Jun 302015

Earlier today, John O’Connell, CEO of Davis Rea, spoke to Canada’s BNN from what may be Greece’s top tourist attraction, the island of Santorini, to give a sense of the “mood on the ground.” Not surprisingly, his feedback was that, at least as far as tourists are concerned, nobody is worried. After all, it is not their funds that are capital constrained plus should the Drachma return as the local currency, the purchasing power of foreigners will skyrocket.

What he did point out, however, that was quite notable is the diametrically opposing views between old and young Greeks when it comes to Grexit. According to O’Connell, “the old people want to vote for Europe cause they have a lot to lose, they have their pensions, but the younger population – they are already poor, they are already unemployed – and they don’t have much to lose. Their attitude is it’s going to be tough, it’s already tough, and so why not just move on go back to the Drachma, and they’re ok with that. Their attitude is in 5 to 10 years I’ll be better off. They believe there’s a lot of misinformation. They believe they’re being pressured by European countries particularly Germany that are holding them to very difficult terms.”

He continues: “whatever the polls may way, the young population is going to vote to leave the Euro and deal with the problems long-term.”

Finally, his take on capital controls and tourism: “You are going to see a big, big drop off in tourism because people are not going to want to come here. People are going to worry that if people do come here with a lot of Euro, are they going to be allowed to leave with those Euros. It’s going to have a dramatic impact on the Greek economy at some point, a lot of the people that live here are underestimating how bad it could get in the short term.”

The punchline:

There have been some people that worry that the military may actually get involved. It wouldn’t surprise me – there are some people in Greece that have raised the whole prospect of potential civil war.

Who would benefit the most from a Greek civil war? Why the biggest exporter of weapons in the world, of course: the United States.

So dear Greeks: please avoid Kiev-style, CIA-inspired “Maidan type” provocations. The US military industrial complex is wealthy enough without your help.

Full video after the jump.

Jun 302015

In the last 2 days, PBOC has thrown everything at the ponzi-fest they call a rational market. An RRR cut, a Benchmark rate cut, a rev repo rate cut, a CNY50 Bn rev repo injection, a stamp duty cut, IPO halts (cut supply), and last but not least permission to speculate with a reassurance that shares on a solid foundation. The outcome of all this policy-panic – CHINEXT (China’s Nasdaq) is down another 6% today (down 25% in 3 days) and aside from CSI-300 futures, all other major Chinese indices are in free-fall. 


The message from The PBOC:

  • Don’t believe or follow negative rumors against Chinese economic development

The result:


Some context…


So much for these flows:


Add to that the fact that industrial metals are collapsing with steel rebar limit down…


…and it appears Central Bank Omnipotence is under threat.

Jun 302015

Authored by Jay Johnson, originally posted at SputnikNews.com,

The shining future that America once had is all but a page note in the history books now. Record numbers not in the workforce, failed foreign policies and domestic strife is the new normal. And how is the brain trust in DC going to solve these problems? National service for all 18 – to 28-year-olds!

All across the land, people were smiling and laughing. World War II had just ended and America suddenly found itself to be the manufacturing capital of the world. There were plenty of jobs for the average man and the future was bright, even if you didn’t have a college degree. In fact, not many people had a degree, and yet, for those that didn’t, they were still able to buy a car, a house, take several weeks of vacation a year and still be able to have food on the table. Although this was the new normal at the time, today’s new normal is something quite different.

In America today, there are close to 50 million people living in poverty and there are more than 100 million people that get money from the federal government every month. As the middle class continues to disintegrate, poverty is climbing to unprecedented levels. Even though the stock market has been setting record high after record high, the amount of anger and frustration boiling just under the surface in our nation grows with each passing day.

As an example of just how bad off joe-sixpack is these days, the WSJ notes that — “Only 38% said they could cover a $500 repair bill or a $1,000 emergency room visit with funds from their bank accounts.” A person quoted in that article said — “A solid majority of Americans say they have a household budget, but too few have the ability to cover expenses outside their budget without going into debt or turning to family and friends for help.” Further on in that article a survey noted that — “… an unexpected bill would cause 26% to reduce spending elsewhere, while 16% would borrow from family or friends and 12% would put the expense on a credit card. The remainder didn’t know what they would do or would make other arrangements.” Basically, people don’t have any money. But how can that be? Hasn’t Obama saved the American economy? Isn’t the official unemployment rate near 5 1/2 %?

