GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - Citi Strategists Warn "WORLD ECONOMY SEEMS TRAPPED IN DEATH SPIRAL"; Nasdaq Shed 3% Amid Massive Tech Sell-Off; EU Stocks End Lower After Weak U.S. Jobs Number; Asia Ends Mixed, Nikkei Ends Off 5.9%; And Oil Falls In Volatile Trade!

February 5, 2016 - GLOBAL ECONOMY -  The global economy seems trapped in a "death spiral" that could lead to further weakness in oil prices, recession and a serious equity bear market, Citi strategists have warned.

Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.

"The world appears to be trapped in a circular reference death spiral," Citi strategists led by Jonathan Stubbs said in a report on Thursday.

"Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)... and repeat. Ad infinitum, this would lead to Oilmageddon, a 'significant and synchronized' global recession and a proper modern-day equity bear market."

Stubbs said that macro strategists at Citi forecast that the dollar would weaken in 2016 and that oil prices were likely bottoming, potentially providing some light at the end of the tunnel.

"The death spiral is in nobody's interest. Rational behavior, most likely, will prevail," he said in the report.

Crude oil prices have tumbled by around 70 percent since the middle of 2014, during which time the U.S. dollar has risen by around 20 percent against a basket of currencies.

The world economy grew by 3.1 percent in 2015 and is projected to accelerate to expand by 3.4 percent in 2016 and 3.6 percent in 2017, according to the International Monetary Fund. The forecast reflects expectations of gradual improvement in countries currently in economic distress, notably Brazil, Russia and some in the Middle East.

By contrast, Citi forecasts the world economy will grow by only 2.7 percent in 2016 having cut its outlook last month.

Overall, advanced economies are mostly making a modest recovery, while many emerging market and developing economies are under strain from the rebalancing of the Chinese economy, lower commodity prices and capital outflows.

Stubbs added that policymakers would likely attempt to "regain credibility" in the coming weeks and months.

"This is fundamental to avoiding a proper/full global recession and dangerous disorder across financial markets. The stakes are high, perhaps higher than they have ever been in the post-World War II era," he said.

Just 151,000 new jobs were created in January in the U.S., in the latest sign that the world's biggest economy is slowing. Economists are concerned about an industrial or manufacturing recession in the country, following some warnings from companies in earnings seasons and recent weak manufacturing activity and durable goods orders data.

However, some analysts say markets are overegging the prospect of a global slump.

"Many markets are now pricing in a significant probability of recession and when we talk about recession, we're talking particularly about a U.S. recession. Do you think that is likely or not? To me, the odds are too high; the market is pricing too high a probability," Myles Bradshaw, the head of global aggregate fixed income at Amundi, told CNBC this week.

Nasdaq sheds 3% amid massive tech sell-off

U.S. equities closed sharply lower on Friday amid a massive drop in technology stocks and as mixed U.S. employment data raised concerns the Federal Reserve may raise rates this year.

"It started with the uncertainty of the Fed and with the weak tech earnings ... it seems to have spread to the broader market," said JJ Kinahan, chief strategist at TD Ameritrade. "I think people are taking any unnecessary risk off before the weekend."

The three major indexes opened slightly lower, with the Dow Jones industrial average briefly trying for gains, but closed 211 points lower. McDonald's and Home Depot weighed the most on the index.

The S&P 500 index closed 1.85 lower percent, as information technology fell more than 3.35 percent. The Nasdaq composite fell 3.25 percent, as Apple and the iShares

Nasdaq Biotechnology ETF (IBB) dropped 2.67 percent and 3.19 percent, respectively.

Also weighing on the index were Amazon and Facebook, which closed down 6.36 percent and 5.81 percent, respectively.

Source: FactSet

LinkedIn shares also tanked 43.63 percent after posting weak guidance on their quarterly results. "I think 60 percent [of the market sell-off] is that the Fed was going to raise rates," said Kim Forrest, senior equity analyst at Fort Pitt Capital. "The other 40 percent is LinkedIn. The quarter was good, but the guidance was not."

"Some of the big tech stocks have had weak earnings," said Randy Frederick, managing director of trading and derivatives at Charles Schwab. "One stock is not a bellwether for one sector, but when you get multiple stocks with negative earnings reports, then you start seeing [a sector] go lower."

Investors also digested data showing the U.S. economy added 151,000 jobs in January, according to the Bureau of Labor Statistics. Economists were expecting a gain of 190,000. The unemployment rate, however, fell to 4.9 percent from 5.0 percent, while wages rose 0.5 percent.

"There was something for the bulls and something for the bears. It depends on which part of the statistics you want to focus on," said Bruce McCain, chief investment strategist at Key Private Bank.

"This is a classic example of why the headline looks worse than the actual report," said Art Hogan, chief market strategist at Wunderlich Securities. "The key components of this report were positive."

He noted that average hourly earnings, average hours worked and labor force participation all rose last month.

"It's all about that wage number, and that the 151,000 number is still indicative of growth," said Peter Cardillo, chief market economist at First Standard Financial. "[Wages] could be a sticking point for the Fed."

The jobs report raised the odds of another Federal Reserve rate hike, said Arne Espe, senior portfolio manager at USAA Investments.

"We're back to pricing in a 50 percent chance for a rate hike in December," he said. " We were at less than 50 percent before the report."

The central bank hiked interest rates for the first time in nine years in December. Recent U.S. economic data has been mixed and, coupled with falling oil prices, have contributed to rising fears of a recession.

European stocks end lower after weak US jobs number

European markets finished lower on Friday after the latest U.S. jobs data showed a slowdown in employment in January.

The pan-European STOXX 600 ended around 0.9 percent lower, with all major bourses in negative territory as investors digested weaker-than-expected U.S. employment data.

Germany's DAX closed down around 1.1 percent, while the French CAC and London's FTSE finished down 0.9 percent and 0.7 percent respectively.

Nonfarm payrolls increased by a seasonally adjusted 151,000 in January, the U.S. Labor Department said, falling short of analysts' expectations. The figures are likely to influence the hiking path the Federal Reserve takes on interest rates.

"Signs of a slowdown in hiring, still-weak annual pay growth and disappointing survey data, all pitched alongside an adverse financial market environment so far this year, reduce the odds of the Fed hiking rates again in March," chief economist at Markit, Chris Williamson, said.
U.S. equities fell on Friday after the jobs data was out.

Anglo American ended sharply higher, closing up over 10 percent as metal prices saw a slight rebound. Fellow miner Lonmin also saw strong gains.

On the earnings front, ArcelorMittal announced it would launch a $3 billion capital increase after its fourth-quarter net loss widened from a year ago amid falling steel prices, sending shares down more than 5 percent.

Nikkei extends losses for fifth day, down 5.9% for the week

Kazuhiro Nogi | AFP | Getty Images

Asian markets came under pressure on Friday, closing mixed despite a positive finish on Wall Street overnight, as a newly weaker dollar brought fresh concerns.

"The U.S. dollar basket has lost 3.2 percent since the close on Friday and 2.3 percent in two days, with Wednesday being the worst single day in [the dollar index] DXY in seven years," Evan Lucas, market strategist at spreadbetter IG, said in a morning note.

The dollar index, where the dollar is weighted against a basket of currencies, was at 96.58.

Lucas added, "The 36 percent increase in the U.S. dollar in 12 months is clearly putting a strain on U.S. economic growth; U.S. competitiveness has been squeezed and the Fed is isolated as the only central bank to be 'normalizing' monetary policy."

In Japan, the Nikkei extended losses for the fifth day in a row, with the index closing down 225.40 points, or 1.32 percent, at 16,819.59 on the back of a stronger yen. The index has shed 5.85 percent since Monday. The dollar-yen pair fell to the 116-handle, at 116.82 in afternoon trade; earlier this week, the pair was trading above 120.

Lucas said, "[The Bank of Japan's] negative rates have done nothing to slow the appreciation of the Japanese yen since last week. [BOJ Governor Haruhiko] Kuroda and Co.'s attempts to drive export competitiveness and more investment diversification from Japan in the current environment is a tough ask."

