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By Tyler Durden

:

It looks like subprime derivatives on steroids: China hopes to bundle together billions of dollars worth of non-performing loans and eventually sell them to global investors Such a massive securitisation programme would represent the latest tactic in China’s campaign to lift one of the biggest shadows cast over its slowing economy -a debt pile that is as big as 230% of GDP. It would whittle back debts at Chinese banks and move some of the risk outside the domestic financial system.

According to official figures, such debts at the banks have reached Rmb1.27tn ($194bn), while analysts estimate the real number is likely to be many times higher. Chinese media has reported that the regulator has granted a total of Rmb50bn for the first wave of products. Demand for the scheme, however, is expected to be significantly more modest than supply. “How many global investors have been interested in the traditional [bad debt in China]?” asked one Hong Kong-based investor with experience buying distressed debt in Asia. “Not many.. is a more complicated version of this going to change that soon? No.”

This’ll be great, as great as the western approach to drowning in debt. Mind you, the Chinese haven’t even started talking about ‘recovery’ like we have, they’re still thinking -or propagandizing- that they’re on an ever upward trail. Well, they’re not. One of the early notes coming out of the People’s Congress was this: “China Says Will Keep Yuan Basically Stable Against Basket Of Currencies ..”

That’s not happening. They know it, we know it, and Kyle Bass knows it. Perhaps once the Congress is over, they’ll come clean? Hard to say. What’s certain is that global markets WILL force a substantial re-adjustment of the yuan, and there’s nothing Xi or the entire Communist Party can do to prevent it. And then, after a 30% readjustment, take another look at that dollar-denominated debt!

And they’ll have to cut many millions of jobs, and try to ‘pacify’ the newly unemployed, and deleverage the insane debt levels they’ve created, and find a way to explain to their people where it all went so wrong.

China no longer lives in a kids’ fantasy Toy Story.

…read more

Source: China: A 5-Year Plan And 50 Million Jobs Lost

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By Tyler Durden

The red flags initially attracted the attention of the European Central Bank (ECB), prompting an official inquiry that investors viewed as a flashing ‘sell signal.’ Shares of Italian banking companies lost more than 25% in the first several weeks of the year.

Though markets have pared losses in the last few weeks, March has brought renewed concern for the health of Italy’s financial sector. Adding more worries to fuel the fire, on Friday the ECB demanded that one such troubled Italian bank, Banca Carige SpA, provide new strategic plans and additional funding in order to bolster its balance sheet and meet supervisory requirements by the end of the month. The news sent bank shares on yet another swoon, prompting trading halts on several as the volatility triggered maximum loss ‘circuit breakers.’

A rock and a hard place

Initially, Italy proposed setting up a ‘bad bank’ solution, in which troubled institutions could off-load their NPL’s into a separate state backed entity that would manage the assets while insulating the sector at large from the damaging effects of non-performance. However, in an effort to protect taxpayers from socialized losses, new European Union rules now ban the use of state aid to bail out banks.

Instead of an overt ‘bail-out’, the most recent agreement Italy has reached with the EU constitutes a ‘bail-in’. In this agreement, banks will be allowed to cleanse their balance sheets by packaging the NPL’s and selling them to investors, along with enticing government guarantees for the least risky portions of the debt. The catch? The securities must be priced at market rates.

Mark-to-market rates for Italy’s NPL’s could be anywhere from 20%-50% below current listed value, representing steep losses for bondholders and uncomfortable write downs for the banks. This solution already resulted in such losses for bondholders in a 2015 ‘bail-in’ of four small Italian banks.

Those losses are not limited to financial institutions either. Rather, retail investors, or individual Italians, own significant portions of these debts as retirement savings. Citizens depending on these investments don’t have the luxury of financial engineering to make ends meet. Even the best ‘solution’ risks widespread financial suffering.

Italy is no Greece – it’s worse

Some have compared the risk of an escalating financial crisis in Italy to the seemingly perennial debt crisis in Greece that has ravaged European markets and tested European unity several times since 2008 as investors and EU members alike feared uncontrollable contagion. This has resulted in the multiple EU bail outs granted since then.

However, judging by the numbers it is clear that the financial risks posed by Italy are not comparable to Greece – they are far worse.

While Greece holds the top spot in the EU for the worst debt-to-GDP ratio, Italy comes in second place with a debt-to-GDP ratio greater than 132% according to Eurostat.

So what makes Italy so much worse? While Greece has more than once brought …read more

Source: Will Italian Banks Spark Another Financial Crisis?

