Lunes 16/03/15 Semana del Fed

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9:00 Índice mercado inmobiliario EEUU NAHB 53 frente 56 previsto
Anterior 55
El índice inmobiliario NAHB cae en marzo al menor nivel en 8 meses hasta 53 frente una previsión de 56 y un dato anterior de 55.

Mal dato para la renta variable y el dólar.

9:33 Deutsche Bank recorta su previsión BPA S&P 500 para 2015
Los analistas del Deutsche Bank recortan su previsión del BPA del S&P 500 2015 a 118$ desde los 120$ anterior por la rápida apreciación del dólar.

Asumen un cambio medio del euro/dólar en 1,05-1,00$ frente los 1,10-1,15$ anteriores.

9:42 La UE permitirá que Grecia tenga 2.300€ millones en fondos estructurales
El presidente de la Comisión Europea, Jean-Claude Juncker, declara que la UE permitirá el acceso de Grecia a 2.300 millones de euros de los fondos estructurales. Añade:

- Grecia está preparando un plan de reformas que podría aumentar el límite de la emisión de Letras del Tesoro heleno.
- Puede colaborar con el BCE para ganar flexibilidad sobre las ventas de las Letras del Tesoro.
- El plan depende del acuerdo con Tsipras.



El mercado descuenta dos subidas de tipos en EEUU en 2015

Y cuatro en 2016
Lunes, 16 de Marzo del 2015 - 9:52:00

De acuerdo a los futuros de los Fondos de la Fed, el mercado espera actualmente unas dos subidas de tipos hasta diciembre de 2015 (suponiendo que la Fed suba las tasas en 25 puntos básicos cada vez).

Los futuros de los Fondos de la Fed están descontando que la tasa de fondos federales estará en los 54 puntos básicos en diciembre de 2015 (ver gráfico adjunto vía GaveKal Capital). El mercado era más optimista con respecto a retrasar las subidas a mediados de enero, cuando el mercado estaba descontando solamente una subida y media en 2015.

Sin embargo, es interesante señalar que en los primeros 10 meses de 2014 el mercado estaba esperando aproximadamente tres alzas en 2015 por lo que las expectativas todavía están un poco por debajo que en aquel momento.


El mercado está descontando una tasa de fondos federales de 141 puntos básicos para finales de 2016. Las expectativas de mayores tasas en 2016 han aumentado considerablemente desde principios de febrero. El 2 de febrero, el mercado estaba descontando una tasa de fondos federales de sólo 104 puntos básicos en diciembre 2016

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10:45 Las empresas de pequeña capitalización EE.UU. ganan fuerza
Las compañías de pequeña capitalización (Russell 2000) se han comportado peor que las de gran capitalización (S&P 500) en los últimos meses, ahora bien, como vemos en el gráfico adjunto realizado por J.C Parets, eso parece que está empezando a cambiar.

La tendencia bajista en el gráfico, que muestra el comportamiento relativo de ambos indicadores, indica que el Russell 2000 está ganando en fortaleza y que se enfrenta a la importante resistencia de los 0,585. Una ruptura de este nivel sugeriría la siguiente operación de arbitraje: Cortos en el S&P 500 - Largos en el Russell 2000.

Con ella se apostaría a que si los selectivos bajan lo hará más el S&P 500, y si suben lo hará en mayor medida el Russell 2000.

10:30 El BCE compra 9.751 millones de euros en la primera semana de la QE
El BCE comunica que ha comprado 9.751 millones de euros en bonos del sector público en la semana finalizada el 13 de marzo. Añade que:

- Compra 3.754 millones de euros en ABS.
- Bonos garantizados totales 56.947 millones de euros.

A este ritmo de compras el BCE no cumpliría su objetivo de 60.000 millones de euros de bonos sector público al mes.

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11:24 Irán podría elevar sus exportaciones 1 millón de barriles al día
Irán podría elevar sus exportaciones un millón de barriles al día si se levantan las sanciones internacionales.


¿Hay que temer las subidas de tipos en EEUU?

Fuertes subidas de las bolsas europeas a la espera de la Fed
Lunes, 16 de Marzo del 2015 - 11:39:50

Antes de dar respuesta a la pregunta que encabeza este cierre de mercado, señalar que las bolsas europeas han registrado subidas superiores al punto porcentual en una jornada con escasas referencias macroeconómicas relevantes, y con un moderado volumen de contratación.

Destacar el comunicado del BCE señalando que la entidad habría comprado 9.751 millones de euros en bonos del sector público en la semana finalizada el 13 de marzo, lejos aún de sus objetivos mensuales de 60.000 millones de euros.

El Eurostoxx 50 sube 1,40% a 3.707 puntos. El Ibex 35 +0,73% a 11.114 puntos. Los valores con mayores alzas dentro del selectivo son Ferrovial, Inditex y Grifols. Caídas en Abengoa, Día y Técnicas Reunidas.

Pero como decíamos, lo más destacado de la sesión han sido las elucubraciones que está haciendo el mercado sobre cuándo empezará a subir tipos la Fed. Según una encuesta realizada este fin de semana por el Wall Street Journal, el 50% de los analistas consultados creen que la Fed subirá tipos en su reunión de junio. El resto espera en el tercer trimestre o posterior.

Esto contrata con las encuestas realizadas tan solo hace unos meses que indicaban que la mayoría esperaba que la subida se produjera en el tercer trimestre o más allá.

Los analistas también indicaron que las subidas de tipos se irán incrementando según se vaya alcanzando el objetivo de inflación del 2%. El objetivo de la Fed es pasar de los tipos cero al 3,75% en unos años.

Volvamos entonces a la pregunta anterior: ¿Hay que temer las subidas de tipos en EEUU?

Los analistas de M&G Valores realizan una interesante reflexión sobre este hecho que exponemos a continuación:

Nos acercamos al inicio de un proceso de subidas de tipos en EEUU que va a poner fin a un período de más de 6 años de tipos cero, algo inédito en la historia monetaria norteamericana. Históricamente los procesos de subidas de tipos han ido asociados a períodos de turbulencias en los mercados de mayor o menor intensidad, por lo que es evidente que existe una incertidumbre importante sobre cuál puede ser el impacto de este proceso en los próximos meses.

De un repaso de los sucedido en los procesos de subidas de tipos que ha habido en EEUU desde 1985 se deducen patrones diferentes, como no podía ser de otra forma, en función del momento del ciclo, comportamiento previo de la Bolsa, intensidad de la subida etc. La situación de fondo actual es también diferente a las anteriores aunque, si tuviera que elegir el mayor paralelismo, creo que sería con la de 1994. Las características y comportamientos más importantes de estos procesos fueron los siguientes:

•1986-87: A finales de 1986 la Fed inició un tímido proceso de subidas de tipos desde el 5,8% en un escenario de fuerte crecimiento económico y suave repunte de la inflación. En los meses siguientes la rentabilidad de los bonos subió de forma significativa desde el 7,20% hasta el 9,50%, mientras la bolsa subía de forma imparable (+60% de enero a agosto de 1987). Estos movimientos extremos acabaron en el crash de 1987 que a su vez puso fin al proceso de subidas de tipos.

•1988-89: una vez estabilizada la situación tras el crash, en marzo de 1988 la Fed retoma el proceso de subidas de tipos. Esta vez de forma muy intensa pues en poco más de un año los subió desde el 6,50% hasta el 10,50%. Con el recuerdo de la década inflacionista todavía muy presente, el objetivo de la Fed era frenar el ritmo de crecimiento de la economía que mostraba signos de sobrecalentamiento y riesgos inflacionistas. La Bolsa mantuvo durante las subidas de tipos el tono alcista hasta finales de 1989 en que entró en una fase correctiva anticipando la recesión que llegaría poco después.

•1994: a partir de 1990, con la economía entrando en recesión, la Fed bajó los tipos desde el 10% hasta el 3% en el año 1992 y los mantuvo en ese nivel hasta 1994. En ese momento con la economía ya creciendo con fuerza se inició por sorpresa un proceso de subidas de tipos para devolverlos a un nivel más normal que evitase tensiones inflacionistas. Las subidas se mantuvieron durante todo el año 1994 hasta estabilizarlos en la banda 5%-6%. La bolsa entró en una fase correctiva-lateral que se mantuvo durante todo el año. El trasfondo era un fuerte temor a que las subidas de tipos provocaran una recesión como había sucedido en 1990. Cuando el mercado se convenció de que la economía iba a seguir creciendo y los tipos ya no iban a subir más, reanudó la tendencia alcista hasta el año 2.000. Aunque la corrección de la Bolsa americana fue más larga (12 meses) que intensa (-10% max.) las subidas de tipos en EEUU provocaron turbulencias importantes en los mercados de bonos y bolsas de otros países, particularmente en emergentes.

•1.999-2.000: tras 10 años de crecimiento económico y fuerte ciclo alcista la Fed inició un nuevo proceso de subidas como medida preventiva de la inflación. Las subidas no fueron muy intensas pero lo suficiente como para favorecer la suave recesión de 2001. La bolsa mantuvo el tono alcista aunque sólo gracias a las compañías tecnológicas pues la mayor parte del mercado ya empezó a anticipar la recesión que se avecinaba. El ciclo bajista de 2000-2002 fue muy intenso por la explosión de la burbuja tecnológica, no tanto en los valores normales que tuvieron una fase correctiva similar a la de 1990.


•2004-2006: de nuevo con la recesión de 2001 la Fed bajó los tipos de forma agresiva hasta el 1%. En 2004, con la economía ya creciendo de forma normal, la Fed inició un proceso de subidas para normalizar su nivel. El proceso fue bastante intenso pues los llevó hasta el 5,0% en 2006. En este período la Bolsa mantuvo un tono alcista que se acentúo a partir de 2006 cuando la Fed dejó de subir los tipos de interés. En 2007 empezaron a aparecer signos de tensiones financieras aunque aparentemente la economía estaba en buena situación y no había síntomas clásicos de sobrecalentamiento o fin de ciclo. Durante la primera mitad de 2008 las bolsas ya corregían y la economía se había estancado. El sector inmobiliario había entrado en recesión y empezaron a aparecer los problemas que la deuda a él asociada estaban creando en el sector financiero. A partir del verano, con la crisis de Bear Stern primero y Lehman Brothers a continuación, se produjo un pánico financiero mundial que desató la recesión global de los últimos años.