Mark Matthews from Bank Julius Baer was more succinct: "Japanese stocks like it when the dollar rises, and don't like it when the dollar falls," he said in a morning note.

Japanese exporters closed mostly down, with Toyota, Nissan and Honda seeing losses between 1.88 and 3.29 percent. Toyota reported an operating profit of 722 billion yen ($6.18 billion) in the October-December period, down 5.3 percent on-year, after market close. The Japanese carmaker also reported a net profit of 1.89 trillion yen, up 9.2 percent, on year, for the first nine months of the fiscal year ending on December 31, 2015.

Down Under, Australia's ASX 200 closed down 4.15 points, or 0.08 percent, at 4,976.20, with the financial sector losing 0.70 percent. Energy and materials sectors finished in positive territory, buoyed by gains in commodities.

Across the Korean Strait, the Kospi retraced early losses to close flat at 1,917.79.

In China, indexes gave up their marginal gains on the final trading day ahead of the Lunar New Year, when markets will remain closed for a week starting February 8. The Shanghai composite closed down 17.07 points, or 0.61 percent, at 2,763.94, while the Shenzhen composite fell 20.36 points, or 1.15 percent, to 1,750.70. Hong Kong's Hang Seng index was up 0.62 percent.

- CNBC News.

GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - EU On The Brink Of "TERRIFYING CRISIS" As Five Of Europe's Biggest Banks Are In Danger, Warns Expert!

Are Europe's banks heading into meltdown?

February 4, 2016 - EUROPE - Some of Europe’s biggest banks are on the brink for a crisis that echoes the 2008 meltdown, a finance expert warned today, as fears over the global economy escalate.

Deutsche Bank, Credit Suisse, Santander, Barclays and RBS are among the stocks that are falling sharply sending shockwaves through the financial world, according to former hedge fund manager and ex Goldman Sachs employee Raoul Pal.

At the height of the financial disaster in 2008, the Government was forced to step in and rescue Lloyds Banks and RBS from liquidation, while the European Central Bank gave huge bailouts to Spain, Greece, Portugal and Italy.

Last month, the head of the European Central Bank Mario Draghi raised expectations that it could undergo yet more Quantitative Easing in March – in effect printing billions of pounds worth of money – in the face of ongoing economic fears.

France last month declared a state of economic crisis adding to worries about the stability of the euro-zone.

Regulations now require banks in Europe to hold more cash as a buffer against market shocks, but Mr Pal said balance sheets haven’t been cleaned up and warned negative interest rates are hitting the firms hard.

The pundit’s comments come as a number of bank shares plunged to their lowest levels for years.

The Chancellor George Osborne has even been forced to push back Lloyds Bank’s retail share sale after stock value plunged too far.

Mr Ral told CNBC news: “I look at the big long-term share charts of them, and I think this looks very terrifying indeed. I have not seen anything like this for a long time.

“Negative rates are something the banks can banks cannot deal with and that’s being priced into share prices quickly.”

Fears over low oil prices and China’s slowing economy, tumbling stock values at the start of the year were largely driven by investors selling off oil and mining companies.

But now panic has spread into other sectors.

And Mr Pal said banking issues could be an even bigger worry than China’s growth slowdown and cheap oil. - Express.

GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - HUNDREDS Of High Street Banks To Close Down In Towns Across Britain As Banks Abandon Their Promise To Stay Open; ALMOST 900 Branches Are Now At Risk Of Closure!

Closures: Barclays has outlined plans to close 90 branches across the UK by the end of the year

February 15, 2015 - BRITAIN - More than 500 bank branches are expected to disappear from Britain's High Street's this year forcing residents of many communities to travel miles to their nearest bank.

All the major lenders have ditched a commitment to keep open 'the last bank in town', putting almost 900 branches in smaller towns and villages at risk of closure.

Last night one MP described this as a 'bitter blow' for households' for many communities, with campaigners warning that the elderly and small businesses will be hardest hit.

Efforts by business secretary Vince Cable to force to banks resurrect this commitment have been rejected by the lenders, which claim that many branches are not busy enough to keep open as more customers switch online.

Instead Mr Cable has been trying to reach a compromise with lenders, including strict protocols for banks wanting to close a branch – including the requirement to ensure there are alternatives nearby.

Proposals, contained in a seven page document leaked at the weekend, include the requirement for banks to give customers three months' notice if they local branch is set to be closed.

But it states that 'decisions on branch closures are ultimately commercial decisions'.

Experts have warned the loss of the last bank in town pledge - which was introduced in 2008 – puts 878 branches around the country at risk.

In total more than 500 branches are expected to be shut during the course of the year. This would break the record of 479 set last year, which compared to just 195 in 2013.

Leaving town: NatWest has already shut or are about to shut 33 bank branches this year

Derek French from the Campaign for Community Banking said efforts by the coalition to beef up protection for customers 'have achieved very little'.

He said: 'It looks pretty bleak. The closure of branches across the country creates serious inconvenience for those who can least cope, such as elderly customers and hard pressed small businesses who rely heavily on their local bank'.

He added: 'This will also have a knock-on effect on local businesses on the High Street, who will also have less customers'.

Latest figures show that the 142 branches have either been closed by the major banks or are scheduled to do so by the end of March. Of these 52 are the last branch in town.

NatWest - part of state backed Royal Bank of Scotland - has been the biggest culprit, shutting 33 of these, with Barclays closing 15.

Barclays has also outlined plans to close another 90 branches by the end of the year.

Some 8,000 residents of Keynworth in Nottinghamshire will be left without a bank when NatWest closes its branch next month.

St Agnes in Cornwall will lose its last branch when Barclays pulls down the shutters for the last time on Friday.

Chris Leslie, shadow chief secretary to the Treasury said: 'Many neighbourhoods will have already lost pubs and Post Offices.

Sometimes their bank can be the last remaining lifeline to access savings and pay bills– particularly for those who don't want to do business over the internet.'

Shutting shop: In total more than 500 branches are expected to be shut during the course of the year

He added: 'The banks already have responsibility for harming lots of public services which have had their budgets cut because of the financial crash. For them to now be responsible for the death of the High Street would be another bitter blow.'

The bosses of all the major banks have justified the closure of branches by stressing the soaring popularity of digital banking – both online and on smart phones.

They have also argued it is not viable to keep certain branches open because so few customers use them.

RBS boss Ross McEwan last year described its busiest branch as the 7:01 from Reading to Paddington, with over 167,000 customers using its mobile banking app between 7am and 8am on their commute to work every day.

The issue rose up the political agenda last October when Lloyds became the last High Street lender to ditch a promise not to close a branch if it was the last branch in town.

It also announced plans to shut around 200 outlets over the next three years and open 50.

This prompted Mr Cable to write to bank bosses urging them to reinstate this commitment.

As part of the compromise agreement, banks are expected to offer more of their services – particularly for small business customers – via the Post Office's network of 11,500 branches.

A spokesman for the British Bankers' Association said: 'Closing a branch is not a decision that is taken lightly. The protocol that we are developing with the support of Government, consumer and business groups will ensure that provisions are put in place so that customers are still able to access banking services in their local area even if their nearest branch is closed.' - Daily Mail.

GLOBAL ECONOMIC MELTDOWN: Precursors To A Global Financial Collapse - Citigroup Fails Federal Reserve's Stress Test As Goldman Sachs Group, Bank Of America Alter Plans!

March 27, 2014 - UNITED STATES - Citigroup Inc.’s capital plan was among five that failed Federal Reserve stress tests, while Bank of America Corp. won approval for its first dividend increase since the financial crisis.

A customer uses an automated teller machine (ATM) inside of a Citibank bank branch on Park Avenue in New York.
Photographer: Craig Warga/Bloomberg

Lenders announced more than $60 billion of dividends and stock buybacks after the Fed approved capital plans for 25 of the 30 banks in its annual exam. Citigroup, as well as U.S. units of Royal Bank of Scotland Group Plc, HSBC Holdings Plc and Banco Santander SA, failed because of concerns about the quality of their processes, the central bank said yesterday in a statement. Zions Bancorporation failed after its capital fell below Fed minimums in a simulation of a severe economic slump.

