Last week, the Greek government issued a decree which called for local governments to transfer excess cash to the central bank so that Athens would be able to pay pensions, salaries, and the IMF. The move is expected to raise as much as €2 billion to help keep the country afloat while the country’s “amateurish, time-wasting gambler” of a FinMin feebly attempts to find some kind of middle ground with his EU counterparts and as PM Tsipras pulls out all the stops including the old EU Summit sideline end-around with Merkel and the wild card energy gas pipeline advance from Gazprom (which may portend the dreaded “Russian pivot").  

If the “temporary” local government reserve sweep constitutes what we have brandedsoft” capital controls, we now have the first evidence that the “hard” variety may have arrived because as Kathimerini reports, Greek debtors are having their deposits seized in lieu of payment. Here’s more:

As the country’s finances reach a critical point, tax authorities have started seizing the deposits of small debtors, Kathimerini understands.


No figures were available regarding the new crackdown but cases of debtors targeted included a citizen with a debt of just 200 euros.


The bank account of the man in question was frozen and then reopened once it was established that he had paid his dues. In several cases, including that of a citizen with a debt of 24,000 euros, bailiffs are said to have used threats to secure the cash. The initiative comes as efforts to crack down on rich Greeks with tax debts make slow progress.

So there it is: the first indication that Greeks may soon be Cyprus’d. As a reminder, Citi now says capital controls will likely play a part in whatever the “resolution” (if you want to call it that) to the Greek situation turns out to be, barring a best case scenario outcome which seems exceedingly unlikely. As a reminder, here's what happens under "Grimbo":

In theory a run on banks could trigger capital controls tomorrow. 


The lack of an agreement would also at some point be associated with capital controls and binding limits on ELA access (ZH: the writing is already on the wall for ELA restrictions as well). Compared to the previous scenario, the capital controls (a mix of bank holidays, deposit withdrawal restrictions, restrictions on external transactions) are likely to be more extensive and longer-lived...

Meanwhile, not every local governor is particularly enthusiastic about turning over reserves to the state. Here's Kathimerini again:

But many local authority leaders stood their ground.


The mayor of Aristoteli in Halkidiki, northern Greece, resigned late on Friday, citing personal reasons.


According to the controversial decree, local authority reserves will be used to “cover
the state’s urgent needs, amounting to 3 billion euros over the next 15 days.” 
The motion passed with 156 votes from coalition MPs following a furious session in Parliament on Friday night.


Tsipras is to meet on Tuesday with Attica Governor Rena Dourou, who was on a visit to the US last week.


Last month the Attica Regional Authority donated 80 million euros to the state.


Universities also object to the decree and rectors met on the weekend to discuss their response. Technical college directors are to meet Monday.

If the students become restless, it's truly all over.

The law of unintended consequences is becoming ever more prominent in the economic sphere, as the world becomes exponentially more complex with every passing year. Just as a network grows in complexity and value as the number of connections in that network grows, the global economy becomes more complex, interesting, and hard to manage as the number of individuals, businesses, governmental bodies, and other institutions swells, all of them interconnected by contracts and security instruments,...

We’ve spent quite a bit of time documenting the student loan bubble which has now ballooned to $1.3 trillion and has recently led The White House to reexamine how student debt is handled in bankruptcy. Further, we’ve taken an in-depth look at delinquency rates in an effor to determine just how dire the situation has become. As it turns out, nearly one in three students in repayment is 30 days or more past due and recent data out of the St. Louis Fed indicates that far more delinquent borrowers are becoming “seriously” delinquent (i.e. never going to pay) now than in the past. Meanwhile, Moody’s recently warned on some $3 billion in student loan-backed ABS noting that increased use of IBR combined with deferment and forbearance make it increasingly likely that some paper will not be fully paid down at maturity. 

Now, it appears that it’s not just students that are in dire financial straits, but schools as well because as Bloomberg reports, Louisiana State University is now drawing up bankruptcy plans in the wake of funding cuts from the state:

Louisiana State University will draw up a financial exigency plan, equivalent to college bankruptcy, as budget cuts proposed by Governor Bobby Jindal threaten to cripple the higher-education system.


Exigency, declared when schools face insolvency, would allow the state’s flagship institution to restructure and fire tenured faculty.


“We know the worst-case scenario, we know the timeframe, and we know what’s at stake,” President F. King Alexander said in a statement. He said he wants legislators to “mitigate the devastation these budget cuts promise.”


State cuts to higher education have sent tuition soaring across the U.S., adding to the more than $1.2 trillion in student-loan debt. While public subsidies covered almost three-quarters of operating costs in the 1980s, the share is now closer to half and falling every year, according to the State Higher Education Executive Officers Association.


Louisiana faces a $1.6 billion budget shortfall in the coming fiscal year, a result of both plunging oil-tax revenue and the state’s failure to enact adequate tax increases or spending cuts after the economic downturn in 2009…


The latest plans would mean an 82 percent cut to the state’s public colleges and universities. Per-student funding would plummet from $3,500 to $660, according to the New Orleans Times-Picayune, causing concern at Baton Rouge-based LSU. The school may be running out of time to find a solution, as the state’s legislative session ends June 11.

According to Alexander, those last figures are indeed as bad as they sound. “States around the country spend more than that on their community colleges,” he told the New Orleans Times-Picayun. The President went on to note that if the university opts for financial exigency it will “never get any more faculty.”

The school recently cut its planned new hire count by more than 50% from 125 to just 60 and says that in the event the worst case budget cut scenario plays out, it will have to cut 2,500 courses, an eventuality which the school says is simply not tenable. 

Of course what all of this means is that tuition will rise, burying students under still more loans, a third of which will be delinquent once they go into repayment. Here’s NBC:

But without a rescue from lawmakers, Alexander said programs could be dropped or entire departments shuttered under a worst-case scenario. "Specifically, we don't know which programs or departments we're talking about [but] it would require us to utilize every tool possible," he said.


Even if the worst-case scenario doesn't come to pass, it's possible students could find themselves paying more, through increases in tuition and fees or decreases in the state's TOPS scholarship program. Lawmakers have historically been reluctant to raise tuition -- currently $8,758 for tuition and fees for in-state students at LSU -- but there is discussion about giving schools themselves more freedom to do so…


"We've gone from being very state funded-intensive to being tuition-dependent, and we've got 40 percent of our students that are Pell [grant] eligible," said Sandra Woodley, president of the University of Louisiana system, which consists of nine universities throughout the state. Since 2009, tuition and fees have climbed by 61 percent while state funding has dropped by 55 percent, a drop of $90 million.


"We've already shifted to mostly being funded by tuition revenue in a state that has a relatively low income population," Woodley said. Further cuts would just hurt the most vulnerable.

Meanwhile, Moody's has cut its outlook on the university from stable to positive (apparently being bankrupt counts as "stable") citing "limited prospects for sustained revenue growth due to potential reductions in state operating funding, tight state control of tuition pricing, and pricing sensitivity limiting out-of-state enrollment revenue growth." LSU then pulled a $114 million bond offering which would have financed the construction of a new residential hall, family housing and a student health center.

*  *  *

So in the end, the decline in oil and gas prices which has been partially driven by QE-fueled deflation has helped to blow a hole in the state's budget (taxes on oil extraction account for some 15% of Louisiana's revenue), which is in turn set to trigger budget cuts that will cripple LSU, possibly causing the university to raise tuition which will encourage students to accumulate still more federally-backed debt. Yet another virtuous circle.

On Friday, courtesy of Bloomberg, we showed a very detailed Greek repayment schedule which laid out just how difficult the next few months will be for the bankrupt, in the words of its finance minister, country.


Below is a far simpler calendar this time courtesy of Goldman, which nonetheless captures vividly why Goldman thinks that "the ride over the next several weeks is likely to be bumpy."

Some more details on how Goldman, which as a reminder aided and abetted the Greek entry into the Eurozone by masking its unacceptably large budget deficit as well as its non-compliant debt/GDP ratio over a decade ago and whose former partner now is in charge of the ECB and is threatening with causing a terminal bank run in Greece any day now, sees the Greek calendar over the next three months, and why for Greece, now July 20 is the "hard deadline.

We believe negotiations could drag on likely through May and possibly into June. A ‘hard’ deadline could be July 20, when Greece faces a payment of €3.6 bn to the ECB, for which, we think, the country will not have sufficient cash. Exhibit 5 shows the timeline of cash disbursements Greece faces until August and the scheduled meetings of European policymakers. Peripheral spread volatility is likely to increase as time goes by, as investors will associate a higher probability of default to a higher probability of Grexit, although this association will depend on what conditions have led to the credit event.


We believe that peripheral markets would sell-off as the July 20 deadline approaches but, as long as the dialogue is still ongoing, spreads between Italy and Spain versus Germany are unlikely to widen more than to around 200-250bp. The tightening trend would resume upon Greece and its creditors finding a solution on the pace of reforms, how to fill the new funding gap and, eventually, also how to reduce the debt stock.