•2015-??: en 2009 la Fed bajó los tipos a cero para combatir la crisis y ahí se han mantenido hasta ahora. Con la economía ya creciendo a tasas cercanas al 3% y la inflación subyacente estable sobre el 1,6%-1,7%, la fed parece dispuesta a iniciar un proceso de normalización de los tipos de interés. En este sentido estaríamos en una situación parecida a la de 1994 o 2004. Es decir, en el inicio de una fase expansiva de largo plazo en el que la Fed sube los tipos desde un nivel extremadamente bajo a un nivel más normal compatible con un objetivo de inflación del 2% y un crecimiento sostenible acorde al potencial a largo plazo. En 1994 la primera subida vino de forma sorpresiva y el mercado reaccionó muy negativamente, particularmente los bonos que en pocas semanas subieron su rentabilidad del 5,5% al 7,8%. Una diferencia importante es que ahora las subidas están más que anunciadas, se espera que suban muy gradualmente en los próximos 2-3 años, y partimos de niveles mucho más bajos que los de entonces. Las tensiones inflacionistas ahora brillan por su ausencia, más bien al contrario el entorno mundial sigue dominado por fuertes tensiones deflacionistas. En consecuencia la Fed no tiene ninguna urgencia en subir los tipos de forma agresiva y puede hacerlo muy gradualmente en los próximos 2-3 años. La propia subida del dólar es un factor que ayuda a limitar todavía más la presiones inflacionistas en EEUU que de alguna forma está importando deflación del resto del mundo vía la apreciación del dólar.

¿Qué nivel es razonable para los tipos de interés en EEUU? Con una inflación controlada ligeramente por debajo del 2% un nivel de tipos de la Fed que implicaría una política monetaria neutra estaría algo por encima del el 2%. A su vez la rentabilidad de los bonos a 10 años podría situarse en el entorno del crecimiento nominal del PIB sobre el 4,5%-5,0%.

Estos podrían ser los niveles que cabría esperar en un entorno de normalización monetaria dentro de una fase expansiva de la economía. Dada la situación de la economía mundial, es posible que se tarde más de lo previsible en alcanzarse esos niveles, o lo que es lo mismo, es probable que la Fed se plantee un período de al menos dos años para llevar sus tipos de interés desde el 0% actual hasta el 2%.

En ese escenario un objetivo razonable para el bono a 10 años estaría en la banda 3,5%-4,0%. Como puede verse en la página siguiente, históricamente la rentabilidad de los bonos a 10 años se ha mantenido entre el 2% y el 5,5% la mayor parte del tiempo. La excepción fue el período inflacionista de la década de 1970’ en que se fue por encima del 10%.

Tipos vs Bolsa. En principio existe una relación inversa entre tipos de interés y valoración de la Bolsa: a tipos más elevados correspondería un PER más alto y viveceversa. El problema es que el nivel de los tipos de interés no es el único factor que afecta a la valoración.

El otro factor importante a tener en cuenta es el crecimiento futuro de los beneficios. Es por eso que si observamos cómo ha sido en el pasado el comportamiento de la bolsa con relación a los tipos de interés no encontramos un correlación clara y estable, ya que depende de en qué parte del ciclo estemos o, de modo más general, de cuáles sean las expectativas de los inversores sobre el futuro en cada momento. Y no sólo eso. Además hay que tener en cuenta que los inversores ya manejan en cada momento unas determinadas expectativas sobre la evolución futura de los tipos de interés que están implícitas en las valoraciones actuales.

Veamos el caso de EEUU. Actualmente los analistas proyectan crecimientos futuros de los beneficios en la banda 5%-10% para próximos años. Por otra parte la rentabilidad de los bonos está en niveles muy bajos. En concreto los bonos corporativos Baa a 10 años están al 4,45%. Si asumimos que la valoración de equilibrio es la que iguala la rentabilidad de los bonos con la de los beneficios (earnings yield=100/PER) tendríamos que la Bolsa podría cotizar actualmente a un PER forward de 22,5 x ( 100 / 4,45). O visto de otra forma, el PER actual de 16,6x es sostenible con una rentabilidad de los bonos del 6%. Esto nos deja un margen de subida de las rentabilidades desde el 4,45% actual de más de 150 pb sin que tenga un efecto negativo sobre las valoraciones. Es decir, el PER actual de la bolsa americana ya descuenta implícitamente que la rentabilidad de los bonos va a largo plazo va a subir al menos esos 150 pb, lo que llevaría al Bono del tesoro a 10 años al 3,70% aprox.

¿Cuál sería la conclusión final? Pues que la bolsa americana está ya correctamente valorada para un escenario de normalización de tipos en los próximos dos años. Su potencial de revalorización desde estos niveles, en consecuencia, debería estar en línea con el crecimiento de los beneficios en los próximos años. Sin duda esto implicaría una tendencia alcista más modesta que la de los últimos años, pero seguiría siendo una tendencia alcista pese a todo.

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12:02 Sin cambios en las Carteras de Renta 4 Banco

En la cartera de 10 Europeos seguimos contando con: Astrazeneca (10%), BNP (10%), DeutscheBoerse (10%), Deutsche Post (10%), Galp (10%), KPN (10%), Philips (10%), (10%), Sainsbury(10%), Siemens (10%) y Vinci (10%).

Por último, la Cartera Estados Unidos sigue formada por Accenture (10%), Anthem (10%), BaxterInternational (10%), Colgate Palmolive (10%), Google A (10%), McDonald’s (10%), Metlife (10%),P&G (10%), UPS (10%) y Walgreen (10%).

13:15 Wall Street: En el nivel más caro de la historia excepto en el 2000
Meb Faber Research realizan la siguiente afirmación: Mi indicador favorito "ratio precio medio/ventas" está en el mayor nivel de la historia excepto en el 2000.

El ratio se encuentra por encima de 2,0. Los datos señalan que cuando el S&P 500 tiene este ratio por encima de los 1,53 el rendimiento anual es del 0,60%. Si el ratio está entre 0,7-1,53 la rentabilidad anual es del 6,60% anual. Por debajo de 0,7 la rentabilidad anual es del 10,22%.

12:29 El gobierno chino dispuesto a tomar más medidas contra la ralentización
El primer ministro chino, Li Keqiang, ha señalado que el Gobierno de China tomará más medidas si la ralentización del crecimiento económico comienza a afectar al mercado laboral y que tiene las herramientas para ello. Asimismo, prometió más límites al poder del Gobierno para permitir que florezca el sector privado.

Li añadió, según Link Análisis, que el Gobierno está intentando alcanzar un equilibrio entre mantener el crecimiento económico en una tasa relativamente alta e impulsar reformas estructurales. El crecimiento se enfrenta a presiones a la baja, pero si comienza a afectar al empleo y a los ingresos el Gobierno tomará medidas más enérgicas. Al respecto, Li señaló que en el último par de años China no ha tenido que recurrir a medidas masivas de estímulo por lo que todavía tiene herramientas para ello. No dio detalles de qué opciones se plantea al Gobierno al respecto.

Respecto al impulso de la iniciativa privada, Li indicó que se reducirían los impuestos en las pequeñas empresas y prometió reducir la burocracia para incentivar el emprendimiento.

[Fenix]

El dólar adelanta menos paciencia

Bankinter
Lunes, 16 de Marzo del 2015 - 13:43:00

Eurodólar (€/$): El dólar continúa cotizando en máximos (mínimos del euro) de los últimos diez años gracias a la favorable evolución del mercado laboral en EE.UU en una semana en la que la atención se centrará en la rueda de prensa de Yellen (miércoles) para dilucidar cuan paciente se muestra la Fed a la hora de subir los tipos de interés. Rango estimado (semanal): 1,040/1,055.

Euroyen(€/JPY).- La debilidad del euro ha continuado esta semana contra la mayoría de las divisas. La cotización del euro yen, no ha sido independiente a esta tendencia, cotizando a niveles mínimos desde septiembre 2012. Esto a pesar de las cifras macros que estamos conociendo. Rango estimado semanal: 127,0-130,0.

Eurolibra (€/GBP): La cotización estará marcada por la debilidad generalizada del euro tras el comienzo del “QE” por parte del BCE y por las actas del BOE que pondrán de manifiesto que el mercado laboral se encuentra en buena forma mientras que la baja inflación es coyuntural y en gran medida explicada por los precios de la energía: Rango estimado (semanal): 0,704/0,708.

Eurosuizo (€/CHF): Apreciación del franco la semana pasada, aunque ligera sobre todo si tenemos en cuenta el inicio del programa de compras del BCE. Esta semana la clave será la reunión del SNB para la que no anticipamos cambios. En este contexto, el cruce se mantendrá en niveles similares a los actuales aunque con cierta tendencia de apreciación del franco dada la presión depreciatoria que implica para el euro el PSPP. Rango para la semana: 1,05-1,06.

14:30 Análisis Técnico Petróleo. Escenario parecido al de 1986
Análisis técnico Citi
Dado que estamos de nuevo en los mínimos de la tendencia, la acción del precio se está pareciendo cada vez más a lo observado en la década de 1980.

Entonces, vimos un mercado lateral después de un rally decente seguido de un colapso.

En los últimos años hemos visto lo mismo.

Si la magnitud del mercado bajista actual es igual a la observada en 1986, entonces deberíamos esperar un precio del petróleo en el rango de $34 - $37.

14:07 Morgan Stanley: resistencia principal a corto plazo en 39.5
CMC Markets

[ MORGAN STANLEY ]
Punto de rotación se sitúa en 35.1.

Preferencia: nuestro próximo objetivo alcista se sitúa en 39.5.

Escenario alternativo: por debajo de 35.1, el riesgo es una caída hasta 33.9 y 33.2.

En lo referente al análisis técnico, el índice de fuerza relativa (RSI) se encuentra por encima de su zona de neutralidad de 50. El indicador de convergencia/divergencia de medias móviles (MACD) se sitúa por encima de su línea de señal y es negativo.

Asimismo, la acción se sitúa por encima de su media móvil de 20 y 50 días (se sitúa a 36.09 y 35.87 respectivamente).

[Fenix]

¿Qué Emergentes han avanzado más y menos en las reformas estructurales?

Análisis de Deutsche Bank
Lunes, 16 de Marzo del 2015 - 15:28:00

El mayor apetito por el riesgo que ha traído la expansión de numerosos bancos centrales en estos primeros meses de 2015 apenas está beneficiando a estos mercados, en gran parte penalizados por la fortaleza del dólar.

Los problemas políticos en países como Brasil o Turquía han dado pie a los más pesimistas para mantenerse fuera de estos activos. Tampoco las cifras de crecimiento apoyan. Con la excepción de los países de Centroeuropa (donde el abaratamiento de la energía, la expansión monetaria, la competitividad de sus divisas y la mayor demanda desde Alemania están favoreciendo más crecimiento), y de India, la mayor parte de los grandes países cerrarán el año 2015 con un crecimiento inferior a 2014, con Rusia y Brasil en recesión.