To answer this question, Jim Clifton over at Gallup wrote — “if you, a family member or anyone is unemployed and has subsequently given up on finding a job — if you are so hopelessly out of work that you’ve stopped looking over the past four weeks — the Department of Labor doesn’t count you as unemployed. That’s right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news — currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren’t throwing parties to toast “falling” unemployment.” He goes on to note another reason behind the misleading numbers — “Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 — maybe someone pays you to mow their lawn — you’re not officially counted as unemployed in the much-reported 5.6%.” But, it doesn’t stop there. He lists the third reason — “….those working part time but wanting full-time work. If you have a degree in chemistry or math and are working 10 hours part time because it is all you can find — in other words, you are severely underemployed — the government doesn’t count you in the 5.6%.” He sums up his article by saying — “The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.”

So, there you have it. The Obama recovery is a big scam. Propaganda, some might say. A facade hiding the festering sore below the surface of polite society. But actually, it is possible to see this by just looking at the headlines over the last few years — “Five teenagers were arrested when a 600-person brawl broke out in a Florida movie theater’s parking lot on Christmas night” or — “Hundreds of teens trash mall in wild flash mob”. In fact, the list goes on and on. What at one time would have been a huge talking point in the media circuit has now just become back page article. So, with the sky-rocketing youth unemployment rate, many government officials are asking what can be done. Not necessarily to provide work- but to create a safety valve for society. And it appears that the answer to this question is — “National service for all 18- to 28-year-olds”.

That’s right. It’s called national service. Not the draft, or conscription or any other word that would have negative connotations. National Service! For your patriotic duty! National Review addressed this issue when it wrote

“ Require virtually every young American — the civic-minded millennial generation — to complete a year of service through programs such as Teach for America, AmeriCorps, the Peace Corps, or the U.S. military, and two things will happen:


1. Virtually every American family will become intimately invested in the nation’s biggest challenges, including poverty, education, income inequality, and America’s place in a world afire.


2. Military recruiting will rise to meet threats posed by ISIS and other terrorist networks, giving more people skin in a very dangerous game.”


So, there you have it. Instead of creating real jobs and rebuilding America and by employing a clever use of language to not call it what it really is — forced slave labor, the brain trust in DC is going to wrap the flag around more failed foreign policies to make sure that everyone suffers. Just like Status Quo sang in that song —“A vacation in a foreign land, Uncle Sam does the best he can.You’re in the army now, oh-oo-oh you’re in the army now. Now you remember what the draft man said, nothing to do all day but stay in bed. You’re in the army now, oh-oo-oh you’re in the army now.”

So, what do you think, “Are the American youth ready for conscription?”

Jun 302015

Earlier today Wikileaks released a new batch of NSA intercepts among which one in particular stands out: an intercepted communication which reveals that then French Finance Minister Pierre Moscovici believes the French economic situation was far worse, as of mid-2012, than perceived.

Specifically, Moscovici who served as French finance minister until 2014 and then became European commissioner for Economic and Financial Affairs, Taxation and Customs, used some very colorful language, i.e., the French economic situation was “worse than anyone [could] imagine and drastic measures [would] have to be taken in the next two years”. 

Needless to say, no drastic measures were taken. In fact, no measures at all were taken because thanks to the ECB’s “whatever it takes” 2012 intervention and subsequent QE, pushed French yields to record low levels making the need for any reform moot (a la Greece, until the whole circus exploded).

He remarks about that the situation with the automotive industry was more critical than a pre-retirement unemployment supplement known as AER, which he also thought wouldn’t have had a severe impact on elections (while senator Bourquin thought would have driven voters to right-wing National Front).

Moscovici’s conclusion was that “the situation is dire” although the finance minister ignored warnings that without a “pre-retirement unemployment supplement known as the AER… the ruling Socialist Party will have a rough time in the industrial basin of the country, with voters turning to the rightwing National Front.”

