Monday, February 29, 2016

Today's links

1--Valuations Will Fall Back”: Bank of England Gov. Carney Pooh-Poohs NIRP Miracle, WS

When the yield of 10-year Japanese government bonds fell below zero, it marked a new milestone in the negative yield absurdity: it pushed the amount of global government debt sporting a negative return for investors to over $7 trillion...

The ECB too is still gobbling up government debt, as Bank of England Governor Mark Carney noted dryly in his speech on Friday at the G20 conference in Shanghai:

The largest four central banks bought assets worth $1.2 trillion in 2015, similar to the amounts purchased post-Lehman and during the 2013 euro-area crisis. Adjusting for lower government debt issuance, that leaves an unprecedented flow of net QE, with only $400 billion of additional government debt sold to the private sector, compared to $3 trillion in 2010.

However, the effect of QE on the wealth channel cannot last forever. Monetary neutrality means real asset prices are not boosted indefinitely by such policies; their economic effects must ultimately unwind.

Said differently, unless an improvement in fundamentals boosts the underlying cash flows of these assets, real valuations will fall back.

But NIRP can’t solve the problem. Already, in countries that together produce about a quarter of global output, “policy rates are literally through the floor.” And yet, financial markets have plunged, and banks are in trouble 

2--OtterWood Capital Management's Outlook for 2016, Otterwood Capital (video)

3--Global shares fall on G20 disappointment, Fed hike prospect

G20 finance ministers and central bankers, meeting in Shanghai on Friday and Saturday, agreed to use "all policy tools – monetary, fiscal and structural – individually and collectively" to reach the group's economic goals.

But there was no plan for coordinated stimulus, which some investors had been seeking after concerns about a slowdown in China depressed markets at the beginning of 2016.


Weaker stocks helped raise investor appetite for low-risk government debt. U.S. 10-year Treasuries US10YT=RR yielded 1.74 percent, compared with 1.77 percent in New York on Friday.

German 10-year Bund DE10YT=TWEB yields fell 4 basis points to 0.11 percent and British gilt GB10YT=RR yields were down 4 bps to 1.36 percent.

4--Just Negative (Rates)

5--Kuroda Negative Rate Bazooka Fizzles on Overnight Lending Freeze

While Kuroda wants to lower the starting point of the yield curve to reduce borrowing costs and spur shift of funds into riskier assets, the interbank rate has fallen only about as far as minus 0.01 percent, above the minus 0.1 percent charged on some BOJ reserves. The swings on bond yields will make it harder for financial institutions to determine how much business risks they can take, weighing on lending in a weak economy even as they are penalized for keeping some of their money at the central bank....

BOJ board member Takahide Kiuchi said on Thursday that adopting the negative-rate policy might have increased market instability. Ten-year Japanese government bond yields plunged to a record low of minus 0.075 percent on Friday, while 40-year JGB yield slid below 1 percent for the first time the day before

6--Pending Sales of U.S. Existing Homes Fall by Most in Two Years

7--G-20 summit rules out coordinated stimulus


The G-20 meeting of finance ministers and central bankers held in Shanghai over the weekend has failed to come up with any coordinated plan of fiscal stimulus to revive the global economy. In fact such a plan was not even considered because of the deepening divisions among the major economic powers.

The communiqué from the meeting said downside risks to the global economy had increased, amid volatile capital flows and a large drop in commodity prices, but did nothing to initiate coordinated fiscal policies to boost growth. This was despite calls for a move in this direction from the International Monetary Fund and the Organisation for Economic Cooperation and Development in the lead-up to the meeting....

Summing up the summit, financial analyst David Loevinger, a former China specialist at the US treasury, told Bloomberg “hopes of coordinated policy actions proved to be pure fantasy. It’s every country for themselves.”

8--Russian TV crew films Turkish fortifications, tanks on Syrian border

9--Syria fighting continues into third day of US-Russian “truce”

“Syria’s cease-fire frays as Russia resumes strikes,” the Washington Post declared Sunday evening, citing a handful of Russian strikes against unidentified targets in northern Syria.

“Russia, Syria resume airstrikes despite cease-fire,” ran the Wall Street Journal’s headline. “Pentagon, CIA Chiefs Don’t Think Russia Will Abide by Syria Cease Fire,” the Journal warned earlier this week


Within the American ruling class there are deep divisions over the cessation of hostilities brokered by US Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov last week. Powerful factions within the Central Intelligence Agency and Pentagon are hostile to the truce deal and are pressing for strategic and military escalation against Russia.

After nearly five years of continuous covert warfare and subversion against Damascus, destroying hundreds of thousands of lives, the Obama administration seeks to use the ceasefire to regroup its own proxy forces in Syria. The Obama administration is probing the possibility of a negotiated carve-up of Syria, while at the same time working to outline a “Plan B” scenario, i.e., a huge military offensive to topple Assad. This could quickly bring the US into direct military conflict with Russia.

10--US housing market finds strength in the eye of a financial hurricane

11--(archive) Turkey 'let Isil cross border to attack Kobane': as it happened

Kurds accuse Turkey of allowing Islamic State to cross border and attack key border previously secured by US air strike 

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