Es momento por tanto que, también en estos países, se aproveche el tiempo ganado con la expansión monetaria para realizar reformas estructurales.

Los analistas de Deutsche Bank han realizado un ranking de países donde ya se ha avanzado más en dichas reformas: Chile, Malasia, Singapur, Corea, Taiwan. Los países con reformas en curso son: China, Colombia, Indonesia, Perú o Polonia, India, y México. Y a la cola Brasil, Argentina, Ucrania, Venezuela y Rusia.

[Fenix]

Esos locos mercados

Lunes, 16 de Marzo del 2015 - 15:57:00

Lo hemos logrado: de tanto debatir sobre lo que es malo o bueno para los mercados, al final ha ocurrido lo obvio. Me refiero a que muchos inversores simplemente han dejado por el momento el mercado, ante la elevada incertidumbre a corto plazo. El resto, en términos de una menor profundidad del mercado es sinónimo de inestabilidad y riesgo.

Unos datos económicos USA negativos (entiendanlo como vendedores de USD, precios al por mayor a la baja y deterioro de la encuesta de consumo) han sido compatibles con una subida del USD, con tipos de interés de la deuda USA al alza y ventas del S&P. Pero, ¿no estábamos valorando que todo aquello que aplazase la decisión de la Fed era bueno para los activos de riesgo? Desde el punto de vista práctico es así. Pero, en realidad, todo lo que sea malo para la economía norteamericana lleva a un aumento de la aversión al riesgo. No es tanto una cuestión de un nuevo QE por la Fed, si no que los precios de los activos sólo son sostenibles a medio plazo si realmente el subyacente (la economía y la inflación) mejoran. El resto es simplemente inestabilidad ante un renovado debate sobre excesos en la valoración de los mercados y potenciales límites en el margen de maniobra de los bancos centrales. Y aquí pienso sólo en la Fed.

Pero no es sólo el mercado USA. En Europa la primera semana con el QE se ha traducido en descensos en las bolsas, un EUR a la baja y tipos de interés (con primas de riesgo) en mínimos históricos. Una fuente del Buba valoró la compra de bunds en los primeros días de la semana en poco más que 2bn, aproximadamente un 20 % de las compras que un consejero del ECB dijó que se habían realizado en el mismo periodo. No parece muy descabellado, aunque lo cierto es que los tipos de interés del bund 10 años han llegado a caer hasta 0.2 %. ¿Y después qué? Mis analistas tecnicos ya avanzan tipos de interés negativos en este tramo no dentro de mucho tiempo. Y más caídas, naturalmente, en el resto de la deuda. Ya saben que he decidido no hacer previsiones sobre cuál es el suelo en los tipos a plazo en Europa, por la misma razón que no las hago sobre la existencia de vida extraterrestre: me falta información. Y con esto tengo en cuenta tanto la incertidumbre sobre cuál puede ser la evolución de los tipos de interés de la curva USA si la Fed decide iniciar antes de tiempo su subida de tipos como también el recurrente debate a futuro sobre la continuidad o no del QE en Europa a medida que mejoren los datos macro y de inflación. Nosotros mismos ya hemos comenzado a revisar al alza la previsión de inflación del área, que podría acercarse a niveles del 2.0 % en un año.


¿Locos los mercados? bueno, es una forma en que lo valorará cualquier persona que no trabaje en ellos y vea tanto la volatilidad de la volatilidad (los movimientos del VIX) como el hecho de que ya nos parezca normal que los tipos de interés de la deuda en muchos países sean negativos. Pero no es un cuestión de locura o cordura de los inversores. Más bien, de confusión sobre el futuro. De la misma forma que la elevada inestabilidad expulsa al inversor del mercado, los excesos en los precios de los activos y la falta de visibilidad sobre el futuro también lo puede hacer. Los mercados se convierten en estos casos en un mero intercambio de operaciones sin ninguna racionalidad detrás salvo la mayor presión puntual que pueda tener la oferta sobre la demanda o de la demanda sobre la oferta. Se podría decir también que entramos en un contexto de comportamiento lateral, añadiendo que bajista ante la posibilidad (mayor) de que haya malas noticias frente a buenas. Pero, es que cada vez resulta más complicado determinar qué son realmente las buenas noticias. Y aquí incluyo, naturalmente, que los bancos centrales sigan comprando más y más papel. De hecho, como nos está demostrando la Fed, tras dejar de comprar y cuando las razones que había detrás de las medidas monetarias extremas se han superado, el inicio de la normalización se convierte en otro frente de batalla. Por esperado no significa que sea manejable. Los mercados, como hemos visto durante la Crisis, son jueces y parte. En el pasado reciente, nos han ayudado a superar parte de los problemas de fondo. Ahora pueden llegar a ser un problema adicional.

José Luis Martínez Campuzano
Estratega de Citi en España

[Fenix]

Why Is Per Capita Energy Consumption At Recession Levels After Six Years Of "Recovery"?
Submitted by Tyler D.
03/10/2015

Per capita energy consumption remains at recession levels.
One way to verify rosy official data--GDP growth, low unemployment, etc.--is to compare it with data that is less easily gamed: for example, energy consumption.Those seeking a realistic snapshot of the Chinese economy routinely turn to energy consumption and rail traffic data for this reason: at least until recently, these data sets were more reflective of real economic activity than the glowing official numbers.
So let's try the same analysis on the U.S. economy. Courtesy of Market Daily Briefing, here are four charts of per capita (per person) energy consumption.By using per capita data, we eliminate population growth as a variable.
If total energy consumption remains steady as population rises, the per capita energy consumption will drop.

As vehicles, appliances, etc. become more energy-efficient, we would expect per capita energy consumption to decline. For example, as mileage/unit of fuel of vehicles rise, the fuel needed to drive the same number of miles per year declines.

offsetting this gradual decline due to increasing efficiency is an overall rise in the standard of living, which in a consumerist society means owning and operating more vehicles, appliances, etc., taking more vacations, etc.--all of which tend to push per capita energy consumption higher.

Increasing efficiency is a long-term trend. The sharp drops in the charts below characterize the effects of recession on consumption: as economic activity plummets, per capita energy consumption plummets, too.

We can see this in the first chart of total per capita energy consumption: energy use plummeted sharply in the 1980-82 recession, and then recovered along with economic activity. The sharp drop in consumption in the 2008-09 recession was not followed by robust recovery.

Per capita energy consumption has remained at recessionary levels.

Just as striking is the decline registered during the housing/stock bubble years of strong GDP growth 2002-2008: the economy was growing like gang-busters in these years, why did energy consumption drop so significantly? Did vehicles, appliances, etc. get that much more efficient? Or does this reflect a less-than robust real economy?
Per capita transportation consumption is even more at odds with official rosy data.Given record-breaking vehicle sales and strong GDP growth, we'd expect to see equivalent strength in transportation consumption. Instead, consumption continuing dropping during the "recovery" and remains at recessionary levels.

Per capita residential consumption has bounced back, but remains well below 2007 levels after hitting multi-decade lows in the middle of the current "recovery."What really pops out of this chart is the dramatic secular decline in per capita residential consumption since the peak reached in the early 2000s.

The decline in per capita industrial consumption is not unexpected, given the mass offshoring of industrial production. While there are multiple factors at work here, it is difficult not to discern a trajectory of de-industrialization in this chart.

Courtesy of Doug Short, here is a chart of per capita vehicle sales. Once again we see a long-term secular decline in the number of vehicles sold per person from the peak over 30 years ago.

That vehicles last longer nowadays is a positive contributor to this trend, but it is noteworthy that vehicle sales per capita slid even in the go-go boom of the 2000s.

The current rise off the bottom in 2009 is suspect because so many of these sales result from subprime auto loans, cash for clunkers and various incentive programs. That the current level is still significantly below per capita sales in 1999 and 2006 after six years of GDP growth suggests that the current "recovery" is different from previous post-recession recoveries.

There are other factors at work here, of course--as the population ages, total miles driven tends to decline, the stagnation of income and the rising costs of auto ownership have led to a generational loss of interest in vehicle ownership, the boom in urban living has led many to abandon vehicle ownership in favor of car-sharing and public transport, etc.

But if we combine these data series, we get a picture not of robust growth akin to previous post-recession periods, but a "recovery" that by previous standards remains recession-bound.

[Fenix]

Dear Treasury Secretary Lew: Here Is All You Need To Know About HFT
Tyler D.
03/10/2015

About a decade after the arrival, and subsequent takeover of the market by high-frequency traders...

... 6 years after the start of our crusade to purge the capital markets of the 2nd worst scourge to capital allocation efficiency and fraud, the first being of course the central banks, and 5 years after the flash crash, we just realized that we, and all those others who caution every day against the threat that HFT poses every single day, have finally made an epic breakthrough. To wit:

* LEW SAYS GOVERNMENT TRYING TO UNDERSTAND HIGH-FREQUENCY TRADING

That's right: the US Treasury Secretary is finally trying to figure out what all this buying and selling and buying and selling (repeat that 1 million times in one second) is good for. Well... it was about time.

So to help out Jack Lew on his quest to understand why the market is rigged, and is, as even former SEC directors admit, "two-tiered", we could point him to the full explainer we wrote just for this purpose last April in "High Frequency Trading: All You Need To Know", but since we know US officials have a limited attention span, we will instead direct him to the latest revelation from the revised Virtu S-1 ahead of its second attempt at an IPO (following the massive revulsion to all things vacuum-tuby, market-tuby in the aftermath of Michael Lewis' Flash Boys).

So here, dear Treasury Secretary, is all you need to know about HFT from the mouth of the most dominant HFT market player itself:

The chart below illustrates our daily Adjusted Net Trading Income from January 1, 2009 through December 31, 2014. The overall breadth and diversity of our market making activities, together with our real-time risk management strategy and technology, have enabled us to have only one overall losing trading day during the period depicted, a total of 1,485 trading days...

And with that, now you know all there is to know about HFT.


Central Banks Are Crack Dealers & Faith Healers
Tyler D.
03/10/2015

The entire formerly rich world is addicted to debt, and it is not capable of shaking that addiction. Not until the whole facade that was built to hide this addiction must and will come crashing down along with the corpus itself.

Central banks are a huge part of keeping the disease going, instead of helping the patient quit and regain health, which arguably should be their function. In other words, central banks are not doctors, they’re crack dealers and faith healers. Why anyone would ever agree to that role for some of the world’s economically most powerful entities is a question that surely deserves and demands an answer. But no such answer is forthcoming.