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By Tyler Durden

Submitted by Howard Kunstler via Kunstler.com,

Beyond the Kubler-Ross maelstrom of denial, anger, depression, etc., besetting this spavined republic, lies the actual grief provoking it all — especially the shocking loss of national purpose embodied by the muppets and puppets onstage nightly vying to bring out the worst in us in an election season far from just silly. Judging from their demeanor in the so-called debates, the candidates seem not only sick of their opponents but of themselves, a fitting outcome perhaps in a nation that hates what it has become.

The moment that got me in Sunday night’s Democratic boasting contest, hosted by CNN, was Hillary crowing about the great achievement of Obamacare — getting thirty million uninsured Americans on some kind of health plan! The part she left out, of course, is that most of those plans have deductible ceilings in the multiple thousands of dollars, guaranteeing that the policy holder goes bankrupt if he/she seeks medical help. Who does she think she’s fooling, anyway? This sort of arrant lying is what drives millions into the camp of Trump.

Even valiant old Bernie muffs every opportunity to explain the death-grip that Wall Street crony politics has on this land: the US Department of Justice did nothing under six-plus years of Attorney General Eric Holder to prosecute criminal misconduct in banking. And then President Obama, who is ultimately responsible, did absolutely nothing to prompt that Attorney General into action or replace him with somebody who would act. Obama’s lame excuse back in the days when informed people were still wondering about this, was that the bankers had done nothing patently illegal enough to warrant investigation — a claim that was absurd on its face.

Obama didn’t do any better with the regulating agencies that are supposed to make criminal referrals to the Department of Justice, especially the Securities and Exchange Commission (SEC) charged with keeping financial markets honest. There was nothing that difficult about those criminal matters now fading in the nation’s memory: for instance, the bundled bonds (CDOs) of “non-performing” mortgages designed to pay off the issuers handsomely when they failed. A child of ten could have unpacked the Goldman Sachs Timberwolf bond caper. Eventually Goldman and others were slapped with mere fines that could be (and were) written off as the cost of doing business. What a difference it would have made if Lloyd Blankfein and a few hundred other bank executives were personally held accountable and sent to cool their heels in federal prison.

As the politicians are fond of saying, make no mistake: this was Barack Obama’s failure to act. Likewise, regarding the Citizens United Supreme Court’s decision that equated arrant corporate bribery of public officials with “free speech;” Mr. Obama (a constitutional lawyer by training) had a range of remedies at his disposal, foremostly working with the then-majority Democratic congressional leadership to legislate a new and clearer definition of so-far-alleged corporate “personhood,” its duties, obligations, and responsibilities to the public interest — and …read more

Source: The Birthing Of Trump’s America: The Swindlers Vs. The Swindled

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By Tyler Durden

Something strange happened on Friday: as a result of the 20% YTD surge in the price of gold and “surging demand”, BlackRock announced it had temporarily suspended the creation of new shares of its $7.8 billion gold Exchange Traded Product IAU “until additional shares are registered with the Securities and Exchange Commission.”

Today, Blackrock explained what happened: in a nutshell, as a result of a surge of investor buying of IAU between February 19, 2016 and March 3, 2016, the “Trust issued and sold a total of 24,900,000 Shares in excess of the total Shares registered.” Effectively, IAU was in violation of SEC rules after selling 25 million shares more than it had registered for. The temporary suspension also meant the ETP could not satisfy investor demand for gold on Friday as it was prohibited from creating new share units.

Blackrock called the failure to register earlier “inadvertent.”

To promptly remedy this non-compliance, BlackRock filed an S-3 statement this morning, registering another 300 million IAU shares,which as the chart below shows boosts its total eligible shares outstanding by nearly 50%.

The increase in shares brings the new eligible total far above the total Blackrock had available as of the gold price in 2011, and also above the last peak in IAU outstanding shares which peaked around 700 million.

This also means that there are no more structural limitations preventing IAU to buy as much gold as there is demand.

