AuthorTopic: Emerging Market Panic & Peripheral Currency Collapse  (Read 12855 times)

Offline RE

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Re: Emerging Market Panic & Peripheral Currency Collapse
« Reply #15 on: February 05, 2014, 04:15:57 AM »
I held my shorts through the Dead Cat Bounce.  I will exit either another 1000 down in the DOW or if Da Fed signals a big Easing.  Possibilities are decent for a bigger drop, but risky to hold past this level.  I'm not hedging.  I already knocked down a decent take, worst case scenario I will only be around 5% up for this week.  If I get another 1000 down, I'm up around 10%.

Beyond the actual risking of bets, there is a damn good possibility this one breaks the bank.  Yen under 100 is FOREX CATASTROPHE.  Such a huge reversal of the carry trade demands the big players run out of the Yen, and that is equivalent to an Internation Bank Run.  For that to be stopped by the CBs, even in concert they would have to buy a whole lot of Dogshit.  I find it hard to imagine how Janet Yellen would have the stomach for this.  Time will tell of course.

Meanwhile, if you did not already drop in on this "correction", its a bit risky to do it now.


Japan Is Re-Crisis-ing; Nikkei Plunges 300 Points From US Close; S&P's Dead-Cat-Bounce Dead
Submitted by Tyler Durden on 02/04/2014 21:52 -0500

US and Japanese stocks began to fall the moment the bell rang in NYC on the end of the US day-session. By the times futures closed 15mins later, the S&P had already lost 6 points and the exuberance in the Nikkei had snapped back to USDJPY reality (100 points off its highs). As the evening progressed the dead-cat-bounce died with US and Japanese stocks tumbling to day-session lows. Dow futures are down 110 from the highs; S&P futures are down 16 points from the US session highs; and Nikkei futures - not helped by the 19th month in a row of falling YoY base wages - are testing 14,050, having dropped 300 points from the highs and removed all day-session gains. Stocks are re-crisis-ing as USDJPY tests back towards 101.
US and Japanese stocks started to crumble the moment cash closed in the US...

Nikkei snapped down to USDJPY at the close and has now lost all the gains of the day....

As has the S&P 500...
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Offline g

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Re: Emerging Market Panic : Venezuela - A Crisis in the Making
« Reply #16 on: February 05, 2014, 05:23:28 AM »
Venezuela - A Crisis in the Making
By Sober Look
Created 02/03/2014 - 08:36

As a followup to our recent discussion [1] on Venezuela, here are the latest developments:

1. The government has since created two exchange rates in order to stem rampant dollar outflows - essentially devaluing the currency - see story [2]. Only essential goods are permitted to be imported using the original rate. The weaker exchange rate (more expensive dollars - nearly 2x the original rate) is used for everyone else. Black market dollars trade at some 10x the original rate.

2. Oil exports have fallen to the lowest level since 1985. A great deal of the oil the country does export is shipped to China to cover the billions of dollars worth of loans - see story [3].

3. Government bonds have sold off sharply in January, with long-term rates now above 15%.


4. According to the central bank, core inflation is running at close to 60%, although given the shortages it's difficult to measure.

4. Shortages of basic goods persist - see story [6] (quite sad).

5. Dollar debt to the private sector is now over 60% of FX reserves  - see story [7] (in Spanish).

6. Foreign reserves are dwindling.

    The Economist: [8] - Venezuela is running out of dollars to pay its bills. Although payments to its financial creditors of around $5 billion this year do not appear to be at risk, the country’s arrears on non-financial debt are put at over ten times that sum. These include more than $3 billion owed to foreign airlines for tickets sold in bolívares, and around $9 billion in private-sector imports that have not been paid for because of the dollar shortage. “Under the current economic model, and with this economic policy,” says Asdrúbal Oliveros of Ecoanalítica, “this [debt] looks unpayable.”

7. The country's sovereign CDS volume has picked up as traders smell profits, and the spread hit a new high. This is what a crisis in the making looks like.



