Street Talk - Deutsche Bank In BIG Trouble; Portfolio Cracking?

Is Deutsche Bank The Next Lehman?

Looking back at the Lehman Brothers collapse of 2008, it’s amazing how quickly it all happened.  In hindsight there were a few early-warning signs,  but the true scale of the disaster publicly unfolded only in the final moments before it became apparent that Lehman was doomed.

There were few early indicators of Lehman’s plight.   Insiders however, were well aware:   In late 2007, Goldman Sachs placed a massive proprietary bet against Lehman which would be known internally as the “Big Short”.  (It’s a bet they would later profit from during the crisis).

In the summer 2007 subprime loans were beginning to perform poorly in the marketplace.  By August of 2007, the commercial paper market saw liquidity evaporating quickly and funding for all types of asset-backed securities was drying up.

But still — even in late 2007,  there was little public indication that Lehman was circling the drain.

Read More.

Street Talk

"Bonds Are Their Achilles Heel"

The Marc Faber Blog Childish Remarks: "The FED Asset Purchase Disaster?"

The Marc Faber Blog : Childish Remarks -The Asset Purchase programme of the Fed has been a complete Disaster

Doctor Faber's conclusions are first premature and more than likely wrong. 

In fact, it will be difficult to measure how effective Fed policy has been or will be as history has yet to unfold. Had Uncle Ben not implemented this program, then interest rates no doubt would be much higher than they are today. There are a lot of very nervous long-bond holders who were obviously more than happy to pass their holdings back to the Fed. Everyone is living in fear of a sharp spike in the long rates that would absolutely clobber the principal market value of these bonds.

But QE is not just about keeping rates low, it is also a crafty way to hold asset values in place, including the equity market. This may actually be its main purpose. The last thing the Fed and Obama needs is to have huge bond losses realized and recorded by banks, portfolios, and other financial intermediaries.

Such losses would vacuum up all the liquidity in the repo, bond and money markets faster than Lehman's 2008 debacle, as well as knocking the proverbial crap out of their respective equity boxes. Think about it - this prevention is moping up about 40 billion (possibly more) monthly in marked-to-market accounting losses that would be caused by sharp rate  increases.

Like the Fed we are holding back a few cards here, but in all likelihood, there is more to the Fed's QE policy actions than meets the eye - and Marc should be a little more careful with his remarks - they come across as premature and childish! 

And that's being kind.

Dr Peter G Kinesa 
August 28, 2013 

Marked to QE Market

Uncle Ben's Converted Losses 

                

Nassim Taleb - How Debt Ruins Systems

Nassim Taleb - How Debt Ruins Systems

click above

Nassim, by far, is the smartest, brightest and most scientific thinker in the fields of finance and economics. Leagues above of any of those who profess to have either aquired knowledge, recognition or academic accreditation. He gets it, all the others are pretty hopeless.

His best selling book; The Black Swan (listed and linked under our top recommended readings) came out in 2007, about the same time that First Financial Insight's (FFI), now famous, "Eye of the Storm" presentation was released. Both forecasted that a huge credit crunch, economic upheaval and a market meltdown was coming soon. Over a year before other top pundits, economists or regulators had any sense of the pending avalanche that was going to soon beset financial history.

Albeit for different reasons, these works saw the proverbial writing on the wall. Taleb was, by nature, much more empirical, while FFI's stressed the glaring weaknesses in banking, credit and other economic fundamentals. To this day, both Taleb and FFI do not believe that we are out of the woods - a 2008 hangover persists, as many of the underlying reasons behind the meltdown have not been addressed. Continuing crisis after crisis in Europe, demonstrates we still have not learnt key lessons from the 2008 Meltdown about leverage, oversight, economics, transparency, cronyism and so forth; thereby, dooming the global system to make the same mistakes time and time again. Concluding that we are not that bright, as a species, hard to refute.

