Category: Financial System

Financial System

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Who Will Save Stocks Now?

Elite Forex Blog - Market Research & Analysis
The stock market is in a perilous state.
Ever since 2008, anytime stocks began to collapse sharply, “someone” stepped in and put a floor under the market.
In 2010, the S&P 500 staged a death cross, where its 50-DMA broke below its 126-DMA (the half year moving average). Stocks were in a perilous state with the 2008 Crash still in everyone’s short-term memory.
The Fed stepped in, hinting at, then all but promising, and then finally launching QE 2 in July, August, and then November, respectively.
This set off a rally in stocks that lasted until the EU Crisis erupted in full force in 2011. Once again stocks staged a death cross. And once again, the Fed stepped in with promises of action followed by the announcement of Operation Twist in September 2011. Stocks took off and we were back to the races.
Which brings us to 2012. Europe was really going down in flames. Greece, then Portugal, and even Spain were lining up for bailouts. And the bailouts were getting larger by the month with Spain requesting €100 billion in June 2012.
ECB President Mario Draghi promised to do “whatever it takes” to hold the EU together. But the carnage was spilling over even into US markets. So Bernanke’s Fed promised yet another QE program, though this new program would be “open-ended” in June.
Sure enough, Bernanke unveiled QE 3 in September 2012. He then upped the ante, unveiling QE 4 in November 2012.
Stocks took off again, launching one of the sharpest, strongest rallies in history:
Which brings us to today. Stocks once again are in trouble, having taken out their 50-DMA, and the 126-DMA. We’re likely just a few weeks away from another “death cross”… and the Fed is fully committed to ending QE at the end of the month.
Moreover, the ECB is having trouble engaging in QE because Germany is not overly fond of the idea. China just announced that it will not engage in a large scale stimulus program in the near future. And the Bank of Japan has admitted it will likely not announce another massive QE program anytime too soon.
So who will save stocks this time?
If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis “Round Two” Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.
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Russia’s two largest banks plan SWIFT alternative

Elite Forex Blog - Market Research & Analysis
The two biggest banks in Russia, Sberbank and VTB, are in talks to create an alternative to the SWIFT global system for interbank financial communications, VTB head Andrey Kostin said.
According to Kostin, Russia has two options: either use the system run by the Russian Central Bank or create a new homegrown transaction platform.
“There is an alternative, we can use the Central Bank system that is already in operation, and we may make our own, we are already in discussions with Sberbank,” Kostin told reporters in Washington DC, where he is for the annual fall meetings of the International Monetary Fund (IMF) and World Bank.
However, the catch with the Central Bank’s international transaction system is the price.
“It’s expensive, in fact several times more expensive than the SWIFT payment system,” the VTB head said.
“If we create our own interbank system, which isn’t difficult at all and we are in the process of doing, it will be cheaper. And then hold talks with the Central Bank,” Kostin said.
Switching Russia off SWIFT, the Society for Worldwide Interbank Financial Telecommunication, would instantly isolate it from global finance, as happened with Iran in 2012. According to reports, EU leaders, especially in Britain, were discussing the option as a sort of super sanctions to punish Russia for its involvement in the Ukraine crisis. Many US senators have also been pushing to block Russia from SWIFT payments.
SWIFT, the Brussels-based global payments system, said last week that they wouldn’t succumb to political pressure and cut Russian payments and would continue services. The group said that disconnecting Russia violates the company’s mission and that it doesn’t make such unilateral decisions.
However because it’s based in Brussels, it would have to comply with any greater EU ruling.
Last month the SWIFT system transmitted more than 21 million financial messages a day between more than 10,500 financial institutions and corporations in 215 countries.
The Russian National SWIFT Association, or ROSSWIFT for short, is the second biggest worldwide, after the US.

http://rt.com/business/195472-russia-sberbank-vtb-swift/ 

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“Prepare For Runs”, IMF Warns Policymakers Of “Elevated Financial Stability & Liquidity Risks”

Elite Forex Blog - Market Research & Analysis
The extended period of monetary accommodation and the accompanying search for yield are leading to credit mispricing and asset price pressures, increasing the chance that financial stability risks could derail the recovery.
 [6]
Concerns have shifted to the shadow banking system, especially the growing share of illiquid credit in mutual fund portfolios.
Should asset markets come under stress, an adverse feedback loop between outflows and asset performance could develop, moving markets from a low- to a high-volatility state, with negative implications for emerging market economies.
 [7]
Funds investing in credit instruments have a number of features that could result in elevated financial stability risks.