Offline RE

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« Reply #17 on: February 06, 2014, 01:05:51 AM »

Yes Ambrose, if Super Mario Dragon just put the Pedal to the Metal on the Printing Press, the Eurotrash would come Roaring Back to Life.  ::)

Abenomics has worked so well for the Nips, right?  Helicopter Ben was a GENIUS, right?

Is he really this dense or does he get paid off for writing the nonsense?


Euroland is sliding further into Japanese deflation trap every month, whatever they claim in Frankfurt

By Ambrose Evans-Pritchard

8:44PM GMT 05 Feb 2014

 The US and China are withdrawing stimulus on purpose. The eurozone is doing so by accident, letting market forces drain liquidity from the financial system for month after month.

The balance sheet of the European Central Bank has fallen by €553bn over the past year as banks repay money that they no longer want, either because ECB funds are too costly in a near-deflationary world or because lenders are being compelled by regulators to shrink their books.

This is "passive tightening" or "endogenous tapering". The ECB balance sheet has plummeted to 23pc of eurozone GDP from a peak of 32pc in July 2012.

Hardliners will be delighted to learn that we now have synchronized G3 global tightening at last, further compounded by enforced tightening in Brazil, India, Turkey, South Africa and a string of emerging market states trying to defend their currencies. At least two-thirds of the global economy is turning down the liquidity spigot.

This is causing collateral damage everywhere. Japan's Nikkei index of equities is down 14pc this year, a victim as ever from safe-haven flight into the yen. Julian Jessop, from Capital Economics, said this is not yet enough to derail's Japan's recovery, but nothing can be excluded at this point. "Investor sentiment is clearly very negative and the risks of a downward spiral are growing," he said.

The eurozone has been growing just enough on export growth and a burst of restocking to create the illusion of recovery, though business investment continues to fall each month, dropping to modern-era low of 18.9pc. (It was 21pc even during the depths of the dotcom bust in 2003.)

Retail sales fell 1.6pc in December, the biggest drop for two-and-a-half years. The unemployment rate has stabilised at 12pc, but only because so many people have dropped off the rolls or fled abroad. Italy has lost a further 425,000 jobs over the past year.

Euroland is sliding further into Japanese deflation trap every month, whatever they claim in Frankfurt. Passive tightening has caused private sector loans to fall by €155bn over the past quarter. "The ECB's insistence on waiting for more evidence of deflation is a dangerous gamble. Delays are costly, and risk allowing pathologies to fester," said Ashoka Mody, until recently the International Monetary Fund's Troika firefighter in Ireland and now a contributor to Bruegel.

Core inflation has fallen to 0.6pc when you strip out taxes. The ECB has failed to meet its own 2pc inflation by a shocking margin, and missed its 4.5pc M3 money supply target (If it remembers that it had one) by an even bigger margin, and is therefore in breach of its EU treaty obligations. It has ignored pleas for action from the IMF and the OECD.

"The ECB should be picking up the baton of quantitative easing from the Fed instead of sitting on its hands. They have presided over tight monetary policy for so long that they have let an intense deflation risk take hold," said Andrew Roberts, credit chief at RBS.

There have been hints from Frankfurt that the Bundesbank is at last willing to let the ECB stop "sterilisation" of its bond holdings, perhaps as soon as this Thursday's policy meeting. Such a move would be tantamount to QE worth up to €175bn. "The meeting is enormously important. If they don't act, this could snowball," said Mr Roberts.

But the ECB's Mario Draghi has been burned before. He was pilloried in Germany for his emergency rate cut in November, intended to give Euroland a safety buffer against deflation. This time he wants the Bundesbank out in front, openly and fully committed. Mr Draghi is tired of dealing with ideologues who either wish to reduce the eurozone to a hard core, or who have not yet accepted the political, strategic and moral responsibilities inherent in the creation of monetary union. You can see the glint of anger in his eyes. It is his turn to hold their feet to the fire.

Peter Bofinger, one of Germany's five "Wise Men" and a critic of the Bundesbank foot-dragging, said the ECB should launch "far-reaching bond purchases" immediately to head off the danger of deflation, deeming any other measure to be a drop in the bucket at this stage.

