Implode-Explode Heavy Industries news feed http://implode-explode.com/ Tracking the many faces of the global credit implosion. en-us iehi-feed-63158 Wed, 18 Oct 2017 17:24:38 GMT Cohn: Overseas Cash Could Be Used For Stock Buybacks (I.E. CONTINUED PROPPING) http://implode-explode.com/viewnews/2017-10-18_CohnOverseasCashCouldBeUsedForStockBuybacksIECONTINUEDPROPPING.html iehi-feed-63157 Wed, 18 Oct 2017 16:43:15 GMT Ray Dalio's Shorting The Entire EU; Derivs-Clearing Could Be EU's Brexit Achilles Heel http://implode-explode.com/viewnews/2017-10-18_RayDaliosShortingTheEntireEUDerivsClearingCouldBeEUsBrexitAchill.html Great compilation today by Raul Illargi. On the derivatives-clearing issue:

Calling into question the continuity of tens of thousands of derivative contracts , [Carney] stated that it was "pretty clear they will no longer be valid", that this "could only be solved by both sides" and has been "underappreciated" by Europe . Carney had a snipe at Europe for its lack of preparation "We are prepared as we should be for the possibility of a hard exit without any transition...there has been much less of that done in the European Union."

...

Shifting clearing of euro-denominated derivatives from London to the European continent would require banks to set aside far more cash to insure trades against defaults, a cost that would be passed on to companies, a global derivatives industry body says. [..]The London Stock Exchange's subsidiary LCH currently clears the bulk of euro-denominated swaps, a derivative contract that helps companies guard against unexpected moves in interest rates or currencies.

And on Dalio's bets against the Eurozone:

Dalio doesn't call the bluff of Italy, and this is not just like George Soros' shorting the British pound in 1992, he's calling out the entire EU and its financial system. He's saying I don't believe you can keep up the charade. He's making a mockery of Mario Draghi's "whatever it takes".

So what are Rome, Brussels and Frankfurt going to do? They can't ignore the no. 1 hedge fund forever. They will have to pump money into Italy, in large amounts. Merkel won't like that, neither will her new coalition partner FDP, and the Bundesbank may start legal action.

...

Bridgewater didn't enter that theater for nothing. $1.85 billion is not chump change for them. Intesa Sanpaolo CEO Carlo Messina may have said that Dalio will lose his bets, but according to the IMF Italy's non-performing loans levels were €356 billion at the end of June 2016, which is 18% of total loans for Italian banks, 20% of Italy's GDP and one-third of total Eurozone NPLs. Intesa Sanpaolo holds a nice chunk of that.

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iehi-feed-63156 Wed, 18 Oct 2017 14:41:00 GMT How money will divide Europe after Brexit http://implode-explode.com/viewnews/2017-10-18_HowmoneywilldivideEuropeafterBrexit.html iehi-feed-63153 Tue, 17 Oct 2017 19:26:29 GMT Asset Prices & Monetary Policy in an Irrational World - Whalen http://implode-explode.com/viewnews/2017-10-17_AssetPricesMonetaryPolicyinanIrrationalWorldWhalen.html As with many other sectors, in large-cap financials there was little excitement, no alpha -- just slightly higher loss rates on loan portfolios that are growing high single-digits YOY.  Yet equity valuations are up mid-double digits over the same period. 

The explanation for this remarkable divergence between stock prices and the underlying performance of public companies lies with the Federal Open Market Committee.  Low interest rates and the extraordinary expansion of the Fed's balance sheet have driven asset prices up by several orders of magnitude above the level of economic growth...

Stocks, commercial real estate and many other asset classes have been vastly inflated by the actions of global central banks. Assuming that these central bankers actually understand the implications of their actions, which are nicely summarized by Greenspan's remarks some 20 years ago, then the obvious conclusion is that there is no way to "normalize" monetary policy without seeing a significant, secular decline in asset prices.

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iehi-feed-63152 Tue, 17 Oct 2017 19:19:22 GMT Why Have Investigations of Wall Street Disappeared from Corporate Media? http://implode-explode.com/viewnews/2017-10-17_WhyHaveInvestigationsofWallStreetDisappearedfromCorporateMedia.html As recently as two months ago, the Wall Street Journal's editorial board was again attempting to write a revisionist history of the criminal conduct on Wall Street that led to the 2008 financial crisis -- the greatest economic bust in America since the Great Depression. Under the subhead "Bankers haven't gone to jail because they haven't committed crimes," the editorial board wrote....

