It’s been a busy day at the market in downtown Volos. Angeliki Ioanitou has sold a decent quantity of olive oil and soap, while her friend Maria has done good business with her fresh pies. But not a single euro has changed hands. In this bustling port city at the foot of Mount Pelion, in the heart of Greece‘s most fertile plain, locals have come up with a novel way of dealing with austerity – adopting their own alternative currency, known as the Tem. “Frankly the Tem has been a life-saver,” said Christina Koutsieri, clutching DVDs and a bag of food as she emerged from the marketplace. “In March I had to close the grocery store I had kept going for 27 years because I just couldn’t afford all the new taxes and bills. Everyone I know has lost their jobs. It’s tragic.” For local officials such as Panos Skotiniotis, the mayor of Volos, the alternative currency has proved to be an excellent way of supplementing the euro. “We are all for supporting alternatives that help alleviate the crisis’s economic and social consequences.”Full Guardian article here.
- Platinum has traditionally been the most valuable precious metal for one simple reason: it is rare.
- It is so rare, that all the platinum ever mined could fit into a 25 cubic foot box.
- The weight of that box comes out to just over 16 tons: this is how much platinum has been mined since the start of time.
- A coin valued at $1 trillion and made out of platinum would, at today's price of $1557/ounce, weigh in at 642.3 million ounces.
- 642.3 million ounces is also roughly 18 thousand tons, or about 1100 times more than all the platinum mined.
- GEITHNER SAID TO PLAN DEPARTURE BEFORE DEBT CEILING RECKONING
American Express Kenneth Chenault had been approached for job, has indicated he isn’t interested Administration officials had approached American Express Co. Chief Executive Officer Kenneth Chenault about joining Obama’s second-term cabinet, possibly as Treasury secretary. Chenault isn’t interested in leaving his private sector job, according to a spokesman.More from Bloomberg
Overnight, Frank Partnoy and Jesse Eisinger released an epic magnum opus titled "What's Inside America's Banks", in which they use over 9000 words, including spot on references to Wells Fargo, JPM, Andy Haldane, Kevin Warsh, Basel II, Basel III (whose regulatory framework is now 509 pages and includes a ridiculous 78 calculus equations to suggest that banks have to delever by some $3 trillion, which is why it will never pass) to give their answer: "Nobody knows."
Of course, while this yeoman's effort may come as news to a broader cross-section of the population, is it well known by anyone who has even a passing interest in the loan-loss reserve release earnings generating black boxes formerly known as banks (which once upon a time made their money using Net Interest margin, and actually lending out money to make a profit), and now simply known as FDIC insured Bank Holding Company hedge funds. This also happens to be the second sentence in the lead paragraph of the story: "Sophisticated investors describe big banks as “black boxes” that may still be concealing enormous risks—the sort that could again take down the economy." So far so good, and again - not truly news. What however may come as news to none other than the author is that the first sentence of the lead-in: 'Some four years after the 2008 financial crisis, public trust in banks is as low as ever" is, sadly, wrong.
Why is it wrong?
Because as we showed a week ago, the general public's "trust" and faith in banks is not expressed through the stock price of their equities, something which these days is largely determined by the Federal Reserve and the banks themselves, who not only give each other "Conviction Strong Buy" upgrades on a frequent basis but also buy each others' stocks in the biggest circle jerk imaginable, or even through slurred anecdotes at the local pub bashing Ken this and Jamie that. Instead it is expressed by how much trust the general population - the public - has put on deposit, literally, in the form of money, in either checking or, worse, savings (because under ZIRP there is no interest income, and having a savings account merely locks up one's withdrawal options) accounts with various financial institutions, or as The Atlantic calls them black boxes.
The truth is, that as of December 18, there was a record $9.2 trillion in total bank deposits: this is not only the evil 1%-ers money, but money from mom and pops - the public - who have saved cash all their lives, the bulk of it from hard work, and instead of keeping it in cash have decided to hand it over to the banks for "safe keeping." As a reminder, deposits (even savings deposits under ZIRP) are the effectively equivalent of currency in circulation. Or physical money. Money, which in a fractional reserve system is created by the fed and by private commercial banks (sometime it is surprising how much confusion there is about the money creation process: we will address this in a later article) when they create loans.