Moscovici disagreed. Fast forward 3 years, and not only did French unemployment just hit an all time high confirming that the economic situation has indeed never been more dire…


… but the frontrunner for the next French president is none other than National Front’s Marine Le Pen, who will no doubt seize this memo as further proof of the terrible economic state of the country and leverage it even more to her benefit, and add even more fuel to the Frexit fire. As a reminder, Le Pen now prefers to be called Madame Frexit because as she warned last week, when she becomes president, unless the Eurozone yields to her demands, France will be the next country out of the monetary project effectively ending the Eurozone. For more read “Forget Grexit, “Madame Frexit” Says France Is Next: French Presidential Frontrunner Wants Out Of “Failed” Euro.”

Here is the intercept (link):

French Finance Minister Says Economy in Dire Straits, Predicts Two Atrocious Years Ahead (TS//SI//NF) (TS//SI//NF) The French economic situation is worse than anyone can imagine and drastic measures will have to be taken in the next 2 years, according to Finance, Economy, and Trade Minister Pierre Moscovici.


On 19 July, Moscovici, under pressure to reestablish a preretirement unemployment supplement known as the AER, warned that the situation is dire. Upon learning that there are no funds available for the AER, French Senator Martial Bourquin warned Moscovici that without the AER program the ruling Socialist Party will have a rough time in the industrial basin of the country, with voters turning to the rightwing National Front. Moscovici disagreed, asserting that the inability to reinstitute the AER will have no impact in electoral terms, besides, the situation with faltering automaker PSA Peugeot Citroen is more important than the AER.


(COMMENT: PSA has announced plans to close assembly plants  and lay off some 8,000 workers.)


Moscovici warned that the 2013 budget is not going to be a “good news budget,” with the government needing to find at least an additional 33 billion euros ($39.9 billion). Nor will 2014 be a good year. Bourquin persisted, warning that the Socialist Party will find itself in a situation similar to that of Socialist former Spanish President Zapatero, who was widely criticized for his handling of his country’s debt situation. Moscovici countered that it was not Zapatero whose behavior the French government would emulate, but rather Social Democrat former German Chancellor Gerhard Schroeder.


(COMMENT: Schroeder, chancellor from 1998 to 2005, was widely credited with helping to restore German competitiveness. He favored shifting from pure austerity measures to measures that encourage economic growth and advocated a common EU financial policy.)




French diplomatic

And the pdf

Jun 302015

Back in April, we noted that central banks in Bulgaria, Cyprus, Albania, Romania, Serbia, Turkey and the Former Yugoslav Republic of Macedonia had all effectively moved to quarantine Greece, as it became increasingly apparent that negotiations between Athens and the troika were set to deteriorate ahead of a €750 million payment due to the IMF on May 12. 

As Kathimerini reported at the time, subsidiaries of Greek banks in Eastern Europe were told to cut exposure to “Greek bonds, T-bills, deposits in Greek banks and/or interbank funding,” in an effort to assuage concerns that any contagion from a collapse of the Greek banking sector could imperil local lenders. 

A little over two months later, Greek banks are paralyzed, having lost access to emergency central bank liquidity on the heels of PM Alexis Tsipras’ decision to put euro membership to a popular vote.

Now, bond yields indicate investors are getting nervous about the possibility that the drama in Greece could spill over into the banking sectors of Bulgaria, Romania, and Serbia where Greek banks control a substantial percentage of total banking assets:


Despite what certainly appears to be souring investor sentiment, depositors seem to be safe — for now. Reuters has more:

Petar Bakhchevanov withdrew some cash from an ATM in Bulgaria’s capital on Monday as a test to make sure the deepening debt crisis in neighboring Greece had not spread to the Greek-owned bank where he keeps his savings.


Millions of people in ex-Communist Bulgaria, Macedonia, Albania, Serbia and Romania have deposits in banks owned by Greek lenders, putting this corner of south-eastern Europe in the frontline if there is contagion from the Greek crisis.


Central banks in Macedonia and Serbia introduced extra restrictions on the movement of capital between local subsidiaries and their Greek parents, saying the were taking precautions against any spillover from Athens.


“After watching the news on TV, I just wanted to check if everything is okay and I can withdraw money from my account,” said Bakhchevanov, outside a branch of Piraeus Bank Bulgaria, a subsidiary of Greece’s Piraeus bank (BOPr.AT).