Back to Nassim's latest book, we can only comment based on the excerpts that convey an organic hypothesis that systems are self-corrective, but that leverage increases its fragility making the corrective process much more devastating. You could almost call it an ant-chaos theory. However, one salient point that Nassim seems to miss is that  the growth of the abstract financial systems will also be limited by the hard constraints imposed by physics. Limits of a finite planet, that make it absolutely impossible to physically grow wealth forever.

Nauru and Easter Island were microcosms of the larger world, but recent events on other island nations such as Iceland, Ireland and Cyprus prove that there is much more to be heeded and learnt from the economic and social demises of these island examples. For starters, the same physical economic disease, caused by input shortages, is clearly spreading inland to countries like Greece, Egypt, Portugal and Slovenia, amoung others. Leverage in the financial system premised on archaic Keynesian theory is exacerbating their illnesses - missing also the real overshoot problems their populations now face relative to geographic resources they control.

Notwithstanding this fundamental flaw, we believe his new book should provide other useful insights to readers, considering the  thoughtful and argument is his earlier works.

Dr Peter G Kinesa
April 28, 2013  

"You really think leverge leads to geo-economic conflicts?"  

   

  

INVESTORS' INSIGHTS - Jim Rogers Blog - #Cyprus sets the Standard

 INVESTORS' INSIGHTS - April 2, 2013

Jim Rogers Blog - Cyprus Sets The Standard For Other Coun...

Some NY Times Op/ED columnists seem to believe that more debt is not a problem - it is just money we owe ourselves. Perhaps we need to revisit what debt and money represent in a more physical sense - being an obligation to provide the requisite physical goods and services to the holder of the debt instrument, as time specified.

Here's the perspective that illogical neo-classic economics do not grasp. The holders of National debt are ultimately future generations - who are the one's that will be expecting payments back to them. However nations, banks, pension funds and all forms of  financial intermediaries will be unable to make these payments. Why? Not because there is no shortage of worhtless abstract fiat currencies - we can electronically create those forever. Rather, it will be a result of economies not having input resources to convert to goods and services - they are at a future date: resource bankrupt.

Now you would think that, by now, the neo-classical economists could learn a lesson or two about real economics. There are so many recent lessons, like Greece, Ireland, Cyprus, Iceland and the lingering certain demise of the whole EU. Are these situations providing a wake-up call? Nope, not a chance - they are either all part of the Financial Mafia or just - Thick as a Brick. You can and may be the judge of that.

Dr Peter G Kinesa
April 2 ,2013  

P.S. I would to say hello all our friends and followers in Moscow, St. Petersburg and many other places in Russia - we appreciate your on-going support and readership, helping us to create a leading global reach. Cheers. 

Happy Days and Cheers!

 NOSTROVIA!

Marc Faber Blog: #Cyprus could burst bubbles and bubbles and bubbles

Marc Faber: we are creating bubbles and bubbles and bubbles

Marc says we got more bubbles and bubbles and bubbles, created by a fiat banking system inflating assets with more leverage, into a dangerous unsustainable territory. He's right. The burst will be caused by a spike in interest rates with a  resultant: "rate spike contagion" that could begin with the Cyprus bailout and then spreads through the rest of Europe and emerging markets, in short order.

Think about what investors, savers, and money managers have been learning in the last few weeks. First and foremost, Cyprus exposes the EU, ECB and IMF as regulators who have acted with little foresight or control over the EU banking system. These guys are running a no holds barred carnival worse than the wild, wild west. How could they not have known that Cyprus wasn't headed for financial disaster a year or more ago? Can't they read financial statements? Do they ever audit any of these national EU Banks? 

Listen, I am not sure if they can even add numbers any more. So how would you feel about investing in their bonds, buying securities, or depositing funds in countries under their jurisdiction? If you would not be scared out of your mind, then you are under a better medication than most. Realistically rates should pop by 200 to 300 basis points at the long end, if not more, over the next few weeks as stakeholders get their minds around how bad the structural issues are. The fact that these regulatory bodies have learnt little or nothing since the 2008 meltdown, creates even more fears for anyone involved with these markets or banks.

