German Economics Minister Confirms Federal Reserve Active in FX Markets

Friday, May 28, 2010

As it needs the German Economics Minister to confirm what everybody had suspected anyway, I wonder if it will need a US counterpart to say the same about the ECB.
According to a Dow Jones report,

The U.S. Federal Reserve is also active in currency markets, German Economics Minister Rainer Bruederle said Friday.
His comments come on the heels of remarks made by his Swiss counterpart who said that the Swiss National Bank purchased euros to buttress the single currency.
"It is a regular procedure of central banks," to intervene in currency markets, Bruederle said. "It is not a secret," that central banks have a foreign exchange rate target, he added.
Bruederle said "eruptive" movements have to be avoided. He previously said that China holds 25 percent of its foreign exchange reserves in euros.
Recalling a central bank survey from 2006 it would be illogical for the Fed

CHART OF THE DAY: Banks Are Solely Responsible for Europe's Problems

Just in case there are still some die-hard folks out there - most likely members of the banking industry - who think this crisis does not stem from easy money handed out by irresponsible central banks to even more irresponsible commercial banks.
Bury it. Even Goldman Sachs finds the rough doubling of leverage in the last 3 decades an outstanding event, although it fails to draw any conclusions in its latest European portfolio strategy document, dated May 27, which displays this graph on page 8.

GRAPH: European banks have leveraged themselves to the hilt in parallel with the long-term trend of decreasing interest rates. Note that the process gained speed in 2002 when the ECB shifted into easy money mode like the Federal Reserve. Note that corporate leverage ex financials stayed flat. Chart courtesy Goldman Sachs (click to enlarge)

New Kitco DEM Page Lets Rumors About Germany Abandoning the Euro Fly

Wednesday, May 12, 2010

A web page of precious metals prices provider has sparked rumors that Germany will leave the Eurozone and reintroduce German Marks, sending gold to a new record of $1,244 and silver to a multi-year high of $19.64.
It is this half-ready page shown below that has created excitement as it lists precious metals in Deutschmark units.

German website had another market-sparkling comment from a forum participant who said has reintroduced a DEM option since about a week. Check it out here.
And there is still more material feeding the rumour. German leftist politician Gregor Gysi announced on TV that there may be an important announcement

Survey Shows Majority of Investors Distrusts ECB and Governments

Monday, May 10, 2010

A special survey of 600 professional investors in Europe conducted Monday afternoon arrived at the worrying result that a majority of 59% has little to no trust in neither the European Central Bank (ECB) nor the Eurozone governments, raising fears that the next sell-off may be just around the corner. published this brand new survey.
Here a teaser (click to enlarge):

The €750 Billion Package That Will NOT Rescue the Single Currency

A world wide web full with news on the €750 billion (roughly €2,500 per Eurozone inhabitant) rescue package for the Euro hammered out in a 14-hour meeting of EU finance ministers and agreed upon when Tokyo markets opened has failed to answer the most basic question: Where does the money come from except the taxpayers pockets?
These are the 2 key points of the EU package (pdf):

  • The EU Commission will fund a €60 billion programme whose payouts will be attached to stringent terms like that of the International Monetary Fund (IMF).
  • The Eurozone will guarantee another €440 billion in bailout money over the next 3 years on a pro-rata basis of the Eurozone members. 

There was no word from where this money will come from save for piling up more debts in the Eurozone.

CHART OF THE DAY: Dow Jones Industrials Average

Friday, May 07, 2010

The Dow Jones Industrials Average recorded the biggest intra-day point loss with a temporary minus of 998.50 points or almost 10% due to persisting market woes about Greece, bringing down websites like Bloomberg and Zerohedge, which fired post after post.

GRAPH: The Dow Jones Industrials plummeted 700 points in 20 minutes, only to regain 600 points in the following 20 minutes on Thursday. The chart does not display one candle but NYSE Euronext said there was no fast market. Click to enlarge. Chart courtesy of Yahoo.
Speculation about the reason for this biggest ultra short-term move ranged far and wide.