As a follow up, Goldman asks "where do peripheral bonds trade in the case of a Grexit." Here is its answer. 

If Greece defaults on the official sector and negotiations were to break down leading to Grexit, instead, we would view this as a systemic event for markets. On its occurrence, we believe peripheral bond yields spreads to ‘core’ would widen significantly. Yield curves would steepen due to the possibility that an activation of OMT would skew the ECB bonds’ purchases toward short-dated maturities. The length and size of the sell-off would depend on how long it would take for policymakers to respond to the shock.

Respond to the shock? As in threaten to buy even more bonds which the ECB can't procure, and cause a terminal liquidity crisis across the entire fixed income market? We thought the launch of Q€ was precisely the pre-emptive response to the "shock"- or is Goldman hinting that the ECB's monetization of debt will be insufficient to keep Europe in a state of orderly insolvency? Of course, the ECB can always threaten to buy even more debt, although at this point not even tenured economists believe that this leads to any economic improvements.

During the Euro-area sovereign crisis, the spread between 10-year Bonos-Bunds and BTPs-Bunds peaked at 470bp and 512bp, respectively. This time around, the Euro area is better equipped to react to a large negative shock via the ESM and OMT and the ECB QE should provide a first line of defense. Also, in the periphery, a larger share of sovereign debt is now held by domestics, which should reduce the probability of a very sharp sell-off. Finally, economic activity is picking up and, after the fall-out post Greece’s debt restructuring in 2012, policymakers should be more aware of the negative consequences that a ‘credit crunch’ would have on the real economy, speeding-up their policy response. All this said, we think that, at the 10-year tenor, the spread between Spanish and Italian bonds yield versus Bunds yield could still widen to around 350-400bp before a policy response is enacted. We stress that the departure of a country from the ‘irrevocable’ monetary arrangements of the EMU would take us into unchartered waters and it is difficult to predict how negative the market reaction could be.

Needless to say if anyone knows whether Greece is "in" or "out", it's Goldman. Oh, and by now we hope it is all too clear which outcome Goldman and its banking peers would prefer: the one where the ECB doesn't do more monetization of risk assets, or the one where it does...

It appears a breach of the White House’s unclassified computer system last year was far more intrusive and worrisome than has been publicly acknowledged. As The NY Times reports, some of President Obama’s email correspondence was swept up by Russian hackers who also got deeply into the State Department’s unclassified system. "This has been one of the most sophisticated actors we’ve seen," according to one official, and while Mr. Obama’s BlackBerry was not penetrated, officials have conceded that the unclassified system routinely contains much information that is considered highly sensitive.

The discovery of the hacking in October led to a partial shutdown of the White House email system. The hackers appear to have been evicted from the White House systems by the end of October. But they continued to plague the State Department, whose system is much more far-flung. The disruptions were so severe that during the Iranian nuclear negotiations in Vienna in November, officials needed to distribute personal email accounts, to one another and to some reporters, to maintain contact. But as The New York Times reports,

White House officials said that no classified networks had been compromised, and that the hackers had collected no classified information. Many senior officials have two computers in their offices, one operating on a highly secure classified network and another connected to the outside world for unclassified communications.


But officials have conceded that the unclassified system routinely contains much information that is considered highly sensitive: schedules, email exchanges with ambassadors and diplomats, discussions of pending personnel moves and legislation, and, inevitably, some debate about policy.


Officials did not disclose the number of Mr. Obama’s emails that were harvested by hackers, nor the sensitivity of their content.




Still, the fact that Mr. Obama’s communications were among those hit by the hackers — who are presumed to be linked to the Russian government, if not working for it — has been one of the most closely held findings of the inquiry. Senior White House officials have known for months about the depth of the intrusion.


“This has been one of the most sophisticated actors we’ve seen,” said one senior American official briefed on the investigation.


Others confirmed that the White House intrusion was viewed as so serious that officials met on a nearly daily basis for several weeks after it was discovered. “It’s the Russian angle to this that’s particularly worrisome,” another senior official said.




Officials who discussed the investigation spoke on the condition of anonymity because of the delicate nature of the hacking. While the White House has refused to identify the nationality of the hackers, others familiar with the investigation said that in both the White House and State Department cases, all signs pointed to Russians.

Finally, it appears the most-classified American secrets remain that way for now...

The White House is bombarded with cyberattacks daily, not only from Russia and China. Most are easily deflected.


The White House, the State Department, the Pentagon and intelligence agencies put their most classified material into a system called Jwics, for Joint Worldwide Intelligence Communications System. That is where top-secret and “secret compartmentalized information” traverses within the government, to officials cleared for it — and it includes imagery, data and graphics. There is no evidence, senior officials said, that this hacking pierced it.

So once again the "most transparent" administration ever is forced to admit what they previously said was a lie and that things were worse...

By Mark St. Cyr It’s official: all the markers of manias both past and present have now been surpassed. NASDAQ™ new highs? Check. All major Indexes both in actual terms as well as adjusted for inflation? Check. Earnings reports being enthusiastically reported as more “beats” than misses? Check. How about employment data? Yep. Within statistically…

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

After the high-level EU summit on the migrant issue, hastily convened after close to a thousand people drowned last weekend off the Lybian coast, Dutch PM Mark Rutte was quoted by ‘his’ domestic press as saying ‘Our first priority is saving human lives’. That sounds commendable, and it also sounds just like what everybody knows everybody else wants to hear. One can be forgiven, therefore, for thinking that it’s somewhat unfortunate that the one person tasked by Brussels with executing the noble ‘saving lives’ strategy, doesn’t seem to entirely agree with Rutte:

EU Borders Chief Says Saving Migrants’ Lives ‘Shouldn’t Be Priority’ For Patrols

The head of the EU border agency has said that saving migrants’ lives in the Mediterranean should not be the priority for the maritime patrols he is in charge of, despite the clamour for a more humane response from Europe following the deaths of an estimated 800 people at sea at the weekend. On the eve of an emergency EU summit on the immigration crisis, Fabrice Leggeri, the head of Frontex, flatly dismissed turning the Triton border patrol mission off the coast of Italy into a search and rescue operation.


He also voiced strong doubts about new EU pledges to tackle human traffickers and their vessels in Libya. “Triton cannot be a search-and-rescue operation. I mean, in our operational plan, we cannot have provisions for proactive search-and-rescue action. This is not in Frontex’s mandate, and this is in my understanding not in the mandate of the European Union,” Leggeri told the Guardian.

To refresh your memory, the Triton border patrol mission took the place late last year of Italy’s Mare Nostrum mission, which ended in October 2014. For good measure, the budget was slashed from the €9.5 million per month Italy had been putting in, to €2.9 million per month. Saving lives can be simply too expensive when you think about it in your high rise office in that brand new €1 billion+ EU building. These are hard economic times, and we all need to make sacrifices and to cut costs wherever we can.

But of course after that summit, Europe announced it was going to triple the budget for the Triton mission. That will of course only simply bring back the budget to where it already was before it was cut by two-thirds, but it’s a nice headline anyway.

The difference in focus between Rutte and Frontex head Leggeri can be found all around Europe. It would be nonsense to claim Europe agrees on much of anything regarding the refugee issue. Well, they agree it’s a nuisance that all these people die and Europe is supposed to do something. The national government leaders would like it much better if such things didn’t happen, it’s bad publicity. But at the same time, it’s nothing that can’t be spun and turned to their advantage. Or so they like to think.

Reactions to the statements released after the summit were not all positive, to say the least. Amnesty said that the only thing Europe tries to save is its face. Former Belgian PM Guy Verhofstadt, at present a member of the European Parliament, indicated that the equipment Frontex has at its disposal (one helicopter, two ships and seven planes) wouldn’t even be enough to survey the Belgian coast (of which there’s not a lot).

Just to make sure his peers wouldn’t think he’d gone all soft, Rutte came with another catchy oneliner: “Last time I checked, Lybia was in Africa, not Europe.” In other words, ‘saving lives’ is a great press quote, but don’t blame him for lives lost. And that’s the crux behind the shift from Italy’s mission to the EU’s. The former was patrolling off the coast of Lybia, while the latter occupies itself only with the European coastline, and it just so happens that’s not where refugees’ lives are under threat (let’s stop saying migrants, that’s a grossly misleading term).

In its infinite wisdom, the EU has decided in its summit that there will be 5000 ‘resettlement’ places available for the hundreds of thousands of refugees (migrants) that want to go to Europe. The EU in a post-summit statement said it expects 150,000 refugees this year, but it might as well add up to 500,000 in 2015 alone. How Brussels thinks it’s going to send back almost half a million people is a big question mark. So much so we’d put our money on no-one having properly thought it over.

