Tuesday, June 23, 2015

Today's links

1--Gazprom-Shell Partnership Flies In The Face Of Sanctions

Gazprom and Royal Dutch Shell are teaming up on several energy projects that will benefit both. The two energy companies have agreed to build an expansion of the Nord Stream Pipeline, a major natural gas pipeline that travels beneath the Baltic Sea. The pipeline is a priority for Russia, which will allow it to expand its natural gas exports to Europe while also cutting out Ukraine from the mix.
Gazprom, Shell, along with E.ON and OMV – two gas importers in Western Europe – have agreed to build the $11 billion expansion of Nord Stream.

Moreover, the growing relationship between the two energy giants could also be seen as a victory for Kremlin in its ongoing duel with Brussels over energy dependence. The European Union has sought to reduce its reliance on Russia for energy, but the expansion of Nord Stream will only swell Russian gas imports to Europe.
Gazprom’s Alexei Miller also went out of his way to say that the Nord Stream expansion would not be a replacement for Russia’s proposed Turkish Stream pipeline, which would connect Russian gas to Southern Europe

2--Is This What Our Bond Bear Market Already Looks Like?

then, earlier this year, something happened. Bonds came down hard, hedge funds were all over them, and the mood changed.
“We’re entering a bear market in fixed income,” Michael Novogratz, principal at Fortress Investment Group, told Bloomberg at the SkyBridge Alternatives Conference in Las Vegas in early May. “It’s time to get off the train and stay off the train,” he said, loudly talking his book. “We’ve seen probably a low yield in 30-year Treasuries.”
But the transition from bull market to bear market won’t have a major impact on stocks and bonds until the Fed actually begins to raise rates, he said. By that time, the bond-market swoon was well under way, particularly in euro bonds, and most particularly in German government bonds which were plunging from their ludicrous heights reached in mid-April.....so far, in the sixth month of the year 2015: negative market return.

3--Get out now while you still can

Recently, it’s become readily apparent that some of the world’s top money managers are getting concerned about what might happen when a mass exodus from bond funds collides head on with a completely illiquid secondary market for corporate credit.
Indeed, bond market illiquidity is the topic du jour and has almost become something of a cliche among pundits and mainstream financial media outlets years after we first raised the issue in these pages. But just because something has become fashionable to discuss doesn’t mean it’s not worth discussing and indeed, we’re at least pleased to see that the world is suddenly awake to the fact that a primary market supply bonanza catalyzed by rock-bottom borrowing costs and yield-starved investors could spell disaster when paired with shrinking dealer inventories. ...

TCW isn’t alone: Bond funds are holding about 8 percent of their assets as cash-like securities, the highest proportion since at least 1999, according to FTN Financial, citing Investment Company Institute data.

Cudzil’s reasoning is that the Federal Reserve is moving toward its first interest-rate increase since 2006, and the end of record monetary stimulus will rattle the herds of investors who poured cash into risky debt to try and get some yield,,,

TCW Group Inc. is taking the possibility of a bond-market selloff seriously.

So seriously that the Los Angeles-based money manager, which oversees almost $140 billion of U.S. debt, has been accumulating more and more cash in its credit funds, with the proportion rising to the highest since the 2008 crisis. ....

“If you distort markets for long periods of time and then you remove those distortions, you’re subject to unanticipated volatility,” said Cudzil, who traded high-yield bonds at Morgan Stanley and Deutsche Bank AG before joining TCW in 2012. He declined to specify the exact amount of cash he’s holding in the funds he runs.

Price swings will also likely be magnified by investors’ inability to quickly trade bonds, he said. New regulations have made it less profitable for banks to grease the wheels of markets that are traded over the counter and, as a result, they’re devoting fewer traders and money to the operations.

To boot, record-low yields have prompted investors to pile into the same types of risky investors -- so it may be even more painful to get out with few potential buyers able to absorb mass selling.

“We think the market’s telling you to upgrade your portfolio,” Cudzil said. “Whether it happens tomorrow or in six months, do you want look silly before the market sells off or after?”

4--Housing is on the 'verge of a breakout'
5--As Fraud Metastasizes on Wall Street, Regulators Ponder the Culture

Thomas Hayes was on trial in another section of London over charges that he rigged the benchmark interest rate, Libor, on which interest rates on loans and financial instruments are set around the world. Yesterday, Hayes produced for the jury a “Guide to Publishing Libor Rates,” which his superiors at UBS had crafted for traders, teaching them how to manipulate Libor to benefit trading positions of UBS. Hayes’ bosses are not on trial....