First is a mismatch in liquidity offered by investment funds with redemption terms that may be inconsistent with the liquidity of underlying assets. Many credit funds hold illiquid credit instruments that trade infrequently in thin secondary markets.

Second is the large amount of assets concentrated in the hands of a few managers. This concentration can result in “brand risk,” given that end-investor allocation decisions are increasingly driven by the perceived brand quality of the asset management firm. Sharp drawdowns in one fund of an asset manager could propagate redemptions across funds for that particular asset manager if its brand reputation is damaged, for example through illiquidity or large losses.

Third is the concentration of decision making across funds of an individual fund manager, which can reduce diversification benefits, increase brand risk, or both.

Fourth is the concentrated holdings of individual issuers, which can exacerbate price adjustments.

Fifth is the rise in retail participation, which can increase the tendency to follow the herd.

These features could exacerbate the feedback loop between negative fund performance and outflows from the sector, leading to further pressure on prices and the risk of runs on funds. These risks could become more prominent in the coming year as the monetary policy tightening cycle begins to gain traction.
 [8]
Such stress might be triggered as part of the exit from unconventional monetary policy or by other sources, including a sharp retrenchment from risk taking due to higher geopolitical risks.
And, as we have discussed numerous times previously, less liquidity is available from traditional liquidity
providers…
 [9]
The IMF is worried…

Policymakers and markets need to prepare for structural higher market volatility. Doing so requires strengthening the system’s ability to absorb sudden portfolio adjustments, as well as addressing structural liquidity weaknesses and vulnerabilities.

Advanced economies with financial markets at risk for runs and fire sales may need to put in place mechanisms to unwind funds should they come under substantial pressure that threatens wider financial stability.

Source: IMF

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Thousands of spiders ‘bleed out of the walls’ and force family from home

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A family was driven from their suburban St Louis home by thousands of venomous spiders that fell from the ceiling and oozed from the walls. Brian and Susan Trost bought the $450,000 home overlooking two golf holes at Whitmoor Country Club in Weldon Spring in October 2007. Soon after that, they started seeing brown recluse […]

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The Stronger Dollar = Stealth QE

Elite Forex Blog - Market Research & Analysis

Submitted by Charles Hugh-Smith of OfTwoMinds blog,Whether this trend will hold or reverse is unknown, but it does suggest that there are advantages to being the cleanest shirt in the dirty laundry.Dave at Trade with Dave recently posed …

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Swiss National Bank Explains Why It Is Against Repatriating Gold