By the way, if you believe that the EU banking system is a crap shoot - then emerging markets offer even less confidence given pervasive black markets, corruption, and cronyism in such nations. Their systems of jurisprudence, finance, accounting and auditing are not as developed, while these nations are open to regime change in a moment, thus demanding much higher risk premiums than the EU. 

With all these pending interest rate increases being sparked by the EU's Cyprus crisis, then inversely correlating asset values would be pushed downwards, purely due to the triggered financial mathematics . That's not good for the bubbles in stock markets, bonds, real estate, construction and corresponding employment. The winners, by default, when the dust settles, looks to be the US dollar and Gold - for the time being. 

So sing along with Mr Faber, "bubbles, bubbles and more highly- levered bubbles" - where even a small incident like Cyprus brings the House of Bubbles tumbling towards the ground. 


Dr Peter G Kinesa
March 30, 2013

Everyone is singing along with Mr Bubbles

Marc Faber Blog - #Cyprus Next Nauru?

Marc Faber: Governments Will Take 20-30% of My Wealth

Inept governments' last measure is not taxation; it is "confiscation." Marc's concerns are well-founded, as Cyprus tells us that this Royal medieval tactic is now being considered and employed by top global governments, agents and regulatory bodies. Why? First, it is because they never really understood economics in the first place. They relied upon make-believe abstracts, then creating banking bubbles with fiat currencies they a grinded out of their printing presses 24 hours daily.  

However, amoung  many other things, they ignored the idea that wealth is created from physical inputs that could not not forever produce goods and services outputs. Add, an illogical bias towards increasing populations, through birth or immigration, and you'd further stressed this fragile equation.  Throw into the mess, the degrading of the bio-sphere and your economy and society is sure to collapse - sooner or later,  just like so many others before. The most recent case being Nauru - just another short history of progress!

Secondly, to make matters worse they levered the system to the hilt, at all levels, and then failed to even monitor the risk exposures. Third, a crony and corrupt banking system became so widely inter-connected, that the failure of one small player could bring the whole house cards tumbling down. Truth be known,  Europe's finances were severely strained by the 2008 meltdown, contributing to much of today's crisis. 

What is disappointing, beyond dumb and dumber, is that even after the 2008 meltdown; no one at the EU, EC or IMF learnt a thing about financial oversight. So is Cyprus about to become another Nauru? You bet - and there are many more trending into this devastating predicament of physical economic bankruptcy- too many people with no input resources. 

Who's next? Slovenia? Where is that?

Dr Peter G Kinesa
March 26, 2013

EU, ECB and IMF oversight sees banking crisis coming...

   

JIM ROGERS BLOG - #Cyprus is Doomed

Jim Rogers BLOG : Cyprus is a real threat to the U.S.

Everyone was asleep at the switch, in fact; many had a hard time finding the switch, including the US media which was more concerned about March Madness and the Easter Bunny, before they figured out that Cyprus could bring down the global financial system. Let's remember what Churchill said about Americans, give them enough time and they'll figure it out.

Jimmy's right, but he should emphasize Cyprus is a real threat to Cyprus first. Secondly, there is little doubt now that Cyprus is the trigger that will bring down the EU and ECB. Why? Where was the oversight? There was none, or else this thing would not have gotten so far out of hand. Two, it tells you not only is there no political unification in the union - there is also no unification of its financial structure. You don't have to be a rocket scientist to figure out that without these key ingredients, you cannot possible make this Euro Experiment work. Thirdly, there is a clear lack of forward thinking power at work within the troika. Cyprus indicates that they are reactionaries engaging no proactive vision or understanding of what the problems and opportunities are - equating to "thought bankruptcy"

Looking at Cyprus and the bail-out solution shows clearly they had and have no clue. First, their actions should result in 20-25% of this country's economy shutting down with loss of its international banking sector. No one in their right mind is going to invest or save money in this country for decades. This will not only lead to massive unemployment and social unrest impacting their tourist trade, but it will cause a collapse in the country's asset values due a combination of spikes in borrowing costs and a lack of liquidity. "Hey buddy, wanna buy some a condo in Cyprus? " You see what I mean?