The results show lenders may still face obstacles to boosting dividends and buybacks even as regulators say the firms have doubled their capital since the first public stress test in 2009. The Fed is increasing scrutiny of the industry’s controls and planning processes as concerns about capital levels wane.

Bigger Payout
Banks in this year’s test collectively received approval to pay out about 60 percent of their estimated net income during the next four quarters, according to a Fed official. That ratio is closer to the 69 percent that lenders were returning to shareholders in 2005 before the crisis, according to data from Bloomberg Industries.

Citigroup was denied in its attempt to quintuple its dividend to 5 cents a quarter and put in place a $6.4 billion buyback. Bank of America and Goldman Sachs Group Inc. each had to cut their planned capital return to gain approval.

Citigroup, which last year asked for the least capital return among the five largest U.S. banks, would have passed this year’s test on quantitative grounds alone. It had a 6.5 percent Tier 1 common ratio, above the Fed’s 5 percent minimum.

Multiple Defects
The central bank found defects in Citigroup’s planning practices that included areas the Fed flagged before. The regulator expressed concern with the New York-based company’s ability to project losses in “material parts of its global operations” and to reflect all business exposures in its internal stress test.

“Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but when viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup’s capital planning process,” the Fed said of the third-largest U.S. bank.

Mike Corbat, the bank’s chief executive officer, said in a statement that Citigroup is “deeply disappointed” by the rejection and will “work closely with the Fed to better understand their concerns so that we can bring our capital planning process in line with their expectations.” The timing of any resubmission hasn’t been decided, he said.

Mexico Fraud
The Fed made no mention of the bank’s discovery of a $400 million loan fraud last month at its Mexico unit, which had stirred speculation that regulators might fault Citigroup’s controls. Corbat has vowed that the people involved will be held accountable.

Citigroup shares fell 5.2 percent to $47.55 in extended trading yesterday in New York. It’s the second time the Fed has failed one of the bank’s capital plans. The last rejection came in 2012, when Vikram Pandit was the CEO, and the defeat played a role in Pandit’s ouster later that year, a person with knowledge of the board’s discussions said at the time.

“It came as a surprise,” said Michael Scanlon, managing director at Manulife Asset Management in Boston, who helps oversee $3 billion, including shares of Citigroup. “It can be a significant ding to confidence when these companies have failed in the past. Sometimes it’s short-lived and they resolve the issues, resubmit and move forward, and ultimately that is what Citigroup is going to have to do.”

Clambering Back
Two of the main gauges in the Fed’s test were the Tier 1 common ratio and the leverage ratio. The first measures a bank’s core equity, made up of common shares and retained earnings, divided by its total assets adjusted for risk using global banking guidelines. The leverage ratio makes no distinction among risks and is considered a stricter standard by some regulators.

Bank of America and Goldman Sachs saw each of their Tier 1 leverage ratios drop to 3.9 percent in their original capital plans, below the required 4 percent. Both firms lowered their requests and were approved, meaning they don’t have to resubmit.

The two firms asked for too much in buybacks and dividends after their own internal stress tests showed better performance than in the central bank’s exam. New York-based Goldman Sachs predicted its Tier 1 common ratio would be about 3.8 percentage points stronger than the Fed estimated in a worst-case scenario. The gap for Bank of America was 2.7 percentage points.

Moynihan’s Quest
Bank of America, ranked second by assets, raised its quarterly payout to 5 cents from 1 cent after the Fed’s decision and authorized a $4 billion stock buyback. The increase is a victory for CEO Brian T. Moynihan, who has pressed to raise the payout from the token level that prevailed since the financial crisis.

The Fed blocked plans in 2011 for an increase by the Charlotte, North Carolina-based company, which didn’t ask for anything the following year and won permission for a $5 billion stock buyback last year.

Goldman Sachs said yesterday that its capital plan “provides flexibility,” without saying what it seeks to pay out to shareholders.

Projected losses for the 30 banks under a scenario of deep recession would total $366 billion over nine quarters, the Fed said last week. The aggregate Tier 1 common capital ratio would fall from an actual 11.5 percent in the third quarter of 2013 to a minimum of 7.6 percent, before accounting for capital plans.

Stronger System
“The banking system is much better capitalized at this point in time compared to where it was in 2009,” Sameer Gokhale, an analyst at Janney Montgomery Scott LLC, said in a Bloomberg Television interview with Carol Massar. “The risk that you see large-scale bank failures has diminished significantly.”

JPMorgan Chase & Co., the U.S. biggest lender by assets, had its capital plan ratified as it maintained a Tier 1 common ratio of 5.5 percent, a half a percentage point above the minimum. Last year, approval for the New York-based bank came with an order to resubmit the plan to fix qualitative weaknesses. The quarterly dividend will rise to 40 cents a share from 38 cents, and the company authorized a $6.5 billion stock buyback, according to a bank statement.

The Tier 1 common ratio at Wells Fargo & Co., the biggest U.S. home lender, was 6.1 percent, while Morgan Stanley’s was 5.9 percent. Wells Fargo boosted its dividend 5 cents to 35 cents a quarter. Morgan Stanley doubled its quarterly payout to 10 cents and announced a $1 billion buyback.

Zions’ Plan
Zions, the Salt Lake City-based bank that had a 4.4 percent Tier 1 common ratio in the test, said before yesterday’s results were announced that it planned to resubmit its capital plan.

The Fed cited Santander Holdings USA Inc., the U.S. unit of Madrid-based Santander, for “widespread and significant deficiencies” across the firm’s processes. The central bank also faulted HSBC North America Holdings Inc. and RBS Citizens Financial Group Inc. for estimates of revenue and losses in the test. The rejection means the lenders won’t be able to increase dividends to their European parent companies, freezing them at current levels, according to a Fed official.

The dividend raises will boost yields closer to the norms that prevailed before the financial crisis, when the stocks were favored by income-oriented investors. The average yield for the 24-company KBW Bank Index stood at 4.9 percent at the end of 2007. It’s now under 2 percent.

The $60 billion of payouts includes dividends that were already being paid in addition to increases and new repurchase plans.

Yields Improve
JPMorgan’s increase boosted its yield to about 2.7 percent annually based on yesterday’s close. Its payout ratio -- dividends plus buybacks -- equals about 56 percent of earnings over the next four quarters, according to figures from the banks and estimates from Stifel Financial Corp.’s KBW unit. That’s up from 48 percent in the last four quarters, said KBW, which made its estimates before stress-test results were announced.

Bank of America’s payout ratio climbed to about 39 percent from 34 percent, bringing the dividend yield to 1.2 percent. U.S. Bancorp’s payout jumped to about 70 percent from 59 percent, and the yield would be 2.3 percent.

SunTrust Banks Inc. doubled its dividend yield to 2 percent, according to data compiled by Bloomberg. Discover Financial Services boosted its yield to 1.7 percent from 1.4 percent, while American Express Co.’s climbed to 1.2 percent from 1 percent. - Bloomberg.

GLOBAL ECONOMIC MELTDOWN: United States Heading For A Total Financial Collapse, Systemic Failure And Apocalyptic Demise - Federal Reserve Stress Test Sees $501 BILLION In Losses At Biggest Banks; Numerous Warnings Of A Black-Swan Crisis With A 99.9% Risk Of A 2014 Financial Crash; And British Think Tank Predicts Financial Catastrophe For United States!

March 20, 2014 - GLOBAL ECONOMY -  If the economic worst happens—the worst being defined as a deep recession in the United States, steep declines in home prices, and recessions in the euro area as well as Japan—30 major banks in the U.S. would lose a total of $501 billion dollars over nine quarters, according to the latest round of stress testing from the Federal Reserve.

