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Someone Didn’t Do The Math On The ECB’s Corporate Bond Purchasing “Trial Balloon”

While we understand that following the biggest market rout in years, it was all up to the central bankers to do everything in their power to restore confidence in the market’s upward trajectory in a time when there are only 2 POMOs left under the Fed’s soon ending QE3 program, which explains not only last week’s 2 QE4 hints by FOMC presidents but also yesterday’s ECB “leak” via Reuters that the central bank is contemplating launching corporate bond buying as soon as December. A leak which sent the market soaring to its best day of 2014. And while we give the European central bankers an A for effort, we can’t help but wonder if someone did a major mathematical error when calculating the “bazooka impact” of yesterday’s leak.

The reason: the same one we have cautioned about ever since 2012; the same why as we also explained in August the ECB’s ABS QE will be grossly sufficient: Europe simply does not have enough eligible, unencumbered collateral in the private sector which can be monetized by the central bank (the same issue that the Fed itself was forced to taper QE once its holdings of 10 Year equivalents hit 35% as we showed last year and the TBAC started warning about gross bond market illiquidity). This goes back to a different issue, namely that Europe historically has funded itself on a secured basis, where the loans are kept on bank balance sheets (and serve as deposit collateral) unlike the US, where the primary source of corporate debt is through unsecured borrowing directly from lenders. We have shown all this before:

Our summary from March 2012 was as follows:

What is immediately obvious here, is that unlike in the US, where these are less than 30% for corporates, in Europe, bank loans account for nearly a whopping 90% of total corporate funding! These are secured, LTV loans, made by banks, and not syndicated, which means they are kept on the banks’ balance sheets. As a result the bulk of Europe’s assets held by levered entities, are already encumbered through existing security arrangement in the debt market (recall that bond debt is for the most part unsecured, and is thus a junior piece to secured bank loans). It also explains why European banks have to scramble to find new assets which they can “pledge” to the ECB in exchange for some additional cash to plug this liquidity shortfall hole, or that.

full article at source:http://www.zerohedge.com/news/2014-10-22/someone-didnt-do-math-ecbs-corporate-bond-purchasing-trial-balloon


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Detroit water shut-offs could be a sign of things to come in Ireland

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The people of US city Detroit will march in solidarity with the people of Ireland against water charges on November 1st to coincide with the next Right2Water demonstration in Ireland.

Their solidarity comes from the harsh experience of Detroiters,  who are currently involved in a battle with their city authorities which has saw 27,000 people having their water services cut off this year.

Could this be the bleak future in store for Irish citizens? Under the city’s water policy, customers more than 60 days late in payment on their water bills run the risk of having their water service shut off.

Detroit has a lot in common with Ireland, the city filed for bankruptcy 16 months ago and has been selling assets and cutting public services ever since to satisfy bondholders. UN observers who recently visited the city also commented on how Detroit’s water utility had increased water rates by 8.7% in an effort to pass on the higher costs of leakage in ageing pipes. That, along with the city’s high unemployment rate and a decline in the overall number of customers as the city’s population shrinks, rendered water bills increasingly unaffordable to thousands of residents in Detroit living under the poverty line. Stop me if this all sounds depressingly familiar.

Speaking in Limerick on Monday, our Finance Minister Michael Noonan said: “The Government is committed to addressing the issues in Irish Water and making sure it’s a very efficient, commercial semi-state organisation. We are also committed to having a modest charge on water, because it’s such a scarce resource. It is recognised internationally, the best way to manage a scarce resource is to have charges on it so that people save on usage.”

Now modest is an interesting word. I suppose if you are a Minister on €150,000 per year, a water charge of €278 per year might seem modest enough but for families on low pay or welfare this will not be a modest charge.

In Detroit monthly charges for water and waste services cost on average $70 (€55) per household. The poverty rate in Detroit is approximately 40 percent, and people have seen their water bills increase by 119 percent within the last decade. Despite the high levels of poverty the city authorities still expect their beleaguered residents to pay on average the equivalent of €660 per household per year. Is this modest? The city are currently in talks to privatise their water services and what direction will charges go then? Well given a private company will have a monopoly over a captive city of consumers you can be assured charges will increase along with the number of shut offs.