Now all those involved should have foreseen and understood these consequences. Did they? - No! Consequently, Cyprus will fall into a depressed economic state that could last for decades - in fact, this resource poor nation may just never recover. Anyway what the EU, ECB and IMF should have done along with the bailout plan is put together an program of economic revitalization to be implemented concurrently, in order to soften the economic blows and preserve asset values - and hence cut this disease off with the economic surgery required not mere band aids. However, that would take proactive thought - it could be painful.

In the meantime, this nation faces more doom and gloom as other parts of its economy domino into collapse affecting not just Cyprus, but other EU nations as well. Then of course as Jimmy's says the US as well.

Dr Peter G Kinesa
March 25, 2013   

"What do you mean we have to think about it? That hurts."

Al Jazeera English: #Cyprus bailout talks 'at very delicate stage' - Europe -

Cyprus bailout talks 'at very delicate stage' -  Al Jazeera English

Who has been the primary beneficiary of the Euro, ECB and EU? Germany! And yet, when it comes to keeping the whole scheme together, the Germans are running for the hills. Germany's export bonanza, since the institution of the Euro is directly attributable to the lower currency value ascribed under the unified currency. This meant that German goods were priced much lower in international markets. Otherwise, using its own currency would have resulted in much lower exports and economic benefit.

But at the same time, other Union members were seeing their comparative advantages undermined, because their exports were being priced much higher in international markets. Moreover, tourism and other attractions of foreign currency were impaired as vacations to these countries would be more expensive than they needed to be. Add the inability to print your own currency, and your  monetary devices are largely eliminated. So indirect taxation through currency debasement is not possible.

The real lesson of the "European Experiment" is that without complete political unification you cannot have an economic unification that works. Would you set up a joint account with all your neighbours, who also control access to your funds? Not a chance.

There are four concerns that are now self-evident. Germany will not step up to the plate, despite having won the most and still having the most to win long-term. Europe will not undergo a matching political unification centralizing its power. The weaker countries cannot save themselves, without a lower currency to unleash their comparative export advantages. Lacking control over monetary policies, further hampers the weaker countries ability to adjust rates to the short-term economic needs; forcing them into extreme unlawful measures. Taxing bank deposits!

Conclusively, the EU is a lousy deal for the majority of its participating nations. It is a deal made worse, when those nations that have profited handsomely from the economic sufferings of the others, do not help out when needed - largely because of their national political agenda.

It is time to undo this European experiment, and let the weaker nations have a chance to recapture their economic viability through comparative advantage and fair floating exchange rates. Otherwise, the path to economic destitution will result in these weaker countries experiencing greater social unrest, leading to extreme political changes, that will also put a end to this one-sided and misguided economic scheme that has no potential for unified political rectification.

Without this, then this is simply a BAD DEAL  



Dr Peter G Kinesa 

March 24, 2013  

The Art of the Deal

Where's Trump when you really need him?

      

FIRST FINANCIAL INSIGHTS: INVESTORS' INSIGHTS - NEWS ALERT - "Russia Rebuffs...

FIRST FINANCIAL INSIGHTS: INVESTORS' INSIGHTS - NEWS ALERT - "Russia Rebuffs...:

INVESTORS’ INSIGHTS   “NEWS ALERT ” Russia Rebuffs Cyprus Bailout Click Above for today's Globe and Mail Article   This...

Everyone should be scrambling now. The banks in Cyprus will no doubt face a major deposit run when they open, making it almost impossible to put any sort of figure on what amount is needed to save the day. The problem here apparently stems back to write-offs of Greek Bonds resulting in losses and under capitalization. So here is the first sign that the inter-connected bank borrowings in the EU could end up snow balling.