(TIMOTHY CLARY/AFP/Getty Images)

That's compared with $355 billion in the slightly-less-scary "adverse" scenario laid out by the Fed. The central bank noted, as usual, that the "severely adverse" and slightly-less-scary "adverse" scenarios it tests are "not forecasts, but rather hypothetical scenarios designed to assess the strength of banking organizations and their resilience to an adverse economic environment." The Fed released its actual economic forecasts on Wednesday, and sees moderate growth on the horizon.

This is the fourth year the Fed has done stress tests on the country's biggest financial institutions. It looked at 30 institutions this year, up from 18 in previous years. Just one, the Salt Lake City-based Zions Bancorp, wouldn't meet the Fed's minimum standards for capital in a worst-case scenario.

"The largest banking institutions in the United States are collectively better positioned to continue to lend to households and businesses and to meet their financial commitments in an extremely severe economic downturn than they were five years ago," the Fed said in a statement. - National Journal.


WATCH:  Charlie McGrath: Facing Apocalyptic Demise - An American Tragedy.

Warnings Of A Black-Swan Crisis With A 99.9% Risk Of A 2014 Financial Crash

Global risks are accelerating. This is our fourth major poll update of industry leaders: A critical review of their warnings from early last year when we first predicted a 87% risk of a crash: Bernanke’s Fed saw an “unsustainable bubble” … Gross: “credit supernova” … Gundlach: “kaboom ahead” … Ellis: “Don’t own bonds” … Shilling: “shocker” … Roubini: “Prepare for perfect storm” … Shiller: “Irrational exuberance is back” … Schiff: “Doubling down” on “doomsday” prediction … InvestmentNews’ warning 90,000 advisers: “tick, tick … boom!”

A few weeks later the crash risk was up to 98%. Then a dramatic preholiday uptick in investor sentiment. America’s collective unconscious tired of negativity after a Halloween headline: “Economic guillotine dead ahead.” A week later, 2014 became the “Year of the Boom.” Bank of America’s chief strategist screamed: “Bet on the bulls now.” The Great Gatsby spirit was celebrating the holidays: “Even old grumpy Dr. Doom, celeb economist Nouriel Roubini, began humming a happy tune all over television: “A global recovery is going to occur, get into equities.”

What really happened? Fed politics. Short-term, Larry Summers withdrew as a candidate for the Fed chairman’s job. Dark cloud lifted as Janet Yellen become the pick. Wall Street cheered, Bernanke’s easy-money printing presses would not screw up their year-end bonuses. Plus Main Street was mentally exhausted, tired of the bad news, relentless political drama. We needed a holiday break.

By Thanksgiving, “irrational exuberance” was accelerating in full holiday tilt: Headline: “Shiller’s hot P/Es will power a roaring bull till 2017,” and 2014 got branded the “Katy Perry market!” A week later, a Thanksgiving headline added: “10 reasons to be a bull in 2014.”

But long term? What’s really ahead for America in 2014? Warning, something bigger is hiding in the deep shadows of our collective brain. At a recent lunch with an old friend, one of the world’s more successful commodities traders, he confirmed that “something” was dead ahead. But not just another brief statistical shift in sentiment. Not a medium-term volatility shift. America, the world, are in a historic transition, a paradigm shift, a mysterious upheaval that few will grasp till it moves further along.

Dark road dead ahead: Yellen, Gross, GOP, off-center, all tested
More losses? How bad? Worse than 2000 and 2008? Yes. Wall Street, Main Street, Washington, the global economy, will all be knocked off-center. Traders are focusing on St. Patrick’s Day for guidance, below S&P 1,850, Dow 16,400, with a downturn accelerating after a macroeconomic news event in mid-April. For Wall Street’s short-term thinkers, all easy to dismiss, they make money on the action, up or down.

But this trader’s track-record says listen. His predictions fit our polls. The underlying reason is simple: Yellen’s policy is to keep printing cheap money. Remember last summer: Bernanke still in power? Wall Street feared Summers would hurt bonuses. Gross screamed, “QE must end.” Yet market kept rising. Pimco lost. Gross was off-center. His partner Mohamed El Erian left. Gross’s confusion was just one of many signs of a fundamentally flawed monetary policy dating back to Greenspan and Reaganomics

What’s ahead is even bigger: A black swan. Unpredictable. A macroeconomic catastrophe in China, Russia? Something politically dramatic, like the fall of the Berlin Wall? Oil wars? What do you see? Dismiss? Comment: Will 2014 continue the bull? Correction? Bear? The “big one” predicted for last year? Finally coming? Our poll resembles the one we reported on from 2004 to 2008, summarized shortly before the collapse.

To help you, here are highlights we reported over the last year. Read, comment, what do you see ahead? A critical mass of macroeconomic triggers that could accelerate a downturn, recession, something we’ll deny, never hear, till too late:

Gary Shilling: 42% decline in S&P … and global recession
“With a global recession depressing corporate revenues, unsustainable profit margins and currency translation losses spawned by a robust dollar.” In early January Shilling saw “S&P 500 operating earnings … a quarter below Wall Street consensus. Throw in a bear market P/E low of 10 and the S&P 500 Index drops to 800, a 42% decline.”

Bill Gross: Credit supernova dead ahead
In February, Gross warned of a “credit supernova.” Pimco has $2 trillion at risk if the Fed’s cheap money explodes, brings down the economy. Worse, “investment banking, which only a decade ago promoted small-business development … now is dominated by leveraged speculation and the Ponzi finance.”

Nouriel Roubini: Global collapse, prepare for perfect storm
Roubini on Slate: “Sooner or later, another ugly fight” over debt, and markets get “spooked.” Any one trend “would be enough to stall the global economy, tip it into recession.”

InvestmentNews: Bond crash coming, “Tick, Tick … Boom!”
InvestmentNews March front page was so overwhelming, you could hear sirens flashing, warning in huge bold type: “Tick, tick … boom!” Their readers, 90,000 advisers, trust INews forecasts. Warning: Millions of investors have “no idea what’s about to happen.”

Gary Shilling: Grand shocker will trigger new crash
Long-time Forbes columnist again warned of a “grand disconnect” driving “stocks around the world while the zeal for yield, amidst low interest rates … suggests an expanding bubble.” Shilling saw a black swan, a grand “shocker” coming.

David Stockman: Get out of market now and hide in cash
“Stop the Fed from micromanaging the economy,” said Stockman in March: “No more cheap money, debt buybacks, investing in private companies.” Restore “Fed’s original mission: to provide liquidity in times of crisis … get out of the markets, hide out in cash.”

Charlie Ellis: Advice to long-term investors, don’t own bonds
Back in April the author of the classic “Winning the Loser’s Game: Timeless Strategies for Successful Investing” said: “The best piece of advice I could give long-term investors today is don’t own bonds. And if you do own them … move out of them.”

Jeffrey Gundlach: Bond guru sees ‘Kaboom’ ahead’
“Kaboom ahead,” said Bloomberg about Doubleline Capital’s CEO. Real damage yet to come, an “ominous third phase” whose impact will “far exceed the damage of 2008.”He’s buying hard assets, “sitting on cash” waiting to scoop up deals at “fire-sale” prices.

Gary Shilling: Expands on 9 signs global GDP will fall near zero
Shilling predicted “another eight years of slow growth of about 2% in real GDP per year.” Plus nine megatrends slowing global growth to near zero over the next generation.

Bill Gross: Warning, the 30-year bond bull market ended on April 29
Bonds started dropping in late 2012. Gross made it official here, the 30-year bull market was dead . His Pimco firm had capitalized on the run, build a $2 trillion portfolio. Losing.

Societe Generale strategist: ‘Bubble with no name’ near popping
In April bank strategist Kit Juckes warns we’re all trapped in the fourth megabubble fueled by the Fed since the rise of conservative economics, the “Bubble With No Name Yet.” And “it’s close to popping, like the Asian, dot-com and credit crashes.”

Peter Schiff: Doubles down on his doomsday prediction
Euro Pacific Capital CEO Peter Schiff, author of “The Real Crash: America’s Coming Bankruptcy,” is “not backing away from doomsday predictions” wrote MarketWatch’s Greg Robb. A week earlier Schiff warned: “I am 100% confident the crisis that we’re going to will be much worse than the one we had in 2008.” Yes, 100%.