According to the United Nations High Commissioner for Refugees, millions of refugees are making their way to the Mediterranean from trouble spots across Africa. To put it in somewhat cynical economic terms, think of this as pent-up demand. And also don’t forget how Patrick Boyle framed it: “We fear the arrival of immigrants that we have drawn here with the wealth we stole from them.”

The typical story of the refugees is one in which it takes years to get from their mostly sub-Saharan homes to the Lybian coast, working odd jobs on the way. Once they get to Lybia, which has been shot to bits by western forces, they’re dependent on all sorts of militia, who often arrest them, take their money etc. Perhaps the most insulting thing to come out of Brussels is the comparison with Somali pirates, and the argument that the refugee stream should be dealt with in the same way.

Indeed, much of the European ‘leadership’ have emphasized one approach more than any other: send in the military, start shooting. The idea being that if the boats of the traffickers are destroyed, everything will return to ‘normal’. But the issue here is not the traffickers, it’s the refugees. Want to send in the military against them too?

If there’s anything good that can come from the deeply deplorable death of far too many poor sods in the Meditteranean, it’s that it shows us all once more, as if we needed further confirmation, what a dysfunctional entity – morally as well as practically – the European Union is. More than anything, the EU makes itself entirely irrelevant. There is no decision structure in Brussels, since there is no ultimate responsibility that has been assigned. And they all sort of like it that way for now, because it means everyone can deflect that responsibility if and when necessary.

From the first example above that should be very clear: Rutte says the first priority should be saving lives, but the man who leads the organization that is tasked with executing it, flatly denies that.

Greek news organization Kathimerini ran a piece this week that serves to add yet another level of cold cynicism. Lest we forget, it’s Europe’s poorest countries that are forced to deal with the brunt of the refugee problem. In that summit we mentioned before, half of all European nations refused to take up even one single refugee. Yet another example of the absolute lack of coherence and solidarity that so-called union exhibits.

The idea seems to be: Let ‘em all stay in Greece, while we suffocate the nation financially. But Greece cannot solve the issue all by itself, it can’t handle the expected 100,000 refugees on its own. It will be forced to open its borders and tell the refugees to try and reach Germany or France. See also: Open Letter From Greece on the Mediterranean Migrants Issue.

The present EU policy is that a refugee must stay in the country where (s)he has been registered. Hence, all Greece and Italy need to do is not register them. Kathimerini:

The Dubious Politics Of Fortress Europe

In “Border Merchants: Europe’s New Architecture of Surveillance” (published by Potamos), Apostolis Fotiadis, an Athens-based freelance investigative journalist, seeks to document a paradigm shift in Europe’s immigration policy away from search and rescue operations to all-out deterrence. The switch, the 36-year-old author argues, plays into the hands of the continent’s defense industry and is being facilitated by the not-so-transparent Brussels officialdom. “Their solution to the immigration problem is that of constant management because this increases their ability to exploit it as a market. The defense industry would much rather see the protracted management of the problem than a final solution,” Fotiadis said in a recent interview with Kathimerini English Edition.


“Without a crisis there would be no need for emergency measures, no need for states to upgrade their surveillance and security systems,” he said. Fotiadis claims the trend is facilitated by the revolving door between defense industry executives and the Brussels institutions, which means that conflict of interests is built right into EU policy. “There is a certain habitat in which many people represent the institutions and at the same time express a philosophy about the common good,” he said.




Fotiadis believes there is no reason Greece should not be able to set up some basic infrastructure to deal with the influx. He says that the number of immigrants and refugees received by the EU is in fact small compared to the more than 1.5 million refugees who have found shelter in Turkey due to civil war in Syria. Jordan is estimated to be home to over 1 million Syrian refugees, while one in every four people in Lebanon is a refugee. Meanwhile, the EU, one of the wealthiest regions of the world, with a combined population of over 500 million, last year took in less than 280,000 people. “All that hysteria is a knee-jerk overreaction to an illusory version of reality,” he said.

Why Greece or any other country would wish, be eager even, to be part of the EU is becoming ever harder to comprehend. The moral values prevalent in Brussels, whether it comes to EU policies regarding Ukraine, Greece or the refugees’ dilemma, don’t seem to be shared in any individual European nation (if anything, they’re reminiscent of what various extreme right wing parties espouse).

And as the Greek negotiations with the eurogroup and the ‘institutions’ show us with intense and increasing clarity, the notion of the euro being a boat to lift all tides turns out to be full-on bogus. Southern Europe’s nations will be either thrown out or allowed to stay only as debt servants. For now, Germany and Holland prefer to keep everyone on board, but that may still change. It would therefore seem like a good idea for Greece and Italy to make their moves while they can.

In order to achieve that, however, they must convince their people that staying in the EU, and in the eurozone, is a bad choice. And since their old-time political establishments will continue to deny this (because the EU allowed them to sit fat and pretty), that will not be an easy task. Perhaps the refugee issue can help.

In all likelihood, the victims of the sunken boat near the Lybian coast this weekend will never be identified, except for perhaps a handful. Nobody knows who they are, and those who do stayed behind a thousand miles or more away. These deceased people, most of whom will never even be buried ashore, define, in one fell swoop, the ‘new’ price of a human life. Theirs, yours, and everyone else’s.

Sinking nameless to the bottom of the sea, with no-one either ever knowing who you are or aware of how you are doing. That is our new valuation of a human being. It’s price discovery in its most cynical sense, it’s how assets get re-priced in markets.

What Tsipras and Varoufakis must accomplish is to make people understand that what Europe does to the refugees, it will do to its own citizens too.

by Investment Research Dynamics Over the last three days, we have reported that some of the most important investment voices in the world are more than a little scared about the ravenous appetite for risk playing out in the market, and the fact that they have been ignored is beyond unnerving. Central banks are driving…

Following the default on major Chinese developer Kaisa this week, and with the continued softness in the Chinese property market, many are asking who's next among the highly-leveraged firms. However, as The Real Deal's Konrad Putzier notes, Kaisa’s default carries significance for New York’s real estate industry. Chinese investors spent $3 billion on New York properties in 2014. Many in New York continue to associate Chinese real estate companies with limitless funds and a never-ending ability to invest... But what if they are wrong?


As the NY Times reported:

Kaisa’s debt problems underscore the slump in China’s property sector, which has been hit by the slowing economy and a series of cooling measures instituted by Beijing to avoid a bubble in what had been an overheated housing market. Government data released this week showed that average new-home prices fell in February at the fastest pace on record.


Under Kaisa’s current restructuring proposal, about $800 million of bonds originally due in 2018 would instead come due in 2023, and the interest would be cut to 5.2 percent from 8.875 percent.

Things only got worse in March when housing prices dropped to a new record low:


Which puts even more pressure on the so-called megadevelopers...

“Some developers that have overborrowed in the expansion are going to be in trouble,” David Dollar, an economist at the Brookings Institution and former U.S. Treasury emissary to China, told The Real Deal. “We are now going to see some of them default or reschedule their debts.”

As somehow these firms need to find liquidty... and face a massive wall of debt...

Chinese developers currently have $66 billion in dollar (or offshore) bonds outstanding, according to Dealogic data. The recent strengthening of the dollar has made these bonds harder to service, since these firms make the vast majority of their income in Chinese Yuan. It’s no coincidence that Kaisa defaulted on a dollar bond.


Chinese developers that have invested in New York are among the most active issuers of dollar bonds, according to Dealogic data.


Greenland Holdings, which bought a majority stake in Forest City Ratner’s Pacific Park (formerly Atlantic Yards) project in late 2013, issued $2.7 billion in dollar bonds in 2014. Soho China, a stakeholder in the GM building, issued $1 billion in 2012. China Vanke, China’s largest publicly-traded developer, has issued another $1 billion to-date. The firm has partnered with Aby Rosen’s RFR Realty to develop a 61-story condo tower at 610 Lexington Avenue. Finally, Xinyuan Real Estate, whose subsidiary XIN is developing the Oosten condo project in Williamsburg, has issued $475 million in dollar bonds.

And if cashflow coverage gets as tight as expected (and priced in by the firms' bonds),  then the following developments may see asset liquidations...

Xinyuan Real Estate NYC investments:  Oosten at 429 Kent Avenue


Among Chinese developers active in New York, Xinyuan Real Estate appears to be most vulnerable to a market shock at home. Fitch rates the firm’s bonds as highly speculative (B+) and last August revised its outlook down to negative. “Xinyuan spent substantial amounts on land acquisitions in 1H14 to expand its business scale in 2014, but sales failed to keep pace amid negative sentiment in the sector and its selling,” the agency wrote, explaining the revision. The firm’s debt grew by more than a third in the first half of 2014 alone while earnings fell from 91 cents to 20 cents per share, according to Seeking Alpha.