Again, the Wall Street Journal is seriously out-of-touch with its beat. In order "to prove a crime," the U.S. Justice Department has to actually use one of the many weapons in its arsenal -- like subpoenas and wiretaps. That didn't happen because President Barack Obama put the wrong men in charge at the Justice Department. Again, that intrepid reporting didn't make its way into the public domain via the Wall Street Journal but via the PBS program, Frontline, and producer Martin Smith. The 2013 program indicated that there wasn't even a pretense of a real investigation by the Justice Department against the biggest Wall Street banks.

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The lurking danger for shareholders and investors and U.S. taxpayers is that systemic contagion is once again building up among the handful of mega banks on Wall Street that control an obscene share of the nation's deposits and assets. Ferreting out that information and bringing it to the front page may not be popular with Wall Street advertisers or their legions of lawyers. But it's essential to maintaining an engaged, free press.

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iehi-feed-63151 Tue, 17 Oct 2017 19:06:44 GMT Varoufakis tells Macron to adopt the ‘empty-chair' tactic http://implode-explode.com/viewnews/2017-10-17_VaroufakistellsMacrontoadopttheemptychairtactic.html iehi-feed-63150 Tue, 17 Oct 2017 19:00:01 GMT Senators Reach Deal to Fund Subsidies to Health Insurers http://implode-explode.com/viewnews/2017-10-17_SenatorsReachDealtoFundSubsidiestoHealthInsurers.html Two leading senators have reached a bipartisan deal to provide funding for critical subsidies to health insurers that President Trump said last week that he would cut off, Senator Lamar Alexander, Republican of Tennessee, said Tuesday.

The plan agreed to by Mr. Alexander and Senator Patty Murray of Washington, a Democrat, is intended to stabilize health insurance markets under the Affordable Care Act.

As one part of the deal, the subsidies would be funded for two years, a step that would provide at least short-term certainty to insurers. The subsidies, known as cost-sharing reductions, lower out-of-pocket costs for low-income consumers.

... it it remains to be seen whether conservative-leaning Republicans will get on board with the agreement, and whether the House will entertain it. Some Republicans have said they do not wish to provide what they describe as a bailout to insurers.

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iehi-feed-63149 Tue, 17 Oct 2017 16:45:02 GMT What Debt Crackdown? China's Banks Are Binging on Bonds http://implode-explode.com/viewnews/2017-10-17_WhatDebtCrackdownChinasBanksAreBingingonBonds.html China's banks are still bingeing on short-term financing, defying analyst predictions that they would wean themselves off such debt as regulators intensify a crackdown on leverage.

Sales of negotiable certificates of deposit -- a key funding source for medium and smaller banks -- surged 49 percent from a year ago in the third quarter to a record 5.4 trillion yuan ($819 billion), according to data compiled by Bloomberg... China's deleveraging looms large in debt-market dynamics these days, with government bond yields at two-year highs and the one-week Shanghai Interbank Offered Rate not far from the most expensive since 2015. Still, officials are also trying to keep the economy humming: they've tweaked the rules governing NCD issuance, but haven't shut off the taps as credit growth accelerates.

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The certificates -- which have been used by lenders to finance purchases of each other's wealth-management products -- came under regulatory scrutiny last year, when they started to serve as a source of leveraged bond investments for some institutions. In August, the People's Bank of China asked lenders with more than 500 billion yuan of assets to classify the debt as interbank liabilities from next year. This is seen effectively capping sales.

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iehi-feed-63145 Mon, 16 Oct 2017 15:22:05 GMT China's mortgage debt bubble raises spectre of 2007 US crisis http://implode-explode.com/viewnews/2017-10-16_Chinasmortgagedebtbubbleraisesspectreof2007UScrisis.html City residents in their 20s and 30s view property as a one-way bet because they've never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish.

"Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second," Mai, 33, said. "Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way."

...

The rush of millions young middle-class Chinese like Mai into the property market has created a hysteria that eerily resembles the housing crisis that struck the United States a decade ago. Thanks to the easy credit that has spurred the housing boom, many young Chinese have abandoned the frugal traditions of earlier generations and now lead a lifestyle beyond their financial means.

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iehi-feed-63143 Mon, 16 Oct 2017 13:59:37 GMT Congress Votes To Lavishly Subsidize Flood Hazard In "Real US States" While Giving Puerto Rico a Lump of Coal http://implode-explode.com/viewnews/2017-10-16_CongressVotesToLavishlySubsidizeFloodHazardInRealUSStatesWhileGi.html The House approved the debt forgiveness in a 353-69 vote on Thursday. As The Intercept previously reported, the bill cancels two-thirds of the flood program's debt while offering Puerto Rico a $5 billion loan from the U.S. Treasury--a baffling move considering the small island is already at least $74 billion in the red to a number of mostly foreign creditors who aren't about to give up their investments without a fight.