Can we trust our politicians when they tell us they are committed to maintaining a “modest” charge? Can we trust our politicians when they tell us Irish Water will not be privatised in the future? Experience has taught us that the answer to both of these questions is no. On November 1st the people of Detroit will march is solidarity with the people of Ireland and we will extend our solidarity to them in our struggle for access to water as a human right.

full article at sourcer:http://ascomfortableontheleftwingastheduffer.wordpress.com/


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Equity Levitation Stumbles After Second ECB Denial Of Corporate Bond Buying, Report Of 11 Stress Test Failures

A day after a Reuters headline blast proclaimed that, in a stunning turn of events, the ECB which has barely started buying covered bond (of countries like Germany today for example, because the record low yielding Bunds clearly need help from the ECB) will also buy corporate bonds, sending the stock market soaring the most in 2014, it has now backtracked for the second time, and following a report from the FT yesterday which denied the report, the second denial came straight from Reuters itself which hours ago said that the ECB “has no concrete plans to buy corporate bonds, but this could be a way to prevent the bank from paying too much for just covered bonds and asset backed securities, ECB governing council member Luc Coene told Belgian media.”

“We still haven’t had a serious discussion about the purchase of corporate bonds,” Coene, who is governor of the Belgian central bank, told business dailies L’Echo and De Tijd. “If we limit ourselves to buying covered bonds and asset backed securities there is a risk that we would pay too high a price. We can prevent that by also buying corporate bonds,” Coene added. “But there is no concrete proposal for that on the table.”

And if and when the ECB ever begins buying corporate bonds (of which there is once again not enough to boost its balance sheet to the required size but more on that later), the ECB can just jawbone that in order to not overpay for bonds, corporate or otherwise, it will just begin buying equities, and so on until the ECB has “no choice” but to monetize the garbage in your trash so as not to overpay for your kitchen sink.

However, if the ultimate goal of yesterday’s leak was to push the EUR lower (and stocks higher of course), then the reason why today’s second rejection did little to rebound the Euro is because once again, just after Europe’s open, Spanish Efe newswire reported that 11 banks from 6 European countries had failed the ECB stress test. Specifically, Efe said Erste, along with banks from Italy, Belgium, Cyprus, Portugal and Greece, had failed the ECB review based on preliminary data, but gave no details of the size of the capital holes at the banks.

The ECB, which likely once again leaked the news, said it could not comment on individual institutions or on speculation. “Any inferences drawn as to the final outcome of the exercise would be highly speculative until the results are final on 26 October,” said a spokesman. What the ECB certainly did enjoy is that once again, with just one media leak, it had managed to bring down the EURUSD by 50 pips lower, pushing it under 1.27 yet again. We wonder how long until Europe discovers, just like Japan, that merely slamming your currency does little to boost exports. But at least there is a rising market to keep everyone happy so why not.

Finally, circling back to those German record low yields, earlier today Germany sold another €1.428 billion in 30 year paper at a record low yield of 1.77%, far below the 2.25% in the last such auction in May, however, this was also the 10th (!) uncovered, as in failed, German auction of the year with the Buba forced to retain a whopping 28% of the paper, compared to 19% at the last primary issuance.

Elsewhere, the BoE’s October minutes which showed a 7-2 split among MPC members with Weale and McCafferty maintaining their hawkish stance, despite speculation that circulated pre-release that McCafferty may have stepped down in his call to hike rates. The initially reaction was volatile as outside bets of a 8-1 split were unwound, however, the details revealed a decidedly more dovish outlook from the majority of members who noted some signs that UK economic was losing momentum and that the economic outlook had worsened. As such the short sterling curve has flattened aggressively. Prelim Barclays month end extension for US treasuries +0.08yrs

In summary, European equities initially opened higher this morning following a 3rd consecutive day of >1% gains in the S&P 500 for the first time in 3yrs, and with the Nikkei up some 2.6% overnight. However the positive sentiment proved short lived as weak corporate earnings out of BAT’s and Heineken weighed on consumer stables, ECB’s Coene said that there is no concrete proposal for bond buying, refuting claims to the contrary yesterday, and Spanish press reported that 11 banks may fail the ECB stress tests which are due to be released this Sunday (ECB has declined to comment).