Instead, we all pretend Yellen, Kuroda and Draghi are in fact curing us of our ailments. Presumably because that feels better. That our health deteriorates in the process is simply ignored and denied. But then, that’s what you get when you allow for a bunch of shaky goalseeked economic rules to be taken as some sort of gospel. People one thought leeches healed too, or bloodletting, exorcism, burning at the stake, you name it. Same difference, just a few hundred years later.

What’s happening today is that central bankers start to find that their goalseeked ideas are no longer working. What might work for one may backfire for another. That this might be the direct result of their own mindless policies will never even cross their minds. And so they will continue making things worse, until that facade they operate on cannot hold any longer.

The EU started its braindead QE program yesterday. If it gets to purchase the entire €1.14 trillion in bonds it aims for, that will be a bad thing. If it doesn’t, that will be an arguably worse thing. Draghi should have stayed away from this heresy, but it’s too late now: the die is cast.

Why banks and funds would sell their long maturity bonds, with a relatively high yield, to him, is not clear. On the other hand, that many funds will compete with the ECB for the few bonds that are available, is clear. Draghi simply attempts to turn the sovereign bond market into casino with zero price discovery. Whether he will succeed in that is not clear. To get it done, though, he will have to make some very peculiar moves. That again is clear. Durden:

Presenting The Buyers Of Over 100% Of New German And Japanese Bond Issuance

Back in December, when the total amount of annual ECB Q€ was still up in the air and and consensus expected a lowly €500 billion annual monetization number, we calculated that based on Germany’s capital key contribution of about 26%, the ECB would monetize some €130 billion of German gross issuance, or about 90% of the total scheduled issuance for 2015. Subsequently, the ECB announced that the actual amount across all ECB asset purchasing programs, will be some 44% higher, or €720 billion per year (€60 billion per month). So what does that mean for the revised bond supply and demand across two of the most important developed markets?

Well, we already know that the Bank of Japan will monetize 100% or just over of all Japanese gross sovereign bond issuance (source). As for Germany, on a run-rate basis, and assuming allocation based on the abovementioned capital key, it means that for the next 12 month period, assuming no major funding changes in Germany, the ECB will swallow more than a whopping 140% of gross German [Bund] issuance! Or, said otherwise, the entities who will buy more than all gross German and Japanese issuance for the next 12 months, are the ECB and the Bank of Japan, respectively.

This also means that to fulfill its monthly purchase mandate, the ECB will have to push the price to truly unprecedented levels (such as the -0.20% yield across the curve discussed previously, or even lower) to find willing sellers. That said, please don’t tell your average Hinz and Kunz that more than all German bond issuance in 2015 will be monetized. It will bring back some very unpleasant memories.

Japan’s Abenomics are a huge failure, and so it looks like another double or nothing is in the offing. They’ll keep doing it until they can’t, because that’s their whole repertoire. Though it is a little weird to see Bill Pesek, and BoJ chief Kuroda, claim that Japan’s QE failed because it wasn’t big enough. Seen Japanese debt numbers lately, Bill? Not big enough yet?

Three Reasons Japan Will Get More Stimulus

With annualized growth of 1.5% between October and December after two straight quarters of contraction, Japan is hobbling out of recession far more slowly than hoped. A third dose of quantitative easing is almost certain. Here are three reasons why.

First, the initial rounds of QE weren’t potent enough. “In order to escape from deflationary equilibrium, tremendous velocity is needed, just like when a spacecraft moves away from Earth’s strong gravitation,” Kuroda recently explained. “It requires greater power than that of a satellite that moves in a stable orbit.”

Although the Bank of Japan managed to lower the value of the yen by more than 20% beginning in April 2013, that clearly hasn’t provided enough of a boost to the economy.

Maybe you can’t boost the 20-year coma the Japanese economy has been in by hammering the currency? Just a thought, Bill. And sure, Kuroda’s spacecraft metaphor is mighty cute, but what tells you economies are just like rocket ships? I like this piece from Deutsche Welle much better:

Central Bank Blues

On Monday the European Central Bank begins its long-anticipated program to buy sovereign bonds on secondary bond markets – i.e. previously issued government bonds held by institutional investors like banks or insurance funds. In central bankers’ jargon, this is called “quantitative easing,” or QE. The ECB’s plan is to pump €60 billion euros into the financial markets each month, by trading central bank reserve money (a form of electronic cash) for bonds. That’s set to continue until at least September 2016, which means at least €1.1 trillion will be put into the hands of investment managers – who will have to find some alternative investments to make with the money.

On Thursday last week, at the ECB’s governing board meeting in Nicosia on Cyprus, the central bank revised its projections for both GDP growth and inflation in the eurozone upward: The inflation rate is projected to go up to 0.7% for this year, and GDP growth from 1.0 to 1.5%. But are the new projections just a case of whistling in the dark? There are in fact serious doubts as to whether the ECB will actually be able to meet its targets, or if, instead, the bond-purchasing program will have effects that will make a structural recovery of the eurozone more difficult.

For a start, many observers doubt whether the ECB will even be able to find willing sellers for €60 billion a month of bonds. Sovereign bonds – especially those of the core eurozone member states, like Germany – may soon become rather scarce on secondary markets. Neither domestic banks and insurance funds, nor foreign central banks, will have much incentive to sell their government bond holdings to the ECB. The older bonds with long maturities and decent interest rates, in particular, will probably be held rather than sold. Moreover, experts question whether a flood of central bank reserve money, pumped into the hands of players in secondary financial markets, can generate a stimulus at all.

It probably won’t lead to any boost in their lending activities to real-economy businesses or households, for two reasons: First, banks have recently been obliged to increase their core capital reserves – the amount of shareholders’ money, including retained earnings, which is available to cover possible loan losses – and they’re still adjusting their balance sheets accordingly. That means they’re being cautious about lending.

That’s the basic question, isn’t it? “..whether a flood of central bank reserve money, pumped into the hands of players in secondary financial markets, can generate a stimulus at all.” But how do we answer it? Lots of people will want to point to the ‘success’ story of the US and the Fed, but there’s no way we can have any confidence in the numbers coming from the US. As for the EU and Japan, the failures are more obvious, but that may be because they’re less skilled in ‘massaging’ the data. All in all, the evidence, if it exists at all, is flimsy at best.

Oh, and then there’s China:

China’s ‘Money Garrote’ May Choke Us All

In this new era of all-powerful central banks, it is hard for investors to look past who will be next to take out the big gun of quantitative easing. This week, all eyes are on the ECB, which follows the Bank of Japan as the latest of the major monetary-policy makers to embark on its own aggressive bond-buying program. In contrast, China appears to be entering a “new normal” era, in which its central bank only has a pea-shooter [..] the benchmark money-supply growth target of 12% was the lowest in decades. Another part of China’s new normal is not just lower growth, but also an era where the central bank is no longer able to magically speed its money-printing presses.

Conventional wisdom holds that the People’s Bank of China (PBOC) has a gargantuan monetary arsenal, given that the country has the world’s largest stash of foreign reserves at $3.89 trillion [..] according to some analysts, this reserve accumulation is merely a byproduct of another form of quantitative easing. Rather than strength, its size indicates just how staggeringly large China’s domestic credit expansion has become in recent decades. According to strategist Albert Edwards at Société Générale, such foreign-reserve accumulation — which typically takes place in emerging markets — is equivalent to quantitative easing.

The PBOC’s historic mass-printing of money to buy foreign currency and depress the yuan’s value is little different from what the Federal Reserve and others have done, Edwards said. [..] the recent reversal in such reserve accumulation points to a significant turning point in monetary conditions. Indeed, Joe Zhang, author of “Inside China’s Shadow Banking System,” argues that China’s credit expansion has in fact been far more aggressive than the QE attempted in the U.S. or Europe.

Zhang, a former PBOC official, calculated that China’s money supply is already 372% of what it was at the beginning of 2006. And if you add up official data between 1986 and 2012, China’s benchmark M2 money supply has grown at a compound rate of 21.1%. While 7% economic growth is slow for China compared to the double-digit rates of the past, such data makes 12% money-supply growth looks positively measly. Another reason to believe that China is at the tail end of a huge monetary expansion is found in a recent study by McKinsey. They estimated that total credit in China’s economy has quadrupled since 2008, reaching 282% of GDP.

But now the conditions that enabled this debt habit have turned. Edwards argues that foreign-exchange accumulation by central banks is the key measure of global liquidity to pay attention to — and it is currently in free-fall. [..] while markets are focusing on the ECB’s easing announcement, they are missing this Chinese liquidity garrote that is strangling the global economy. Data from the IMF shows that central-bank foreign-reserve accumulation has been declining rapidly. China is at the center of this, with a $300 billion annualized decline over the last six months

The stress point for China is now its currency, which has fallen to a 28-month low against the dollar. The dilemma facing the PBOC is how to keep growth and liquidity sufficiently strong, while also maintaining its loose currency peg to a resurgent dollar. As China defends its currency regime, it must do the opposite of printing new money: using foreign reserves to buy yuan, contracting the money supply in the process.

The People’s Bank of China is a crack dealer with a client that no longer can afford its fix. Or perhaps it’s more accurate to say that all central banks are now crack dealers with such clients, and the PBOC is the first one that’s forced to admit it. And it now looks as if perhaps it can’t win back its market without spoiling it. And that is all about the dollar. A lot is about the dollar, and the looming shortage of them. And there’s nothing (central) banks can do. Not that they won’t try, mind you. Durden:

The Global Dollar Funding Shortage Is Back With A Vengeance

[..].. one can be certain that the current fx basis print around – 20 bps will most certainly accelerate to a level never before seen, a level which would also hint that something is very broken with the financial system and/or that transatlantic counterparty risk has never been greater. Unlike us, JPM hedges modestly in its forecast where the basis will end up:

.. different to previous episodes of dollar funding shortage such as the ones experienced during the Lehman crisis or during the euro debt crisis, the current one is not driven by banks. It is rather driven by the monetary policy divergence between the US and the rest of the world. This divergence appears to have created an imbalance in funding markets and a shortage in dollar funding. It is important to monitor how this dollar funding shortage and issuance patterns evolve over time even if the currency implications are uncertain.

And to think the Fed’s cheerleaders couldn’t hold their praise for the ECB’s NIRP (as first defined on these pages) policy. Because little did they know that behind the scenes the divergence in Fed and “rest of the world” policy action is leading to two things: i) the fastest emergence of a dollar shortage since Lehman and ii) a shortage which will be arb[itrage]ed to a level not seen since Lehman, and one which assures that over the coming next few months, many will be scratching their heads as to whether there is something far more broken with the financial system than merely an arbed way by US corporations to issue cheaper (hedged) debt in Europe thanks to Europe’s NIRP policies.