Bond markets as well as depositors should be concerned as this will no doubt put further pressure on interest rates across the EU, and perhaps even globally. Similar to the 2008 meltdown, one bad security leads to another, then that bad apple rots the whole barrel because of the complex inter-connected financial borrowings.

We are keeping an eye on the ball here - just too many unknowns.

Dr Peter G Kinesa
March 22, 2013

One bad apple

Nouriel Roubini Blog: Cyprus: Capital Controls & Deposit Freeze Is The Only way...:

Nouriel Roubini Blog: Cyprus: Capital Controls & Deposit Freeze Is The O...: 
"Capital controls & Argentine-stlye deposit freeze (Corralito/Corralon) unavoidable in Cyprus given lack of a bail in deal. Only wa...

Sorry Nouriel, but what should have happened and didn't, was that the EU and ECB should have stepped up to the plate and fixed this situation long before it reached front and centre on the global stage. Imagine if the FED decided not to bail out Nevada; for example, because of suspected nefarious activities. The Union and Central Banking functions would fall apart.

Cyprus is less than .2% of the EU's  GDP, yet they let this economic scratch turn into a flesh eating disease, that exposes the EU and ECB as "name only" institutions without functional substance. Where were the oversights in the first place? 

This is just bad management on all fronts, from start to finish. The cost could ultimately be the sinking of this whole European experiment forever. Which is startting to look like the most sensible solution to the situation with each passing crisis. 

Time to bite the bullet.


Dr Peter G Kinesa
March 21, 2013

Pick ONE!

Marc Faber Blog: Cyprus (RISK?): No large impact on Emerging Markets

Marc Faber Blog: Cyprus (RISK?) : No large impact on Emerging Markets

Wrong! Wrong! Wrong! Cyprus will have huge impact on Emerging Markets and we can analyze and determine why from two points of view. 

Emerging Markets is a sexy term crafted by promoters, mutual funds, banks, and money managers to basically dress up high risk sovereign situations. " Lipstick on a Pig Markets" would not have the same marketing or sales flair to it, so a more sanitized semantics is useful. 

But what are we dealing with really? Generally speaking, third world economies where the business, legal and ethical practises are not that well-established or developed. Moreover, the risk of political power changes is high and thereby the rules of the game. And not all countries are the same; the risks of change extremism is further heightened by theological and cultural beliefs. In short, the rules are more likely to change at any moment in these countries' economies.

The defining of financial risks has a checkered past, in fact, the definitions often result from events or fancy theory. They do not have the same certitudes of scientific discovery or observation. Systemic risk is a product of the debatable "efficient market hypothesis", while settlement and counter-party risks were discovered when related events created serious turmoil in the markets. Counter-party risk was not a major concern until the experiences of the 2008 meltdown came home to roost. You could say that it didn't exist until these events occurred - it was an Unknown, Unknown.

With the Cyprus deposit tax (theft) proposal another such "Unknown, Unknown Risk " is now known and self-evident  -  Cyprus Risk. What is Cyprus Risk? It is basically the possibility that a sovereign nation will confiscate the assets of savers or investors arbitrarily without notice or due process of law. This risk applies not just to deposits, but all types of financial assets; including, reality, stocks, gold, bonds and insurance instruments. It is a risk that must now be imputed into the ambiguities of risk management algorithms.

Emerging markets, because there is a greater likelihood of game-changing rules, should now be expected to pay a higher premium on capital to compensate for this additional risk. This premium may also be calculated into capital costs of EU countries. The premium will, hence, add restrictions to liquidity flows and raise earnings expectations of investors and savers. Both will act to depress the value of assets, such as stocks, bonds and real property in these higher risk markets. 

It is still too early to tell what exact economic outcomes will be of Cyprus Risk, but bringing this heretofore, unknown, unknown risk out from under the covers cannot be a positive discovery for neither Emerging Markets nor the EU.   

Dr Peter G Kinesa
March 20, 2013

Cyprus Risk

"Folks Are You Ignoring Me?" 

       

FIRST FINANCIAL INSIGHTS: INVESTORS" INSIGHTS - "NEWS ALERT MARKET WARNING'...