Federal Reserve Board: Unsustainable bubble in stocks, bonds
Fed’s Advisory Council’s May meeting: Members expressed “strong concerns over the Fed’s low-interest-rate policies and its bond-purchase program, which they say could trigger unmanageable inflation and an ‘unsustainable bubble’.”

Terry Burnham: Lizard brains, denial, devastating decline
In July, former hedge fund manager and author of “Mean Markets and Lizard Brains” predicted: We’ll see “Dow 5,000 before we see Dow 20,000.”

Robert Shiller: Bubbles forever, irrational exuberance is back
Millions of investors were searching for the elusive “new, new normal,” something better than today’s heart-pounding uncertainties. In July Shiller’s “Bubbles Forever” warned that  “irrational exuberance” was back in America. - Wealthy Debates.

Collapse And Systemic Failure At All Levels Coming To U.S. - Dmitry Orlov

Dmitry Orlov is a Russian blogger who writes about the parallel between the U.S and the USSR.  Orlov lived through the financial collapse of the Soviet Union in the early 1990’s, and he thinks the U.S. is on the same trajectory.  Orlov contends, “The trajectory is defined by this sort of incompetent militarism where more and more money results in bigger and bigger military fiascos around the world and less and less of actual foreign policy that can be pursued or articulated.  There are massive levels of corruption.  The amount of money that is being stolen by the U.S. Government and its various appropriations processes is now in the trillions of dollars a year.  Runaway debt, the United States now has a level of debt that is un-repayable.  All we’re waiting for is interest rates to go across the magic threshold of 3% and the entire budget of the country explodes.  There are also all types of other tendencies that point in the direction of collapse and systemic failure at all levels.” 

So, how close are we to collapse or system failure?  Orlov contends, “I am pretty sure that anyone who makes a prediction when the collapse will happen is wrong.  Nobody can say when it will happen.  It’s the same as saying a bridge that is structurally deficient; you don’t know when a truck is going to fall through into the river below. . . . You can be chronically sick for a long time, and then one day, you go into a coma or your heart stops.  You cannot predict what day that will happen.  Orlov does say, “The United States right now, from my point of view and the point of view from observers from around the world, is on suicide watch.  It’s a country that is going to self-destruct at some point in the near future.”  

On the Ukraine crisis, Orlov thinks, “The Crimea referendum was the first legal way to find out what the people wanted to do.  The turnout was remarkable, and they voted overwhelmingly to rejoin Russia, to become part of Russia once again.  The interesting thing here is it was not just the Russians that voted to join Russia but the Ukrainians in Crimea, which makes a sizable part of the population voted to join Russia. . . Ukraine is composed of sort of a no man’s land in the West and then Russian territories in the East. . . .  If that trend holds, you are basically left with this insolvent nugget of nothingness, and it will be up to the international community to decide what to do with these people.  They are right now marching around Kiev with baseball bats and going into government offices and beating up members of local government and installing their own members.  They are basically running amok.  They don’t even have the support of the Ukrainian military at this point.  So, it will be a mop-up operation against these neo-fascists that are running amok.”  Orlov goes on to say, “In Washington, in the Obama Administration and in the Kerry State Department, we have absolutely breathtaking levels of incompetence. 

These people really don’t know what they’re doing and are dangerous at any speed; and everywhere else, we have this follow the incompetent leader thing taking place, and it’s really, really frightening because the incompetents are leading the world to a really dangerous place.” 
Orlov goes on to say, “What are these people doing trash talking the Russians? What would these people do without Russia? How would they get out of earth’s orbit and visit the international space station? Who would negotiate international deals with Syria and Iran because all they can do is blunder and lose face.” Russia doesn’t need the United States for anything. The United States is the most dispensable country on earth.”

On possible war between Ukraine and Russia, Orlov contends, “They are not going to fight because the Ukraine military is part of the Russian military. There really isn’t any opposition. The Ukrainian military will decide what to do in a few days, and then they will inform the Russians, and after that, maybe they will inform their own government. Maybe they will just go into the government offices and just round them up. Last I heard, 60% of Ukrainian military accepted Russian passports already. The remaining parts are being shipped out to the mainland. That is happening peacefully. So, there isn’t going to be any fight. The really important point is the Ukrainian military all over Ukraine does not support the government in Kiev. They are withholding support, and what they really want is to join the Russian military. . . . The best thing Russia can do is sit back and relax and let this work out. I don’t think the government in Kiev has any legs.” - USAWatchDog.

WATCH:  Orlov on U.S. financial collapse and the Ukraine crisis.

British Think Tank Predicts Financial Catastrophe For United States

Entitled "The Government Debt Iceberg," the latest report from The Institute of Economic Affairs (IEA) in London was meant primarily for British eyes, but there's enough in there to concern Americans worried about how the United States will make good on its promises. Researched and written by Jagadeesh Gokhale, a senior fellow at the Cato Institute, the report claims that the problem facing both the U.K. and the United States is the same: making promises without making provisions to fulfill them.

If a private business made a promise to a customer to be fulfilled over time, it would book that promise as a liability and make present plans to fulfill it. Not so the government. Gokhale says that governments use “backward-looking” financials — measuring only what has already been spent in the past — with little if any regard for, and certainly no strategy to pay for, promises made to be fulfilled in the future.

At present the U.S. government owes debtors, both private and public, foreign and domestic, more than $17 trillion, an amount about equal to the entire output of the American economy in one year. Put another way, it owes more than four times the total revenues taken in by that government in one year.

But, according to Gokhale, this greatly underestimates the real unfunded liabilities of the government, by a factor of seven. Taking into account future promises, the government’s debt is closer to $120 trillion.

Gokhale put the problem into perspective:

Western governments have developed unfunded social insurance programmes where retiree benefits are paid for from the taxes of the working-age population.

That means that an ageing population leads to rising expenditures that cannot be covered without increasing taxes on the young.

Politicians have known about population ageing for around 50 years but [have] ignored the problems it will create.

The solutions are going to be painful. He estimates that if the federal government were all of a sudden to come to its senses and begin to do real-world accounting for the promises politicians have made over the past decades, income taxes would have to double. Conversely, in order to balance the books, those promises would need to be cut in half.

Philip Booth, IEA’s program director, wrote: "We have never been in a situation like this before. It’s quite possible that we will not find our way through without serious social breakdown and/or mass emigration of the most mobile and productive people."

Gokhale offers unlikely solutions. Countries can try to inflate their way out of those promises, reducing the future value of them to recipients. But, he says, "This is unlikely. Future pay-as-you-go social insurance obligations are generally price index-linked … and health care involves the provision of a set of services [that cost more over time]."

Nor is it likely that the economy can grow its way out of the burden. Economies already weakened by the Great Recession and heavily laden with regulatory demands and mandates and rules just won’t be robust enough to generate sufficient additional tax revenues to pay the elderly. The impasse is predictable and probably unsurmountable. Writes Gokhale:

In the United States, for example, entitlement programme beneficiaries who paid payroll taxes while working feel a strong moral and legal entitlement to retirement, survivor, health and other benefits….

They possess growing political clout to maintain those benefits as promised.

With little chance for higher taxes to pass muster with current workers, and no chance for significant cuts in benefits likely to be acceptable to retirees, what about the iceberg that Gokhale uses as a title for his report? When will the ship of state hit it? What then?

All good questions, none of which Gokhale answers. He thinks the first step is to force the government accounting office to begin issuing realistic projections about the true state of affairs about those unfunded liabilities.

An insight into answers to some of those questions was offered by the change of heart and mind that has occurred over the last 15 years by one economic commentator of the current scene: Dr. Gary North. Back in 2000, North wrote a review of Gray Dawn, written by Peter G. Peterson, then chairman of the Council on Foreign Relations. In his book Peterson explored the coming wave of Baby Boomers, which was likely to overwhelm the government with claims for benefits paid for during their working years. Peterson used the same analogy — an iceberg — that Gokhale used to describe what was coming nearly 15 years ago:

The major economies of the world are on a collision course toward a huge, as-yet-unseen iceberg: global aging.

