European Banks Menaced with Harrowing Losses; Futures Plunge

Barclays is off another 24% this morning. Good morning and welcome to the end of the world. This is your Captain speaking aboard the ark, presiding over financial Armageddon.

In other news, LYG, DB, CS and UBS are all diving lower, as the pound drops another 3.7% in a genteel morning session.

These losses are starting to get scary, the sort of moves that’ll make you start writing stories about their credit default swaps next. Several of these fuckers are down by half, over the past two days.

European markets are getting hammered to pieces. NASDAQ futs are off by 55.

Jim isn’t seeing the forest through the trees, as is often the case with Americans who’ve gotten too rich and moved to the orient in order to teach their children mandarin.

Rogers favors gold over dollars because gold has already moved higher. But he’s viewing this in a very binary manner. He’s obsessed with the inflation boogeyman, something that hasn’t existed since the 1980s. Gold isn’t going up because of inflation, but because it is viewed as a safe haven. The same can be said about treasuries, bitcoins, and the dollar.

At any rate, Rogers fears if dollars go higher, gold will go lower. It’s an entirely rational train of though if it weren’t for the case that gold has become the defacto asset of choice for hedge funds everywhere, as they shift assets out from stocks into the anointed safe havens.

Rogers on gold and the dollar.

“Gold has been staggering this year, went straight up, and I don’t like to buy anything that’s run straight up,” Rogers said. “I would prefer to buy the dollar as a haven than gold.”

Rather than selling his gold, Rogers said he would take some some short positions as a hedge against his holdings. “I own plenty of gold, I assure you,” he said, adding that he’s “extremely optimistic” about agricultural commodities.

“I can’t get too optimistic about something that’s been going straight up,” Rogers said, referring to gold. “The dollar hasn’t done that, and often in history, when the dollar goes up, gold is weak.”

The near term fate of global markets lie in the currency crosses of dollar-pound, dollar-yen and dollar peso. Most of you are looking at me stupid now, after telling you the fucking peso holds the keys to your new cayenne. But currency traders know that the peso is the most liquid of all the piece of shit EM currencies and is, pretty much, a proxy for emerging markets.

As of right now, the pound is 2% lower v the dollar, the yen is off by 0.4% and the peso is lower by 0.35%.

US futs are moderately lower and commodity markets remain slightly biased towards risk off.

It looks like another arduous trading session lies ahead for global markets. DAX futures have swung lower and continue to swing (extra sweet chariot), now off by 1.5%.

Dow futures are down 100, and the is getting hammered v the dollar, off by 1.6%.

Gold is the preferable safe haven, along with fucking Bitcoins and bonds, now higher by almost 1%.

It’s real early and the traders clad in their pajamas haven’t even had supper yet. Prepare for a long night of pain and misery, as the NIKKEI moves towards the edge of the cliff, into the fires of hell.

Last week I discussed the overbought condition of Exodus coupled with the oversold status of several inverse ETFs. In the past, overall market overbought conditions had led to rallies. Markets like to run into momentum. But I sensed something was different this time around and correctly said as much.

Here are the last two oversold dates for TWM. The back test track record is flawless over the past 12 months.

Here’s my Exodus blog post from Monday of last week, delving into the cross currents.

I am pleased with the performance of the system last week and will be doing a special edition blog inside Exodus today, trying to make sense of this market.

As you can see by my position sheet below, I was unaffected by Friday’s drop, making more than 5% for the day.

Here on ibc, I’ll be hammering away at the news and important items to keep note of in the week ahead. Inside Exodus, I will be discussing shop and potential positions, in addition to any new buys or sales. For members, stay tuned for a somewhat controversial blog post inside Exodus today.

It should be a delightfully harrowing week.

Carter Braxton Worth, straight from the Nantucket ferry to the CNBC studies, took a few minutes out from his summering to warn the world of impending doom. All he had to do was take the golf cart to the ferry, slap on a gold buttoned blue blazer, and he was automatically telegenic. He didn’t even need to comb his hair, the Nantucket trade winds did it for him. Some people are hideous monsters who need to be fixed before making it to the silver screen, others are Carter Braxton Worth.

In this super short clip, prior to one of Braxton’s prosecco and speck breaks, he discussed the divergence between foreign markets and the US, pointing towards a complacency which has led to panic in the past.