The difference? Puerto Rico is effectively a colony of the United States. The National Flood Insurance Program (NFIP) happens to help a lot of millionaires.

For that reason, the NFIP has historically been a rare spot of cross-aisle agreement, with loyalties divided more along geographic lines than partisan ones. Because homeowners living in floodplains are required to purchase flood insurance, the politicians who represent coastal constituencies tend to favor keeping rates low in order to keep them happy.

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iehi-feed-63142 Sun, 15 Oct 2017 21:33:53 GMT Grim reality of NAFTA talks sets in after tough U.S. opening demands http://implode-explode.com/viewnews/2017-10-15_GrimrealityofNAFTAtalkssetsinaftertoughUSopeningdemands.html "The atmosphere is complicated," one trade official told reporters, adding that his fears about some "pretty harsh, pretty horrible" demands from the U.S. side of the negotiating table were coming true...

One of the U.S. proposals unveiled this week would require that 50 percent of the value of all NAFTA-produced cars, trucks and large engines come from the United States, people briefed on the negotiations said.

The same proposal calls for a sharp increase in NAFTA's regional automotive content requirement, boosting it to 85 percent from the current 62.5 percent. The existing level is already the highest local content requirement of any trading bloc in the world. [L2N1MO0U5]

Meanwhile, the Trump administration's call for a so-called NAFTA sunset clause would effectively trigger a renegotiation of the pact every five years.

...

One of Lighthizer's predecessors, Robert Zoellick, said he thought there was a 50-50 chance Trump would quit NAFTA. "He's trying to go back to make trade agreements fix the bilateral trade deficit. I don't believe he can be successful in doing that," Zoellick, now non-executive chairman of AllianceBernstein, told a banking conference in Washington on Saturday.''

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iehi-feed-63140 Sun, 15 Oct 2017 17:33:28 GMT Russia Unveils 'CryptoRuble' As Assange Thanks US Govt For His 50,000% Gain On Bitcoin http://implode-explode.com/viewnews/2017-10-15_RussiaUnveilsCryptoRubleAsAssangeThanksUSGovtForHis50000GainOnBi.html iehi-feed-63139 Sat, 14 Oct 2017 23:30:44 GMT Wells Fargo Reveals $1 bln Skeleton in Closet From Pre-Crisis Mortgages; Crummy General Results http://implode-explode.com/viewnews/2017-10-14_WellsFargoReveals1blnSkeletoninClosetFromPreCrisisMortgagesCrumm.html The company took a surprise $1 billion charge in the quarter for previously disclosed regulatory investigations into its pre-crisis mortgage activity, the third-largest U.S. lender said Friday in a statement. The expense pushed total costs to a record $14.4 billion.

...

The bank is one of the last firms not to have settled with regulators and the Justice Department over its handling of home loans in the run up to the housing crisis. It said in August that it was increasing its estimate for what it deemed "reasonably possible" legal charges beyond reserves in part because of "existing mortgage-related regulatory investigations."

...

Wells Fargo also had trouble in its underlying businesses. Revenue in the third-largest U.S. bank's community banking division, the home for all the lending it does to America's consumers, fell to $12.1 billion, the lowest since the quarter after news broke about the fake accounts. Net income in the unit, which generates the majority of Wells Fargo's profit, plunged 31 percent to $2.23 billion.

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iehi-feed-63138 Sat, 14 Oct 2017 23:23:36 GMT Who needs low-skill migrants anyway? (UK) http://implode-explode.com/viewnews/2017-10-14_WhoneedslowskillmigrantsanywayUK.html Before we have even taken back control, a lot of EU migrants have decided to leave anyway... Will there be plenty of British workers waiting to fill their jobs? Probably not. The idea that there is an army of workless people in the UK is even more out-of-date. The UK-born working-age population is no longer increasing. According to some estimates it has already peaked.

...

The government may be hell-bent on reducing the number of low-skill migrants but it isn't telling us how it plans to deal with the consequences. People might not complain too much when they can't get salad on a hot day but when their hospital is full and they can't get help for their elderly relatives they will blame the government.

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iehi-feed-63137 Sat, 14 Oct 2017 23:15:36 GMT Prepare for a Chinese Maxi-devaluation - Rickards (BIG IMPLICATIONS FOR US STOCKS!!) http://implode-explode.com/viewnews/2017-10-14_PrepareforaChineseMaxidevaluationRickardsBIGIMPLICATIONSFORUSSTO.html Since the impossible trinity really is impossible in the long-run, and since China's current solutions are non-sustainable, what can China do to solve its policy trilemma? The most obvious course, and the one likely to be implemented, is a maxi-devaluation of the yuan to around the 7.95 level or lower.

...