Increased longevity is a blessing but it carries with it costs and questions few countries wish to deal with.

This looming demographic challenge may become the transcendent issue of the twenty-first century.

In his review of Gray Dawn, North said:

The Federal Reserve System will create the money, thereby creating mass inflation, or else Congress will move up the retirement age, year by year, stiffing the geezers.

The government-guaranteed retirement myth will end….

I’m age 58. That’s me.

Today North has changed his tune. In noting the report from IEA, North said it was just one more report signifying nothing, that ignorance and diffidence by politicians and reticence on the part of taxpayers to do anything substantial about the problem will continue into the foreseeable future. North referred to his conversation with Peterson back in 2000:

When Pete Peterson wrote Gray Dawn in 1999, he talked about this attitude. He was then the chairman of the Council on Foreign Relations. He could get in to see any major politician on earth. He said that every national leader he had spoken with over the previous decade was aware of the actuarial reality that faced his or her nation. Without exception, all of them refused to go public with this information.

With little incentive to change, nothing will. Bondholders are happy to hold U.S. treasury securities, despite receiving precious little to offset the risk of bankruptcy. Credit rating agencies are happy to continue giving those securities high ratings for their low risk of default. Taxpayers grumble about paying taxes and have little interest in seeing them rise in order to “balance the books.” Geezers are adamant in their claims to “their” benefits, despite many of them knowing that their contributions in past years were long spent elsewhere by the government. Administration after administration continues to offer expanded welfare programs with little thought about how to pay for them. Inflation numbers remain muted. Life goes on.

As North put it, reflecting his change in attitude towards the problem over the last 15 years:

The IEA is simply publishing an updated version of a report it could have published in 1980, but with different numbers. Nothing will change….

The IEA in five years can issue another report with new — larger — numbers.

This is precisely the attitude that will assure that nothing will be done before the ship of state hits the iceberg. We must realize that, despite the fact that national finances are already in desperate shape, we are only in the beginning stages of the retirement trend of the Baby Boomers, and they will continue to retire en masse for nearly 20 more years. Instead, politicians need to be replaced with statesmen who do see the future calamity coming and begin to change course accordingly. - The New American.

THE AGE OF OBAMA & CHILDHOOD'S END: Precursors To The End Of The U.S. Corporation And The Collapse Of The FAILED White Supremacy Paradigm - Food Banks Are Now Bracing For A Run On Supplies, “Panicking” Over Demand Following Welfare Cut; And Fed Gives Banks New Dire Scenarios For 2014 Stress Tests!

November 04, 2013 - UNITED STATES - Food banks across the country, stretched thin in the aftermath of the recession, are bracing for more people coming through their doors in the wake of cuts to the federal food stamp program.

Food Banks Brace For A Run On Supplies.

Food stamp benefits to 47 million Americans were cut starting Friday as a temporary boost to the federal program comes to an end without new funding from a deadlocked Congress.

Under the program, known formally as the Supplemental Nutrition Assistance Program, or SNAP, a family of four that gets $668 per month in benefits will find that amount cut by $36.

"It may not sound like a lot but to a person like me, it is," says Annie Crisp, 30, a single mother of two girls in Lancaster, Ohio. "It's not just a number."

She says she received a little less than $550 a month in food stamps and now will receive $497. Crisp, a babysitter who brings home about $830 a month, says the food stamps help her buy her family fresh fruits, vegetables and meat.

Crisp worries now that she may end up trying to supplement her family's groceries by going to a food bank or cutting into her electric or gas money for the month. The cut, she says, also means she will have to buy more canned fruits and vegetables, forgoing her daughters' favorite fruit, kiwi, and buying packaged meat.

Volunteers gather food at the New Hampshire Food Bank in Manchester, N.H., on Oct. 1, 2013, to be
delivered around the state.(Photo: Jim Cole, AP)

"Our network is already overburdened with a a tremendous increase in need," says Maura Daly, a Feeding America spokeswoman.

Lisa Hamler-Fugitt, executive director of the Ohio Association of Foodbanks, says the cuts will hurt more than 1.8 million Ohioans. "This is taking food off the plate and out of the mouths of our most vulnerable friends and neighbors," she says.

She says seniors, children, people with disabilities and veterans will be among the groups hardest hit by the cuts because they are the groups most reliant on food stamps.

The saving grace, she says, is that the holiday season is approaching in November and December, the time of year when most food banks receive more than half of their donations during the year. The flip side is that more people turn to food banks for help during that time.

Michael Flood, CEO of the Los Angeles Regional Food Bank, says the full impact is still too soon to tell, but he says the cuts are immediate, which means that the 656 agencies that run pantries and soup kitchens in his county may start to see more people in the next few weeks. The problem, he says, is that food banks will not have sufficient food to meet a great demand.

Volunteers at St. Ignatius food pantry restock items as Larry Bossom, left, 41, who lost his job a few month ago,
visits the facility Friday, in Chicago.(Photo: M. Spencer Green, AP)

He says agencies will do one of two things when their food supply runs low: They will serve a set number of people and cut off the line when they run out of food baskets or they will put less food in the baskets so they can make more of them.

Diana Stanley, CEO of the Lord's Place, which runs job and housing programs for the homeless in West Palm Beach, Fla., says the clients her agency work with do not have any discretionary income. Even the smallest cuts can cause major upheaval in their lives, she says.

"The food stamps help as our families move into independence," she says. "So these cuts are scary for us." She says more than 80% of the 250 people a day the agency works with receive food stamps.

SNAP, which benefits one in seven Americans, is administered by the Department of Agriculture and is authorized in a five-year omnibus farm bill covering all agricultural programs. Congress is currently debating the bill, which has additional cuts to the program totaling up to $40 billion. A cut that size, say advocates, such as Hamler-Fugitt and Flood, would be devastating. - USA Today.

Food Banks “Panicking” Over Demand Following Welfare Cut.

Volunteers working for food banks are “panicking” over the demand they are likely to face later this month from Americans on food stamps who have seen their benefits slashed.

From today, $5 billion will be wiped off the Supplemental Nutrition Assistance Program as a result of a planned stimulus withdrawal. Almost 50 million Americans who are supported by the program, 21 million of them added to the rolls since 2008, will suffer an average loss of $36 dollars a month, which equates to a deficit of about one week of meals per month.

The impact of the cut won’t really begin to be felt until three weeks into the month of November since that’s when most people have typically exhausted their food stamp credit.

According to Margaret Purvis, the CEO of the largest food bank in America, members of her Food Bank for New York City organization, are “panicking” over the decrease in benefits, fearing a rush of hungry Americans

“We’re telling everyone to make sure that you are prepared for longer lines,” Purvis told NBC News.


WATCH: Families brace for cuts to food stamp program.

Purvis invoked the threat of the food stamp cut causing unrest earlier this week when she told Salon.com, “If you look across the world, riots always begin typically the same way: when people cannot afford to eat food.”

Her comments were echoed by Jim Weill, president of the Food Research and Action Center, who stated, “It’s going to send people into a charitable system that’s already overwhelmed and screaming for help itself.”

A bipartisan group of Democrats and Republicans voted to end the stimulus program that paid for the temporary food stamp increase, preferring to spend the money on education and school nutrition programs.

The cut won’t just affect those who are unemployed since over half of food stamp recipients have jobs but don’t make enough money to be able to pay all their bills and cover groceries.

“It’s always, ‘I’ve got to get something for my kids.’ They’re not coming in and asking for snacks or this or that. They’re asking for things like milk and cereal,” said Purvis, adding that parents are struggling to feed their children breakfast.

The cuts “will be close to catastrophic for many people,” Ross Fraser, a spokesman for Feeding America, the nation’s largest domestic hunger-relief charity, told CBS News.