If and when the market finally does notice this gaping dollar shortage (as is usually the case with the mandatory 3-6 month delay), the Fed will once again scramble to flood the world with USD FX swap lines to prevent the global dollar margin call from crushing a matched synthetic dollar short which according to some estimates has risen as high as $10 trillion.

Until then, just keep an eye on the Fed’s weekly swap line usage, because if the above is correct, it is only a matter of time before they are put to full use once again. Finally what assures they will be put to use, is that this time the divergence is the direct result of the Fed’s actions…

And then, again with Tyler, we return to Albert Edwards:

“Ignore This Measure Of Global Liquidity At Your Own Peril”

With all eyes squarely on the ECB as Mario Draghi prepares to flood the EMU fixed income market with €1.1 trillion in new liquidity starting Monday, Soc Gen’s Albert Edwards reminds us that “another type of QE” is drying up thanks largely to the relative strength of the US dollar. The printing of currency to buy US dollar denominated assets in an effort to prop up “mercantilist export-led growth models [is] no different to the Fed’s QE,” Edwards says, explicitly equating EM FX intervention with the asset purchase programs employed by the world’s most influential central banks in the years since the crisis. Via Soc Gen:

Clearly when the dollar is declining sharply, global FX intervention accelerates as the Chinese central bank, for example, needs to debauch its own currency at the same rate. Conversely, when the dollar rallies strongly, as is the case now, FX intervention rapidly dries up and can even reverse, exerting a massive monetary tightening on emerging economies,

.. and ultimately the entire over-inflated global financial complex… The swing in global foreign exchange reserves is one key measure of the global liquidity tap being turned on and off, with the most direct and immediate effect being felt in emerging economies.

The bottom line is that in a world of over-inflated asset values, the strength of the dollar is resulting is a rapid tightening of global liquidity as emerging economies (and indeed the Swiss) stop printing money to buy the US dollar. This should be seen for what it is a clear tightening of global liquidity. Traditionally these periods of dollar strength are highly disruptive to emerging markets and often end in the weakest links blowing up the entire EM and commodity complex and sometimes much else besides! Investors ignore this at their peril.

So: the ECB has started doing its painfully expensive uselessness , the Fed refuses to do anymore and even threatens to derail the whole idea by hiking rates, both Japan and its central bank are so screwed after 20 years of having an elephant sitting on their lap for afternoon tea that nothing they do makes any difference anymore even short term, and China is faced with the riddle that what it thinks it should do to look better in the mirror mirror on the Great Wall, only makes it look old and bitter.

But as Edwards rightly suggests, the first bit of this battle will be fought in, and lost by, the emerging markets. And there will be nothing pretty about it. They’re all drowning in dollar denominated loans and ‘assets’, and it gets harder and more expensive all the time to buy dollars as all this stuff must be rolled over. And the game hasn’t even started yet.

[Fenix]

Allied Nevada Gold Files For Bankruptcy Protection
Tyler D.
03/10/2015

Just as in the case of oil currently, the problem with gold (and countless other commodities) trading where it does, is that as we have shown repeatedly on previous occasions, it is at or below the marginal production cost of various gold producers.

And with miners losing money on every incremental ounce (or barrell) they pull out of the ground, there is only so much capital they can burn before they have not choice but to file for bankruptcy. Which is precisely what happened to Allied Nevada Gold, the operator of the gaming state’s Hycroft mine, which earlier today filed for bankruptcy in Delaware.

The company blamed its deteriorating financial condition on the drop in gold and silver prices in recent years, an overleveraged capital structure, delays in a key expansion project, and currency swap exposure.

Yes, this is that Allied Nevada whose stock price traded as high as $45 when gold hit its all time high of over $1,900 hours before the SNB imposed its first, and now failed, currency floor which translated into a market cap of just about $4.5 billion.

It was trading at under a $1, and since the company is now bankrupt, the equity is most likely worthless as the creditors take over the equity.

The company, incorporated in Delaware in 2006, owns more than 50 Nevada properties acquired in a merger, as well as interests in what it calls some of state’s “most prolific gold-producing trends.”

As Bloomberg reports, Allied Nevada said it reached an agreement with a group of bondholders on a $78 million debtor-in-possession credit facility that will allow it to keep operating while its debts are restructured.

The miner has struggled with operational setbacks at Hycroft, most recently when a chalky substance slowed production and forced Allied Nevada to lower its annual gold and silver sales forecasts.

The Reno, Nevada-based company has also contended with plunging gold prices. The metal dropped 28 percent in 2013, the first annual decline in 13 years, and declined 1.4 percent last year.

With just $1.3 million of cash at the end of November, the company sold stock for $1 with warrants in December to raise $21.5 million. Debt crept up to $567.9 million by Nov. 30, including $48.0 million in cash borrowings under a loan. Completing a mill that it needs to recover more metals would cost almost $1.4 billion, according to a December regulatory filing.

In a normal world, in which supply and demand would be reflected in the price, a bankruptcy such as this one, which guarantees the mothballing of Allied's operations indefinitely and perhaps forever, the resulting decline in supply on the margin would mean an increase in prices. However, in a world in which physical supply and demand are irrelevant (and in the case of the biggest source of demand, outright misrepresented), the only thing that matters for pricing is how much paper gold will be created/destroyed via GLD and other ETFs, and/or how many Gold futures contracts the BIS trading desk in Basel will sell (not buy) in any given day.

In any event, while hardly having an impact on the gold price, this latest bankruptcy merely brings us one day closer to what we write in December of last year, namely that peak physical gold has arrived, and that going forward, producers will have no choice but to reduce their gold output.

One other thing: sooner or later, just like with oil and every other commodity, physical supply will catch up with physical demand, bypassing the great black box that is paper/synthetic/derivative trading of gold. And the more such miners go belly up, the faster this moment will finally arrive.

[Fenix]

Do Not Show Mario Draghi This Chart
Tyler D.
03/10/2015

This was not supposed to happen... Once again it appears that front-running the central banks hints and selling the actions is the new normal as (just as occurred in the period around the Q€ announcement), despite pushging higher last week, inflation expectations have tumbled lower since Draghi unleashed the trillion-euro bazooka...

We're gonna need a bigger bazooka - and some ETFs to buy...


Warren Buffett Wants To Give You A Car Loan
Tyler D.
03/10/2015

With the auto loan securitization machine humming right along (pace of new issuance is up 30% compared to this time last year at nearly $24 billion YTD) and with the attendant $1 trillion pile of auto loan debt growing by the day as lenders scramble to turn ineligible borrowers into eligible borrowers by extending loan terms and ignoring small details like whether or not the buyer is employed, just about everyone is looking to get a piece of the pie including Warren Buffett’s Berkshire Hathaway.

Via WSJ:

Billionaire Warren Buffett has closed a deal to buy the nation’s largest privately-held dealership chain, renaming it Berkshire Hathaway Automotive and paving the way for a major new player in the car-retailing business.

Berkshire Hathaway Inc. announced in October it would buy the Van Tuyl Group, America’s fifth-largest retailer with 81 stores in 10 states, and use it as a launch point to acquire more dealerships. The deal was targeted to close at the end of the first quarter this year.

Van Tuyl Group, a closely held business that was founded in Kansas City nearly 60 years ago, had previously sold about 240,000 cars a year through its dealerships.

The move comes as the car-retailing sector undergoes significant changes. With U.S. auto sales booming, smaller, family-run dealerships are getting snapped up by larger chains looking to provide better efficiencies.

Yes, “better efficiencies” which, if the underwriting practices that prevailed just before the housing bubble collapsed are any guide, likely means figuring out how to make more loans, faster because when an unprecedented global yield hunt leads to new auto ABS deals being upsized by 35% (as one Santander Consumer offering was in January), “inefficiency” (read: prudence) simply isn’t something that can be tolerated.

As Fortune noted when the deal was first announced last October, Buffett will be competing with the likes of AutoNation, whose CEO Mike Jackson recently suggested on live television that worries about subprime auto were likely exaggerated. In any event, Berkshire appears to be entering the market at a rather precarious time for as we have noted on a number of occasions (and as Goldman recently confirmed), growth in US auto sales is (or, after February’s data, “was”) entirely dependent on loans to subprime borrowers, a trend which, thanks to rising delinquencies and government scrutiny, is about to come to a screeching halt:

We were shocked — shocked — when February auto sales turned out to be a BNSF-style trainwreck (even AutoNation CEO Mike Jackson’s “trucks, trucks, trucks” couldn’t save the day as Ford F-Series sales fell 1.2%). Of course to let the media tell it, February’s disastrous numbers were due to weather (snow in the winter) but we had our doubts and so were not surprised when a new note from Goldman confirmed, by way of an avalanche of data and charts, precisely what we’ve been saying all along which is that the risks inherent in subprime lending are materializing and that at the margin, growth has all been created by lowering credit standards and extending terms to a whole load of 'new' auto buyers...

In the end, Goldman comes to exactly the same conclusion as we did months ago, namely that despite the financial media’s parroting about snow in the winter, the simple fact is that as soaring delinquencies and government probes conspire to cut the least-creditworthy Americans off from debt servitude, bad things will happen in US car sales.

For his part, Buffett says he understands that the business is cyclical, but notes this really isn’t an issue because Berkshire’s investment horizon is, well, forever:

“This is the beginning of a journey that will have no end.”

The only question now is how many retail investors will take this as an opportunity to execute CNBC’s car-stock arbitrage by taking out a 7-year car loan from Berkshire Hathaway Automotive in order to finance the purchase of a few Berkshire Hathaway B shares from their Etrade account.

[Fenix]

The Oil Glut And Low Prices Reflect An Affordability Problem
Tyler D.
03/10/2015

For a long time, there has been a belief that the decline in oil supply will come by way of high oil prices. Demand will exceed supply. It seems to me that this view is backward–the decline in supply will come through low oil prices.

The oil glut we are experiencing now reflects a worldwide affordability crisis. Because of a lack of affordability, demand is depressed. This lack of demand keeps prices low–below the cost of production for many producers. If the affordability issue cannot be fixed, it threatens to bring down the system by discouraging investment in oil production.

This lack of affordability is affecting far more than oil products. A recent article in The Economist talks about LNG prices being depressed. LNG capacity ramped up quickly in response to high prices a few years ago. Now there is a glut of LNG capacity, and prices are far below the cost of extraction and shipping for many LNG suppliers. At least temporary contraction seems likely in this sector.

If we look at World Bank Commodity Price data, we find that between 2011 and 2014, the inflation-adjusted price of Australian coal decreased by 41%. In the same period, the inflation-adjusted price of rubber is down 58%, and of iron ore is down 59%. With those types of price drops, we can expect huge cutbacks on production of many types of goods.