Bakchevanov was able to get at his money. He took out 100 Bulgarian levs, or around $50, from the ATM, and went inside the branch where he said bank staff had reassured him he did not need to worry about his deposit.

However, as Reuters goes on to note, there are reasons to be concerned, because with “Greek banks owning 20 percent of the banking sector in some countries the exposure is real, and the region’s economies have historically been fragile, so it would not take a lot to push them into crisis too.”

Here’s what Morgan Stanley had to say last month about possible contagion:

The risk is that depositors who have their money in Greek subsidiaries in Bulgaria, Romania and Serbia could suffer a confidence crisis and seek to withdraw their deposits. Although well capitalised and liquid (as highlighted for Romania by the NBR’s Financial Stability Report (2013)), Greek subsidiaries in the SEE region may see difficulties providing enough cash if withdrawals are intense and become problematic. In case of a liquidity shortage, Greek subsidiaries in Bulgaria, Romania and Serbia would probably create the need for local authorities to step in. Local central banks and governments would most probably provide additional liquidity, but if panic behaviour develops it would mean that certain banks would either have to find a buyer or be nationalised. In this case, the national deposit guarantee schemes will have to repay guaranteed deposits and, in case of insufficient funds, the government will have to provide them. 



Deposits in Greek subsidiaries which would be at risk of being withdrawn in Bulgaria, Romania and Serbia amount to 14.8%, 4.1% and 6.8% of GDP, respectively. Even if we take into account that not all of them are covered by the local guarantee schemes as the individual amounts could exceed the legal limit of €100,000, the deposits at risk remain significant. Thus, a potential bank run on Greek banks in the region would have a significant negative impact on local governments’ fiscal deficit and their debt. Moreover, potential losses incurred from depositors would have a negative impact on consumption and growth in the region.


Deposit run: Most immediate of the bear case risks for Greek bank subsidiaries in the SEE region is the potential for sizeable deposit outflows, and we can look to Greece’s own precedent, where c.€35 billion deposits are reported to have left the system (c.21% of the total). In Bulgaria, Romania and Serbia, this risk is particularly relevant, given that the existing funding gap is already high. On average, loan/deposit ratios at Greek banks are 107% in Bulgaria, 154% in Romania and 121% in Serbia. Should deposit outflows materialise in these countries, ultimately we are looking at a combined €15 billion of funding that could be withdrawn. Yet, a potential mitigation of risk is that a large proportion of deposits are protected by guarantee funds, and we can look to the example of Bulgaria, where 72% of deposits are insured.


And while it seems, based on what Mr. Petar Bakhchevanov told Reuters (see above), that all is currently quiet on the Eastern front (at least as it relates to Grexit-induced bank runs), nobody is out of the woods yet, as it is still far from clear what happens next, especially now that the ECB is set to review “all legal aspects” of ELA following the Greek default which will occur at midnight on Tuesday. And with that, we’ll close with the following quote from Peter Andronov, the chairman of the Association of Bulgarian Banks:

 “If everything is messed up in Greece, you never know what madness this could create.”

*  *  *

Here’s a summary from Reuters regarding each country’s proported exposure/contagion risk:


* Greek-owned banks make up a fifth of the Bulgarian banking system. These include Bulgaria’s fourth largest lender United Bulgarian Bank, owned by National Bank of Greece, and Postbank, Bulgaria’s fifth largest lender, controlled by Greek Eurobank. Number 9 bank Piraeus Bank Bulgaria is controlled by Piraeus Bank of Greece and Alpha Bank is a direct bank unit of Greece’s Alpha Bank.

* Bulgaria’s central bank, in a statement issued on Monday, said it had measures in place to insulate Greek-owned banks from contagion. It said they are financially independent from their parents, they hold no Greek government securities, and have a capital adequacy and liquidity level higher than the average for banks in Bulgaria. “Any action by the Greek government and the central bank to impose measures in the Greek financial system have no legal force in Bulgaria and can in no way affect the smooth functioning and stability of the Bulgarian banking system,” the central bank said.

* A spokeswoman for United Bulgarian Bank said on Monday: “We are doing business as usual … We reconfirm and fully agree with the central bank statement from this morning.”