As we saw earlier this month, a glitch in the system which temporarily halted EBT purchases for just a few hours led to looting and mini-riots at several Walmart stores.

Reacting to the downtime, food stamp recipients warned that if the glitch was to re-occur it would lead to Rodney King-style riots, a reference to the 1992 L.A. riots which resulted in 53 deaths, 2,000 injuries and over $1 billion dollars in property damages.

Fox News’ Neil Cavuto suggested that the Department of Homeland Security’s recent $80 million dollar outlay on armed guards to protect government buildings in upstate New York was related to potential food stamp riots.

As we reported on Wednesday, the DHS has also purchased half a million dollars worth of fully automatic pepper spray launchers and projectiles that are designed to be used during riot control situations. - Info Wars.

Fed Gives Banks New Dire Scenarios For 2014 Stress Tests.

The six banks with large trading operations -- JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp.,
Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co. -- will be required to test how their
portfolios would perform against a global shock to financial markets. Photographer: Scott Eells/Bloomberg

Lenders including JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) will have to show they can survive the demise of a trading partner or a plunge in value of high-risk business loans in the 2014 version of U.S. stress tests.

The scenarios for the annual tests, outlined by the Federal Reserve in a statement yesterday, reflect some of the most pressing threats seen by regulators as they gauge the ability of the U.S. financial system to withstand economic shocks. Bankers will have to show what would happen to the value of leveraged loans they hold, the impact of another housing bust and how they’d fare if a firm that owes them substantial sums collapses.

The test was designed in part to build resiliency against what some see as emerging asset bubbles, said a Fed official who spoke on a conference call with reporters. The counterparty failure test aims to prevent a repeat of the 2008 crisis, when distress at Lehman Brothers Holdings Inc. and American International Group Inc. threatened to destroy their biggest trading partners.

Counterparty credit risk “has been a very big concern since the crisis,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc., a Washington regulatory research firm whose clients include the world’s largest banks. “This is an intervening supervisory step while the broader rules are pending.”

The Fed is using the tests -- based on hypothetical adverse conditions and not forecasts -- to encourage the 30 biggest banks to build capital cushions against economic turmoil. Twelve banks will be subject to the capital review for the first time.

Global Shock

The six banks with large trading operations -- JPMorgan, Citigroup, Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co. (WFC) -- will be required to test how their portfolios would perform against a global shock to financial markets. Details of that scenario will be released “soon,” the central bank said. New York-based JPMorgan is the biggest U.S. bank by assets, followed by Charlotte, North Carolina-based Bank of America and New York-based Citigroup.

Those six banks, as well as Bank of New York Mellon Corp. and State Street Corp. (STT), also will have to test against a scenario in which one of their counterparties experiences an “instantaneous and unexpected” default. Previous tests focused merely on incremental defaults as the economy eroded, a Fed official said on the conference call.

Weak Support

The test shows Fed officials remain concerned that banks might still rely too heavily on a single counterparty to hedge potential losses, a practice that contributed to the 2008 financial crisis.

In the “adverse” scenario, banks will be tested against global flight from long-term debt that pushes the U.S. into a recession, with unemployment rising to 9.25 percent. The yield on the U.S. 10-year Treasury note jumps to 5.75 percent by the end of 2014, and corporate bond and mortgage rates also rise.

In the Fed’s “severely adverse” scenario, the jobless rate peaks at 11.25 percent, stocks fall almost 50 percent and U.S. housing prices slide 25 percent, while the euro area sinks into recession. Developing economies in Asia also experience a “sharp slowdown,” the Fed said.
The Fed said the larger drop in U.S. house prices in this year’s severely adverse scenario is “particularly relevant for states or metropolitan statistical areas that have experienced brisk gains in house prices over the past year.”

Wider Spreads

The wider corporate borrowing spreads featured in both tests are “intended to represent a corresponding widening in spreads across all corporate borrowing rating tiers and instruments, particularly those instruments -- such as high-yield corporate bonds and leveraged loans -- that are at present experiencing particularly narrow spreads,” the Fed said.

Top banking regulators in the U.S. are recommending lenders strengthen underwriting standards for leveraged corporate loans as borrowing of the high-risk debt approaches levels not seen since before the financial crisis, nine people with knowledge of the matter said last month.

Some bankers and economists have said stresses may emerge when the central bank decides to end its current economic stimulus program that has kept rates near historic lows. The program involves buying $85 billion a month in bonds to suppress borrowing costs. Speculation about the timing earlier this year sent interest rates soaring in a matter of weeks.

“They seem to be avoiding the biggest risks in the stress scenarios,” said Chris Whalen, managing director at Carrington Investment Services LLC in Greenwich, Connecticut. “The Fed itself has created this interest-rate risk by bringing rates down to zero, so maybe that’s why it’s not able to stress too much.”

Bubble Trouble

Morgan Stanley (MS) Chief Executive Officer James Gorman, 55, said yesterday he doesn’t see evidence of market bubbles developing and that investors should celebrate when the Fed begins to taper its support program because it will signal the economy is healthy.

Gorman, whose New York-based company runs the world’s largest brokerage, was responding to remarks by BlackRock Inc. CEO Laurence D. Fink, 61, who said Oct. 29 that the Fed’s effort to boost the economy by holding down interest rates has fueled “bubble-like markets.” His firm is the world’s biggest money manager.

Banks have argued in past years that they can mitigate risks in their business deals by purchasing protection, such as credit-default swaps, from counterparties.

AIG’s Collapse

In the years leading up to the 2008 crisis, financial firms bought protection from AIG, the New York-based insurer, allowing them to subtract the CDS on their books from their reported subprime mortgage-debt holdings because losses would theoretically be covered by AIG.

When prices of mortgage securities started falling in 2008, the contracts required AIG to post more collateral to its CDS counterparties. The demands drained AIG’s cash, and the U.S. government took over the company when it was hours away from bankruptcy.

If AIG had collapsed, the protection that its clients had counted upon for their mortgage portfolios would have disappeared, leading to billions of dollars in losses and perhaps a cascade of bank failures.

The Fed, seeking to reduce the chance that one failing company would topple others, proposed in December 2011 to cap how much counterparty credit risk a bank could have with any systemically important trading partner. The limit would be 10 percent of regulatory capital.

Lobbying Limbo

The proposal has been stuck in limbo without being finalized after heavy lobbying by banks. JPMorgan, Citigroup and Morgan Stanley were among lenders arguing that the limit was poorly constructed, overstated risk and would restrain the economy. It could cut U.S. economic growth and destroy 300,000 jobs, New York-based Goldman Sachs warned last year.

“The regulators have been looking for a way to get counterparty risk into the scenarios,” said Mark Levonian, a former senior deputy comptroller at the Office of the Comptroller of the Currency. Levonian, now a managing director at the consulting firm Promontory Financial Group LLC in Washington, said the stress tests also show regulators’ concern that “recent price gains in some regional housing markets might not hold up under stress.”

Companies will have until the first week of January to submit their capital plans, and the results will be released in March.

Capital Increases

The 18 bank holding companies tested previously have increased their aggregate Tier 1 common capital to $836 billion in the second quarter of 2013 from $392 billion in the first quarter of 2009, according to Fed data. Their Tier 1 common ratio, which compares capital to risk-weighted assets, has more than doubled to a weighted average of 11.1 percent from 5.3 percent, the Fed said.

The eight banks with more complicated scenarios have been through the Fed’s stress test and capital-planning process before, as have Ally Financial Inc. (ALLY), American Express Co. (AXP), BB&T Corp. (BBT), Capital One Financial Corp. (COF), Fifth Third Bancorp (FITB), KeyCorp (KEY), PNC Financial Services Group Inc., Regions Financial Corp. (RF), SunTrust Banks Inc. (STI) and U.S. Bancorp.

Twelve banks will be participating in the process for the first time. Those banks are BMO Financial Corp., BBVA Compass Bancshares, Inc., Comerica Inc. (CMA), Discover Financial Services (DFS), HSBC North America Holdings Inc., Huntington Bancshares Inc., M&T Bank Corp. (MTB), Northern Trust Corp. (NTRS), RBS Citizens Financial Group, Inc., Santander Holdings USA, Inc., UnionBanCal Corp., and Zions Bancorp. - Bloomberg.