The problem, as we noted recently is that since the Lehman failure, US commercial banks have not created one incremental dollar in loans, and in fact the total amount of loans outstanding has dipped by some $120 billion in the past 4 years! And yet US bank deposits keep soaring, and as noted above have just crossed $9.2 trillion for the first time ever. Thank you Federal reserve excess reserves and shadow banking system repo (and other) transformations.
In other words, so explicit is the trust in banks and stability of the Fed-backstopped banking system that a whopping $2 trillion in excess deposits over loans have been parked at US banks.
Notably, all of the above ignores the fact that as of January 1, 2013 the FDIC's Transaction Account Guarantee program expired, making millions of depositors effecitvely unsecured creditors in what are the world's most insolvent (and most central bank backstopped) banks. This consolidated unsecured claim according to the WSJ amounts to some $1.5 trillion.
And it gets worse, because one aspect untouched in the Atlantic piece is that it is this excess differential in deposits over loans that allows banks to all be glorified, depositor-insured hedge funds and use the excess delta to gamble with risk free, Treasyrt backed depositor capital (courtesy of the Gramm Leach Bliley act which ended Glass Steagall) in the way that the JPM CIO was nothing but a massive "hedging" hedge fund with $323 billion in AUM.
This is money that the "London Whale" and his team used to distort the fixed income market so much they effectively became the market (as the Atlantic piece touched upon).
One can only wonder what other assets the banks have invested using this excess deposit base, although we are confident that valiant mainstream media effort to truly uncover the depth of the US banking system's manipulation of the US saver will gradually become apparent and known to all.
It is precisely this "money on the sidelines" that allows the banks to bid up risk assets to such stratospheric levels that the Fed can claim victory, that the financial system can continue the theater that it is capitalized thanks to a substantial equity tranche, and that social orders can be preserved in a society in which the only thing that appears to matter is the closing trade of the Russell 2000.
Yet the paradox deepens when one considers that it is precisely this money being parked with the banks, instead of being demanded for circulating purposes that has so far avoided rampant inflation. Putting the $2 trillion in just excess deposits over loans in perspective (not the entire $9.2 trillion): there is $1.1 trillion of currency in circulation. Should all this money be pulled and enter the broader economy, one can kiss any CPI data massaging goodbye.
Which brings us to the jist of the story: on one hand, the public may be disenchanted with the US banking system, but on the other, the explicit trust has never been greater. And therein lies the rub: should this trust evaporate, and should deposits be pulled for whatever reason, not only will banks be forced to unwind a myriad in risk positions they likely still have on, but the sudden increase of what even the Fed would have to admit is M1 would result in an explosion in the prices of goods and services as suddenly three dollars are chasing what previously there was only one dollar in demand for.
So, yes, the Atlantic wrote a great story on the black box nature of the US bank system, but they missed the true punchline: America's banks and the American public are gripped in the most hated yet symbiotic "love hate" relationship in history. Should the trust truly evaporate, then the banks will have no choice but to pull the proverbial pin and send risk tumbling, and inflation soaring.
Perhaps that is the precise reason why nobody: not bank management teams, not sellside analysts, not regulators, not accountants, certainly not the Fed, not legislators, and last but not least, not the US public, is ready or even cares for a true peek inside the black boxes that make up the US banks?
Pick your poison?
In a little under two-and-a-half minutes, CNBC's Rick Santelli surveys the landscape of just what exactly is Quantitative Easing, why more debt does not solve the problem of too much debt, and why these actions (as even Frau Merkel has ascribed concern) are nothing but counterfeiting. He rhetorically questions how the printing of more money is the way to solve our 'problems', adding via Rick Rule, that "there's been no shortage of cash in the system; but one wonders [given] this economy seems based on liquidity, whether building an economy on what is, in fact, counterfeiting is very good for the economy in the long term?"
With the world's suckers investors (CEOs, politicians, and peons alike) all hanging on every word the man-behind-the-curtain has to say on Friday, Stone & McCarthy has crafted an excellent 'what-if' of key takeaways and interpretations ahead of Friday's Jackson Hole Symposium speech by Bernanke. Will Draghi toe the line? Will China be pissed? and what rhymes with J-Hole?
Via Stone & McCarthy Research Associates
1. We expect Bernanke will reiterate the Fed's options for providing further stimulus, and its willingness to act "as needed", but not signal any specific policy action or its timing due to proximity to the September 12-13 FOMC meeting.
