Here's my Top 10 links from around the Internet at 7 pm in association with NZ Mint.
I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
I'll pop the extras into the comment stream. See all previous Top 10s here.
My apologies for no Top 10 yesterday. I was off in Hamilton singing for my supper and here again in Auckland today. Nigel Farage is a hoot at #10.
1. Here's why the central banks had to act last night - European banks were finding it nigh on impossible to get hold of US dollars at reasonable prices.
See the chart below showing the cost for banks of swapping euros into US dollars to service their US dollar debts. Back to Lehman levels.
There were rumours one really big European bank was about to collapse.
That's why the US Federal Reserve and its central banking mates were forced to take desperate action overnight.
But it hasn't really solved the problems.
What appeared to be a liquidity issue is now a full blown solvency issue that needs much more than the quick fix delivered last night by the US Federal Reserve.
Here's Jill Treanor at the Guardian.
Capital Economics explains that eurozone banks have had trouble being able to get funds in dollars, which is why the Bank of England joined the Federal Reserve, the Bank of Japan, the ECB, the Bank of Canada and the Swiss National Bank in taking measures to make it easier for banks to obtain dollars.
The upshot is that banks have been charging each other more and more to turn their euros into dollars and that the rates have been reaching levels close to those when Lehman Brothers collapsed in September 2008. Hence central banks decided to act.
But, Capital Economics cautions:
"Welcomed as the news was, we do not think it signals a turning point in the crisis. After all the dollar funding in the eurozone is symptomatic of a broader liquidity squeeze. And even if banks in the eurozone have less of a liquidity problem on their hands today than in they did in late 2008, they have a greater solvency problem".
2. Who's left to bail out the governments - Nomura research head Jon Peace makes a good point about the latest twist in the crisis.
Jon Peace, head of European bank research at Nomura, said: "It is an evolution of the crisis from three years ago, when countries took on the risks of the banks. Back in 2008, there was a lender of last resort – countries bailed out banks. This time it is governments that need a lender of last resort – but there is no obvious lender of last resort."
While the massive bank bailouts of October 2008 – in the month after Lehman collapsed – worked for a while in shoring up banks, confidence is again ebbing , even though the banks are much stronger then they were three years ago. This time the problems for banks is not the holes ripped through their books by exposure to US sub-prime loans, but their exposure to the governments of the eurozone – which are in turn searching for their own bailouts.
Explaining why getting access to dollars funding is important, Peace said: "The French banks do a lot of dollar-based lending, but there's not a natural source of deposits so they do it by wholesale funding [borrowing huge sums on the international money markets]. But US money market funds have withdrawn their exposure to European banks because they are worried about the sovereign risk."
3. Keep an eye on Iran and Israel - Stuff keeps blowing up in Iran in unexplained ways that may well be linked to Mossad. Now rockets are being fired at Israel from Iran's mates in southern Lebanon.
This could all easily go pear-shaped in a big hurry.
Things keep blowing up in Iran. On Monday the big bang was in Isfahan, and the black smoke billowed from the direction of the nuclear plant on the edge of the city. More than 24 hours later, Iran's official news sites had taken down an initial report and photograph and were offering an array of conflicting accounts instead. But if it was not yet even known exactly what blew up, the conclusions being rushed to were plain enough: 1) that it was something either military, or atomic, or both, and 2) that Israel had somehow caused it to happen.
Support for this view arrived a few hours later in Israel's northern Galilee region, in the form of four 122-mm Katyusha rockets. The rockets, which caused no injuries, were launched from southern Lebanon, which is controlled by Hizballah, a client of Iran. If the timing was a coincidence, it was a nice-sized one: There's been no attack like it for more than two years.
"How many missiles have they prepared themselves for?" Iran's defense minister asked on Sunday, speaking of Israel. "10,000? 20,000? 50,000? 100,000, 150,000 or more?" Brig. Gen. Ahmad Vahidi made his remarks before 50,000 volunteer recruits at Bushehr, site of Iran's newly minted nuclear power reactor.
4. The last refuge to which a scoundrel clings - Patriotism. So goes the Bob Dylan lyric.
Now the Italians are so desperate to sell their government bonds they are appealing to the patriotism of the Italian people in a similar way to the Greeks, who launched an appeal to expat Greeks in America to buy Greek bonds. Those who bought them now face 60% plus haircuts. Silly buggers.
The Italian Banking Association is promoting “BTP-Day” today, with lenders waiving fees for clients who buy government bonds and bills known as BTPs and BOTs at branches. The initiative, originally proposed by a Tuscan businessman, will be repeated on Dec. 12.
“Italian savers may be bondholders of last resort as banks and institutional investors are reducing holdings of government bonds,” said Wolfram Mrowetz, chairman of investment firm Alisei SIM in Milan, in an interview.
Giuliano Melani, a 51-year old financial consultant in the Tuscan town of Quarrata, paid for a full-page advertisement in the Italian newspaper Corriere della Sera on Nov. 4, exhorting his fellow citizens to acquire government bonds to show that Italians “are one people, a great people.” He said taking part in “BTP Day” will show the foreigners that “we Italians are not afraid and believe in our country.”
5. Thinking about the Future - Reuters reports many large European corporates have started planning for the end of the Eurozone.
When Novo Nordisk's chief financial officer met marketing colleagues last Friday the conversation moved far beyond the usual discussion of sales and performance. Jesper Brandgaard asked a simple, far-reaching question: how would the firm set prices for two pivotal new insulin products if the euro collapsed?