China Vanke NYC investments: 610 Lexington Avenue (also known as One Hundred East Fifty Third Street)


China Vanke is rated investment grade by Moody’s and Fitch. Despite the slowing market, Vanke managed to increase profits by 8 percent last year and its total debt of 69 million Yuan ($11.1 billion) stood at a manageable 46.7 percent of capitalization (the sum of a company’s debt and equity) in 2014, according to Moody’s.


Greenland Group NYC investments: Pacific Park


Greenland is also rated investment grade, though it received slightly lower ratings than Vanke, and its debt level was much higher at 70 percent of capitalization. Still, Moody’s expects the firm “to manage its debt leverage down from the current level through contracted sales growth.”


Soho China NYC investments: The GM Building at 767 Fifth Avenue, Park Avenue Plaza at 55 East 52nd Street


Soho China appears to be in even better shape than Vanke and Greenland with a debt-to-capitalization ratio of 27.7 percent in 2014. Moody’s gave the firm a rating of Baa1, ahead of Vanke’s Baa2 and Greenland’s Baa3.

Source: The Real Deal

*  *  *
Still - keep buying the $40 million apartments because China's problems are "contained" and there's always a greater fool than you right?

By Michael Lewitt at Money Morning If it looks like a bubble, smells like a bubble and walks like a bubble, it is a bubble. What we have in the certain stocks today is a bubble every bit as epic as the one that took the NASDAQ Composite Index (INDEX:.IXIC) to its previous record of…

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

All those angered by the mere question of the viability of this predatory pillaging in the name of capitalism are incapable of even admitting this cultural crisis exists.

Somewhere along the line, we lost the ability to distinguish between earning a profit and maximizing private gain by any means, i.e. Infinite Greed. If you insist on making this distinction now, you anger a lot of people, as it blows the capitalist cover of Infinite Greed.
The distinction between earning a profit and maximizing private gain by any means angers not just the few benefiting from the useful delusion that Infinite Greed is simply profit on overdrive; it seems to anger everyone who believes the Status Quo of burning mountains of coal to power towel warmers, sitting in traffic burning petrol two hours a day and central banks enriching the already wealthy is not just sustainable but gol-darned good.
If you make the distinction between earning a profit and maximizing private gain by any means, then you realize the status quo is neither sustainable nor good: it is unsustainable and evil. This angers everyone who has rationalized their investment in (and defense of) an evil system, because, well, it's hard to feel all warm and fuzzy about your choices if the phony facade falls and the evil of the system you've defended is starkly revealed.
Every enterprise must earn a profit to survive. A worker-owned collective must earn a profit, as it needs money to reinvest in the business and reward those who have invested their capital (human, social, financial, intellectual, etc.) in the enterprise.
If the collective can't reinvest in new plant and new workers as the old equipment fails and old workers retire, it will weaken and collapse. This is equally true of any business owned by the state (i.e. a socialist enterprise): if the state-owned enterprise doesn't earn a profit that can be reinvested in the business, it can only survive if it is subsidized by some other enterprise that is earning a profit.
But the system we inhabit now is not based on earning a profit; that's merely the public-relations propaganda used to cloak its real heart: Infinite Greed. Maximizing private gain by any means isn't about earning a profit; it's about strip-mining the planet and the labor and profit of others.
If I buy a political favor that essentially eliminates competition in my private fiefdom, that doesn't generate more goods and services; it's simply maximizing my private gain at the expense of everyone else in the system.
Goosing the stock market ever higher only solves one problem: the terrible prospect that the assets of the incredibly wealthy might reset lower. It doesn't make the system sustainable or less evil; indeed, it is the manifestation of the evil at the heart of the entire system. It's not about shiny capitalism for the masses, or earning a profit by producing more and better goods and services: it's about doing whatever it takes to maximize private gain.
The success of this vast defense of those maximizing their private gain at the expense of everyone else appears invulnerable to many. In a system where central banks can print infinite money to further expand the value of the Financial Aristocracy's assets, it certainly seems that there is no force in the Universe that could possibly reduce this mighty Empire that worships only one god, that of maximizing private gain by any means.
Let's say this system is sustainable: the system that enriches the few at the expense of the many, the system that strip-mines the planet to enable private jets and trillions of dollars of wealth to rest comfortably in tax havens, a system that pays Nobel-prize-winning shills to spew nonsensical defense of the patently indefensible: if this is sustainable, we must ask: at what cost?
Is feeding this machine cost-free? Are there no consequences? Can the Federal Reserve not just create money to further enrich the few, but eliminate all cost and consequence as well?
To everyone resigned to the permanence and invulnerability of this evil, and everyone angered by the idea that it might implode and deprive them of their share of the swag, I suggest we consider a funny thing called Karma, which is the simple idea that actions have consequences which cannot be shoved onto others forever.
A similar idea is reversal is the way of the Tao. What appears mighty and invulnerable melts into air, as extremes naturally cycle to the opposite state.
Our loss of the ability to distinguish between earning a profit and maximizing private gain by any means has triggered a cultural crisis, one that few are willing to recognize, much less discuss. All those angered by the mere question of the viability of this predatory pillaging in the name of capitalism are incapable of even admitting this cultural crisis exists. Their response to the question is to accuse anyone who dares question the morality and sustainability of the current system of desiring a financial Apocalypse.
The easily angered are again confusing two distinct concepts: wanting an Apocalypse is entirely different from seeing an Apocalypse on the horizon. A financial Apocalypse wouldn't even touch the assets of the many, because their financial wealth is near-zero. If the $20 trillion (or whatever the number is, nobody really knows) sitting in tax havens melted into air, who would even notice except the pillagers and those paid to defend them?
The cultural crisis angers people because it threatens to loosen their grasp on the few threads of security they believe are real. Those thin threads are illusory, and a crisis will eventually be resolved in one fashion or another--not necessarily in an Apocalypse, but in a fast-spreading recognition of the wrongness and unfairly distributed costs of supporting a system that is intrinsically evil and unsustainable.


The next round of the financial crisis is at our doorstep.


Central Bankers bet the financial system that their academic theories would work, despite the countless real-world examples showing that printing money does not generate growth.


After all… we know that…


1)   Stocks are expensive by just about every conceivable metric.

2)   Global GDP growth is overstated dramatically with China at most growing 3.5% per year, the US in recession, and Europe in a full-scale DE-pression.

3)   QE is completely useless at generating growth with Japan in a triple dip recession after launching a QE program equal to 25% of its GDP and the US in recession despite having spent over $3 trillion.

4)   Central Bankers don’t care in the slightest about how their policies affect the rest of us.

5)   Even investing legends who have made their billions off of stocks admit the market is a complete farce and that a Crash is coming.

6)   Billionaires moving their money out of stocks and into ANYTHING else at a record pace.


And finally..


7)   None of initial problems which lead to the 2008 crisis (excessive leverage, rampant fraud, etc.) have been addressed.


Let’s face the facts. The very same problems that lead to 2008 remain in place today. The people who created this mess have gone unpunished. No one went to jail. No rule of law was upheld. Instead trillions of US taxpayer dollars were funneled to a bunch of crooks and liars.


And the Fed and friends actually thought growth might come out of this?


We’ve written before that the Fed’s policies were cancerous and would kill the system. This has proven to be the case…


·      The bond market is illiquid and extraordinarily dangerous thanks to the Fed screwing up the yield curve and soaking up Treasuries from QE.


·      The stock market has no bearing on reality, with accounting standards thrown out the window and investors fleeing in droves.


·      The economy is in shambles with almost all job growth post 2008 based on phony accounting or crappy part time jobs… again thanks to policies employed by the Fed.


·      The middle class has been destroyed thanks to Dollar devaluation and rising costs of living that have wiped out savings and made it impossible for the average American to get by.


·      Retirees and those close to retirement have lost valuable interest income courtesy of the Fed’s zero interest rate policy.


At the end of the day, the Fed with its misguided theories have demolished capitalism: the single most powerful form of wealth generation in the history of mankind. All the Fed has really accomplished is leverage the entire financial by an even greater amount… which has set the stage for a collapse that will make 2008 look like a picnic.


If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.


You can pick up a FREE copy at:


Good Investing


Phoenix Capital Research


In recent years, there has been much shock and stunned reactions among the general public as one after another banker avoided any prison time, despite perpetrating (and benefiting from the subsequent bailout) the biggest financial crisis know to mankind.

But is this shock warranted? The simple answer: no.

Consider the case of countless Nazi financiers and even Hitler's personal banker, Hjalmar Schacht. What do they all have in common? Aside from (or perhaps due to) practically all having walked through the secretive corridors of the Bank of International Settlements, the one truly disturbing common theme is that virtually all avoided any significant prosecution for their participation in the Third Reich. In fact, as the following excerpt clearly reveals, the basis of Germany's Fourth Reich, which in Adam LeBor's words, "would be a financial, rather than a military imperium" was the work almost exclusively of Nazi financiers and bankers. And, of course, America's backing and support of said Nazi bankers and industrialists.