The filing can be found here, and the relevant language is below:

On March 20, 2015, the Trust filed an automatic shelf registration statement registering 120,000,000 Shares (the “Prior Shelf Registration Statement”). Between February 19, 2016 and March 3, 2016, the Trust issued and sold a total of 24,900,000 Shares in excess of the total Shares registered on its Prior Shelf Registration Statement (the “Excess Shares”). The failure to file a new automatic shelf registration statement of which this prospectus is a part before the Trust sold more than the Shares registered on the Prior Shelf Registration Statement was inadvertent. On March 3, 2016, the Trust became aware of the error and immediately suspended the issuance of additional Shares pending the filing of a new automatic shelf registration statement of which this prospectus is a part. The Excess Shares were not registered at the time of their initial sale, and may not qualify for an exemption from registration, under the Securities Act of 1933, as amended (the “Securities Act”). Authorized Participants and other investors who purchased Excess Shares could have rescission rights. If rescission rights are exercised by these investors, the Trust may be required to reacquire the Excess Shares at a price equal to the price originally paid for such Excess Shares, plus interest owed to the investor on such Excess Shares. Any such investors who no longer own the Excess Shares they acquired may have the right to collect damages from the Trust in lieu …read more

Source: BlackRock Can Buy Gold Again: IAU Suspension Lifted After 300 Million New Shares Registered

    

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By Phoenix Capital Research

I don’t trust this rally.

Few analysts realize that the sharpest, most aggressive rallies occur during bear markets. The reason for this is that during bear markets, investors tend to go short (borrow shares to bet on a collapse).

So when the market rallies even a little bit, it often will go absolutely vertical as these individuals panic and cover their shorts (which increases the buying).

Consider the Tech Bubble. When it burst, we had THREE monster rallies of 17%, 33% and 16% in just SIX months time!

Anyone who bought into these moves for the long-term ended up get crushed as the market soon rolled over and worked its way down. The below chart gives some perspective on just how much further stocks would fall relative to these traps.

Smart investors, however, used those rallies to prep for the next round of the drop. They didn’t get suckered into believing that it was the beginning of the next bull market.

They took action to prepare to protect their wealth from the bear market.

Smart investors are preparing now.

We just published a 21-page investment report titled Stock Market Crash Survival Guide.

In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.

We are giving away just 1,000 copies for FREE to the public.

To pick up yours, swing by:

https://www.phoenixcapitalmarketing.com/stockmarketcrash.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

…read more

Source: Is This Whole Rally Just One Big TRAP?

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By Tyler Durden

Now that Q4 EPS is almost in the history books with 494 S&P500 companies reporting, we can look at the numbers: blended 4Q EPS is $29.49 (-2.9% y/y) with GAAP EPS of $19.92. As DB admits, a 67% GAAP-to-non GAAP ratio is well below the normal ~90% ex. recessions, exacerbated by asset impairments and restructuring costs especially at Energy.

This is how DB shows this almost unprecedented divergence between GAAP and non-GAAP:

This is merely a recreation of

The chart below shows where the GAAP to non-GAAP divergence is most acute.

Ok, we get it: on a GAAP basis it is not a recession any more, it is a depression, just as that Houston CEO letter explained.

But what if we only look at adjusted, gimmicky non-GAAP? Even when looked at purely “pro forma”, things are bad. Recall that in the middle of 2015 when the full severity of the oil collapse was finally becoming apparent, the sellside was absolutely certain that the clouds would blow away by 2016, and as a result as recently as December 31, consensus expected Q1 EPS to post a modest 0.3% rise. That is not going to happen. Instead, as aof this moment, Q1 EPS is expected to collapse by a near record 8.0%, which would be the biggest annual decline since Q3 2009.

To all those saying “it’s all just energy”, we would say “yes… and 6 other sectors” as shown in the chart below. In fact, as of this moment, the only industries which are expected to post an EPS increase in Q1 are Telecom, Consumer Discretionary and Healthcare.

As Factset summarizes:

The estimated earnings decline for Q1 2016 is -8.0%. If this is the final earnings decline for the quarter, it will mark
the first time the index has seen four consecutive quarters of year-over-year declines in earnings since Q4 2008
through Q3 2009. It will also mark the largest year-over-year decline in earnings since Q3 2009 (-15.7%). Three
sectors are projected to report year-over-year growth in earnings, led by the Telecom Services and Consumer
Discretionary sectors. Seven sectors are projected to report a year-over-year decline in earnings, led by the Energy,
Materials, and Industrials sectors.

So four consecutive quarters of declining earnings, or two earnings recessions back to back: recall what JPM said last night: “periods of consecutive EPS contractions are often followed by
(or coincide with) economic recessions (~80% of the time over the past
~120 years).” What about periods of two consecutive earnings recessions?

Don’t answer that, because it gets worse:

During the first two months of Q1 2016, analysts lowered earnings estimates for companies in the S&P 500 for the
quarter. The Q1 …read more

Source: Non-GAAP Earnings Are About To Plunge The Most Since 2009; As For GAAP Don’ Even Ask…

    

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