* In a statement, Piraeus Bank Bulgaria said the capital controls in Greece are not affecting its operations, outlining that such restrictions do not have legal force in Bulgaria and pointing out that the bank has no exposure to the Greek banking system or Greek treasuries and bonds. “For us, this Monday is a normal working day,” the bank said in the statement. “Piraeus Bank Bulgaria continues with its usual work on extending loans, raising deposits.and other banking activities as it has done since it stepped on the local market,” the statement said.


* There are four banks with Greek majority capital operating in Romania: Alpha Bank Romania, Piraeus Bank, Bancpost, controlled by Eurobank Ergasias, and Banca Romaneasca, controlled by National Bank of Greece. Together they account for 12 percent of total banking assets in Romania.

* The central bank has said the Greek subsidiaries in Romania are well capitalised and latest data showed their average capital ratio is slightly above 17 percent – in excess of the 10 percent capital ratio requirement set by the regulator. They also have amassed robust portfolios of state securities which entitles them to resort to funding from the central bank if needed.

* Piraeus Bank Romania said in a statement on Monday: “Piraeus Bank Romania is a local subsidiary, a Romanian bank with Greek capital. All operations are localized and integrated into the Romanian banking market policies, regulated by the Romanian central bank…There are no capital control policies enforced, banks are not closed, nor are operations limited.”


* There are three Greek-owned banks in Albania: subsidiaries of National Bank of Greece, Piraeus Tirana Bank, and Alpha Bank. Their share of the total assets of the banking sector in Albania is 15.9 percent, down from 20 percent in 2010, Klodi Shehu, director of the financial stability department at the Albanian central bank, told Reuters.

* Shehu said the central bank imposed minimum capital adequacy ratios for Greek-owned banks of 14 percent, above the 12 percent required for other banks. The three Greek-owned banks have a capital adequacy ratio of more than 17 percent.

* “These banks are well-capitalized, liquid and capable of timely payments irrespective of what happens in Greece,” Shehu told Reuters.


* Macedonia has two Greek-owned banks which together hold more than 20 percent of total banking sector assets. They are Alpha Bank AD Skopje, a subsidiary of Alpha Bank, and Stopanska Banka AD Skopje, owned by National Bank of Greece.

* On Sunday, the Macedonian central bank ordered its lenders to pull their deposits from Greek banks and it imposed temporary preventive measures to stop an outflow of capital from Macedonian subsidiaries to parent banks in Greece. It said the capital limits apply to future transactions, not to arrangements already in place.

* Under Macedonian law, the Greek parents have no way to withdraw their founding capital beyond 10 percent, unless they sell their holding to another investor.

* An official at the Macedonian central bank, who declined to be named, told Reuters that several months ago the bank instructed Greek-owned banks to provide daily reports on transactions with their parent banks as a precaution.

* In an analysis of the possible worst-case scenario, with Greek-owned banks collapsing under the weight of deposit withdrawals, Standard Bank estimated that the Macedonian government would have to come up with 250 million euros, or around three percent of gross domestic product, to fully recapitalize the banks, “something that the sovereign can live with.”


* In Serbia, four Greek-owned banks hold around $4 billion worth of assets, or 14 percent of total banking assets. They are Alpha Bank, EUROBANK EFG, Piraeus Bank and Vojvodjanska Banka, part of the National Bank of Greece group.

* In a written answer to Reuters questions, Serbia’s central bank said it had in place “an elevated level of monitoring of businesses of four Greek-owned banks, especially their liquidity, their relations with parents groups and events in international markets related to Greek banks and their subsidiaries.”

* The bank said that “daily reports” provided by the Greek-owned banks showed no increased outflow of funds to mother banks nor a significant outflow of savings. The bank said Greek subsidiaries are not branch offices but separate legal entities, and that there were strict limits on shareholders repatriating capital assets of the subsidiaries.

* “The central bank will continue to monitor banks in Greek ownership and if necessary will undertake other measures under its mandate to prevent a potential negative influence on Serbia’s banking sector,” the bank said.

* “We have to wait and see what will happen in the next seven days. One thing is sure, banks in Greece will be in some kind of hibernation in the next 10 days given that Greece introduced capital controls. Most Greek banks that operate in Serbia are self-funded and well capitalised, so I don’t expect to see any problems in the short run,” said Branko Srdanovic of the Belgrade-based consultancy Associates Treasury Solutions.