FIRST FINANCIAL INSIGHTS: INVESTORS" INSIGHTS - "NEWS ALERT MARKET WARNING'...:

INVESTORS’ INSIGHTS “NEWS ALERT MARKET WARNING” Cyprus Rejects Deposit Tax Click Above for today's Wall Street Journal Article ...

Thank God! They came to their senses at the last moment. However, the idea of even pushing the button that could have caused a nuclear financial collapse is disturbing. Who will invest or save money in Cyprus ever again? How will their Banks retain current deposits? What will be the implications on EU bond markets  and banks? There is little doubt many reconsiderations are underway relative to the EU - and there will be an impact on capital flows and borrowing costs. A price will be paid at the worst of possible times.

Yet we need to look beyond the "Cyprus Crisis" and underscore the bigger issues here. First, how many more EU nations could possibly consider these most desperate financial tactics. Let's count them; Spain, Italy, Portugal, Greece,and Ireland could be readily added to the pool, bringing the total to six. In percentage terms that calculates to over 35% of the EU. So far! Trending has not been good and the fact that these countries do not have their own currencies and thus monetary policy control is not helping matters. \

Yep, they cannot pull the FED's famous "invisible deposit tax trick" and debase their currencies by printing more money.  People don't notice it and rarely turn to social unrest when it is applied. People don't understand it and some probably even believe that it is a good thing. So governments will continue to use this quieter confiscation of wealth because the direct tax approach makes the theft so much more obvious and really gets people upset.

For a moment let's turn back to what the real problem is here - Neo-Classical Economic Theory, or better described as the positive-sum abstract game. Whereas, what these countries are truly confronting is the physical algebra and negative-sum game of Meta-Economics;  meaning their populations have over shot the resource capacities of their geographic jurisdictions. Moreover, with each passing day the matter is made worse as more people are added while resources dwindle. So when we ignore all the typical abstracts and concepts of economists, it is really easy to see what the problem is here. With fewer inputs per capita - you produce fewer outputs - that cannot be increased by imaginary economic devices of any sort.

What is also clear, is the direction that each of these nations is heading, particularly if they continue to adhere to the Wizard of Oz's positive-sum economic theories. They are returning to a post-industrial society that will not be able to sustain the same numbers and outputs as in the past. That is, if social and political upheavals do not interrupt a smooth transition. Historic probabilities suggest the transition will not be so smooth.

So again keeping an eye on events is essential. What is interesting to note, is that many of the high profile trouble spots are island nations; Cyprus, Iceland and Ireland, that became Banking Center (Abstract) Economies when their underlying real physical economies overshot the populations they could support. So arguably are Japan and the UK. So were Nauru and Easter Island; of course, largely minus comptemporary banking and economists' abstracts. 

Sort of makes you wonder if there is a pattern here?

Dr Peter G Kinesa
March 19, 2013  

The Fate of Island Nations

  

FIRST FINANCIAL INSIGHTS: INVESTORS' INSIGHTS - "MARKET WARNING" - Cyprus ...

FIRST FINANCIAL INSIGHTS: INVESTORS' INSIGHTS - "MARKET WARNING" - Cyprus ...: 

INVESTORS’ INSIGHTS “MARKET WARNING” What if your bank shut down, then gave 10% of your (and everyone’s) money to the government?...

There is no doubt that this policy action; which appears to have been carried out under EU and/or ECB, guidance could be disastrous, if remedial measures are not taken immediately. The seizure of deposits undermines the integrity of the whole banking system causing unneeded fears that can exacerbate an already sensitive situation.  Those responsible - should be fired. (What the heck were they thinking?)

Consequently, investors, depositors and institutions face a new unprecedented form of risk, that if not contained,puts all forms of international dealings in jeopardy. This  "Market Warning" is fully justified; everyone will need to be extra careful in the days ahead.

Dr Peter G Kinesa
March 17, 2013  

Cyprus Banking Bonanza