The ECB's tight policy has led to the surreal situation where the world's weakest economy - barely out of a deep recession - has the strongest currency. This dynamic is all too familiar to anybody who remembers what happened to Japan. "The greatest danger for the eurozone recovery is a further rise in the euro. They must avoid a rise to $1.40 at all costs," said Mr Bofinger.

But he is a rare voice in Germany, and circumstances are vastly complicated by wrangling at the constitutional court in Karlsruhe on the legality of the ECB's rescue operations.

We know that all five expert witnesses attacked Mr Draghi's bond rescue plan for Italy and Spain in hearings last June. The Bundesbank itself savaged him in its own pleading, even arguing that it is not the task of the ECB to prevent countries being thrown out of the euro. The court has delayed its ruling until April. Paralysis reigns.

It is often said that the ECB has no mandate to conduct QE. This claim is a smoke-screen. The ECB has an over-riding treaty obligation to support the general purposes of the Union. It can at any time buy EMU bonds across the board - weighted by GDP - in any volume it chooses as a tool of liquidity management, or it can buy gold, pig iron, equities, vintage wine, green cheese or anything else.

There is no prohibition on open-market operations. If there were such a ban, the ECB could not function as a central bank. It has already bought the bonds of Greece, a country that was insolvent, which surely is illegal under the Maastricht Treaty. The whole argument over QE has become hopelessly confused.

Deflation creeps up on countries and on central banks. There is no cliff-edge moment. The effects can be toxic for high-debt states even before the price level reaches zero, since the interest burden rises faster than the underlying base of nominal GDP. "The lower the inflation rate, the more dangerous it is for the eurozone recovery," says Olivier Blanchard, the IMF's chief economist.

The argument is by now well-known. Club Med states cannot deflate their economies to claw back competitiveness against northern Europe while at the same time controlling their debt trajectories. The two objectives are in contradiction. It is a key reason why Italy's debt has jumped from 119pc to 133pc of GDP since 2010 despite a primary surplus.

Global liquidity is drying up

A study by the Bruegel think-tank in Brussels found that each one percentage point fall in the EMU-wide inflation rate forces Italy to increase that surplus by an extra 1.3pc of GDP to stabilise public debt. It becomes a Sisyphean task, ultimately self-defeating.

Put bluntly, the ECB is condemning Italy, Spain and Portugal to long-term insolvency by failing to comply with its own M3 and inflation targets.

Frankfurt must now act with extreme care. The ECB is a global institution, not a regional Riksbank for the Lower Rhine. What it does on Thursday will set the tone for world bourses and may decide whether the emerging market storm turns into a full-blown crisis.

If mishandled, contagion could blow straight back into the ECB's face through financial links to Asia, Eastern Europe and Latin America. European (and British) banks have lent $3.4 trillion to emerging markets, four times as much as US banks. Spain's Santander has a $132bn exposure to Latin America, half in Brazil.

The long-suffering citizens of southern Europe and Ireland have put up with the failings and 1930s ideology of EMU policy-makers with remarkable stoicism for a long time. An aborted recovery at this point - with an another leg up in mass unemployment - might be more than democratic societies can tolerate.

There is a concept in physics known as a critical state, the moment when apparent stability suddenly gives way to drastic change. Europe must be getting close.
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Offline RE

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Kraut Kourt Kaboshes Kurrency Krapola
« Reply #18 on: February 11, 2014, 03:19:48 AM »
Kraut Judges  have drawn a new line in the sand for the ECB to cross, and it will be interesting to see what kind of loopholes and workarounds Super Mario Dragon can find to keep PIIGS Bond Spreads from a Blowout.

This should cause a new dive in the DAX and FTSE, and probably has some blowback here tomorrow as well.  I personally am back out of this shitstorm at the moment, it is Risk Off for me right now.

Flash Crash yesterday in Bitcoin makes it apparent the instability here right now is tremendous.

Best Hedge would seem to be about 30% USTs, 30% PMs, 30% Oil Futures and 10% miscellaneous betting on your favorite Stocks.

