Category: Stock Markets

From John Schindler, formerly a professor of national security affairs at the U.S. Naval War College, where he taught courses on security, strategy, intelligence, terrorism, and military history. Before joining the NWC faculty, he spent nearly a decade with the National Security Agency as an intelligence analyst and counterintelligence officer.

Over the last week, the American media has begun, belatedly, to examine a story in Rolling Stone magazine last month which asserted that a horrific gang rape occurred at the University of Virginia, at a named fraternity. The story was light on specifics, not naming the victim or the perpetrators except in vague terms, but its depiction of gang rape was vivid and hard to forget.

I have no expertise in such matters, but my old counterintelligence sense told me that a lot of this didn’t add up……

Source: The Cancer of Advocacy Journalism

I love Lars Christensen’s work. Simple but elegant. This is a bit wonkish for an investment blog but he makes a very important point which applies to far more than just Italy.

Today I was interviewed by a Danish journalist about the Italian banking crisis….. He asked me a very good question that I think is highly relevant for understanding not only the Italian banking crisis, but the Great Recession in general.

The question was: “Lars, why is there an Italian banking crisis – after all they did NOT have a property markets bubble?”

That – my regular readers will realise – made me very happy because I could answer that the crisis had little to do with what happened before 2008 and rather was about monetary policy failure and in the case of the euro zone also why it is not an optimal currency area.

Said, in another way I repeated my view that the Italian banking crisis essentially is a consequence of too weak nominal GDP growth in Italy. As a consequence of Italy’s structural problems the country should have a significantly weaker “lira”, but given the fact that Italy is in the euro area the country instead gets far too tight monetary conditions and consequently since 2008 nominal GDP has fallen massively below the pre-crisis trend.

That is the cause of the sharp rise in non-performing loans and bad debt since 2008. The graph below clearly illustrates that.

I think it is pretty clear that had nominal GDP growth not fallen this sharply since 2008 then we wouldn’t be talking about an Italian banking crisis today. There was no Italian “bubble” prior to 2008 and there are no signs that Italian banks have been particularly irresponsible, but even the most conservative banks will get into trouble when nominal GDP drops 25% below the pre-crisis trend.

Market monetarists advocate that central banks should maintain smooth monetary growth consistent with a nominal GDP target. Current central bank response is lagged because they have to wait for inflation and employment numbers — which is about as effective as driving your car down the highway while looking in the rear view mirror to see where you are headed. Even then, they focus on the wrong numbers, inflation and employment, when the root cause is monetary growth and nominal GDP.

Source: The Italian bank crisis – the one graph version | The Market Monetarist

From Clancy Yeates:

APRA on Monday updated a study that showed the common equity tier 1 (CET1) capital ratio of Australia’s major banks were now in the top quartile of banks internationally – a key target set by the 2014 financial system inquiry……APRA said the banks’ average CET1 ratios were 13.5 per cent of assets at December 2015, up from 11.7 per cent in June 2014.

The comparisons are significant because the 2014 financial system inquiry (FSI), chaired by former Commonwealth Bank chief executive David Murray, said that in order to be “unquestionably strong”, the banks’ capital position should be among the top quartile globally.”

….Echoing previous comments from APRA chairman Wayne Byres that capital requirements would rise “somewhat higher”, APRA said global banking regulators were likely to settle on rules later this year that would ratchet up how much capital banks must set aside. This will probably affect Australian lenders, too.

….It said the final shape of these rules would not be known until late this year, and it would be “prudent” for banks to plan for “the likelihood of strengthened capital requirements in some areas”.

While increased capital requirements may reduce bank profitability and slow lending growth in the medium-term, an increased capital buffer is critical for long-term sustainability of the industry and the broader economy. The pay-off banks should see is lower risk premiums for both deposit and liability funding, more stable growth and higher equity valuations.

Source: More capital ‘likely’ for banks: APRA

Brexit gives a further reason to buy Asian and emerging markets stocks, according to CLSA‘s chief equity strategist Christopher Wood. Wood raised emerging markets to Overweight this morning.

First, Brexit is good for commodities such as iron ore and steel, thereby boosting Asia’s material stocks. This is because a …..cheaper pound and euro that resulted from Britain leaving the European Union, provides an excuse for more monetary and fiscal easing. “Infrastructure stimulus in the G7 world should give some sort of bid to the commodity complex on a global basis,” wrote Wood.

Indeed, commodity traders in China agree. Iron ore futures jumped 5.2% this morning, hard-rolled coil (steel) soared 4.5%…..

Second, Brexit relieves pressure on the People’s Bank of China, which is trying to liberalize its exchange rate while keeping capital outflow under control. The deep slump in the British pound gives the PBoC another excuse to guide its yuan fix lower.

Indeed, the PBoC’s yuan-dollar fix is at a 6-year low this morning, even though the pound still tumbled 8.7% against the yuan in onshore trading.

Third, Wood raised emerging markets to Overweight “given the increased negative outlook on European equities, given the political uncertainties raised by Brexit and given the negative consequences of even more negative interest rates and more negative bond yields for European banks.”

Wood continues to see gold price soaring …..G7 central bankers are crazy, in Wood’s view.

Source: Barron’s

Source: Why Brexit Is Good For Iron Ore, China, Emerging Markets | Hellenic Shipping News Worldwide