There are early signs that this policy of devaluation is already being put into place. The yuan has dropped sharply in the past month from 6.45 to 6.62. This resembles the stealth devaluation of late 2015, but is somewhat more aggressive... Once the National Party Congress is over in late October, President Xi will have secured his political ambitions and will no longer find it necessary to avoid rocking the boat.

...

Both Trump and Xi are readying a "gloves off" approach to a trade war and renewed currency war. A maxi-devaluation of the yuan is Xi's most potent weapon.

Finally, China's internal contradictions are catching up with it. China has to confront an insolvent banking system, a real estate bubble, and a $1 trillion wealth management product Ponzi scheme that is starting to fall apart.

A much weaker yuan would give China some policy space in terms of using its reserves to paper over some of these problems. Less dramatic devaluations of the yuan led to U.S. stock market crashes. What does a new maxi-devaluation portend for U.S. stocks?

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iehi-feed-63136 Sat, 14 Oct 2017 16:38:59 GMT No-deal Brexit: it's already too late http://implode-explode.com/viewnews/2017-10-14_NodealBrexititsalreadytoolate.html iehi-feed-63135 Sat, 14 Oct 2017 16:33:45 GMT Tesla fired hundreds of employees in past week http://implode-explode.com/viewnews/2017-10-14_Teslafiredhundredsofemployeesinpastweek.html iehi-feed-63134 Sat, 14 Oct 2017 16:24:13 GMT Trump Isn't Certifying the Iran Deal--What Happens Next? http://implode-explode.com/viewnews/2017-10-14_TrumpIsntCertifyingtheIranDealWhatHappensNext.html ... even if Trump's gambit to decertify and threaten the JCPOA did some harm to Iran, the international reaction would produce far less net economic and diplomatic pressure on Iran than existed before the JCPOA was finalized. And it is literally insane to believe that it is possible to produce 150 percent of the current deal with 50, 70, or even 99 percent of the leverage the United States possessed in 2015. It simply ignores the laws of diplomatic physics. ...

... Trump's move to decertify could end up the way his push for health-care reform did--with a whole lot of posturing and debate and false starts in Congress, and little to show for it. It could amount to Trump head-faking to a campaign promise and making a political statement about the folly of his predecessor without actually undoing that predecessor's policy.

... The gambit could also backfire in the opposite direction--by blowing up the Iran deal even if that's not what Trump wants. The elaborate decertification plan "suggests an elegance of plotting that the administration has given little evidence of possessing," Kori Schake writes in The Atlantic. "Congress is unlikely to trust the president enough to make a brave choice--which remaining in the agreement after the president decertifies it would be--they suspect he would then publicly castigate them for."

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iehi-feed-63133 Fri, 13 Oct 2017 21:41:39 GMT The Curious Case of "Missing the Market Boom" http://implode-explode.com/viewnews/2017-10-13_TheCuriousCaseofMissingtheMarketBoom.html "The Cost of Missing the Market Boom is Skyrocketing", says a Bloomberg headline today. That must be the scariest headline I've seen in quite a while. For starters, it's misleading, because people who ‘missed' the boom haven't lost anything other than virtual wealth, which is also the only thing those who haven't ‘missed' it, have acquired.

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[As the article says:] "Aided by an 8% drop in the U.S. currency, the dollar-denominated capitalization of worldwide shares appreciated in 2017 by an amount -- $20 trillion -- that is comparable to the total value of all equities nine years ago. And yet skeptics still abound, pointing to stretched valuations or policy uncertainty from Washington to Brussels. "

$20 trillion. That's a lot of dough. It's what all equities in the world combined were ‘worth' 9 years ago. It's also, oh irony, awfully close to the total increase in central bank balance sheets, through QE etc. Might the two be related in any way?''

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iehi-feed-63131 Fri, 13 Oct 2017 14:38:13 GMT Trump to end key ACA subsidies, a move that could threaten the law's marketplaces http://implode-explode.com/viewnews/2017-10-13_TrumptoendkeyACAsubsidiesamovethatcouldthreatenthelawsmarketplac.html President Trump will end cost-sharing payments in the Affordable Care Act marketplaces that have helped lower-income consumers afford their health plans. The move, confirmed late Thursday by two people briefed on the decision, is likely to immediately threaten the marketplaces and could prompt insurers to withdraw. ...

The most far-reaching element of the order instructs a trio of Cabinet departments to rewrite federal rules for "association health plans" -- a form of insurance in which small businesses of a similar type band together through an association to negotiate health benefits. These plans have had to meet coverage requirements and consumer protections under the 2010 health-care law, but the administration is likely to exempt them from those rules and let such plans be sold from state to state without insurance licenses in each one.

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