Because when it comes to political winners and losers, the bankers will gladly support them all, and as such, no matter their prior actions, global financiers - who can and will bring down with them the entire financial system - have a perpetual immunity from the law, even if it means trillions in taxpayer bailouts, or hundreds of millions of casualties.

So the next time anyone is outraged that Lloyd or Jamie or Jon are not only walking free but have hundreds of millions in their bank accounts, advise them that if "all is forgiven" to Hitler's personal banker, then there is clearly no hope that the judicial system will ever bring those criminals known elsewhere as "bankers" to justice.


The following is an excerpt from TOWER OF BASEL: The Shadowy History of the Secret Bank that Runs the World by Adam LeBor. Reprinted with permission from PublicAffairs.


When detained in Dustbin, among a number of references to the financially great he pointed out that the President of the BIS, Mr. McKittrick of the United States, would be able to speak favourably of him.

     — British intelligence report on Hermann Schmitz, CEO of IG Farben, while held prisoner at Kransberg Castle, aka “Dustbin,” December 1945


DESPITE THE MARSHALL Plan, postwar Germany was devastated, its population barely scraping a living. A fifth of all housing stocks had been destroyed, food production was about half of its prewar levels, and industrial output in 1947 was one-third of its 1938 level. Basic goods were rationed, and wages and prices were controlled. The black market was thriving, and there was no properly functioning central bank. Officially, the Reichsbank had ceased to exist. The Reichsmark staggered on, still in circulation, although the main unit of currency was American cigarettes.

In 1948, everything changed. The Reichsbank was abolished completely and replaced by the Bank deutscher Länder (BdL). The deutschmark replaced the Reichsmark. The BdL was a national clearinghouse for the banks of the German regional states in the western occupation zone, modeled broadly on the US Federal Reserve. Unlike the Reichsbank, which had been brought under government control, the BdL, which would now represent Germany at the BIS in Basel, had its independence constitutionally guaranteed.

Hjalmar Schacht, president of the Reichsbank, was not impressed with the deutschmark. It was backed neither by gold nor by foreign currency reserves. It was a fiat currency, imposed by the Western authorities. Schacht told Wilhelm Vocke, the president of the new German national bank, that the deutschmark would collapse in six weeks. But Schacht was wrong. The deutschmark was backed, and by assets even more powerful than gold or foreign exchange: public confidence and postwar planning by the Nazi leadership.

At the same time, Ludwig Erhard, the economic director of the British and American occupation zones, lifted price restrictions and controls. The results were spectacular. Employment soared, inflation plummeted, the economy boomed. The deutschmark was stable and enjoyed the public’s full confidence. The western powers and their German subordinates proclaimed the dawn of a new era.

But the new central bank, currency, and Germany’s economic recovery were all deeply rooted in the Third Reich. Because German companies, especially armaments firms, had reinvested their massive profits, despite the Allied bombing campaign and reparations, Germany’s capital stock—its productive equipment, buildings, infrastructure, and other assets—was actually greater in 1948 than in 1936.

The lines of financial continuity between the Third Reich and postwar Germany reached right to the top. The BdL’s first president, Vocke, was a Reichsbank veteran and ally of Hjalmar Schacht. Wilhelm Vocke had sat on the Reichsbank board from 1919 to 1939 and was Germany’s alternate member on the BIS board from 1930 to 1938. He would now return to Basel for the governors’ meetings. Vocke remained loyal to his former boss and testified at Schacht’s trial at Nuremberg. He made the unlikely claim that Schacht had believed Germany’s weapons buildup was intended to support a policy of armed neutrality and to reduce unemployment. Vocke, however, had not joined the Nazi party, unlike many of his colleagues at the BdL. Every state institution in postwar Germany—the police, judiciary, civil servants, teachers, doctors, and the intelligence services—relied on former Nazis to function. But the continuity among the bankers was striking. Between 1948 and 1980, 39 percent of officials on the executive and governing boards of either the BdL, the central banks of the regional states, or the Bündesbank (the BdL’s successor) were former Nazis.

Some, such as Fritz Paersch, had been important figures in Hitler’s economic empire. Paersch was the mastermind of the Nazi plunder and despoliation of Poland. As president of the central bank in German-occupied Poland, he reorganized the currency. Without his work, the Nazi occupation would not have been able to function economically. Hans Frank, the governor general of Poland who oversaw the murder, enslavement, and deportation of millions of Poles and Polish Jews was a great admirer of Paersch. Frank was found guilty of war crimes at Nuremberg and executed. And Paersch should have been put on trial as well, but instead he lived freely and applied for a senior position at the BdL. He was rejected because of his wartime past but was compensated with a position as vice president of the Hesse state central bank, where he worked until 1957. Paersch then found a new sinecure: as official liquidator of the Reichsbank, whose legal affairs still stuttered on.

Like Schacht during the 1930s, Ludwig Erhard, the economic director of the western occupation zones, was hailed as a miracle maker. The truth was more prosaic. Erhard, a future chancellor of West Germany, was an ambiguous figure. He had refused to join any Nazi party organizations and was connected to the German resistance. But Erhard had accepted funds from the Reichsgruppe Industrie, the organization of German industrialists, including IG Farben, that supported Hitler. He was awarded the war service cross for his work on economics. By 1943 Erhard’s work had come to the attention of the German bankers and industrialists who realized that the war was lost. They formed two groups to prepare for the future and ensure their continuing economic power in the postwar world: the Committee for Foreign Economic Affairs, composed of financiers and industrialists, and the Small Working Group, composed solely of industrialists, including Hermann Schmitz, the CEO of IG Farben and BIS director. Erhard was the connection between the two groups.

The members of the Committee for Foreign Economic Affairs included Hermann Abs of Deutsche Bank, the most powerful commercial banker in the Third Reich. The dapper, elegant Abs was an old friend of the BIS. He had been sent there by Schacht during the 1930s to try and stall demands for repayments of the loans that financed Germany after 1918.10 In Basel, Abs frequently met with a British banker called Charles Gunston, who was a protégé of Montagu Norman. Gunston managed the Bank of England’s German desk, which made him immensely important during the 1930s. Gunston was so keen on the new Germany that he spent his 1934 summer holidays at a work camp for enthusiastic Nazi party members. He also admired Abs and later described him as “Very urbane. Always a velvet glove around an iron fist.” Abs did not join the Nazi party, but he was so essential for the functioning of the Third Reich’s economy that he did not need to. As the head of Deutsche Bank’s foreign department during the war, Abs was the lynchpin of the continent-wide plunder, directing the absorption of Aryanized banks and companies across the Third Reich. During the twelve years of the Third Reich, the bank’s wealth quadrupled. Abs sat on the board of dozens of companies, including, naturally, IG Farben.

In 1943 the Nazi industrialists asked Erhard to write a paper on how German industry could be converted back to peacetime production. Erhard argued for a free and competitive market with a gradual elimination of state controls. German industry would be redirected, as quickly as possible, to producing consumer goods. Erhard was taking a substantial risk by put- ting his name to such thoughts: any postwar planning that assumed that Germany might lose the war was enough to send the author to a concentration camp.

But Erhard had protection at the highest levels of the Nazi state: Otto Ohlendorf, the chief of the SS internal security service. The SS was a business as well as a killing machine, the state engine of looting, plunder, and despoliation, from the gold extracted from the teeth of concentration camp victims to the banks, steelworks, factories, and chemical plants of Nazi- occupied countries. Ohlendorf had extensive first-hand experience of the SS’s methods. Between 1941 and 1942, Ohlendorf had commanded Einsatzgruppe D, the extermination squad operating in southern Ukraine, which had murdered ninety thousand men, women, and children. Ohlendorf, an intelligent and educated man, showed great concern for the psychological welfare of his squad’s gunmen. He ordered that they should all fire at the same time at their victims, so as to avoid any feelings of personal responsibility.

Ohlendorf also held a senior position at the Ministry of Economics, supposedly focusing on Nazi Germany’s foreign trade. By 1943, after the Russian victory at Stalingrad, Ohlendorf also understood that the Third Reich would eventually lose the war. His real job was to plan how the SS would keep its financial empire so that Germany would reassert its economic dominance over Europe after the inevitable defeat. The postwar priority was rapid monetary stabilization, to preserve economic stability and avoid Weimar-style hyperinflation. Germany would need a new currency, which would have to be imposed by the occupying powers, as well as a mixed economy of state and private sectors. There was an obvious overlap with Erhard’s ideas. Ohlendorf came to hear of Erhard’s work, and Erhard was persuaded to send him a copy of his memo.