2. The case for further stimulus may have weakened since the July 31-August 1 FOMC meeting due to somewhat better economic data, especially for housing. It could be further reduced if the Beige Book does not suggest any substantive deterioration in conditions, and/or the August employment report shows job creation remains about on trend.
Fed Chairman Ben Bernanke will deliver the keynote speech at the Kansas City Fed's annual symposium at Jackson Hole, WY. He speaks at 10:00 ET, and his topic will be "Monetary Policy Since the Crisis." He has covered this subject before. His comments will probably offer a few updates since the last time he spoke on a similar theme. Since that time the FOMC has continued its Maturity Extension Program with an additional $267 billion in sales of shorter-term Treasurys and buys of longer-term Treasury notes and bonds. The FOMC has held two more meetings at which communications policy has been thoroughly discussed.
Markets are anticipating that Bernanke will give an indication of more stimulus -- the focus is for a third round of large-scale asset purchases or so-called "QE3" -- as he did back on August 27, 2010 when the second Large-Scale Asset Purchase (LSAP) program was signaled. However, at that time the next FOMC meeting was over three weeks distant from the speech, and the FOMC was not scheduled to update its forecast until eight weeks later at the November 3 meeting.
This year, the FOMC meeting is a scant two weeks away and will include an update to the Fed's collective expectations for the economy. The Committee already upped the anticipation for more easing with its August 1 statement that switched to "as needed" from the "if appropriate" language of the June 20 statement. The change was consistent with FOMC statements during the period of the financial crisis in late 2008 and early 2009, and conveys the heightened sense of urgency regarding possible policy actions. The Chairman may not feel the need to re-do the Committee's work in this regard.
If Bernanke wants to de-emphasize the importance of his individual remarks, and elevate the collective nature of the decision-making, his Jackson Hole remarks could serve that purpose by directing attention to the next FOMC meeting. We also note that Bernanke and Vice Chair Janet Yellen have commented on several occasions that while a great deal of preparation goes into the FOMC meeting in terms of possible wordings for the statement and analysis of forecasts for the Districts and nation, no decision is final until the end of the meeting.
Between now and the start of the deliberations on September 12, the FOMC will get two closely-watched reports on the economy: the Beige Book at 14:00 ET on Wednesday, August 29, and the August employment data at 8:30 ET on Friday, September 7. If these show no substantive deterioration, the FOMC may opt to wait until there is a clearer case for more easing. After all, the MEP is still in place and will run through the end of 2012.
The other critical factor will be conditions in the eurozone, and the headwinds posed by market volatility associated with the sovereign debt crisis and economic recession. Should the situation in the global economy be more stable, there will be less reason for Bernanke to signal imminent action.
Bernanke is likely to reiterate the options the Fed has in providing more easing, and these are should follow along the lines mentioned in the July 31-August FOMC meeting minutes. We expect the Chairman will be anxious to allay any concerns that the Fed lacks the tools to provide more accommodation. In particular, he may reinforce that the Fed staff projections indicate that there is "substantial capacity" in the market for another large-scale asset purchase program without causing disruptions.
We will be curious if the references to exploring the Bank of England's "Funding for Lending Scheme" for "possible programs aimed at encouraging bank lending to households and firms" has resulted in any elevation of this option in the hierarchy of possible tools to be used. If it has, Bernanke could highlight it to reassure that the Fed does have options, and remains fully engaged in finding the right ones to address current economic conditions.
On balance, we think Bernanke will save the policy directives for the FOMC meeting while highlighting that the Committee is vigilant and flexible, and ready to act.
On the 'new' eve of the Republican Convention, it appears all is not well in the Romney-Ryan ranks. In what is quite a stunning admission, though not entirely surprising given his outspoken desire for a change to the status quo, the NY Times is reporting that Ron Paul does not fully endorse Romney for President. Mr. Paul, said convention planners had offered him an opportunity to speak under two conditions: that he deliver remarks vetted by the Romney campaign, and that he give a full-fledged endorsement of Mr. Romney. He declined. "It wouldn't be my speech," Mr. Paul said. "That would undo everything I’ve done in the last 30 years. I don’t fully endorse him for president." Whether this is Paul playing an admirable 'long-game' and/or standing by his libertarian roots (or angry at his apparent marginalization) is unclear but one thing is for sure; with the dominance of 'young' voters (seeking 'change'?) behind Ron Paul relative to 'old' voters with Romney, this rebuff will not help in the fight against TOTUS. As BigStory reports, Paul is telling his supporters to stand firm because "we will become the tent eventually!"