The Danish firm, the world's biggest maker of insulin for the treatment of diabetes, sits outside the euro zone but sells into it. It's a question that is being echoed - in various forms - in the boardrooms of banks, brokerages, trading houses, law firms and the world's leading manufacturers.
"It's hard to make detailed plans but we need to think through how our pricing strategy would fare if there were suddenly a dismantling of the euro," Brandgaard told Reuters. "How do we avoid falling into a trap? This is the first time I've asked such a question. It's a topic that is increasingly on the radar."
6. A continent stares into the Abyss - Der Spiegel reports some economists in Germany are calling for the reintroduction of the Deutschemark on Day X.
I'm not kidding. They aren't either.
Here's what they're saying in one of Germany's most prominent news organisations. The chart below shows the looming bond auctions that could trigger all this grief.
Hans-Joachim Voth, an economic historian who teaches in Barcelona, feels that the euro's days are numbered. He considers it advisable for economically strong countries like Germany to withdraw from the euro, because, so he argues, "not every stupid economic idea has to be defended to the bitter end." In theory, says Voth, the upcoming Christmas holidays could be a good time to take this step, because, as he argues, it's important to take the markets by surprise.
Dirk Meyer, a professor at the Helmut Schmidt University in Hamburg, also argues that the Germans should take the initiative and leave the euro zone as quickly as possible. He has even come up with a concrete time frame. Under his scenario, it begins on a Monday, or "Day X." On the preceding weekend, the government will have issued the surprise order that banks remain closed on this Day X. The bank holiday is needed to incorporate all savings and checking accounts into the changeover.
The specific problems of the current U.S. economy—the drastic increase in unemployment and sluggish increase in output—overlay a tendency of much longer duration, a drastic and rapid increase in the inequality of income. Every economy of complexity produces an unequal distribution of the good things in life. But the period immediately following World War II showed a considerably increased equality of income compared with either the Great Depression or the previous period of relative prosperity.
Since the middle 1980s, this tendency has been reversed. In the United States, median family income (adjusted for size) has remained virtually constant since 1995, while per capita income has risen at about 2 percent per annum. The difference in income between college graduates and those with only high school degrees increased at a rapid rate, even during the period before 1990 when per capita income grew very slowly. Further, the proportion of the college-age population enrolled in college, which had been rising rapidly, stopped increasing and has remained the same for thirty years.
Clearly, the bulk of the gains from increased productivity went to a small group of upper-income recipients. Indeed, closer study has shown that the bulk of the increase went to the top 1 percent of income recipients and much of that to those in the top .1 percent.
The causes of this growing inequality are varied. There has been a steady attack on the use of the tax system as a means of equalizing income. Income and estate taxes were once the most directly effective factors in redistribution. The top rate in the federal income tax was over 90 percent in the 1950s and is about 35 percent today.
8. The hedge funds are in control - This anonymous letter posted on Reddit is apparently from a first year analyst at a hedge fund. He/she wrote this for Occupy Wall St.
Hard to know if he/she is real, but it's worth a read.
Hedge funds. These guys are basically the vehicles of choice for ultra-rich people to get into the financial markets, besides family offices and private wealth managers. What are hedge funds? They are funds that have a 1-5 million deposit minimum, cater to the mega-rich, and can invest in anything without regulatory restrictions, use leverage to pump up their exposure by 15x, and pretty much eat up a vast majority of the industry's profits.
These guys invest in EVERYTHING. Instruments you've heard of - stocks, bonds, forwards, futures, currencies, and instruments that you, me, or anyone else have never even heard of, much less know anything about: commodity future swaptions, FRA/OIS swaps, CLOs, exotic future options, p-notes, index/commodity/equity exposures, and a huge array of OTC (over-the-counter) instruments that no regular investor would ever have access to.
Why I bring this up: the financial markets are rigged. 99% of the investing public has access to services such as basic brokerages, 401k/IRA's, mutual funds, pension plans, etc. Some of these services, especially pension funds, will invest into hedge funds, who take an additional 2 and 20 (meaning 2% of assets plus 20% of capital gains).
What this means is that if you go any of the traditional retail routes, you are utterly screwed facing off against the hedge funds.
And here's the final bit:
What does this all mean? It means the hedge fund industry is making a gigantic proportion of the profits. The top .1% is earning nearly half of the profits in the industry, through not just hedge funds, but other similar vehicles.
The finance industry is a complete scam, designed to funnel money from the 99% investing public into the hands of the top .1%. Sure, some of you will make good money, but stastically, the rest of us will lose, and who is feeding off us? Hedge funds, and the .1%. You have better odds going to a casino and playing slots, the worst-paying game in the house, but still better than the stock market.
Also, the government is in bed with the financial industry. Tax loopholes give hedge funds and other top players the ability to write off losses and not pay taxes on gains for years at a time. For income they derive from the hedge fund (profits), they pay only 15%, rather than the 35% income tax charged to most people earning 80k and above. Meanwhile, you have to pay taxes for not just your own income but also capital gains.
9. How rich are the super rich? - Mother Jones has a great selection of charts on wealth inequality in America. Well worth a click.
10. Totally entertaining speech from Eurosceptic Euro MP Nigel Farage - He called in this video below for all the Eurocrats around him to be fired.
It seems to capture quite nicely the mood in Europe.
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