The EU Moves to Create Backstop for Clearinghouses to Prevent Systemic Meltdown

In light of BREXIT and whispers of a Deutsche Bank meltdwon, who has $50t in notional derivative exposure, the EU is moving quickly to create a mechanism that will protect and backstop clearinghouses — a move that was roundly opposed by EU banks until now.

Central counterparties (CCPs), such as EMCF, LCH.Clearnet, SIX x-clear and EuroCCP Eurex Clearing, will be provided a backstop that will be funded by member banks.

“Resolution does not aim to prevent the failure of inefficent institutions, rather it aims to maintain the critical functions of an institution, while allowing the remaining parts to be wound down in an orderly manner.”

All clearing houses will have to draw up plans showing how they would recover from a major financial shock. Regulators would be in charge of deciding when to intervene to resolve or close down or restructure the entity, the draft law said.

The draft EU law sets out how regulators should deal with a failing or collapsed clearing house in a way that shields taxpayers without disrupting markets.

It is in the form of a regulation, meaning it will be directly binding on the bloc’s member states, leaving little wiggle room for local regulators. This differs from a similar EU law for handling failing banks which gave countries more leeway.

“Considering their central and growing role in financial markets, all CCPs in the EU are therefore considered to be systemic,” the draft law said.

“As the systemic importance of a CCP failure cannot be determined with full certainty in advance, the proposed framework should apply in principle to all CCPs, irrespective of their size and complexity.”

“This is an area in which there is real UK particularism but with Brexit one can suddenly envisage EU-level supervision, which would be one step against fragmentation in how clearing houses are overseen,” said Nicolas Véron, a senior fellow at the Bruegel think-tank.

“The neat solution would be to have an international level of supervision,” he said, adding though that at present this idea is “about as utopian as it was to talk about European bank supervision 10 years ago”.

Alas, the evergreen joys of record highs, fueled by a mechanism that has produced more debt to GDP in the history of mankind. Naturally, if you all went out and maxed out your credit cards and spent all of your money on stuff, you’d look and feel rich too. But eventually the stuff you bought would begin to rot and get old and then you’d need more stuff. By then, it’d be too late. Credit would’ve dried up and you’d need to restructure your balance sheet in order to start anew.

The global debt burden is of an unprecedented quality. But with markets at new highs and the status quo drifting on like a summer breeze, anyone who dares to mention this very real, and very dangerous set of circumstances are castigated out for spreading insipid intellectual fare.

This pablum is out of the IMF this morning.

Gross debt in the non-financial sector has more than doubled in nominal terms since the turn of the century, reaching $152 trillion last year, and it’s still rising, the International Monetary Fund said. The figure includes debt held by governments, non-financial firms and households.

Current debt levels now sit at a record 225 percent of world gross domestic product, the IMF said Wednesday in its semi-annual Fiscal Monitor, noting that about two-thirds of the liabilities reside in the private sector. The rest of it is public debt, which has increased to 85 percent of GDP last year from below 70 percent.

Slow global growth is making it difficult to pay off the obligations, “setting the stage for a vicious feedback loop in which lower growth hampers deleveraging and the debt overhang exacerbates the slowdown,” said the Washington-based fund.

“Excessive private debt is a major headwind against the global recovery and a risk to financial stability,” IMF fiscal chief Vitor Gaspar said in prepared remarks. “History has taught us that it is very easy to underestimate the risks associated with private debt during the upswing.”

There’s no consensus on what levels of debt-to-GDP should be the considered alarming, the IMF said. However, financial crises tend to be associated with excessive private debt in both advanced and emerging economies, the fund said. In addition, research has shown that high debt is linked with lower growth, even when a crisis is avoided.

If companies postpone paying off debt, they could become “very sensitive to shocks, increasing the risk of an abrupt deleveraging process,” the IMF said.

Depressed economies with weak banking systems should avoid premature tightening of fiscal policy, the fund said.

The IMF flagged the euro area and China as economies where it’s particularly important for deleveraging to occur.

Markets continue to grind higher, effectively and absolutely ignoring the headwinds that are coming.

Wall Street doesn’t like the idea of a company that sells lead organization software buying a hugely expensive information cyber railroad that is bleeding out losses on a regular basis.

Shares of CRM are getting lit the fuck up on news that they’re the main suitor bidding for social piece of shit, Twitter. The stock is off nearly $5.

Mizhuo is out with a note saying “we think any deal“ (with $TWTR) will likely destroy $12-$17 bln (20-25% of $CRM value).”

I think the CEO of Salesforce, M. Benioff, has finally lost his marbles. For years he’s been saying and doing stupid shit. By acquiring Twitter, he will obtain the crown jewel of stupid shit, effectively plunging his shareholders into red hell — as he tries to sort out the fuckery that Jack built. It’d be a truly horrible deal.

Shares of TWTR are sharply higher on the news of potential bag holders stepping in to save the company.

Now the stock is just $1.60 away from its ipo price.