As the Allies advanced on Germany, the Nazis stepped up their plans for the postwar era. On August 10, 1944, an elite group of industrialists gathered at the Maison Rouge Hotel in Strasbourg, including representatives of Krupp, Messerschmitt, Volkswagen, and officials from several ministries. Also in attendance was a French spy, whose report reached the headquarters of the Allied invasion force, from where it was forwarded to the State Department and the Treasury. The account of the meeting is known as the Red House Report.

Germany had lost the war, the Nazi industrialists agreed, but the struggle would continue along new lines. The Fourth Reich would be a financial, rather than a military imperium. The industrialists were to plan for a “postwar commercial campaign.” They should make “contacts and alliances” with foreign firms but ensure this was done without “attracting any suspicion.” Large sums would have to be borrowed from foreign countries. Just as in the prewar era, the US connection and links to chemical firms, such as the American Chemical Foundation, were essential to expanding German interests. The Zeiss lens company, the Leica camera firm, and the Hamburg-American line had been “especially effective in protecting German interests abroad.” The firms’ New York addresses were passed around the meeting.

A smaller group attended a second, select meeting. There the industrialists were instructed to “prepare themselves to finance the Nazi party, which would be forced to go underground.” The prohibition against exporting capital had been lifted, and the government would help the industrialists to send as much money to neutral countries as possible, through two Swiss banks. The Nazi party recognized that after the defeat, its best-known leaders would be “condemned as war criminals,” the intelligence report concluded. However, the party and the industrialists were cooperating in placing the most important figures in positions at German factories as research or technical experts.

US Treasury officials were closely watching this massive export of German capital, much of which was going to South America. Funds were pouring out of Germany and other Nazi-controlled territories, Harry Dexter White—an American economist and senior U.S. Treasury representative—told a meeting of Treasury officials in July 1944 during the Bretton Woods conference. Nazi leaders were preparing to flee the country or have their property confiscated. “They bought estates and industries and corporations, and there is evidence that the German corporations have been buying into South American corporations in the expectation of being able to re-establish themselves there after the war.” The cloaking operation was extremely complex, said White. “They are working through first, second and third fronts, so it is pretty hard to trace it without having all the data available.” The Treasury officials also discussed the BIS at the same meeting, noting that out of twenty-one board members and senior officials, sixteen were “representatives of countries that are either now our enemies, or are occupied,” including Walther Funk—a former journalist, ardent Nazi, and point man on the BIS board for big business and industrialists—and Hermann Schmitz, the CEO of IG Farben, the giant German chemical conglomerate.

Emil Puhl, the vice president of the Reichsbank and BIS director, discussed the Nazi leadership’s postwar strategy with McKittrick at the BIS in March 1945, during the last few weeks of the war. The information he passed to McKittrick echoes that included in the Red House Report and Harry Dexter White’s discussion at Bretton Woods. Military defeat was merely a temporary setback. The Nazis were fanatics and would never give up their ideals, Puhl explained. Instead they would go underground. McKittrick immediately informed Dulles of the conversation. Dulles sent the information on to London, Paris, and Washington on March 21, 1945. His telegram noted that Puhl had “just arrived” in Basel:

He said that the jig was up but that Nazis had made careful plans to go underground, that every essential figure had his designated place, that Nazism would not end with military defeat as Hitler and his fanatical followers would no more change their philosophy than would Socrates or Mohammed, that these men were just as convinced of their cause as ever and carried a great body of people with them. He emphasized that Nazism was like a religion, not merely a political regime.

After the Allied victory, Donald MacLaren, the British intelligence agent who had brought down GAF, IG Farben’s US subsidiary, was sent to Berlin to investigate the chemicals conglomerate. MacLaren wrote an extensive dossier on IG Farben, its history and key personnel, and its central role in preparing and waging war. MacLaren laid out in detail how IG Farben’s trading partners in New York and London, such as Standard Oil, had willingly entered into cartel arrangements with the chemical conglomerate, thus ceding control to Germany and helping it to rearm.

* * * * *

SO WHAT THEN should be the fate of the Nazi industrialists such as Hermann Schmitz? For MacLaren, the answer was clear. Schmitz had murdered, enslaved, and plundered from behind his desk, rather than on the battlefield. He was a war criminal as much as the leaders of the SS and should face the same punishment. But not all Allied officials agreed. When MacLaren asked his superiors if the industrialists were to be included with the Nazi military leadership as war criminals, he was told, “The term ‘industrialists’ raises a point on which no definite line has been laid down.” Schmitz, as MacLaren noted, certainly believed himself to be protected by his connection to the BIS and to Thomas McKittrick.

At one stage it seemed justice might be done. In 1947, twenty-four IG Farben executives, including Schmitz, were put on trial at Nuremberg. Twelve were found guilty. The sentences were derisory. Schmitz was sentenced to four years. Georg von Schnitzler, the commercial chief, who had apparently used the BIS to contact the Allies, received five years. Otto Ambros, a senior manager of IG Auschwitz, received eight years. Ambros testified that the prisoners at IG Auschwitz were fortunate to “have been spared all that which happened” in the main concentration camp. The IG managers had also saved them a commute. The slave laborers could live on-site and no longer had to march fourteen kilometers a day to and from the main camp. “There was no stinting when Monowitz was built. It was heated and hygienic,” Ambros explained, although Rudy Kennedy, who worked as a slave laborer for IG Farben when he was a teenage boy, remembered conditions rather differently. The slave laborers were served soup at lunchtime, soup with a “higher calorific content” than most Germans enjoyed in the immediate postwar years. “I believe that IG Farben and its officials deserve not a reproach, but due recognition,” Ambros later wrote, and they would soon get it.

IG Farben was broken up into four successor companies: BASF, Bayer, Hoechst, and Cassella. The dismantling was no punishment. The shareholders asked the occupation authorities to transfer the conglomerate’s assets to the successor firms, and they agreed. BASF, Bayer and Hoechst immediately reconstituted themselves, with the same staff working in the same offices and factories. A new holding company was created to deal with the legal fallout and consequences of the breakup. The legacy firms said they had no obligations for IG Farben’s sins, as they had not legally existed during the war. It was a shameless and completely successful legal maneuver.

In 1949 John McCloy left the World Bank and started work as US High Commissioner for West Germany. McCloy, the former partner in the Cravath law firm that had represented GAF, the American wing of IG Farben, did not forget his former business partners. Hermann Schmitz was released from prison in 1950, and by February 1951 all of the IG Farben executives were free. Mc- Cloy also freed Alfried Krupp. The Krupp industrial empire had worked about eighty thousand slave laborers to death in a network of fifty-seven labor camps guarded by the SS. Krupp was sentenced to twelve years imprisonment, but he served less than three.

Otto Ohlendorf, the former commander of Einsatzgruppe D and protector of Ludwig Erhard, was an exception. He was hanged. But McCloy ordered that Nazi camp doctors who had conducted experiments on inmates, Nazi judges who had dispensed Gestapo justice, and SS officers who had organized mass killings be freed or have their sentences drastically reduced. Seventy- four of the 104 defendants convicted at Nuremberg had their sentences substantially reduced, and ten death sentences were commuted. Heinz Hermann Schubert, Ohlendorf’s adjutant, who had personally supervised a mass execution of seven hundred people at Simferopol, had his death sentence commuted and was sentenced to ten years in prison.

The IG Farben managers were swiftly welcomed back into the German business community. Hermann Schmitz joined the supervisory board of the Deutsche Bank. Otto Ambros, provider of soup to slave laborers, joined numerous company boards and set up as an economic consultant. His clients included Konrad Adenauer, the federal chancellor. Kurt von Schröder, the banker and BIS director who had brokered Hitler’s rise to power, was found disguised as an SS corporal in a POW camp in France. He was tried by a German court for crimes against humanity and was sentenced to three months in prison. Walther Funk, the dissolute Reichsbank president and BIS director, was found guilty of war crimes and sentenced to life imprisonment. The trial established how Funk had worked with Himmler, the SS chief, to ensure that gold and valuables from camp victims were credited to a special account at the Reichsbank in the name of “Max Heiliger” for the SS. Funk was released from Spandau prison for health reasons in 1957 and died three years later. Emil Puhl, Funk’s deputy, BIS director, and friend of Thomas McKittrick, was also convicted of war crimes. Sentenced to five years, he was released in 1949.

Ironically, it seems the Warburgs were also instrumental in the reconstruction of German industry, thanks to the family’s friendship with McCloy. Freddie Warburg had persuaded McCloy to take the position of president of the World Bank. The two men had known each other since the 1920s when Mc- Cloy had done legal work for Kuhn, Loeb, a branch of the Warburg empire. When Eric Warburg and McCloy dined together in August 1949, Warburg pleaded with McCloy to stop the dismantling and destruction of German industrial plants. Soon after, Warburg gave McCloy a list of ten steel, gas, and synthetic rubber concerns, including the Thyssen steel works and the Krupp gas works, to be saved. All were spared. McCloy occasionally took a moral stand—he repeatedly told Germany to return Jewish property. When he was informed that Germans who served on de-Nazification boards were being shunned as traitors, he ordered state governments to guarantee such people civil service jobs.