GLOBAL ECONOMIC MELTDOWN: Precursors To The Total Collapse Of The White Supremacy Paradigm - France Forces Stores To Close Early, As Unemployment Reaches Record High!

October 07, 2013 - FRANCE - The French like to refer to the Champs Elysées in Paris as "the most beautiful avenue in the world," and 300,000 people stroll up and down it every day to see for themselves, many of them tourists looking to shop. No surprise, then, to find that retailers from Nike to LVMH are willing to pay premium rents for space on the avenue, which runs in a straight line from the Place de la Concorde up to the triumphal arch at Etoile.

Just don't try to buy anything in the evening. This week a Paris court of appeal ordered the cosmetics chain Sephora to close its flagship store on the avenue at 9 p.m., rather than staying open until midnight during the week and until 1 a.m. on Fridays and Saturdays. It was the latest ruling over store-closing hours that has already forced several other big name retailers in Paris both on and off the avenue to close early, including Apple, France's Monoprix and the Japanese clothing retailer Uniqlo. Two other stores on the Champs Elysées, Abercrombie and Fitch and perfumer Marionnaud, are also facing legal action.

France has a raft of regulations governing shopping, and its labor unions ensure that they are strictly enforced. As well as strict limits on opening and closing hours, the rules only allow sales during certain periods of the year, price promotions are circumscribed, loss leaders are illegal, store sizes are limited and even the types of shops allowed to open up are regulated. The Swedish clothing retailer H&M fought a long legal battle against the Paris city authorities before it won permission in 2008 to open on the Champs Elysées; City Hall vetoed the plan on the grounds that it was one clothing store too many, and would change the character of the avenue. The issue was finally decided in H&M's favor by the Conseil d'Etat, the nation's highest administrative court.

For the most part, these rules just provoke a Gallic shrug in France itself. But at a time when the national economy remains stuck in a rut and unemployment continues to rise, this latest ruling on Sephora has struck a raw nerve. The case was brought by a consortium of labor unions, which has been zealous in its attempts to have the store-closing hour law enforced, arguing that it needs to protect workers from unscrupulous owners who force them to work antisocial hours. But that logic is patently untrue in this case.

The cosmetics chain reckons it does about 20 percent of its business after 9 p.m., and the 50 sales staff who work the late shift do so voluntarily — and are paid an hourly rate that is 25 percent higher than the day shift. Many of them are students or part-time workers, and they have publicly expressed their indignation about being put out of work by labor unions. The judge refused to take into consideration a petition they presented to the court, saying the case was a matter of public order, so now they are taking their campaign online, including with a Facebook page. Sephora says it will appeal the decision.

Political reaction has been swift. Pierre Lellouche, a member of parliament for Paris whose constituency includes the Champs Elysées, called the regulations "suicidal," and said it was "scandalous in our country, where the unemployment rate is above 10 percent of the active population, that unions should fight against jobs, and even more worrying that the law should be on their side." The national employers association has called for the laws to be changed. And an association of store owners on the Champs Elysées has worried publicly about wealthy tourists going elsewhere to shop, including London, where there are far fewer barriers to their ability to spend money.

It's not clear whether this case might turn out to be a tipping point in favor of consumers. What is certain, however, is that France remains wedded to highly regimented forms of business that are hard to change, and which place protection of the status quo far ahead of the interests of consumers and the economy as a whole. While there is a French anti-trust commission charged with promoting greater competition, it is relatively weak and overshadowed by a more powerful and much larger sister agency that enforces the regulations. And France's code of labor legislation, with its 981 articles, is about four times the volume of that of neighboring Germany, itself no slouch when it comes to protecting workers' rights.

Two big department stores near the Paris Opera, Galeries Lafayette and Printemps, both very popular with tourists, have calculated that they could increase their revenues by at least $200 million per year and employ an additional 1,000 full-time staff if they were allowed to open more often on Sunday. Unlike the Champs Elysées stores, which have a legal exemption to open on Sundays because they are in zones classified as highly touristic, the two department stores are only allowed to open on five Sundays per year.


WATCH: Euroscepticism on rise in France amid demand to boost economy.

Retailing regulation is the most visible, but many other consumer-oriented businesses are also subject to rigidly-enforced rules. Taxis, hairdressers, public notaries and many others are governed by "obsolete regulation," according to an official 2008 report on ways to open up the French economy, written by Jacques Attali, a writer, consultant and former top government official, who argued that it was time to blow up the rules and liberate producers and consumers alike in order to create jobs and give a boost to the economy. Among other things, he recommended eliminating a 1973 rule that limits the numbers of bars with alcohol licenses; enabling hairdressers with five years experience to open a salon without having to pass a special exam; dumping a quota system that limits the number of pharmacies, and breaking a taxi monopoly in Paris that restricts the number of cabs in the French capital and can make it hard to find one at peak hours or when it's raining.

Cab drivers immediately staged a protest that blocked streets for hours, and the government responded by shelving any reform plans. That sounded the death knell for the Attali report more generally.

So far, President François Hollande and his socialist government have shown no signs of wanting to change the status quo. To do so would mean taking on the labor unions, a core constituency. But when jobs and growth are so obviously at stake, letting people buy lipstick at midnight seems a small price to pay. - Yahoo.

GLOBAL ECONOMIC CONTAGION: The Euro Zone Crisis - Prime Minister David Cameron Considers Extra £25 Billion of Welfare Cuts!

David Cameron is considering ordering billions of pounds in extra welfare cuts proposed in a confidential Downing Street policy paper, The Daily Telegraph can disclose. The plans include a new crackdown on housing benefit and a “mark two” system of universal credit to help push people off benefits back into full-time, rather than part-time, work. There are also understood to be a range of measures to encourage more women, particularly single mothers, to return to work.

The proposals have been drawn up in a policy paper for the Prime Minister presented by Steve Hilton, the outgoing Number Ten director of implementation, and Iain Duncan Smith, the Work and Pensions Secretary. Mr Hilton, who left Downing Street yesterday for a post at a Californian university is understood to believe that another £25 billion can be cut from the welfare budget although this level of saving is regarded as “absolute nonsense” by Mr Duncan Smith. The savings will be made from cutting back benefits for people of working age. However, the Work and Pensions Secretary has privately indicated that pensioner benefits should also be re-considered in future, but not for people who have already retired.The new round of welfare reforms are designed to be introduced from 2014 as the measures are expected to be politically popular in the run-up to the next election. However, the plans are understood not yet to have been shared with the Liberal Democrats.  A Downing Street source said: “There is some really radical thinking going on around welfare, which is the most successful area of government policy so far. Why should people only work part time? Why are young people who are out of work not living at home? Why are we incentivising people to have more children? 

“The Prime Minister is very keen on the next stage of welfare reform and there are some properly worked out plans which have been submitted by Steve [Hilton} before he left.”  Another senior Government source said: “What we are engaged in is the mark-two stage of welfare reform. Its how do you take the universal credit into the next phase… encourage people to work longer hours, not just languish on 10, 15 or 20 hours.  “These things are part of a much bigger extended programme from where we are, to take us forward. There are longer term saving by getting more people into work, by giving people greater control of their lives, by making them essentially the masters of their destiny again, we will reap massive rewards and thus massive savings.”  Other proposed areas for further welfare reductions include stopping young unemployed people from claiming housing benefits when they could live at home. A lower cap on housing benefit for those living outside London and other expensive areas of the country may also be introduced.  Mr Duncan Smith is understood to have given a cautious welcome to the plans. However, he has not costed the proposals and has publicly indicated previously that he does not believe his department should be forced to make disproportionate levels of cuts beyond those required elsewhere.  George Osborne, the Chancellor, has indicated that the welfare budget should be cut by another £10 billion between 2015 and 2017 but the latest proposals go far beyond this level. - Telegraph.