In a Bloomberg interview this morning, Jeff Currie from Goldman Ballsachs, says there is a fucking wall, mind you, of supply coming to oil markets in 2017. He cites assholes in the shale, to Russia and all the way to Libya as being impediments to capricious price gains and associates these indelible facts as the reason why OPEC chose to freeze oil production at RECORD FUCKING LEVELS.

“We’re still seeing a lot of oil enter this market,” Currie said in an interview with Tom Keene and Francine Lacqua. “It’s hard for this market to go above $55.”

“The sweet spot is 2017” for supplies coming from new projects reaching world markets, Currie said. The outlook for an oversupplied market next year drove OPEC’s announcement in Algiers last week that it will cap production at 32.5 million to 33 million barrels a day, he added.

Shale producers are hedging their output as soon as prices climb to a range of $50 to $55 a barrel, allowing them to continue drilling, Currie said. The number of rigs targeting crude in the U.S. has risen for a fifth week to the highest since February, Baker Hughes Inc. said Sept. 30.

While investment in new oil supply has been cut, any shortage in the market is “years off,” Currie said. A “bull state,” where output shortfalls push prices above $100 a barrel, couldn’t happen before 2019 or 2020, he said. Oil futures haven’t traded above $100 since 2014.

I know, this is scandalous blasphemy, especially with WTI kicking ass this morning. Take it up with Goldman and leave me out of it.

I wonder if he really believes the shit that spews from his mouth, or is he simply obsfucating for the benefit of his global masters who want to enslave the planet through fear mongering over controlling the sun?

In this forum, accompanied by DiCaprio, Obama, essentially, puts more blame on climate change than ISIS and radical Islam for the events transpiring in Syria. I suppose it’s a good narrative for him to follow, especially when the truth is the war was started by the Pentagon using weapons that were delivered to terrorists in Libya.

But this makes the whole Islamic terrorist threat seem so minor in the vast celestial scheme of things. The next time your fucking subway car blows up, thanks to a deranged lunatic wearing a suicide vest, blame it on the sun.

There are two things the market needs in order to truly get going. The financial system needs to mend. To do that, the negative rate situation in Europe has to change. Anytime you see a spike in German bund yields, that’s a great things for stocks.

We’re seeing heavy selling in bunds this morning.

The other pillar for a sustained market rally is for there to be strength in crude. We’re getting that this morning too, with WTI nearing $50 — the highest level since June.

Twitter is in talks of being acquired and futures have bounced, now up 30.

The rabbit hole of political correctness, which is designed to disorient and confuse the weak, has worked its way up the DNC — all the way to the candidate for Vice President of the United States.

Watch as Tim Kaine is unable to refer to himself as a man (what a retrograde term), instead calling himself a ‘person.’

I called this shit on Twitter, before this nonsense was said.

Observe.

Tim kaine is catamite personified.

— The_Real_Fly (@The_Real_Fly) October 5, 2016

The fuck out of here with this shit.

Oh shit. The Bond King, Jeff Gundlach, just dropped a mic on all of you bank lovers out there — pulling Credit Suisse out from his closet — holding it up by its petard and demanding an answer to his question.

WHO THE FUCK WILL BAIL THEM OUT, HUH?

The culprit, you ponder? Negative interest rates and its destructive implementation of horrible economics. Year to date, European banks have shed upwards of $280b in market cap. And in spite of that unfortunate fact, markets have gleefully shot higher — whilst urinating and defecating onto the faces of all of the bank CEOs.

“You cannot save your faltering economy by killing your financial system and one of the clear poster children for this is Deutsche Bank’s stock price,” Gundlach, 56, said at Grant’s Fall 2016 Investment Conference on Tuesday in New York. “If you keep these negative interest rate policies for a sufficient future period of time you are going to bankrupt these banks.”

While the Frankfurt-based bank would ultimately be rescued by the German government if needed, other banks in the region wouldn’t be able to count on such support, Gundlach said.

“Deutsche Bank will be supported by Germany if push comes to shove,” he said. “But what about Credit Suisse, which has shown a similar decline in stock price? Who’s there to bail them out?”

For those tuned in to the fuckery that is the Obama administration, this doesn’t come as news in the traditional sense. There have been numerous reports over the years that have demonstrated a willingness of the Obama administration to arm terrorists in the middle east, sometimes using criminal gangs to disperse said weapons, in order to ‘nation build’ through head cutting proxies.

It is now being revealed, via Politico, that Obama’s DOJ is moving to drop charges against a defense contractor because it would be ’embarrassing’ to both Obama and Clinton — ahead of the election.

A Turi associate asserted that the government dropped the case because the proceedings could have embarrassed Clinton and President Barack Obama by calling attention to the reported role of their administration in supplying weapons that fell into the hands of Islamic extremist militants.

“They don’t want this stuff to come out because it will look really bad for Obama and Clinton just before the election,” said the associate.

In the dismissal motion, prosecutors say “discovery rulings” from U.S. District Court Judge David Campbell contributed to the decision to drop the case. The joint motion asks the judge to accept a confidential agreement to resolve the case through a civil settlement between the State Department and the arms broker.

“Our position from the outset has been that this case never should have been brought and we’re glad it’s over,” said Jean-Jacques Cabou, a Perkins Coie partner serving as court-appointed defense counsel in the case. “Mr Turi didn’t break the law….We’re very glad the charges are being dismissed.”