Then there was the SEC’s case against a shady and illegal deal called ABACUS at Goldman Sachs. On April 16, 2010, the SEC explained the deal as follows:
“The SEC alleges that one of the world’s largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.”
In other words, Paulson helped Goldman select dogs that would default or receive credit downgrades and then made easy bets that they would. That sure sounds a lot like fraud to a lot of folks.
The SEC complaint goes on: “…after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS [Residential Mortgage Backed Securities] portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.’s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors

6--- Nothing wrong with that, is there?

The most dangerous banks on Wall Street, which are publicly traded securities, have been engaging in “capital relief trades” with hedge funds and private equity firms to dress up the appearance of stronger capital while keeping the deteriorating assets on their books. But neither White nor her Director of Enforcement, Andrew Ceresney, have put a halt to the practice.

7---Hold Cash

Two notable concerns stood out in Berner’s talk. First was a concern about liquidity in bond markets evaporating rapidly for reasons they don’t yet “sufficiently understand.” Berner explained:

“…liquidity appears to have become increasingly brittle, even in the world’s largest bond markets. Although liquidity in these markets looks adequate during normal conditions, it seems to disappear abruptly during episodes of market stress, contributing to disorderly price changes. In some markets, these episodes are occurring with greater frequency. Examples include the mid-2013 sell-off in U.S. fixed-income markets, the October 2014 dislocation in U.S. Treasuries and futures markets, and the sharp moves in euro-area government bonds in early May of this year and in the past few days. None of these episodes disrupted U.S. financial stability, nor do we yet sufficiently understand their causes. But together they highlight a potential weakness in markets that could amplify the impact of financial shocks.”

Another major concern are the bond mutual funds and ETFs that have mushroomed since the 2008 crisis and are stuffed full of illiquid assets or assets which might become illiquid in a financial panic. Berner quoted SEC Commissioner Michael Piwowar on this issue, who has said:
“The growth of bond mutual funds and exchange-traded funds (ETFs) in recent years means that these funds now hold a much higher fraction of the available stock of relatively less liquid assets than they did before the financial crisis…their growth heightens the potential for a forced sale in the underlying markets if some event were to trigger large volumes of redemptions.”

The Financial Times article noted the same concerns as those of the OFR, writing:

“Adding to the concerns of bond bears, the market’s liquidity — the ability of traders to buy and sell securities smoothly and without moving prices excessively — has diminished dramatically. That exacerbates sell-offs and could in the worst case turn a natural correction into a crash — especially if retail investors are frightened by the fact that their supposedly safe bond funds can lose money and dump the asset class.”

According to Bloomberg data, corporations have issued an astounding $9.3 trillion of bonds since the start of 2009 as borrowing costs have plummeted as the Fed cut and maintained its Fed Funds rate in the zero bound range. Much of the proceeds of those corporate bond offerings found their way into the stock market through corporate share buybacks, pushing stock prices artificially higher.
When you put all of these factors together, it’s clear this is an unprecedented era of risk with little visibility on how markets will behave during periods of extreme stress

8--Russia's Su-35 Fighter: A Trump Card Up Beijing's Sleeve in South China Sea

9--Paul predicts dollar demise

The end result of this needless bullying by the United States will hasten the one thing Washington fears the most: a world monetary system in which the US has no say and the dollar is relegated to playing second fiddle," the former congressman warned.

10--Socialist collapse in greece

The summit’s outcome is not only a new humiliating surrender by Tsipras’s Syriza party, but a bitter lesson on the bankruptcy of its pro-capitalist perspective of opposing austerity through deals negotiated with the EU.
Workers overwhelmingly reject EU austerity in Greece and throughout Europe. This was the driving force behind the election of Syriza in Greece. It is reflected in mass protests against austerity held last weekend in Britain, bitter opposition to the Hartz IV social cuts in Germany, and the discrediting of the Socialist Party (PS) in France. Nonetheless, the EU has succeeded in forcing Syriza to impose ever more draconian austerity measures and cross all its own “red lines,” accepting all of the cuts demanded by the banks, and more.

This is not an expression of great strength on the part of the EU, a widely reviled organization that speaks for a financial aristocracy comprised of a tiny minority of the European population. Rather, it is an expression of the class character of Syriza and its hostility to socialist revolution and the working class.
As a party speaking for sections of the Greek capitalist class and affluent layers of the middle class, it accepts the entire free-market economic and social framework of the EU. From the outset it pledged not to repudiate the Greek debt or impose capital controls to halt the outflow of cash from Greek banks.

