Wednesday, April 6, 2016

Today's Links

1--Draghi's stimulus backfires


It'll be four weeks tomorrow that Draghi fired his quadruple bazooka and yet European markets are in apathetic mode. We show the returns of our usual selection of global assets since the cob the night before the last ECB meeting on March 10th. Perhaps markets haven't been helped by a renewed but unrelated fall in Oil (Brent -9.1%, WTI -6.3%) since this point but it's noticeable that outside of commodities the worst performers have generally been areas of the market that Draghi tried to help. European banks (-9.5%), FTSE-MIB (-6.0%), IBEX (-4.0%), and the Stoxx 600 (-3.0%) make up most of the other negative returning assets over this period.

 

The DAX has also slipped into negative territory over the period (-1.6%) after a -2.63% fall yesterday. These five European assets are now down -13.4%, -9.8%, -8.0%, -4.6% and -4.3%, respectively from their post-Draghi highs.

 

(Euro up big, while DAX and Nikkei both down big)

2--Panama Papers: Imperialism, political corruption and the real face of capitalism


3--The Coming Default Wave Is Shaping Up to Be Among Most Painful


Losses on bonds from defaulted companies are likely to be higher than in previous cycles, because U.S. issuers have more debt relative to their assets, according to Bank of America Corp. strategists. Those high levels of borrowings mean that if a company liquidates, the proceeds have to cover more liabilities. 

"We’ve had more corporate debt than ever, and more leverage than ever, which increases the potential for greater pain," said Edwin Tai, a senior portfolio manager for distressed investments at Newfleet Asset Management 

Loss rates have already been rising. The potential for them to climb further may mean that in general junk bonds are not compensating investors enough for the risk they are taking, said Michael Contopoulos, high yield credit strategist at Bank of America Merrill Lynch. The average yield on a U.S. junk bond is now around 8.45 percent, according to Bank of America Merrill Lynch indexes, about the mean of the last 10 years.

In bad times, corporate bond investors on average lose about 70 cents on the dollar when a borrower goes bust. In this cycle, that figure could be closer to the mid-80s, the strategists said....

A lot of the troubled companies that had become overleveraged were able to find more temporary solutions in the last credit cycle," Holtz said. "Those Band-Aids are no longer available now, and a lot of companies are going to have to face distress," he said.

Leverage levels have been rising as more companies use borrowings to refinance existing liabilities, buy back shares and take other steps that do not increase asset values, Holtz said. Capital expenditure, which does boost assets, has been relatively low during this cycle.


4---We're number 1: US biggest "dirty money" have in the world

Places like Switzerland and Bermuda are agreeing, at least in principle, to share bank account information with tax authorities in other countries. Only a handful of nations have declined to sign on. The most prominent is the U.S. The other ona is, of course, Panama, and we just saw what happened there.


The latest reporting "underscores the secrecy in Panama," said Stefanie Ostfeld, the acting head of the U.S. office of the anti-corruption group Global Witness. "What’s lesser known, is the U.S. is just as big a secrecy jurisdiction as so many of these Caribbean countries and Panama. We should not want to be the playground for the world’s dirty money, which is what we are right now."

...

Places like Switzerland and Bermuda are agreeing, at least in principle, to share bank account information with tax authorities in other countries. Only a handful of nations have declined to sign on. The most prominent is the U.S. The other ona is, of course, Panama, and we just saw what happened there.

 

The latest reporting "underscores the secrecy in Panama," said Stefanie Ostfeld, the acting head of the U.S. office of the anti-corruption group Global Witness. "What’s lesser known, is the U.S. is just as big a secrecy jurisdiction as so many of these Caribbean countries and Panama. We should not want to be the playground for the world’s dirty money, which is what we are right now."

...

advisers around the world are increasingly using the U.S. resistance to the OECD’s standards as a marketing tool - attracting overseas money to U.S. state-level tax and secrecy havens like Nevada and South Dakota, potentially keeping it hidden from their home governments.

Advisors such as Rothschild, profiled initially by Bloomberg's Jesse Drucker.

Rothschild, the centuries-old European financial institution, has opened a trust company in Reno, Nev., a few blocks from the Harrah’s and Eldorado casinos. It is now moving the fortunes of wealthy foreign clients out of offshore havens such as Bermuda, subject to the new international disclosure requirements, and into Rothschild-run trusts in Nevada, which are exempt.