How Does this Lack of Affordability Come About?

The issue we are up against is diminishing returns. Diminishing returns mean that as we reach limits, it takes increased resources (usually both physical resources and human labor) to produce some type of product. Oil is product subject to diminishing returns. Metals of many kinds also are becoming increasingly expensive to extract. In many parts of the world, a shortage of water makes it necessary to use unusual techniques (desalination or long distance pipelines) to obtain adequate supply. The higher cost of pollution control can have a similar effect to diminishing returns on products with pollution issues.

When we graph of the cost of production of resources subject to diminishing reserves, the result is similar to that shown in Figure 1.
Figure 1. The way we would expect the cost of the extraction of energy supplies to rise, as finite supplies deplete.

Figure 1. The way we would expect the cost of the extraction of energy supplies to rise, as finite supplies deplete.

What happens with diminishing returns is that cost increases tend to be quite small for a very long time, but then suddenly “turn a corner.” With oil, the shift to higher costs comes as we move from “conventional” oil to “unconventional” oil. With metals, the shift comes as high quality ores become depleted, and we need to move to mines that require moving a great deal more dirt to extract the same quantity of a given metal. With water, such a steep rise in diminishing returns comes when wells no longer provide a sufficient quantity of water, and we must go to extraordinary measures, such as desalination, to obtain water.

During the time when cost increases from diminishing returns were quite minor, it generally was possible to compensate for the small cost increases with technological improvements and efficiency gains elsewhere in the system. Thus, even though there was a small amount of diminishing returns going on, they could be hidden within the overall system.

Once the effect of diminishing returns becomes greater (as it has since about 2000), it becomes much harder to hide cost increases. The cost of finished products of many kinds (for example, food, gasoline, houses, and automobiles) starts rising, relative to the income of workers. Workers find that they must cut back on discretionary expenditures in order to have enough money to cover all of their expenses.

How Diminishing Returns Affect the Economy

There are at least three ways that diminishing returns adversely affects the economy:

1. Lower wages
2. Less ability to borrow
3. Squeezing out other sectors of the economy

The reason for lower wages relates to the fact that, as the cost of producing a commodity rises, the worker is, in some sense, becoming less and less productive. For example, if we calculate wages per worker in units of oil, as oil becomes more expensive to extract, we get something like this:
Figure 2. Wages per worker in units of oil produced, corresponding to amounts shown in Figure 1.

Figure 2. Wages per worker in units of oil produced, corresponding to amounts shown in Figure 1.

A similar chart would hold for other resources that are becoming more difficult to extract, or whose cost of production is becoming higher because of greater pollution controls. For example, we would expect the wages of coal workers to be falling as well.

Also, as we shift to higher cost types of energy, we become increasingly inefficient in energy production. Based on a 2013 analysis, in the United States, there are more solar energy workers than coal miners, even though we use far more coal than solar energy. The large number of workers required to produce solar energy is one of the reason that solar energy tends to be high-priced to produce.

When we look at wages of workers, we indeed see a pattern of falling wages, especially for workers below the median wage. Figure 3 from the Economic Policy Institute shows that even the most educated workers are experiencing declining inflation-adjusted wages.
Figure 3. Source: Elise Gould, Even the Most Educated Workers Have Declining Wages.

Figure 3. Source: Elise Gould, Even the Most Educated Workers Have Declining Wages.

A second major issue affecting affordability is debt saturation. Affordability is favorably affected by rising debt–for example, it is a lot easier to buy a new car or house, if the would-be purchaser can obtain a new loan. If debt levels stay the same or fall, this becomes a problem–fewer goods can be purchased.

Governments in particular are reaching the limits of their borrowing capacity. They cannot keep adding new debt, and remain within historic debt to GDP ratios.

Another way debt saturation occurs relates to young people with student loans. They find it too expensive to borrow more money for a new car or for a home. Furthermore, the fact that wages are not keeping up with price increases for many workers reduces the borrowing ability of the workers with lagging wages. This is true, even if no student loans are involved.

As mentioned above, a third issue is the fact that the inefficient sectors tend to squeeze out other portions of the economy by gobbling up a disproportionate share of workers and resources. The use of all of these resources doesn’t produce a lot of goods in the traditional sense–a desalination plant is expensive, but the amount of water produced per dollar of investment is not large. To the extent that the high costs of inefficient sectors are passed on to consumers, consumers find that they must cut back on discretionary spending. This cut-back in spending squeezes out discretionary spending, leading to cutbacks in discretionary sectors, and to reduced employment overall.
Figure 4. Author's view of the effect of diminishing returns on economy.

Figure 4. Author’s view of the effect of diminishing returns on economy.

Wishful Thinking by Economists

Back before diminishing returns started becoming a major problem, economists created models regarding how the economy would react to higher cost of energy production and other symptoms of diminishing returns. In their view, if the cost of oil extraction rises, oil prices will rise to match these higher costs. Alternatively, substitution will take place, or technological changes will allow greater efficiency, or customers will cut back on their use of the high cost product. Somehow, these changes will take place without a particularly adverse impact on the economy.

Unfortunately, the models don’t correspond very well to what happens in practice–at least not for very long. It takes inexpensive energy to produce goods that workers can afford. Higher priced energy does not work well in this regard. Feedbacks that are not reflected in economic models reduce both wages and debt, making it harder to buy goods requiring the use of more-expensive energy products.

Furthermore, if the price of one commodity, for example oil, rises, then countries with very much oil in their energy mix find themselves handicapped in trade with other countries that use less oil in their energy mix. For example, a country that depends on tourism (which depends on oil use) for very much of its revenue, such as Greece, finds it difficult to find customers when oil prices are high. Lack of revenue can lead to financial problems for the country.

Because of the networked way the economy really works, prices for commodities can’t rise for the long-term. They may rise for a while, as consumers and governments borrow more, in an attempt to continue business as usual. Ultimately, though, the situation can’t “work.” Customers can’t afford to buy more homes and cars, unless their own wages are rising in inflation adjusted terms, and governments can’t collect enough tax revenue.

The issue we are dealing with here is lack of affordability. This is what will bring the system down–not the high priced scenario imagined by many. Decline will come through low prices, and a glut in oil supply, even if we are not looking for it from that direction.

Can commodity prices rise again?

It is not all that clear that they can rise again. It would be a lot easier for commodity prices to rise, if the problem were simply inadequate prices of one commodity, leading to a lack of that commodity. If the problem is inadequate demand for crude oil, coal, LNG, and iron ore the problem is much greater–especially if wages are still lagging.

[Fenix]

"Unprecedented" JGB Supply/Demand Imbalance If Inflation Stays Muted In Japan, Morgan Stanley Says
Tyler D.
03/10/2015

Another day, another sign that all is not well in the Land of the Rising Sun. It was just yesterday when we noted that BoJ’s number two Hiroshi Nakaso suggested that a prolonged slump in oil prices (which, as we explained earlier, seems likely) would be a good enough justification to ease monetary policy further. This came on the heels of a survey (conducted by the BoJ itself) which showed that nearly two thirds of dealers were having “some or a lot” of trouble filling orders for JGBs with the central bank in the market for the entirety of gross issuance.

On Tuesday, the BoJ — whose governor last week called the possibility that the market would eventually question the central bank’s credibility “very unlikely” — conducted a “liquidity enhancing” auction of around $2.5 billion in 20-, 30-, and 40-year bonds and the results were, well, bad as the bid-to-cover fell and yields rose, with the 10-year hitting its highest level since November.

With liquidity drying up, bid-asks getting wider, and everyone from dealers to current and former BoJ officials expressing extreme consternation about where this is ultimately headed, here’s Citi to explain why, if anything, the BoJ will likely increase the amount of JGBs it’s willing to purchase:

Declining liquidity in the market is prompting investors to estimate the deadline for QQE, possibly caused by a lack of sellers…


The consumption tax is expected to be hiked to 10% in April 2017, so it would be very difficult for the BoJ to exit from QQE after the summer of 2016 when the tax hike will be in sight. If the Bank failed to unwind the policy before that we think it is very likely to continue QQE until the impact of the tax hike is clear in later 2017, making it difficult to normalize the policy before the end of governor Kuroda’s term in March 2018. In that sense, the de facto deadline should be in the middle of 2016, so the Bank is likely to ease further especially if core CPI growth turns negative. Given that the practical deadline will come in less than 1.5 years, we think there is still room to increase JGB purchases, although we expect the Bank to enhance the lending support program by possibly doubling the maturity from the current 4 years.

… and more from Morgan Stanley…

Our economics team expects Japan's core CPI inflation rate to start rising from this spring, reach around +1% by the end of this year, and then climb towards around 1.7% into FY2016. This is not currently the market consensus, at least according to market pricing, but if such a trajectory does start to be considered more likely, then the resulting upward pressure on interest rates could help BOJ operations to go quite smoothly. Conversely, if inflation expectations remain muted, then the amount available for purchase by the BOJ is liable to be largely exhausted during the next 1.5 to 2 years, at which point supply/demand may tighten to unprecedented proportions.

Of course we’re already beginning to see the malicious effects of tight liquidity in government bond markets (look no farther than October’s Treasury flash crash) and one can only imagine what sort of dislocations will materialize should supply/demand tighten “to unprecedented proportions.” As far as inflation expectations go, we would have to agree with BoJ dissenter Takahide Kiuchi who last week suggested that 2% is not around the corner.


The Disintegrating Empire Of "Controlled" Chaos
Tyler Du.
03/10/2015

The term “chaos” has been popping up a lot lately in the increasingly collapse-prone world in which we find ourselves. Pepe Escobar has even published a book on it. Titled Empire of Chaos, it describes a scenario “where a[n American] plutocracy progressively projects its own internal disintegration upon the whole world.” Escobar's chaos is tailor-made; its purpose is “to prevent an economic integration of Eurasia that would leave the U.S. a non-hegemon, or worse still, an outsider.”

Escobar is not the only one thinking along these lines; here is Vladimir Putin speaking at the Valdai Conference in 2014:

A unilateral diktat and imposing one’s own models produces the opposite result. Instead of settling conflicts it leads to their escalation, instead of sovereign and stable states we see the growing spread of chaos, and instead of democracy there is support for a very dubious public ranging from open neo-fascists to Islamic radicals.



Why do they support such people? They do this because they decide to use them as instruments along the way in achieving their goals but then burn their fingers and recoil. I never cease to be amazed by the way that our partners just keep stepping on the same rake, as we say here in Russia, that is to say, make the same mistake over and over.