There is a glaring divide between the G10 and Emerging Market economies in terms of what monetary easing is priced in - and what is not. Specifically, as Citi notes below, traders 'expect' the US, Europe, and Canada all to be tightening (raising rates) within 18 months, while expectations are for Australia (and the rest of the China-reliant nations across Asia) to see notable easing in that period - and already priced in. Brazil is the standout as far as 'inflation' fighting rate rises just as Eastern Europe is priced for the most 'easing' of rates. It seems clear that not every stimulating headline has the same value with this much EM easing priced in already - and hope priced into DMs.
Developed Markets (how many bps are ST rates expected/priced-in to move)
Emerging Markets (how many bps are ST rates expected/priced-in to move)
Those who think that China's centrally-planned transition to the world's leading, fastest growing economy in the shortest time in world history, coupled with its attempt to shift from a mercantilist, export-driven economy, to one sporting the world's largest middle class is progressing smoothly and according to plan, especially as related to millions of overeducated young adults who are finding it impossible to find a job in China's big cities, and find their diplomas uselss in the small ones, are urged to watch the following documentary exposing "China's Broken Dreams." From Al Jazeera: "[The Chinese] people are discovering that society's resources and opportunities are increasingly concentrated in the hands of a few. People in the middle and lower strata of society are becoming increasingly marginalised and are finding that improving their lives is getting harder. [This imbalance could lead to] the rich getting richer and the poor poorer, the strong permanently strong and the weak permanently weak .... The biggest harm may not be in the gap between rich and poor itself, but the deterioration of the overall societal ecosystem." Translation: class war unlike anything seen even in America, where class war is the basis for the entire presidential campaign. Because unlike the US, "class war" in China will have a far more true to its name outcome.
From Al Jazeera:
Despite the country's rapid economic growth, many young Chinese are growing disillusioned as they struggle to find jobs.
After two decades of economic reform, per capita GDP has risen 13-fold, and average salaries in major cities are on par with those in many developed countries. The post-80s generation, the first to come of age in this era of opportunity, has been raised on a belief that if one can do well in school, graduate from a good university and work hard on his or her career, one can enjoy a measure of success.
Instead, many find themselves squeezed by skyrocketing housing costs, rising prices for basic necessities and family pressures. As a large percentage of the post-80s generation are only children, they alone will be expected to provide for their parents and older relatives.
As many as three million young Chinese professionals toil in slum-like conditions in cramped housing on the outskirts of big cities. They are known as 'ant tribes,' a term coined by scholar Lian Si, China's foremost researcher on post-80s graduates.
"They share every similarity with ants," writes Lian. "They live in colonies in cramped areas. They're intelligent and hardworking, yet anonymous and underpaid."
Li Zhirui from China's northeast is one of them. Home is an eight square metre space outside Beijing that costs 500 Chinese yuan per month, a quarter of his salary. He dreams of one day buying an apartment, but with average real estate prices in the capital soaring to more than 20,000 yuan per square metre, he could be in for a very long wait.
He has already lost his fiancée, who dumped him when he refused to buy a second-hand car and an engagement ring.
The experiences of Li and other 'ant tribes' resonate strongly with young Chinese and have spawned a popular song and a TV series called Struggle of the Ant Tribe.
But for some despair takes over. Suicide has become the biggest cause of death for Chinese between 15 and 34 years of age.
In a recent trend, some young graduates are deciding to flee the big cities and instead seek opportunity in smaller cities and towns. But there, too, they are frustrated, as they discover that good diplomas - and even ability - do not open doors. Local networks and family background do.
Leading Chinese sociologist Guo Yuhua calls this phenomenon of young Chinese "escaping and returning" an example of widespread disappointment that is spreading across China. She says people are bitter when they see their social status languishing in contrast to the "rise of a great and powerful nation".
"People are discovering that society's resources and opportunities are increasingly concentrated in the hands of a few. People in the middle and lower strata of society are becoming increasingly marginalised and are finding that improving their lives is getting harder," she says.
She warns this imbalance could lead to "the rich getting richer and the poor poorer, the strong permanently strong and the weak permanently weak .... The biggest harm may not be in the gap between rich and poor itself, but the deterioration of the overall societal ecosystem."