* * *

For financial advisers, the current state of play is simply a good business opportunity. In a draft of his San Francisco presentation, Rothschild’s Penney wrote that the U.S. "is effectively the biggest tax haven in the world." The U.S., he added in language later excised from his prepared remarks, lacks “the resources to enforce foreign tax laws and has little appetite to do so.”

5---Elizabeth Warren Flays Former Fed Official Who Saw No Evil on Subprime Loans, Currently Peddling Line That Regulation is Too Costly (to Banks, Natch)


6--Rank Hypocrisy: US scolds others about offshores, but looks other way at home


Wyoming?

Wyoming had 128,000 active business entities at the end of 2015. That’s roughly one entity per every 4.5 residents in a state of about 586,000.

U.S. law allows foreigners to create shell companies that have no revenue or actual business activity in the United States. It’s akin to what foreign offshore tax havens offer Americans, some of whom use them as a tax dodge, or worse....

"There is no question that the United States serves as one of the biggest tax havens in the world for people outside the United States," said Daniel Reeves, now a consultant after retiring three years ago from the Internal Revenue Service, where he helped create its offshore compliance program.

Wyoming and its competitors do not distinguish between foreigners and Americans who open businesses. Anonymity is a selling point.

State officials prefer the word “privacy,” and say they do insist that a living, breathing contact is required for every entity created.

Because of that, said Deputy Secretary of State Karen Wheeler, Wyoming statutes “don’t ask for information such as, ‘Are you from a foreign country?’ ” She adds, “we wouldn’t have any way of knowing.”...

"There is no question that the United States serves as one of the biggest tax havens in the world for people outside the United States," said Daniel Reeves, now a consultant after retiring three years ago from the Internal Revenue Service, where he helped create its offshore compliance program.

Wyoming and its competitors do not distinguish between foreigners and Americans who open businesses. Anonymity is a selling point.

State officials prefer the word “privacy,” and say they do insist that a living, breathing contact is required for every entity created.

Because of that, said Deputy Secretary of State Karen Wheeler, Wyoming statutes “don’t ask for information such as, ‘Are you from a foreign country?’ ” She adds, “we wouldn’t have any way of knowing.”


7--Riyadh's Dirty Secret: Saudi Arabia Thirsty for Yemeni Oil, Gas Reserves

8--Tax dodging US-style

9--Default Tsunami Brewing



10--Obama on Erdogan: a misfit authoritarian leader who refuses to use his army to secure stability in Syria.”


President Obama in an interview with The Atlantic, said that so far he had an impression of the Turkish leader as a “moderate Muslim politician who can help overcome the rift between East and West,” but that he now sees him as “a misfit authoritarian leader who refuses to use his army to secure stability in Syria.” That was a clear signal to Erdogan, that the US does not intend to bow to Turkey, but will rather rely on dialogue with Putin to resolve the conflict in the Middle East....


(Erdogan)  foreign policy errors affected domestic politics with the activation of pro-American minded Turkish opposition parties. And also with almost daily terrorist attacks. In Turkey, there are already rumors of a military coup against the President. The Kurdish problem is particularly acute.

The established Kurdish federation on the territory of Syria, albeit illegitimate, and the conflict between the Kurds and Turkish government troops, which has taken the form of a civil war, make the creation of a Kurdish autonomous state in the territories of Syria, Iraq and Turkey much more realistic. Russian Foreign Minister Sergei Lavrov has publicly stated that he would welcome the


participation of the Syrian Kurds in the Geneva process. The “Islamic State” has occupied territories inhabited by Kurds in Iraq and Syria, but after those territories are freed, Baghdad may recognize Iraqi Kurdistan as a fully independent state and Bashar Assad may give autonomy to the Syrian Kurds. If things develop in such a way, the creation of a Kurdish confederation is inevitable.

Due to the fact that both the US and Russia support the Kurds, it becomes impossible for Erdogan to solve the problem by resorting to military force. Sooner or later, the question of Kurdish independence will be asked in Turkey itself.



Read more here: http://www.mcclatchydc.com/news/nation-world/national/article70008302.html#storylink=cpy

Read more here: http://www.mcclatchydc.com/news/nation-world/national/article70008302.html#storylink=cpy

Read more here: http://www.mcclatchydc.com/news/nation-world/national/article70008302.html#storylink=cpy

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