest rates – in many cases under 1 percent. And the loans could be continuously rolled over so they were effectively available for an average of about two years.”

16--What wasn’t addressed in the hearing is that the rise of $1 trillion and $2 trillion dollar Wall Street banks has accompanied the rise in income inequality. It’s really quite a simple matter. These mega banks have served as an institutionalized mechanism to asset strip the middle class and the poor through outrageously high interest rates on credit cards, mortgages, management of 401(k) plans where two-thirds of a worker’s assets are stripped away over a lifetime of work.

These mega banks have collected the vast majority of deposits in the country and are now using those very deposits against the middle class and the poor. Instead of making prudent business loans and paying a higher rate of interest from those loans to depositors, banks have turned the deposits into a source of low-cost capital for casino bets while the Fed has looked the other way without meaningful regulatory response.

No clearer example exists than the London Whale episode at JPMorgan Chase. Rather than use its own capital to make wild derivative bets to boost profits for the house, JPMorgan used depositors’ money in its insured bank unit. It had been doing this for some time but was caught in 2012 when the press reported the bets had grown so large that they were distorting the market. At least $6.2 billion of bank deposits were lost in that operation.

17---Companies Are Stampeding to Buy Back Their Own Stock: Just Like Before the 2008 Crash , WSOP

18---Companies Are Stampeding to Buy Back Their Own Stock: Just Like Before the 2008 Crash , WSOP

On December 20, 2007, Bear Stearns held a conference call with analysts to review its fourth quarter earnings. During the call, the company revealed that “For the full fiscal year, the company repurchased 12 million shares of common stock at an aggregate cost of $1.7 billion.” Less than three months later, the company collapsed.

On June 13, 2008, Michael Rapoport of Dow Jones Newswires wrote that Lehman Brothers had reported “in its most recent quarterly report in April that it had repurchased about $765 million worth of its stock during its fiscal first quarter, at an average price of $59.05 a share. That includes some shares tendered by employees as payment when exercising stock options.” Three months after Rapoport wrote those words, Lehman collapsed into bankruptcy, its shares effectively worthless.

Then there was Merrill Lynch, the century old iconic retail brokerage firm and investment bank. In a July 17, 2007 press release, Merrill Lynch reported the following: “As part of its active management of equity capital, Merrill Lynch repurchased 19.8 million shares of its common stock for $1.8 billion during the second quarter of 2007, completing the $5 billion repurchase program authorized in October 2006 and utilizing $557 million of the $6 billion repurchase program authorized in April 2007.”...

Yesterday, both the S&P 500 and the Dow Jones Industrial Average posted record high closing levels with Nasdaq closing above 5,000 – within spitting distance of its old high set 15 years ago. (Yes, it’s been a long tough slog for investors in the Nasdaq index.) And, accompanying this seemingly bullish news for stock investors is a startling assessment this morning of what’s going on behind the scenes with share buybacks from Lu Wang and Oliver Renick at Bloomberg News. Here’s the bullet points of their story:
  • Stock buybacks and dividends are eating up “almost all the Standard & Poor’s 500’s earnings”;
  • Even with “earnings estimates deteriorating,” corporations have announced “an average of more than $5 billion in buybacks each day.”
  • “Companies in the S&P 500 have spent more than $2 trillion on their own stock since 2009”;
  • Companies could be overpaying for their stock. “The S&P 500 trades at 18.9 times earnings, compared with an average of 16.9 since 1936, data compiled by Bloomberg and S&P show.”
19---Chart Of The Day: Recession Dead Ahead?, zero hedge

20--Defend the Oil Workers, wsws

One month into the US oil refinery strike, the oil companies are throwing down the gauntlet before the working class. This is the significance of the announcement Tuesday that global oil giant Royal Dutch Shell will train strikebreakers to resume full production at its plants in Texas and Louisiana.
A letter from Aamir Farid, Shell’s vice president of manufacturing, Americas, said the company was shifting from its “contingency plan” to its “business continuity” phase, and training “relief workers” to replace the 800 striking workers at its largest refinery, located in the Houston suburb of Deer Park, Texas. Noting that Shell had “contingency plans in place for all [United Steelworkers] represented sites for well over 12 months,” Farid said the refinery would be up to “full rotation” by midsummer.
In plain English: If workers do not agree to accept the dictates of the oil companies, they face the loss of their jobs and destruction of their livelihoods.

The provocative action by Shell—the lead negotiator for ExxonMobil, Chevron, BP and other energy conglomerates—poses the urgent need for a determined and aggressive response by the workers. Without this, the strike will inevitably result in a bitter defeat.
The strike must be expanded to encompass the entire industry. All refineries must be shut down. Delegations of oil workers should be sent to steel mills, auto factories, ports, hospitals, public schools and other workplaces to call for solidarity action, including mass demonstrations and sympathy strikes. An appeal must be made to workers throughout the world who are fighting the same multinational corporations.

To carry out such a struggle, workers must take matters into their own hands. It is necessary to make a sober evaluation of who is on the side of the workers and who is arrayed against them

21---Turkey blocks website of its first atheist association, Hurriyet

22--Russia, our sacred homeland, Russia--our beloved country  Anthem

From the southern seas, to the polar lands,
Stretch our forests and fields...
Open spaces for living and dreams,
Our native land protected by God.
Be glorious our free Motherland, we are proud of you.

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