EXCLUSIVE: ECB Recommends Tight Limits on Greek Cash Transactions

Thursday, May 06, 2010

Listening to ECB President Jean-Claude Trichet who said default is not an option for Greece while the single currency attacked the $1.27 figure at the moment when he called it a safe store of value I cut my observations of the ECB council meeting here. Mr. Market seems to have a differing opinion. BTW, interest rates are on hold despite the latest uptick in inflation to 1.4%.
I stumbled upon this ECB legal document that runs to the contrary and strangely has found no media attention.
While promoting the Euro as a safe store of value the ECB opts for tight limits on cash transactions in Greece, limiting the role of cash Euros as a medium of exchange, one of the fundamental functions of a currency.
Stating the objective to limit tax evasion the ECB recommends that all business transactions above €3,000 and all consumer expenses above €1,500 Euros shall be paid for in all other forms than cash.
The most important excerpts from the document:

Heads Up: IMF and SNB Organize "High-Level Conference on International Monetary System"

Tuesday, May 04, 2010

One should not delete unread emails in times of monetary chaos. A joint announcement from the IMF and the Swiss National Bank announcing a "High-Level Conference on International Monetary System" from April 27 has gone unnoticed except for a brief entry in the Wall Street Journal and the Sydney Morning Herald.
It appears to be a major summit about the future of the current fiat money system of unbacked currencies.
The release in full:
The Swiss National Bank (SNB) and the International Monetary Fund (IMF) will jointly host a High-Level Conference on the International Monetary System in Zurich on May 11, 2010.
In the wake of the global crisis, this conference will provide an opportunity to exchange ideas on a number of related topics, including sources of instability in the international monetary system, improving the supply of reserve assets, dealing with volatile capital flows, and possible alternatives to countries’ accumulation of reserves as self-insurance against future crises. 

VIDEO: Bernanke Concurs With Ron Paul That Fed Monetizes Debt

Take 45 seconds to watch live history here as MSM did not report it. Having been preoccupied with the Eurozone crisis in the past weeks - which is far from over with Spain rumored so far to require €280 billion for its bailout - I missed out on this historic affirmation by Federal Reserve Chairman Ben Bernanke that he creates money out of thin air.
This historic moment happens from second 31 to second 45 and took place on April 14.

VIDEO: Congressman Ron Paul questioned Federal Reserve Chairman Ben Bernanke at the Joint Economic Committee hearing The Economic Outlook.
Here's the transcript of the most important part:
Ron Paul: "Well, where did you get the money? You created this money."
Bernanke nods in agreement.
Ron Paul: "So you did monetize debt, and that went into the banking system."
Bernanke nods in agreement.
Read more on "monetizing the debt" in this earlier post. has a good round-up on the money printing excesses of the Fed.

The PIIGS Web of Mutual Debt

Monday, May 03, 2010

Click to enlarge this table of mutual and external debts of the PIIGS countries and see at one glance that Greece was the smallest problem so far. I found this unsourced graph on Twitpic and cannot vouch for its accuracy. 

Bending Its Own Rules ECB Now Accepts All Greek Junk as Collateral

Following the downgrading of Greek government debt to junk status the European Central Bank (ECB) has done its part to keep Greek debt eligible as collateral for its liquidity providing operations by dropping all rating requirements.
This is a remarkable step as the ECB bends its own rules that stipulate only investment grade debt is eligible as collateral.
From the ECB:
The Governing Council of the European Central Bank (ECB) has decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the Greek government. This suspension will be maintained until further notice...
The suspension applies to all outstanding and new marketable debt instruments issued or guaranteed by the Greek government.
This means that the ECB will accept all Greek issues regardless of their rating. 

Bank Recapitalization and Interest Sensitivity Explained in 178 Words

Saturday, May 01, 2010

Bronte Capital Chief Investment Officer John Hempton recently came up with the most concise explanation how a Japanese-style bank recapitalization based on near-ZIRP (zero interest policy) can work. But raise the interest environment to higher levels and it's game over.
From John Hempton's email: 
Suppose you have an insolvent bank. Assets 100, liabilities 90 - but 30 of the assets are not worth ANYTHING. Further suppose rates are zero to fund the bank, 3 percent to lend, 1 percent of costs - spread after costs of 2%. Costs are on total assets (100) at all times.'' 
The insolvent bank will have interest revenue of 2.1 (3 percent of 70). It will have funding costs of zero (0% of 90). It will have operating costs of 1 (by assumption). 
Therefore it will make 1.1 in CASH PROFITS EACH YEAR. 
Run this bank for 20 years and it recapitalises. This happened in Japan. 

Wikinvest Wire