KeNo's Housing and Economic Portal: Monday August 29 2016 Housing and Economic stories

Sunday, August 28, 2016

Monday August 29 2016 Housing and Economic stories

Monetary policy has nationalized the Japan stock market: CLSA - (www.cnbc.com) Even a resurgent yen hasn't dampened Japan's stock rally over the past couple months, but that's not necessarily because investors like the market. The Nikkei 225 index has surged around 10 percent since late June, even as the yen has climbed against the dollar, with the pair testing levels under 100. Normally this would be bad news for stocks as a stronger yen is a negative for exporters as it reduces their overseas profits when converted to local currency. So what explains the buoyant stock market? Analysts attributed the gains to the Bank of Japan (BOJ), not fundamentals. In a report titled, "BOJ nationalizing the stock market," Nicholas Smith, an analyst at CLSA, said that the central bank's exchange-traded fund (ETF) buying program was distorting the market.

This U.S. Bank Is About to Relive the 2008 Derivatives Nightmare - ( www.moneymorning.com) Citigroup Apparently Didn't Learn Its Lesson in 2008… Citigroup Inc. (NYSE: C) already nearly destroyed itself with derivatives during the 2008 crisis, requiring the biggest taxpayer bailout in history in order to stay afloat. Strangely, it didn't learn its lesson the first time its stock fell below $1. As rival banks see the writing on the wall and scramble to get rid of their derivatives, Citi is now cheerfully snapping up billions of dollars' worth. Several weeks ago, Credit Suisse prudently sold $380 billion of derivatives to Citi, thereby reducing its own leverage exposure by $5 billion. Last year, Deutsche Bank palmed off $250 billion of credit default swaps on (guess who?) Citi, and is in talks to get rid of even more. The result is that Citi now holds the most derivatives of any of its U.S. rivals. That's a staggering total exposure of nearly $56 trillion, according to the OCC's latest report, shown here:

Savers hit by negative rates are starting to store their cash in safes: S&P - (www.cnbc.com) Nearly 500 million people are living in countries with negative interest rates, according to S&P Global, a factor which could fuel a return to a "cash-only" society. Negative interest rates are designed to get money flowing in an economy. In theory, the rate, set by a central bank, discourages savers from holding on to their money because of the negative return and encourages banks to lend. Central banks in Japan, euro zone and several other European countries have introduced negative interest rates, helping push the global stock of sub-zero-yielding sovereign debt to over $11 trillion. But rather than spend more, negative rates may force consumers to look to hold their cash outside of the official banking sector.

Private Placement: European Companies Issue Debt Simply Because the ECB will Buy That Debt - (www.mishtalk.com) Things are so absurd in the Eurozone that the ECB is buying private placement debt with little regard for safety. In turn, private equity companies issue debt simply because they know in advance the ECB will buy it. It’s a startling example of how the market is adapting to extremes of monetary policy, and it’s a safe conclusion the experiment will not end well. For now, it’s a Seller’s Paradise as Companies Build Bonds for European Central Bank to Buy. The European Central Bank’s corporate-bond-buying program has stirred so much action in credit markets that some investment banks and companies are creating new debt especially for the central bank to buy.

RPT-Government on hook for China banks' shrinking capital - (www.reuters.com) Hit by bad loans, Chinese banks are expected to show a weakening in their capital strength in first-half earnings, raising the prospect that government might have to inject more than $100 billion to shore them up, according to some analysts. There are early signs that government is already taking action to help some of the smaller banks, which are struggling to maintain their capital ratios as China's economy slows, interest margins fall, and bad debts climb. "We believe the recapitalisation and bailout process is already discretely underway. However, it has gone unnoticed as it has started with the smaller, unlisted banks," said Jason Bedford, sector analyst with UBS. "We expect this process to accelerate sharply in 2017, particularly among listed joint stock banks," Bedford told Reuters, adding closing the capital shortfall would require an infusion of $172 billion.

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