Under the deal, Turi admits no guilt in the transactions he participated in, but he agreed to refrain from U.S.-regulated arms dealing for four years. A $200,000 civil penalty will be waived if Turi abides by the agreement.

The narrative out of Washington has always relied upon the coincidental and unfortunate seizure of U.S. weapons by terrorists, effectively laying the blame for ISIS driving convoys of brand new American vehicles or Toyota SUVs, without interference from our sophisticated missile systems in the region, on the ineptitude of our Iraqi allies.

The State Department confirmed a deal has been struck with Turi.

“Mr. Turi cooperated with the Department’s Directorate of Defense Trade Controls in its review and proposed administrative settlement of the alleged violations,” said the official, who asked not be named. “Based on a compliance review, DDTC alleged that Mr. Turi…engaged in brokering activities for the proposed transfer of defense articles to Libya, a proscribed destination under [arms trade regulations,] despite the Department’s denial of…requests for the required prior approval of such activities.”

Turi adviser Robert Stryk of the government relations and consulting firm SPG accused the government of trying to scapegoat Turi to cover up Clinton’s mishandling of Libya.

“The U.S. government spent millions of dollars, went all over the world to bankrupt him, and destroyed his life — all to protect Hillary Clinton’s crimes,” he said, alluding to the deadly Sept. 11, 2012 terrorist attack on the U.S. Consulate in Benghazi, Libya.

Essentially, the US accused Turi of arming rebels. He wanted to expose the government hypocrisy by exposing their intent to do exactly the same thing. Being that it’s a contentious political season, the DOJ decided it’d be best to simply dismiss the case and forget it ever happened.

Turi was indicted in 2014 on four felony counts: two of arms dealing in violation of the Arms Export Control Act and two of lying to the State Department in official applications. The charges accused Turi of claiming that the weapons involved were destined for Qatar and the United Arab Emirates, when the arms were actually intended to reach Libya.

Turi’s lawyers argued that the shipments were part of a U.S. government-authorized effort to arm Libyan rebels.
But questions about U.S. efforts to arm Libyan rebels have been mounting, since weapons have reportedly made their way from Libya to Syria, where a civil war is raging between the Syrian Government and ISIL-aligned fighters.

During 2013 Senate hearings on the 2012 Benghazi attack, Clinton, under questioning from Sen. Rand Paul (R-Kentucky), said she had no knowledge of weapons moving from Libya into Turkey.

Wikileaks head Julian Assange in July suggested that he had emails proving that Clinton “pushed” the “flows” of weapons “going over to Syria.”
Additionally, Turi’s case had delved into emails sent to and from the controversial private account that Clinton used as Secretary of State, which the defense planned to harness at any trial.

At a court hearing in 2015, Cabou said emails between Clinton and her top aides indicated that efforts to arm the rebels were — at a minimum — under discussion at the highest levels of the government.

“We’re entitled to tell the jury, ladies and gentlemen of the jury, the Secretary of State and her highest staff members were actively contemplating providing exactly the type of military assistance that Mr. Turi is here to answer for,” the defense attorney said, according to a transcript.
Turi’s defense was pressing for more documents about the alleged rebel-arming effort and for testimony from officials who worked on the issue the State Department and the CIA. The defense said it planned to argue that Turi believed he had official permission to work on arms transfers to Libya.

In summary, Clinton and Obama ousted and killed Gaddafi, flooded the streets of Libya with American weapons, which were explicitly placed into the hands of terrorists, who then used said weapons to start a civil war in Iraq and Syria. But let’s talk about Trump’s fat fuck of a beauty pageant winner and his tax write offs from 21 years ago instead.

If we were to move the discussion over to Deutsche Bank and their $50t in notional value derivatives book, I’d tell you there is much to fear. But the whole idea that the Fed, ECB and BOJ will all of a sudden stop propping up markets, in favor of tight monetary policy is so absurd — it borders on the delusional. I don’t know how these people are able to carry on these discussions on the teevee. I wouldn’t be able to do it for more than a minute, without having a Tourette’s style cursing outburst — accompanied by extreme acts of violence.

Gold is a buy here, even though it looks horrendous. The technicals are dreadful. The sellers are piling in and the shorts are vigorous. It has been a losing position of mine, almost immediately after buying them. But I am sticking with them, as part of an asset allocation programme, because it’s my belief that central banks cannot stop demeaning themselves or the monetary base without causing massive dislocations in the marketplace.

In other words, if they hiked rates and the ECB ceased their QE programmes, the markets would get fucked so hard and so fast, the losses I’d endure in GLD would be readily offset by both my bond and FCX short positions — with ease.

Timing bottoms is another ridiculous adventure, so don’t expect a hooker with cocaine at your front door tomorrow morning.

Here’s the predictive oscillator in Exodus. New lows. It’s worth noting, GLD isn’t oversold yet on out 12 mo algorithm so far. And, today’s drop in GLD was the 13th largest since 2009. Looking back, it reminded me of the drop on December the 14th, 2011.