As for Schacht, charged with organizing Germany for war, he still had powerful friends in London and Washington. Green Hackworth, the legal adviser to the State Department, was working behind the scenes to help the former Reichsbank president. During the war, Hackworth had repeatedly sabotaged attempts to publicize Nazi war crimes and bring their perpetrators to justice, arguing that such moves would endanger American POWs. Breckinridge Long, the assistant secretary of state, who had once praised Mussolini, supported Hackworth. Long and his aides had prevented Jewish refugees from obtaining visas, suppressed news of the Holocaust, and derailed attempts to document Nazi war crimes. In 1944 Henry Morgenthau’s staff wrote a detailed paper that documented the State Department’s wartime record. Its title was “Report to the Secretary on the Acquiescence of this Government in the Murder of Jews.”

Once again the Dulles connection came to the fore. In late 1945 Schacht requested that Hans Bernd Gisevius be summoned as a defense witness to testify on his behalf. Gisevius, the wartime German consul in Zürich, was also an officer in the Abwehr, German military intelligence, a member of the anti-Hitler resistance, and one of Allen Dulles’s most important agents, known as OSS source 512. Declassified US intelligence documents show that Gisevius was expected to testify that Schacht had attempted to overthrow Hitler in 1938 and to talk about Schacht’s difficult relationship with the Nazi party, so that Schacht could present himself as a member of the resistance.

The documents reveal how much effort the State Department made to get Gisevius, who was living near Geneva in Switzerland, to Nuremberg to aid Schacht. A telegram from US diplomats in Berlin to the State Department, on December 10, 1945, requests that the “necessary arrangements be made to bring him to Nuremberg on ten days’ notice and that Tribunal be kept fully advised through this office.” Three days later, Leland Harrison, the US ambassador to Switzerland, cabled Washington that Gisevius was willing to appear as a defense witness for Schacht and could depart for Nuremberg any time in January on forty-eight hours’ notice. Harrison asked the State Department to alert him when Gisevius should arrive in Nuremberg. The US government, was, in effect, acting as an aide to Schacht’s defense lawyer, arranging for Gisevius’s transport and logistics, and coordinating his appearance with the Nuremberg Tribunal.

The US team at Nuremberg was split over Schacht. Robert Jackson, the chief US prosecutor, wanted to prosecute him. But his deputy, William Donovan, the former OSS chief, was opposed. Donovan argued that Schacht had been sympathetic to the Allies in the early years of the war. And there was the postwar German economy to consider, always a crucial factor in US pol- icy calculations. A harsh cross-examination of Schacht would alienate the important German businessmen and financiers who favored good relations with the United States. There was consternation in Washington when Schacht’s lawyer told the press that Sam Woods, the US Consul General in Zürich, had offered the Reichsbank president a deal in that—that if he resigned from Hitler’s government, he would be returned to power after the war. Considering all we now know about the secret back channels between the United States and Nazi businessmen, this seems highly plausible.

Woods had long been a conduit between the US government and the Axis powers. After Admiral Horthy, Hungary’s wartime leader who had permitted 430,000 of his own citizens to be deported to Auschwitz, was released from custody in 1946, Woods invited him to his wedding.

The State Department’s efforts on Schacht’s behalf worked. He was initially found guilty but was then acquitted, to the fury of the Soviet judge. There were also suspicions that Montagu Norman, governor of the Bank of England and BIS founding board member, had somehow managed to influence the proceedings through Sir Geoffrey Lawrence, the British judge. The British obsession with class seemed to play a part. Francis Biddle, the American judge, recorded in his diary that Lawrence had claimed Schacht was a “man of character” while other defendants were “ruffians.” Norman was immensely relieved when Schacht was not hanged at Nuremberg, recalled his stepson, the writer Peregrine Worsthorne. “He did not think Schacht was guilty for the crimes of the war, but obviously being on speaking terms with any prominent Nazi made you a pariah after the war. He had made his mind up about Schacht before the war and the horrors.” (In later years Priscilla Norman angrily denied that her husband had tried to influence the outcome of Schacht’s trial.)

Intriguingly, Worsthorne believes that Norman and Schacht managed to stay in communication during the war—if they did, the BIS would have been the natural channel. “Norman kept up this strange relationship that he had with Schacht, even during the war. Both during the First and Second World Wars the capitalist world was not at war. The bankers kept the system in cold storage. I am sure that there would have been absolutely no record of their contacts and that Norman kept in touch with him without the government knowing.”

After several more years of legal travails with the German authorities, Schacht was finally cleared of all charges. He started a lucrative second career as an investment adviser to countries in the developing world and set up his own bank, Schacht & Co. Schacht even visited Israel, albeit inadvertently when his airplane stopped briefly at Lydda airport in 1951. Schacht and his second wife, Manci, wanted to stay on board but were taken to the airport cafeteria to have breakfast. The Schachts handed their passports to the Israeli police and were photographed by reporters. His wife was too nervous to eat, so Schacht ate her breakfast as well. A waiter asked in German how “Herr President” had enjoyed his breakfast, using Schacht’s Reichsbank honorific. The waiter told Schacht that he was from Frankfurt and missed his hometown. He asked for Schacht’s autograph, which Schacht provided. The Schachts left Israel with no problems, although a furor erupted in the Knesset, the Israeli parliament, when the news broke that Hitler’s banker had passed through the Jewish state without being arrested.

The first-quarter earnings season rolls on this week, and perhaps the ...

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Ideas the US economy had returned to a growth path that was sufficiently strong to permit the Federal Reserve to begin normalizing monetary policy have been challenged by the disappointing string of data. This will culminate with the first estimate of Q1 GDP on April 29.  There still seems to be some downside risk to the consensus of 1.0% annualized growth.


A few hours later the FOMC will release a statement following its two-day meeting.  There will be no change in policy, but investors will be looking for clues that a June hike is also off the table.  Expectations have already shifted away from June, and the Federal Reserve appears determined to keep the investors focused on economic data, not a particular time frame.


The Fed already acknowledged the slowdown in Q1.  As we have noted, since the recovery has begun, the first part of the year has repeatedly been soft.  Recall over the last five years, Q1 growth has averaged 0.6% (annualized), whereas growth in the rest of the quarters has averaged 2.8%.  The Fed's point is that the headwinds on the US economy will likely prove transitory.  There is no reason for the Fed to modify its expectation that the under-utilization of the labor market is will continue to diminish.  


The April data has been mixed.  The regional survey data have been soft.  However, the four-week average  of weekly initial jobless claims have fallen to a new cyclical low. April auto sales, which will be reported at the end of the week, are expected to be near a 17 mln unit annual pace.  This is above both the Q1 average (16.59 mln) and the 12-month average (16.65 mln).


American households are positioned to step up their consumption.  Consumption was particularly strong in Q4 14.  The 4.4% annualized increase in Q4 was the strongest since 2006.  Perhaps Americans spent their anticipated gasoline savings.  This coupled with the weather may have spurred a break in Q1.  Consumption growth was more than halved in Q1 15.  The consensus is for a 1.7% increase, which might be optimistic.  However, the consumer returned in March.  Not only were auto sales strong but retail sales as a whole posted the biggest increase in a year.


Meanwhile, the downside pressure on prices appears to be abating.  Monthly core CPI readings consistently surprised to the upside in the first quarter, even if only marginally. Break-evens (yields of inflation protected securities and conventional bonds) have risen. Many economists are detecting an upward pressure on labor costs.  The Q1 Employment Cost Index will be released the day after the FOMC meeting.  It is expected to rise by 0.6%, the same as in Q4 14.  This would lift the four-quarter average to its highest level since 2008.


Ironically, survey sources of inflation expectations, which the Fed has placed emphasis on over market-based measures may have become un-anchored.  The final University of Michigan inflation expectations survey results will be reported at the end of the week.  The preliminary figures showed the 1-year inflation expectation falling to 2.5% from 3.0%, and the 5-10 year expectation slipping to 2.6% from 2.8%.  While this sounds like a small adjustment, the 2.6% matches a six month low, which itself was the lowest since March 2009.  


The Reserve Bank of New Zealand, the Riksbank of Sweden and the Bank of Japan meet on April 29.  New Zealand's mini-tightening cycle that lifted the cash rate from 2.50% to 3.50% is over.  Policy has been on hold since the middle of last year.  While no change in policy is expected, the two cent decline in the New Zealand dollar in the middle of last week was at least partly fueled by expectations of a dovish statement.  RBNZ officials wish investors did not quite like the local dollar as much as they do, having driven it up by nearly 5% on the official trade-weighted measure over the past three months.  