Looking ahead attention turns to US CPI (Sep), DoE oil inventories, Boeing (BA) earnings, and the release of the Bank of Canada interest rate decision where all surveyed analysts are expecting rates to remain on hold at 1%

full article at source:http://www.zerohedge.com/news/2014-10-22/equity-levitation-stumbles-after-second-ecb-denial-corporate-bond-buying-report-11-s


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Wealthbuilder Stock Market Brief 13th. October 2014

By: Christopher M. Quigley

Is a recession imminent?
The stock market is at a facinating juncture at the moment. Currently there is a monumental battle going on between the bulls and the bears, as they both try to ascertain whether the American economy is going to go into a recession. This fear has been brought about by the official ending of the Bernanke policy of financial repression i.e. artifically induced low interest rates caused by the introduction of Quantitative Easing. To guage whether a recession is on the cards let us look at two of my favourite recession indicators: the Chauvet/Piger Recession Indicator and the NYSE Advance-Decline Line.
I attach below the current reading on the “Chauvet Piger Recession Prediction Indicator”, developed by economists Marcelle Chauvet and Jeremy Piger.

Full PDF Report here: Wealthbuilder Market Brief October 2014


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Michael Osterholm of CIDRAP discusses Ebola 10-14-14

Barack Obama and the head of the CDC need to quit saying that we know exactly how Ebola spreads.  Because the truth is that there is much about this virus that we simply do not know.  For example, a top Ebola scientist that is working in the heart of the outbreak in Liberia says that this version of Ebola looks like it could be “a very different bug” from past versions.  Other leading scientists are echoing his concerns.  And yet Barack Obama and Thomas Frieden continue to publicly proclaim that we know precisely how this virus behaves.  Not only is that bad science, but it could also potentially result in the unnecessary deaths of a very large number of people.  For example, Obama has refused to implement an Ebola travel ban because he is greatly underestimating the seriousness of this virus.  This decision could turn out to be incredibly costly.  If what you will read about below is true, we could be dealing with some sort of “super Ebola” that nobody has ever seen before.

Peter Jahrling of the National Institute of Allergy and Infectious Disease is on the front lines fighting this disease in Liberia.  He is one of the top authorities in the world on Ebola, and what his team has been seeing under the microscope is incredibly sobering

Now U.S. scientist Peter Jahrling of the National Institute of Allergy and Infectious Disease believes the current Ebola outbreak may be caused by an infection that spreads more easily than it did before.

Dr Jahrling explained that his team, who are working in the epicentre of the crisis in the Liberian capital of Monrovia, are seeing that the viral loads in Ebola patients are much higher than they are used to seeing.

He told Vox.com: ‘We are using tests now that weren’t using in the past, but there seems to be a belief that the virus load is higher in these patients [today] than what we have seen before. If true, that’s a very different bug.

‘I have a field team in Monrovia. They are running [tests]. They are telling me that viral loads are coming up very quickly and really high, higher than they are used to seeing.

It may be that the virus burns hotter and quicker.’

Other top scientists are making similar observations.

The following comes from a recent article posted on Washington’s Blog

The head of the Center for Infectious Disease Research and Policy at the University of Minnesota – Dr. Michael Osterholm – is a prominent public health scientist and a nationally recognized biosecurity expert.

Dr. Osterholm just gave a talk shown on C-Span explaining that a top Ebola virologist – the Head of Special Pathogens at Canada’s health agency, Gary Kobinger – has found that the current strain of Ebola appears to be much worse than any strain seen before … and that the current virus may be more likely to spread through aerosols than strains which scientists have previously encountered.

 

full article at source Here


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A Closer Look Why Futures Bounced 30 Points Off The Lows On Today’s ECB BTFD Bailout

As commented previously, the reason for today’s 30 point rip in emini futures from the lows hit just 4 hours ago, was a test of the ECB emergency BTFD service, today provided courtesy of Reuters which, just after the European close, gave what is ever more incorrectly called the “market” its dose of upward momentum ignition, when it reported that, in addition to the previously announced “private QE” which includes ABS and covered bond purchases, that Goldman’s head of the European central bank would also go ahead and monetize corporate bonds, taking a step even further than the Fed, which at least is confined to public securities, and directly influencing private asset prices.

The reason is well-known: in Europe there is a scarcity of unencumbered public debt, something we observed years ago

… and certainly ABS

… which means that for Draghi’s intervention to be felt, if only in the markets if not the economy, he will be forced to go down the capital structure until finally the ECB has no choice but to monetize equities.

Because when it comes to fixing the economy, helping the poor and “fixing inequality”, nothing succeeds like artificially inflating the EuroStoxx 50 higher yet again.

In any event, here is the catalyst for today’s market move, which Reuters attributes to “several sources familiar with the situation ” and “one person familiar with the work inside the ECB, speaking on condition of anonymity” :

full artile at source:HERE

The Eu

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