My only exception to his quick little research note was the fact that the nations he’s comparing us to are inexorably FUCKED with negative interest rates. I believe the negative rate environment, which is the very essence of deflation, is the main reason for share price underperformance.

File this one under idiotic.

Typically, insurance companies rip people off through high premium and then take those premiums to buy stocks and bonds. But because stocks have been sucking wind and the low interest rate environment has been something of a bad experience for cash flow needing insurance giants, they’ve taken to ‘alternative investments’ to make up the difference.

What these shady, non-traditional invests are, is anyone’s guess. I imagine they’d make wise decisions and perhaps invest in some comic books or maybe some Honus Wagner tobacco cards.

A Reuters survey of the accounts of the top five listed insurers including Ping An Insurance Group Co (601318.SS) and New China Life Insurance (601336.SS) showed their holding of assets other than shares, bonds and cash had more than quadrupled in five years to 984 billion yuan ($150 billion).

These alternative investments – which include opaque, risky shadow banking-linked assets such as trust schemes and wealth management products (WMP) – account for roughly 16 percent of the top five’s total assets, up from 5 percent in 2011, the second-largest asset class after fixed-income products, the survey showed.

Analysts say the bulk of these investments including WMPs and the negotiable certificates of deposit, created by banks, are channeled to debt-laden state-owned and private firms at rising risk of default.

The insurers’ investments in these assets comes at a time when banks’ non-performing loans are already at an 11-year-high of nearly 2 percent, according to official figures, and many analysts believe the situation is much worse, as some banks are slow to recognize problem loans or park them off balance sheet.

Assets such as project asset-backed plans, trust schemes and WMPs are also difficult to turn into cash in a downturn since they lack a secondary market and have long investment horizons.

“The growing investment in risky, higher-return assets is the Titanic, and when it goes down it will take more than one lifeboat,” said Thomas Monaco, portfolio manager for Chinese equity at Hong Kong-based Nighthawk Capital.

“The real problem for insurance companies is that the overall investment yields are coming down in China, so they are going out of the credit risk curve. They are going for higher interest rate bets, and a lot of them could go bad.”

The top five Chinese insurers did not respond to requests for comment.

Edmond Law, insurance sector analyst at UOB Kay Hian (Hong Kong), said while investments in government bonds would return about 3 percent, some WMPs offered 4-5 percent, along with “very high risk”.

New China Life Insurance posted a more than fivefold jump in investment in products such as unlisted equity investments, trust products and WMPs last year compared with 2014.

In contrast, its investment in term deposits fell 23.7 percent, and stocks dropped nearly 2 percent, according to its latest annual report. It posted a 34.3 percent rise in 2015 profit, mainly thanks to income on investments.

New China Life said in the report, however, that since early 2015 it had “drastically tightened its risk appetite for non-standard assets” and regularly assessed and stress-tested their exposure.

Powder keg.

In a rare opinion editorial, George Soros spilled out all of this thoughts from his big evil genius brain, and potential ramifications, regarding the UK’s exit from the EU.

Suprisingly, this isn’t as partisan as I expected from George. Moreover, he nailed the part that this was always about the refugee crisis. If we’re being honest here and go back in time to where this all started, it was the Arab Spring, something that was promoted and fomented by the Obama administration and Secretary Clinton. The United States created a power vacuum by removing secular strong arms, who were subsequently replaced by storms arm religious fanatics, which in turn created the crisis.

Soros is predicting doom, a crisis only comparable to the financial crisis of 2008.

German Chancellor Angela Merkel’s decision to open her country’s doors wide to refugees was an inspiring gesture, but it was not properly thought out, because it ignored the pull factor. A sudden influx of asylum-seekers disrupted people in their everyday lives across the EU.

The lack of adequate controls, moreover, created panic, affecting everyone: the local population, the authorities in charge of public safety, and the refugees themselves. It has also paved the way for the rapid rise of xenophobic anti-European parties – such as the UK Independence Party, which spearheaded the Leave campaign – as national governments and European institutions seem incapable of handling the crisis.