Indeed, Escobar's chaos doesn't seem to be working too well. Eurasian integration is very much on track, with China and Russia now acting as an economic, military and political unit, and with other Eurasian states eager to play a role. The European Union is, for the moment, being excluded from Eurasia because it is effectively under American occupation, but this state of affairs is unlikely to last due to budgetary problems. (To be precise, we have to say that it is under NATO occupation, but if we dig just a little, we find that NATO is really just the US military with a European façade hammered onto it Potemkin village-style.)

And so the term “empire” seems rather misplaced. Empires are ambitious undertakings that seek to exert control over their domain, and what sort of an empire is it if its main activity is stepping on the same rake over and over again? A silly one? Then why not just call it “The Silly Empire”? Indeed, there are lots of fun silly imperial activities to choose from. For example: arm and train moderate opposition to a regime you want to overthrow; find out that it isn't moderate at all; try to bomb them into submission and fail at that too.

Some people raise the criticism that the empire does in fact function because somebody somewhere is profiting from all this chaos. Indeed they are, but taking this as a sign of imperial success is tantamount to regarding getting mugged on the way to the supermarket as a sign of economic success. Success has nothing to do with it, but Escobar's “internal disintegration” does seem apt: the disintegrating empire's internal chaos is leaking out and causing chaos everywhere. Still, the US makes every effort to exert control, mainly by exerting pressure on friends and enemies alike, and by demanding unquestioning obedience. Some might call this “controlled chaos.”

But what is “controlled chaos”? How does one control chaos, and is it even possible? Let's delve.
Chaos Theory

There is a branch of mathematics called chaos theory. It deals with dynamic systems that exhibit a certain set of behaviors:

* For any causal relationship that can be observed, tiny differences in initial conditions cause large differences in outcome. The hackneyed example is the “butterfly effect” where the hypothetical flapping of the wings of a butterfly influences the course of a hurricane some weeks later. Or, to pick a more meaningful example, if the stock market were a chaotic system, then investing a million dollars in an index fund might result in a portfolio of about a million dollars a few months later; whereas investing a million and one dollars might result in a portfolio of minus a trillion dollars and change.
* Unpredictability beyond a short time-period: given finite initial information about a system, its behavior beyond a short period of time becomes impossible to predict. Since information about a real-world system is always finite, being limited by what can be observed and measured, chaotic systems are by their nature unpredictable.
* Topological mixing: any given region of a chaotic system's phase space will eventually overlap with every other region. Chaotic systems can have several distinct states, but eventually these states will mix. For example, if a certain bank were a chaotic system, with two distinct states—solvent and bankrupt—then these states would eventually mix.

Mathematicians like to play with models of chaos, which are deterministic and time-invariant: they can run a simulation over and over again with slightly different inputs, and observe the result. But real-world chaotic systems are non-deterministic and non-time-invariant: not only do they produce wildly different outputs based on very slightly different inputs, but they produce different outputs every time. What's more, even if deterministic chaotic systems did exist in nature, they would be indistinguishable from so-called “stochastic” systems—ones that exhibit randomness.

Control Theory

Another branch of mathematics deals with ways of controlling dynamic processes. A typical example is a thermostat: it maintains constant temperature by turning a heat source on if the temperature drops below a certain threshold, and off again if it rises above a certain other threshold. (The difference between the two thresholds is called “hysteresis.”) Another typical example is the autopilot: it is a device that computes the difference between the programmed course and the actual course (called an “error signal” and applies that error signal to a control mechanism to keep the boat or the plane on course. There are many variations on this theme, but the overall scheme is always the same: measure system output, compare to reference, compute error signal, and apply it as negative feedback to the system.

In order to apply control theory to a system, that system must obey certain principles. One is the superposition principle: output must be proportional to the input. Left rudder always causes the boat to turn left; more left rudder causes it to boat to turn left faster. Another is time-invariance: the boat reacts to changes in rudder angle the same way every time. These are necessities; but most applications of control theory make an additional assumption of linearity: that changes in system behavior are linearly proportional to changes in control input. Since all real-world systems are non-linear, an effort is usually made to endow them with a relatively linear flat spot in the middle of their useful range. Turn a boat's rudder a little bit, and the boat turns as expected; turn it too far, and it stalls and no longer works.

Applying control theory to chaotic systems is tricky, because of the issue of “controllability”: is it possible to put a system in a particular state by applying particular control signals? In a chaotic system, very small error signals can produce very large differences in system output. Therefore, a chaotic system cannot be controlled. However, an uncontrollable system can sometimes be stabilized and made to cycle around within a particular, useful, or at least non-lethal, part of its phase space. Generally, to stabilize the system, it must be observable: it must be possible to measure the output of the system and use it to issue corrections. However, even an an unobservable system can still be stabilized, by detecting its state periodically and applying a control signal to push it incrementally in the right direction.

Here is a real-world example. Suppose you are hurtling along a slush-covered highway in a subcompact car with bald summer tires. At some point a very minor perturbation of some sort will transform this controllable system into an uncontrollable one: the car will start spinning. Since it can no longer be steered, it will slide toward the barrier on one side of the highway or the other. It will also become unobservable: with the driver spinning along with the car, it will become impossible to observe the car's trajectory based on short glimpses of the roadway spinning past. Can this situation be stabilized?

Yes, it turns out that it can be. This is a trick I learned from a jet fighter pilot, which I was then able to apply to the exact scenario I just described. If a jet starts tumbling out of control, the pilot's job is to get it to stop tumbling and to get it back to level flight. This is done by twisting one's head back and forth in rhythm with the spin, catching glimpses of the horizon, and working the yoke, also in rhythm to the spin, to slow it down, and to make the horizon go horizontal.

In a car, the driver's job is to get the car to stop spinning without hitting the barrier on either side of the highway. This is done by twisting one's head in rhythm to the spin, catching glimpses of the barriers on each side of the road, and working the steering wheel, also in rhythm to get the car to stop spinning while keeping it away from either barrier. If the car is spinning clockwise, then a clockwise twist to the steering wheel will move it forward, a counterclockwise twist will move it backward, and a stomp on the brakes will slow down its forward or backward motion somewhat.

This is typically the best that can be done in controlling chaos: using small perturbations to keep the system within a certain range of safe, useful states, keeping it out of any number of useless or dangerous ones. But there is one more caveat: such applications of control theory to chaotic systems require finding out the properties of the chaotic system ahead of time. That's rather tricky to do if a system evolves continuously in response to these small perturbations. In situations that involve politics or military matters, applying the same control measure twice is about as effective as telling the same joke twice to the same audience: you become the joke.

* * *

The moral of this story should be obvious by now: as with the car on a slush-covered highway, any fool can get it to spin out, but that same fool is then unlikely to have the presence of mind, the skill and the steel nerves to keep it from hitting one of the barriers. Same goes for the would-be builders of an “empire of controlled chaos”: sure, they can generate chaos, but controlling it in a manner that allows them to derive some benefit from it is rather out of the question, and even their ability to stabilize it, so that they are not themselves hurt by it, is in grave doubt.

[Fenix]

How DNA Is Turning Us Into A Nation Of Suspects
Submitted by Tyler D.
03/10/2015

Every dystopian sci-fi film we’ve ever seen is suddenly converging into this present moment in a dangerous trifecta between science, technology and a government that wants to be all-seeing, all-knowing and all-powerful. Having already used surveillance technology to render the entire American populace potential suspects, DNA technology in the hands of government will complete our transition to a suspect society in which we are all merely waiting to be matched up with a crime. No longer can we consider ourselves innocent until proven guilty.


Bitcoin Default Swaps: Blythe Masters Joins Bitcoin Startup
Tyler D.
03/10/2015

About a year ago we wrote that the "farce is complete" when we learned that the former head of JPM's commodities group - Blythe Master - the person caught red-handed in trying to pull off Enron 2.0, and responsible for manipulating electricity prices in California, was about to join the CFTC: yes, the person who created perhaps the most important derivative product of the pre-crash period, the massively levered Credit Default Swaps, was about to become an advisor to the very agency tasked with regulating all derivatives. Just 24 hours later, following a furious public backlash against what is perhaps the most corrupt regulators in the US, the CFTC, Masters withdrew her candidacy from the CFTC.

The reason for the populist fury was not so much that Blythe was caught, and then let go, in trying to pull off another Ken Lay (she got away, he didn't), but due to prevailing anger at the one person who many personify with all that is manipulated in the gold market. Recall that long before the world's biggest banks were busted for rigging precious metals, that Blythe Masters made one of her rare appearances on CNBC telling the channel that "JPM's commodities business is not about betting on commodity prices but about assisting clients"... "it's about assisting clients in executing, managing, their risks and ensuring access to capital so they can make the kind of large long-term investments that are needed in the long run to expand the supply of commodities"

"There's been a tremendous amount of speculation particularly in the blogosphere on this topic. I think the challenge is it represents a misunderstanding as the nature of our business. As i mentioned earlier, our business is a client-driven business where we execute on behalf of clients to achieve their financial and risk management objectives. The challenge is that commentators don't see that.



So to give you a specific example, we store significant amount of commodities, for example, silver, on behalf of customers we operate vaults in New York City, Singapore and in London. And often when customers have that metal stored in our facilities, they hedge it on a forward basis through JPMorgan who in turn hedges itself in the commodity markets. If you see only the hedges and our activity in the futures market, but you aren't aware of the underlying client position that we're hedging, that would suggest inaccurately that we're running a large directional position. In fact that's not the case at all.



"We have offsetting positions. We have no stake in whether prices rise or decline. Rather we're running a flat or relatively flat matched book.



"What is commonly out there is that JPMorgan is manipulating the metals market. It's not part of our business model. it would be wrong and we don't do it."

A year later the London Whale scandal broke out revealing that JPM did in fact have stakes in whether prices rise or decline, and that three years later JPM itself would be - finally - investigated for gold rigging, indicating that it was indeed "part of its business model", and that it may be wrong which is precisely why JPM does it.

Not surprisingly, following the humiliating CFTC episode, Blythe disappeared completely from the public radar. Now, with a one year delay, she has finally reappeared.

That's not the surprising part. What is shocking is the capacity in which she has reappeared. According to the FT, the former JPM commodities head
has re-emerged as chief executive of the Bitcoin startup, Digital Asset Holdings.

The start up is merely the latest legacy bank-funded or staffed operation to attempt to profit from the disintermediated digital currency, and "aims to be a venue for buyers and sellers of financial assets to meet and transact, switching currencies into bitcoin in order to cut the cost and time of settlement and make use of the decentralised “block chain” as a secure record of transactions."

