Sudden
swings expose fragility of financial markets: BIS - (www.reuters.com) Sudden
swings in financial markets recently
suggest they are becoming more fragile and sensitive to unexpected events, the
global organization of central banks said
on Sunday, warning that a rising U.S. dollar could have a "profound
impact" on emerging markets in particular. MSCI's all-country world stock
index is hovering around multi-year highs after rebounding from sell-offs in
August and October. The downturns were triggered by uncertainty over the global
economic outlook and monetary policy, as well as geopolitical tensions, and the
Bank for International Settlements (BIS) said the sharp and sudden dips pointed
to frailty in the markets. "These abrupt market movements (in
October) were even more pronounced than similar developments in August, when a
sudden correction in global financial markets was quickly succeeded by renewed
buoyant market conditions," the BIS said. "This suggests that more
than a quantum of fragility underlies the current elevated mood in financial
markets," it said in its quarterly review. "Global equity markets
plummeted in early August and mid-October. Mid-October's extreme intra-day
price movements underscore how sensitive markets have become to even small
surprises."
Wall
Street Demands Derivatives Deregulation In Government Shutdown Bill - (www.huffingtonpost.com) Wall Street lobbyists are trying to secure
taxpayer backing for many derivatives trades as part of budget talks to avert a
government shutdown. According to multiple Democratic sources, banks are
pushing hard to include the controversial provision in funding legislation that
would keep the government operating after Dec. 11. Top negotiators in the House
are taking the derivatives provision seriously, and may include it in the final
bill, the sources said. The bank perks are not a traditional budget item. They
would allow financial institutions to trade certain financial derivatives from
subsidiaries that are insured by the Federal Deposit Insurance Corp. --
potentially putting taxpayers on the hook for losses caused by the risky
contracts. Big Wall Street banks had typically traded derivatives from these
FDIC-backed units, but the 2010 Dodd-Frank financial reform law required them
to move many of the transactions to other subsidiaries that are not insured by
taxpayers. Taxpayer insurance helps
banks secure higher credit ratings for their derivatives, since taxpayers
assume some of the risk, which in turn makes the banks more profitable. Last
year, Rep. Jim Himes (D-Conn.) introduced the same provision under debate in
the current budget talks. The legislative text was written by a Citigroup
lobbyist,
according to The New York Times.
Something
Stinks Inside The BLS Jobs Data - (www.zerohedge.com) "I find it extremely odd and troubling
that starting with January 2013, the Establishment Survey started moving in
nearly an exactly straight line (benchmarks are important). That
observation is made more curious by a memo that was just sent
out by
the Census Bureau to its field offices (the BLS crunches the numbers, but
contracts out with the Census Bureau to actually conduct the surveys)... In
other words, they were told that there would be penalties for cheating on the
surveys, which apparently is tied to suggestions of a rash of field
workers completing surveys for people never actually surveyed. The reason for
doing so, spelled out by the New York Post, is that compensation is tied
to a 90% completion rate." Again, make of that what you will, but I think
that this all more than suggests that even the most mainstream of statistics
need proper skepticism and thus corroboration. The mystery of Black Friday was
not that people were too busy working to shop as might have been the case if
the payroll report was as “unblemished” as under past economic circumstances of
the plucking model, or something close to it. More simply, I think the ability
of these statistics to produce close correlations with other facets of economic
monitoring and accounting has been seriously compromised at least by the
disparity in data sets and perhaps even more nefariously. Oil prices and yield
curves would certainly concur, as would a huge swath of the electorate in the
developed world (with emerging markets none too enthused about all this assumed
robust US growth either).
Ukraine's
electricity crisis deepens as a plan to import South African coal collapses – (www.euronews.com) Ukraine’s
fuel crisis has deepened after a deal to buy South African coal collapsed. The
head of a Ukrainian state energy firm has been arrested on suspicion of
embezzlement in relation to the deal. Ukraine’s coal mining has been disrupted
by separatist conflict, and the the absence of Russian gas imports since June
has resulted in country-wide mass electricity cuts. That is why the government
turned to South Africa to boost supplies, but the imported coal turned out to
be unfit for purpose. The director of energy firm Ukrinterenergohas been detained by Ukrainian investigators over his involvement in the
South African deal. “Once we can resolve the issue of coal supplies we can
achieve a lower price for electricity generation”, said Vladimir Demchyshyn,
Minister of Fuel and Energy. “We have power stations but we can’t use them to
their full capacity unless we have enough fuel to run them”.
Citi
Faces $270 Million Loss; "In Panic" Over Chinese Port Commodity Fraud – (www.zerohedge.com) Despite
the near-record scream higher in Chinese stocks over the last few months, under
the surface China is rattled and nowhere is that more evident than in the
collapse of its commodity-backed ponzi-financing deals. Since we first uncovered the fraud at the port of Qingdao, another has appeared that is just as fraud-ridden - Penglai; and Citi and Mercuria Energy are arguing over
who pays. According to Mercuria's lawyer Graham Dunning, Citi was "in
a state of panic," when they uncovered the fraud. As Bloomberg reports, Dunning exclaimed "it appears that
substantial quantities may be missing from the warehouses or may be the subject
of multiple pledges," and the bank says it is owed at least $270
million. Other 'banks' have been less forthcoming about their potential losses,
but the government probe has so far uncovered almost $10 billion in
fraudulent trade, including irregularities at Qingdao, according to the
country’s currency regulator. Suspected metals fraud in China sparked claims of
betrayal by both U.S. bank Citigroup and trade house Mercuria over who would
absorb about $270 million in exposure to financing deals, a London court heard
this week. The dispute: Mercuria held copper and aluminium in Chinese
warehouses and agreed a series of deals that were effective loans from Citi
using the metal as collateral. Under the repurchasing agreements, or repos,
Citi agreed to purchase metal from Mercuria before selling it back at a
slightly higher price to include interest on the effective loans. The two
groups were in the midst of several repo deals when the potential fraud in
China was uncovered in warehouses in both Qingdao and Penglai. Citi
demanded early repayment of the repos and Mercuria refused.
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