The Blowout nears here though, at which point Hedging won't work too well as all asset classes will dive.


ECB paralysed by German court decision as deflation threatens

The ‘thunderbolt’ ruling on eurozone rescue policies by Germany’s top court marks a serious escalation of Europe’s governance crisis

Germany's constitutional court said it was "inclined" to rule ECB's eurozone crisis backstop is illegal Photo: Reuters

By Ambrose Evans-Pritchard

8:51PM GMT 10 Feb 2014

Comments180 Comments

Last week’s ‘thunderbolt’ ruling on eurozone rescue policies by Germany’s top court marks a serious escalation of Europe’s governance crisis and may ultimately force Germany to withdraw from the euro, the country’s most influential magazine has warned.

A sweeping report by Der Spiegel said the court ruling amounts to a full-blown showdown between Germany and the European Central Bank over the methods to shore up southern Europe's debt markets.

“It is nothing less than a final reckoning with the crisis-management strategy pursued by the ECB. The German justices insist that the German constitution sets limits on the ECB’s crisis strategy. In a worst-case scenario, the Court could forbid Berlin from contributing to efforts to save the euro or even force Germany to leave the currency zone entirely,” it said.

The warning came as market analysts began to see the darker implications of the ruling, which was initially seen as a green light for the ECB's bond operations.

Germany’s top institutes questioned whether quantitative easing is still possible in this political climate, leaving it unclear how the region can respond if deflation draws closer. “I think generally bond buying is now difficult territory,” said Clemens Fuest, head of the ZEW Institute.

Marcel Fratzscher, head of the DIW Institute, said the ruling greatly constrains the ECB. "A central bank must have unlimited scope for conducting monetary policy. If this prerogative is limited, it undermines credibility. The constitutional court has created fresh uncertainty with this decision," he said.

The German court in Karlsruhe said there were grounds for concluding that the ECB’s back-stop plan for Italy and Spain - known as the OMT - breaches the ECB’s mandate and violates the treaty prohibition on “monetary financing” of budgets. It did not address QE as such, but that distinction is becoming irrelevant in Germany.

“However they do it people will say ‘you are circumventing the OMT discussion’,” said Mr Fuest, addressing a Reuters forum in Frankfurt. He said the ECB may have to resort to other means to combat any spill-over from the emerging market storm this year, even if these are weak instruments.

Olli Rehn, the EU’s economics commissioner, told the forum that the ruling changes little. “The ECB certainly has its big bazooka and plenty of ammunition for the bazooka if needed. In my view the ECB has definitely worked within its mandate,” he said.

However, German eurosceptics were in ecstasy. “Finally, a court has found that the ECB’s bond-buying program is a clear violation of European law,” said professor Bernd Lücke, head of the AfD anti-euro party. Bavarian politician Peter Gaulweiler, a plaintiff in the case, said “Karlsruhe has shown ECB president Mario Draghi what a bazooka really is.”

While the court referred the case to the European Court (ECJ) for a preliminary ruling, it did so in such a way as to pre-judge the matter and fire a warning shot across the bows of EU institutions. Retired judge Udo di Fabio said it was intended to bind the hands of the ECJ in advance.

The German court does not accept the primacy of EU law over Germany’s Basic Law, and reserves the right to strike down any decisions by the ECJ, but views on this cover a wide spectrum. Gunnar Beck, an expert on European law at the University of London, said the German court is legally obliged to follow the verdict of the ECJ and has in effect cleared the way for a positive ruling by referring the case and "washing its hands" of matter.

Hans Werner Sinn, head of the IFO institute, said the German government cannot ignore the judgement by Karlsruhe “whatever the ECJ says”, and warned that markets were likely to react badly once they grasp that “German resistance” to eurozone rescues is hardening.

The German court said the ECB’s actions are probably “Ultra Vires”. If so, German institutions such as the Bundesbank are prohibited from taking part.

The ECB can in theory carry out rescue policies without the Bundesbank. Whether this would have any market credibility in a crisis is doubtful.
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