Elite Forex Blog - Market Research & Analysis
The Swiss National Bank has lashed out at the so-called “gold initiative” efforts to “Save Our Swiss Gold” unsurprisingly proclaiming it as a bad idea. AsRon Paul previously noted, “The gold referendum, if it is successful, will be a slap in the face to those elites,” and so the full-court press ahead of the Nov 30th vote has begun (a la Scotland fearmongery) as SNB Vice Chairman Jean-Pierre Danthine explains how a ‘yes’ vote for the initiative“would severely constrain the SNB’s room for manoeuvre in a future crisis,” as it “poses danger to the conduct of a successful monetary policy.” His reasoning (below) is stunning…
On 30 November, the Swiss electorate will vote on the so-called “gold initiative” (“Save our Swiss gold”, in full), which, paradoxically, would severely constrain the SNB’s room for manoeuvre in a future crisis. Let me digress for a few minutes to explain why the SNB is opposed to this initiative.
The initiative is calling for three things:
first, the SNB should hold at least 20% of its assets in gold;
second, it should no longer be allowed to sell any gold at any time; and
third, all of its gold reserves should be stored in Switzerland.
Let me address the last point first. Today, 70% of our gold reserves are stored in Switzerland, 20% are held at the Bank of England and 10% at the Bank of Canada. As you know, a country’s gold reserves usually have the function of an asset to be used only in emergencies.
For that reason, it makes sense to diversify the storage locations. In addition, it makes sense to choose locations where gold is traded, so that it can be sold faster and at lower transaction costs. The UK and Canada both meet that criterion. In addition, they both have a strong and reliable legal system and we have every assurance that our gold is safe there.
The initiative’s demand to hold at least 20% of our assets in gold would severely restrict the conduct of monetary policy. Monetary policy transactions directly change our balance sheet.
Restrictions on the composition of the balance sheet therefore restrict our monetary policy options. A telling example is our decision to implement the exchange rate floor vis-à-vis the euro that I mentioned above: with the initiative’s legal limitation in place, we would have been forced during our defence of the minimum exchange rate not only to buy euros, but also to buy gold in large quantities. Our defence of the minimum exchange rate would thus have involved huge costs, which would almost certainly have caused foreign exchange markets to doubt our resolve to enforce the rate by all means.
Even worse consequences would result from the initiative’s proposal to prohibit the sale of gold at any time. An increase in gold holdings could not be reversed, even if necessary from a monetary policy perspective. In combination with the obligation to hold at least 20% of total assets in gold, this could gradually lead the SNB into a situation where its assets would mainly consist of gold: each extension of the balance sheet for monetary policy reasons would necessitate gold purchases, but whenever the balance sheet needed to be reduced again for the same reasons, we would not be able to resell our gold holdings. This would severely restrict our room for manoeuvre.
Furthermore, because gold pays no interest or dividends, the SNB’s ability to generate profits and distribute them to the Confederation and the Cantons would be impaired.
As a final point, note that currency reserves which cannot be sold are not truly reserves. It does not make sense to call for an increase in emergency reserves – gold holdings – and simultaneously prohibit the use of these reserves even in emergencies.
The SNB’s overriding objection to the gold initiative stems from the danger it poses to the conduct of a successful monetary policy. It would severely impair the SNB’s ability to fulfil its constitutional and legal mandate to ensure price stability while taking due account of economic developments, in the interests of the country as a whole.
*  *  *
We will hazard a guess that the voting will go exactly as Scotland’s independence vote went – young vote for it, old against it… as fearmongering status quo managers step up the propaganda with no regard for what happens next.
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Did Today’s “Satan Signal” In S&P Futures Give The ‘All-Clear’ For Selling To Begin?

Elite Forex Blog - Market Research & Analysis

Even Bob Pisani knows by now that the European Close seems to create a trend-reversal moment intraday that few machines (and even fewer humans) are willing to fight. Whether this is remnants of short-term cycles found due to POMO or just a drop in…

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“Common People Do Not Carry This Much Currency” – How Police Justify Stealing American Citizens’ Money

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Submitted by Mike Krieger via Liberty Blitzkrieg blog, Police confiscating Americans’ hard earned cash, as well as a wide variety of other valuables, without an arrest or conviction is a disturbing and growing practice throughput these United States. Since cops get to keep the seized funds and use the money on pretty much anything they want, the practice is […]

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Russia Spends Up to $1.75 Billion in Two Days to Buoy Ruble

Elite Forex Blog - Market Research & Analysis
Russia’s central bank spent as much as $1.75 billion to prop up the ruble over the last two trading days, its biggest market intervention since President Vladimir Putin’s incursion into Ukraine in March.
Russia’s central bank spent the equivalent of $980 million to shore up the ruble on Oct. 3, the latest data on the authority’s website showed today. The bank also said it shifted the upper boundary of the currency’s trading band by 10 kopeks yesterday, a move that may have involved spending between $420 million and $769 million that day. The exchange rate weakened 0.3 percent to 44.6234 versus the basket by 5:12 p.m. in Moscow, set for a record low for the fourth time this month.
Putin is suffering the consequences for shaking up the post-Cold War order in eastern Europe as the U.S. and European Union impose sanctions on his economy and investors pull money out of the country. Demand for dollars and euros is growing among Russian companies locked out of western debt markets as they contend with $54.7 billion of debt repayments in the next three months, according to central bank data.
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Market Breadth Has Collapsed Around The World

Elite Forex Blog - Market Research & Analysis

Via Gavekal Capital’s blog,The 100-day moving average of the advance/decline ratio for the MSCI World Index has collapsed to its lowest level since November 2008.Out of the 46 MSCI country indices, we count 20 countries where the 100-day moving av…

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