What is Masters' vision vis-a-vis the digital currency and why has she suddenly become one of its biggest advocates?

“There is a school of libertarian ‘visionaries’ who want to imagine a world without big banks, big governments,” said Ms Masters, who left JPMorgan last April. “That’s nice, but completely irrelevant to this business model. We don’t imagine a world in which big banks and big governments don’t exist.”



“They say they want the world to change, but the world will change by adopting new technology to do a better job,” she said. Reducing the frictional costs of financial transactions is “one of the great challenges of our time”.

And charge a 3% commission every time the frictional costs are "reduced", she forgot to add.

Blythe said "she had held discussions with the Federal Reserve, the Bank of England and New York’s Department of Financial Services about the venture, though it would not need regulators’ blessing because it was not an exchange, a custodian or a money transmitter."

In fact it is not exactly clear just what DAH is, which perhaps is just how Blythe and her co-workers want to keep it: "it will admit creditworthy members — such as big banks and asset managers — to trade between themselves using DAH’s technology."

So... a marketplace using Bitcoin? Didn't the Dread Pirate Roberts already try that with Silk Road, minus the "admission of creditworthy members", of course - more like drug dealers and assassins.

How did Masters end up at DAH? That also is unclear: "Ms Masters would not say how much she had invested, nor when the venture would launch. DAH was founded last year by Sunil Hirani, founder and chief executive of trueEX, an exchange for interest rate swaps, and Don Wilson, founder and CEO of DRW Trading, a proprietary-trading firm. The venture has employees in New York, Chicago and Tel Aviv, a cryptocurrency hub."

Perhaps the logo of the company should be "because you know your digital money is safe in Israel"

Joking aside, it sounds like what Masters and her startup are trying to do is implement a form of centralized financial bazaar for all things Bitcoin related: a SWIFT for the digital currency if you will.

“We feel that some of the basic plumbing is missing in the system,” said Mr Wilson of DRW. “Bridging the gap between bitcoin and other cryptocurrencies and traditional currencies is a problem. One settles immediately. One settles over a day or more than a day. Participants in this ecosystem will be able to control who they’re transacting with because it’s within a closed system where we can control who’s in the pool.”

Well good luck with all that, because the whole point of Bitcoin is to keep it as decentralized as possible, and any venture that attempts to streamlne its "efficiencies" is doomed to fail as alternative - and free - services emerge instantly.

Which is why perhaps instead of conducting her outlined business plan, one which is doomed to failure, Blythe should just focus on doing what she does best: coming up with ways to boost the leverage of the underlying product by a factor of 20, and provide a more liquidity, massively levered tool which allows traders to take on positional bets while pretending to "hedge" and without having the required capital outlays. As in Credit Default Swaps.

Perhaps the time of the Bitcoin Default Swap has truly arrived.

Sarcasm aside, what today's latest news reveals is the explanation why back in December 2013, when Masters was still with JPM, the bank mysteriously tried to spawn its own electronic currency alternative.

If you can't beat 'em, join 'em, copy 'em, and then beat 'em. While everyone's attention has been glued to Bitcoin (and its various smaller and less viable for now alternative digital currencies), JPMorgan has submitted a patent which appears to set the scene for a competing centralized network to Bitcoin. As LetsTalkBitcoin noted first, the "Method and system for processing internet payments using the electronic funds transfer network," states that Chase's technology is a "new paradigm." Moreover that it permits the creation of "virtual cash" (also referred to as "web cash") with a "real-time digital exchange of value."

the patent application itself (source USPTO):

It's odd how then JPM and now Blythe herself, are so eager to be part of a currency which has been pitched as the easiest way to transact as far from JPM and its diaspora as possible.

Back then the JPM patent application was rejected. This time around, Blythe may have more luck with her latest attempt at controlling at least a small piece of the Bitcoin pie in the sky...

[Fenix]

ext Mega-Bailout On Deck: White House Studying "New Bankruptcy Options" For Student-Loan Borrowers
Tyler D.
03/10/2015

A quick reminder of what the biggest debt bubble currently facing America's population is.

Why is this a problem? Because as the TBAC revealed a few months back, the default risk from the $1 trillions in student loans is several orders of magnitude above the 9% student loans which the Fed has revealed as currently "in default", as one has to add those 12% of loans in deferment and 11% in forbearance to the entire risk pool. In short: a third of all student loans are likely to end up unrepaid!

And, the punchline: according to the TBAC's worst case scenario of the future of student debt, this gargantuan load will triple over the next decade, to as much as $3.3 trillion by 2024.

This means that up to $1 trillion, and likely more, in household debt will go "bad" over the next decade. The problem: student debt is not dischargeable in a personal bankruptcy.

That is about to change.

It appears that just as the administration is finally figuring out what HFT is, it also decided to take a look at the charts above and has made a decision: the next bailout is about to be unveiled, and it will involve a "streamlined" bankruptcy law allowing students to discharge their student debt.

Moments ago this hit the wires via Dow Jones:

* WHITE HOUSE STUDYING NEW BANKRUPTCY OPTIONS FOR STUDENT-LOAN BORROWERS
* CURRENT U.S. LAW LARGELY PROHIBITS FEDERAL, PRIVATE LOANS FROM BEING DISCHARGED IN BANKRUPTCY

And some more color from Reuters:

President Barack Obama is slated to speak to students at Geo rgia Tech on Tuesday about how he wants to make the process of repaying student loans easier to understand and manage. Obama will sign a student aid bill of rights and will speak about an assortment of policy tweaks and projects to try to make it easier to help people with student loans pay back their debt.

"It's our responsibility to make sure that the 40 million Americans with student loans are aware of resources to manage their debt, and that we are doing everything we can to be responsive to their needs," said Ted Mitchell, undersecretary of education, on a conference call with reporters.

More than 70 percent of U.S. students who graduate with a bachelor's degree leave with debt, which averages $28,400.

The White House said it will require clearer disclosures from companies to make sure borrowers understand who is servicing their loan and how to set monthly payments and change repayment plans.

"Repayment rates improve when servicers work well and work directly with borrowers, helping them understand the terms of their loans," said Sarah Bloom Raskin, deputy secretary of the Treasury Department, on the conference call.

Obama will direct his Education Department to create a system by July 1, 2016 to better oversee and address complaints from borrowers about lenders, servicers and collection agencies, the White House said.

His administration will also study whether it needs to propose changes to laws or regulations to create stronger consumer protections, the White House said.

Which can only mean one thing: the appointment of a Student Loan Czar is imminent, as it the "discharge" of tens if not hundreds of billions in debt, which would never be repaid in any case.

And since there is no such thing as a free lunch, it will be the US taxpayer who will as usual end up footing the bill. Expect college fees to go vertical once deans and administrators understand that they can charge anything and the taxpayer will end up footing the bill.

* * *

One can read the Fact Seet on the "Student Aid Bill of Rights: Taking Action to Ensure Strong Consumer Protections for Student Loan Borrowers" below:

Higher education continues to be the single most important investment students can make in their own futures. Five years ago this month, President Obama signed student loan reform into law, redirecting tens of billions of dollars in bank subsidies into student aid. His historic investments in college affordability include increasing the maximum Pell Grant by $1,000, creating the American Opportunity Tax Credit worth up to $10,000 over four years of college, and letting borrowers cap their student loan payments at 10 percent of income. He has also promoted innovation and competition to help colleges reduce costs and improve quality and completion, including a First in the World fund. While these investments have helped millions of students afford college, student loans continue to grow.

That is why, today, President Obama will underscore his vision for an affordable, quality education for all Americans in a Student Aid Bill of Rights. As part of this vision, the President will sign a Presidential Memorandum directing the Department of Education and other federal agencies to work across the federal government to do more to help borrowers afford their monthly loan payments including: (1) a state-of-the-art complaint system to ensure quality service and accountability for the Department of Education, its contractors, and colleges, (2) a series of steps to help students responsibly repay their loans including help setting affordable monthly payments, and (3) new steps to analyze student debt trends and recommend legislative and regulatory changes. In addition, the Administration is releasing state by state data that shows the outstanding federal student loan balance and total number of federal student loan borrowers who stand to benefit from these actions.

A Student Aid Bill of Rights

* Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
* Every student should be able to access the resources needed to pay for college.
* Every borrower has the right to an affordable repayment plan.
* And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

Today’s Actions to Promote Affordable Loan Payments

Americans are increasingly reliant on student loans to help pay for college. Today, more than 70 percent of those earning a bachelor’s degree graduate with debt, which averages $28,400 at public and non-profit colleges. Today’s actions will help borrowers responsibly manage their debt, improve federal student loan servicing, and protect taxpayers’ investments in the student aid program:

Help Borrowers Afford Their Monthly Payments: The President will announce a series of steps to improve customer services and help borrowers repay their direct student loans, which are made with federal capital and administered by the Department of Education through performance-based contracts. High-quality, borrower-focused servicing helps more borrowers successfully repay their federal student loans. Building on the stronger performance incentives put in place last year, the Department will now raise the bar by:

* Requiring enhanced disclosures and stronger consumer protections throughout the repayment process, including when federal student loans are transferred from one servicer to another, when borrowers fall behind in their payments, and when borrowers begin but do not complete applications to change repayment plans. These steps will better protect borrowers from falling behind in their payments and ensure consistency across loan servicers.
* Ensuring that its contractors apply prepayments first to loans with the highest interest rates unless the borrower requests a different allocation.
* Establishing a centralized point of access for all federal student loan borrowers in repayment to access account and payment processing information for all Federal student loan servicing contractors.
* Ensuring fair treatment for struggling and distressed borrowers by raising standards for student loan debt collectors to ensure that they charge borrowers reasonable fees and help them return to good standing; clarifying the rights of Federal student loan borrowers in bankruptcy; working with the Department of Treasury to simplify the process to verify income and keep borrowers enrolled in income-driven repayment plans; and working with the Social Security Administration to ensure that disability insurance recipients who can discharge their student loans are not instead seeing their disability payments garnished to repay defaulted loans.

In addition, new requirements may be appropriate for private and federally guaranteed student loans so that all of the more than 40 million Americans with student loans have additional basic rights and protections. The President is directing his Cabinet and White House advisers, working with the Consumer Financial Protection Bureau, to study whether consumer protections recently applied to mortgages and credit cards, such as notice and grace periods after loans are transferred among lenders and a requirement that lenders confirm balances to allow borrowers to pay off the loan, should also be afforded to student loan borrowers and improve the quality of servicing for all types of student loans. The agencies will develop recommendations for regulatory and legislative changes for all student loan borrowers, including possible changes to the treatment of loans in bankruptcy proceedings and when they were borrowed under fraudulent circumstances.