Facing a cutoff of credit from the EU, it raided billions of euros of cash reserves from Greek public institutions to pay off its creditors. Among these creditors is Greece’s own not insubstantial banking sector, where Syriza officials and their financial bankers store much of their wealth.
Tsipras and other Syriza officials have spent untold hours cajoling and pleading with the representatives of finance capital in one country after another. They have never made an appeal to the working class, either in Greece or the rest of Europe, to mobilize in opposition to the attacks by the various governments or the EU.

The leaders of the EU, for their part, had already taken the measure of Syriza before it came to power. They saw it as the representative not of the insurgent Greek masses, but of bankrupt Greek capitalism. That is why, even as Europe teetered on the brink of a financial crisis provoked by the EU’s reckless cuts and its threats to expel Greece from the euro zone, EU officials ruthlessly pressed their advantage.

11--Spy Agency’s Secret Plans to Foster Online “Conformity” and “Obedience” Exposed

Though its existence was secret until last year, JTRIG quickly developed a distinctive profile in the public understanding, after documents from NSA whistleblower Edward Snowden revealed that the unit had engaged in “dirty tricks” like deploying sexual “honey traps” designed to discredit targets, launching denial-of-service attacks to shut down internet chat rooms, pushing veiled propaganda onto social networks, and generally warping discourse online.

Among the most troubling revelations is a 42-page internal JTRIG memo that describes in detail how the elite unit developed, maintained, and apparently sought to expand its “scientific and psychological research into how human thinking and behavior can be influenced” in order to increase its ability to “manipulate public opinion” via online tools like email, social media, video, discussion forums, and other platforms.
Greenwald and Fishman argue JTRIG’s self-documented exploits are most notable because of their “extensive use of propaganda methods and other online tactics of deceit and manipulation” that are not only reserved for “suspected foreign enemies” or criminals, as the agency continues to claim, but have also been used against other groups and individuals that the agency deems threatening or “politically radical.”

12---The Rise of the “Non Leftist Left”. The Radical Reconfiguration of Southern European Politics

Today the radicalized middle class looks for practical, specifically defined and government-sponsored policies that can restore their past prosperity.  They do not aim to ‘level the playing field’ for everyone but to prevent their proletariazation.  They reject the politics of the traditional left parties because class struggle and worker-centered ideologies do not promote their own social aspirations

For most radicalized middle class activists the culprits are ‘austerity’, the mega-bank swindlers and the political kleptocrats.  They seek parties that can reform or moralize capitalism and restore ‘individual dignity’.  They want to kick out corrupt officials.  They demand ‘participatory democracy’ rather than the traditional left’s goal of public ownership under worker control...

Syriza’s personalist leader, Alexis Tsipra,s appointed right wingers from former regimes to key posts.  He negotiated with the Troika and caved on all strategic issues dealing with debt payments, austerity and privatizations.  Syriza never considered ‘going to the people’Syriza’smoral crusade’ against capital is mended by their embracing capitalism and the colonial Eurozone system.
Syriza’s lack of class analysis, class struggle and class mobilization and its total commitment to working within amoralized capitalism and the Eurozone to restore middle class status and security has resulted in the most abject conformity and surrender – punctuated by shameless buffoonery on the part of some leaders...

On a much broader front, the leaders of theNLL have not organized any mass protests – let alone formed a mass movement which would seriously challenge the imperialist powers, NATO, the Middle East wars and US-EU sanctions against Russia......

M5S’, like Podemos and Syriza, expresses the disorganized radicalism of the young, frustrated lower middle class raging against their downward mobility, while refusing to break with the EU. They rail against the concentration of power in the hands of the banks, but refuse to pursue their nationalization. M5Smobilized 800,000 people in Rome recently but led them nowhere. ‘Five Stars’ convokes crowds to meet and cheer its leaders and to ridicule the power brokers.  Afterwards they all go home....

13--Nomi Prins, Keynote Speaker Who Addressed The Fed, IMF And World Bank, Warns There Is No Saving This Global Financial System
14--'It's time to hold physical cash,' says one of Britain's most senior fund managers
It may be time to put money under the mattress. High profile fund managers explain how to prepare for a 'systemic event'

15--(Gazprom deal with Germany gets the nod after) EU extends economic sanctions against Russia for 6 months - official

16---The Euro Was Doomed From The Start—–And Still Is

17--The Flash-Crash Trader's Kafkaesque Nightmare

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