Now the catastrophic scenario that many feared has materialized, making the disintegration of the EU practically irreversible. Britain eventually may or may not be relatively better off than other countries by leaving the EU, but its economy and people stand to suffer significantly in the short to medium term. The pound plunged to its lowest level in more than three decades immediately after the vote, and financial markets worldwide are likely to remain in turmoil as the long, complicated process of political and economic divorce from the EU is negotiated. The consequences for the real economy will be comparable only to the financial crisis of 2007-2008.

That process is sure to be fraught with further uncertainty and political risk, because what is at stake was never only some real or imaginary advantage for Britain, but the very survival of the European project. Brexit will open the floodgates for other anti-European forces within the Union. Indeed, no sooner was the referendum’s outcome announced than France’s National Front issued a call for “Frexit,” while Dutch populist Geert Wilders promoted “Nexit.”

Moreover, the UK itself may not survive. Scotland, which voted overwhelmingly to remain in the EU, can be expected to make another attempt to gain its independence, and some officials in Northern Ireland, where voters also backed Remain, have already called for unification with the Republic of Ireland.

The EU’s response to Brexit could well prove to be another pitfall. European leaders, eager to deter other member states from following suit, may be in no mood to offer the UK terms – particularly concerning access to Europe’s single market – that would soften the pain of leaving. With the EU accounting for half of British trade turnover, the impact on exporters could be devastating (despite a more competitive exchange rate). And, with financial institutions relocating their operations and staff to eurozone hubs in the coming years, the City of London (and London’s housing market) will not be spared the pain.
But the implications for Europe could be far worse. Tensions among member states have reached a breaking point, not only over refugees, but also as a result of exceptional strains between creditor and debtor countries within the eurozone. At the same time, weakened leaders in France and Germany are now squarely focused on domestic problems. In Italy, a 10% fall in the stock market following the Brexit vote clearly signals the country’s vulnerability to a full-blown banking crisis – which could well bring the populist Five Star Movement, which has just won the mayoralty in Rome, to power as early as next year.
None of this bodes well for a serious program of eurozone reform, which would have to include a genuine banking union, a limited fiscal union, and much stronger mechanisms of democratic accountability. And time is not on Europe’s side, as external pressures from the likes of Turkey and Russia – both of which are exploiting the discord to their advantage – compound Europe’s internal political strife.

That is where we are today. All of Europe, including Britain, would suffer from the loss of the common market and the loss of common values that the EU was designed to protect. Yet the EU truly has broken down and ceased to satisfy its citizens’ needs and aspirations. It is heading for a disorderly disintegration that will leave Europe worse off than where it would have been had the EU not been brought into existence.

Churchill at war.

They beat the Germans twice before. They can beat them again, Merkel and her henchmen.

Being a history buff and avid fan of Winston Churchill’s literary work, who unlike most leaders could actually write good prose, I was delighted by HBO’s production of A Gathering Storm and Into the Storm–which chronicled Winston’s life through these arduous times.

Several things have developed since Britain decided to leave the EU. First, the remain faction is trying to force another vote, suggesting the vote was too close to call. The fuck? The leave party won by 4%, pretty much a landslide.

The British minister to the EU resigned, citing nothing to do while the UK twiddled its thumbs.

Several other countries in the EU have expressed similar referendums to leave, such as Netherlands, France, Italy and Sweden.

Lastly, the petulant leaders of Europe are trying to be punitive to the UK, in order to preserve their Ponzi scheme. If the punish England bad enough, it will serve as a deterrent for other countries–preserving the corrupt alliance so that Germany could continue uninterrupted hegemony.

“We now have to open the possibility for dealing with Europe’s future,” German Foreign Minister Frank-Walter Steinmeier said after hosting talks with his colleagues from France, Italy, the Netherlands, Belgium and Luxembourg in Berlin on Saturday. “That is why we jointly say: This process should start as soon as possible.”

“Great Britain needs to say which kind of relationship it imagines having with the EU,” Merkel told reporters in Potsdam, outside Berlin. Those talks should be “matter-of-fact” and “shouldn’t drag on forever,” she said.

Others were less polite.

“We demand that the 27 other member countries also get respect” from the U.K., French Foreign Minister Jean-Marc Ayrault said in Berlin. “That’s one of the reasons we came to Berlin today.”

A forced, quick, exit from the EU by England would be disastrous for markets. But the EU doesn’t care, as long as their little club remains intact.