The Riksbank is continuing to wrestle with deflationary forces, and this is expected to result in another step into the world of QE.  There are two complimentary tools the Riksbank is using.  Its repo rate is already set at -25 bp.    It could cut it again, and the Bloomberg consensus expects a 10 bp move.  The other tool is its bond purchases.  These are likely to be increased further from the SEK30 bln announced last month.  We are slightly less convinced of a rate cut than an expansion of QE.  The krona looks vulnerable against the euro from a technical perspective.


There are three reports from the eurozone that will garner attention, but outside of headline risk, are not game-changers.  The flash April CPI estimate is expected to improve from -0.1% in March. There is even a chance of a positive 0.1% reading, but from an economic and policy point of view, he difference is not significant.  Separately, money supply and lending data for March should show the gradual improving trend has continued.  Lastly, Spain is in the midst of a robust economic rebound.  Growth in Q1 may have nudged ahead of Q4 14's 0.7% quarter-over-quarter pace.  The expansion of GDP is not translating into steady improvement in the labor market, nor does it appear to be bolstering support for the government, which faces national elections at the end of the year.  


Meanwhile, the ECB's asset purchase program continues apace.  Spain has recently sold both 3 and 6 month bills with negative yields.  Last week Belgium sold 5-year bonds with negative yields. The ECB's minus 20 bp deposit rate has not offered a solid floor to eurozone interest rates.  German 2 and 3-year bonds yields are below the deposit rate. Finland, Netherlands and Belgium's 2-year note yields are also below the deposit rate, and France is on the cusp.   


The debate over how to resolve Greece's financial straits within monetary union remains unsolved three months after a new Greek government was elected.  The Troika's progress with the previous government had broken down six months before Syriza's election victory in Greece. There has been a strong correlation between the windows of opportunity and disappointment.   The next Eurogroup meeting is not until May 11, and that appears to be the next such opportunity.  There is precedent in Europe for taking the matter to the Council of Ministers, composed of the heads of state when finance or other ministries cannot reach an agreement on a particularly thorny issue. 


Meanwhile, the strict constructionists, for the lack of a better term, at the ECB have opened up a new line of attack:  Greek banks access to ELA (Emergency Lending Assistance).  Recall the ECB retracted a waiver for Greek government bonds as collateral, which forces Greek banks its own central bank.  Under this facility the Greek central bank can loan to Greek banks at a higher rate for collateral unacceptable to the ECB.  The risk remains on the Greek central bank's balance sheet, but it requires ECB approval.  The ECB has been doling out its approval a little at a time on a weekly basis.  


The critics raise two points.  First the ELA is by definition for emergencies, but Greek banks are not changing their business models, or in other ways, responding to the emergency,  Second, that the haircut charged for using Greek government bonds as collateral needs to be reviewed in light of the circumstances.  


Although there is no formal mechanism to eject Greece from the monetary union, cutting the Greek banks off of central bank funding has long been perceived to be one way that the process can be engineered.  Draghi has indicated a reluctance to make such a political decision.  We would expect him to be able to marshal a majority to support this position, but perhaps not without a compromise, which could include a greater haircut.  The net effect would be to bring forward the day that Greek banks exhaust their collateral.  


Growth in the UK is expected to have slowed to a 0.4% quarter-over-quarter pace from 0.6% in Q4 14.  The May 7 election looms large and overshadows the Q1 GDP report.  With the Lib-Dems ruling out participating in a coalition that includes the Scottish Nationalist Party, it is difficult to see how a majority government will be cobbled together in a country that insists on calling the absence of a single party majority, a hung parliament.  


Japan full economic calendar,  but the general view that the world's third large economy crawling rather than truly rebounding after contracting April through September last year. The BOJ is likely to downgrade its economic assessment at the conclusion of its meeting on April 29. A build of inventories warns of weakness in industrial output.  Overall household spending remains weak even though the labor market is tight by official measures.  Despite aggressive expansion of the BOJ balance sheet, inflation has fallen back toward zero when fresh food and last year's sales tax are excluded.  


Politics may overshadow the Japan's economic news.  Prime Minister Abe will speak to a joint session of the US Congress on April 29.  Abe will be the first Japanese prime minister to do so.  He is likely to focus on two topics in addition to some reflective remarks about the end of WWII:   Security and the Trans-Pacific Partnership trade agreement.  Abe was not an enthusiastic supporter initially of the trade agreement but has become among its leading advocates.  If Obama is not granted trade promotion authority, which essentially scuppers the agreement, Abe's domestic reform efforts also would be a setback.


Lastly, the combination QE in the eurozone (and Sweden) and Japan, with China easing and expectations pushed out for the Fed's lift off, has increased the preference for risk assets.  The MSCI Emerging Market equity index has advanced for four consecutive weeks.  Note that Brazil’s Bovespa gained 3.5% last week, bringing the year-to-date advance to 13.2%.   The Brazilian central bank is one of the few central banks that remains in a tightening mode.  It is expected to hike the key Selic rate another 50 bp on April 29 to 13.25%. 


The S&P 500 is at record highs, and the NASDAQ is near the record high it set 15 years ago.  The Nikkei is above 20000 for the first time since 2000.  German, French and Italian stock markets are up more than 20% this year. China's Shenzhen Composite is up 59% this year, with the Shanghai Composite up 36%.  


The June light sweet oil futures contract ended a four-week advance last week but is still 23% above last month's contract low.   Other industrial commodities have also begun firming.   Iron ore posted its biggest weekly advance in nearly three years last week, rising more than 12%. 

On Saturday we once again explored the question of whether central banks are creating deflation. The idea that post-crisis DM monetary policy may be causing disinflationary pressures to build is somewhat counterintuitive on its face but in fact makes quite a lot of sense. Here’s how we explained it:

The premise is simple. By keeping rates artificially suppressed, the central banks of the world effectively make it impossible for the market to purge itself of inefficient actors and loss-making enterprises. As a result, otherwise insolvent companies are permitted to remain operational, contributing to oversupply and making it difficult for the market to reach equilibrium. The textbook example of this dynamic is the highly leveraged US shale complex which, by virtue of both artificially low borrowing costs and the Fed-driven hunt for yield, has retained access to capital markets in the midst of the oil slump and has thus continued to drill contributing to the very same price declines that put the entire space in jeopardy in the first place.

Expanding upon that a bit, we might say this: those who have access to easy money overproduce but unfortunately, they do not witness a comparable increase in demand from those to whom the direct benefits of ultra accommodative policies do not immediately accrue. Meanwhile, as WSJ notes, governments are reluctant to spend in the face of heavy debt burdens and increased scrutiny on fiscal policy in the wake of the European debt crisis while China, that all important source of voracious demand, is in the midst of executing the dreaded “hard landing.” Here’s more:

The global economy is awash as never before in commodities like oil, cotton and iron ore, but also with capital and labor—a glut that presents several challenges as policy makers struggle to stoke demand.


“What we’re looking at is a low-growth, low-inflation, low-rate environment,” said Megan Greene, chief economist of John Hancock Asset Management, who added that the global economy could spend the next decade “working this off.”


The current state of plenty is confounding on many fronts. The surfeit of commodities depresses prices and stokes concerns of deflation…


Meanwhile, public indebtedness in the U.S., Japan and Europe limits governments’ capacity to fuel growth through public expenditure. That leaves central banks to supply economies with as much liquidity as possible, even though recent rounds of easing haven’t returned these economies anywhere close to their previous growth paths.


“The classic notion is that you cannot have a condition of oversupply,” said Daniel Alpert,an investment banker and author of a book, “The Age of Oversupply,” on what all this abundance means. “The science of economics is all based on shortages.”

But as we first highlighted early last month, signs that continued access to capital markets were triggering overproduction and oversupply in the oil market were readily apparent, as the US looks set to run out of oil storage capacity in just a few months' time.

At Cushing, Okla., one of the biggest oil-storage hubs in the U.S., crude oil is filling tanks to the brim. Last week, crude-oil inventories in the U.S. rose to 489 million barrels, an all-time high in records going back to 1982.

And it’s not just oil:

Around the world, about 110 million bales of cotton are estimated to be sitting idle at textile mills or state warehouses at the end of this season, a record high since 1973 when the U.S. began to publish data on cotton stockpiles.


Huge surpluses are also seen in many finished-goods markets as the glut moves down the supply chain. In February, total inventories of manufactured durable goods in the U.S. rose to $413 billion, the highest level since 1992 when the Census Bureau began to publish the data. 

And as we recently discussed in “Chinese Economic Outlook ‘Skewed Heavily’ To The Downside” and in “Chinese Economy ‘A Lot Worse Than You Think’”, China's appetite for metals has abated as demand for steel is now below levels last seen in 2008 which has in turn had a devastating effect on an iron ore market which had come to depend on Chinese demand: 

Central to the problem is a cooling Chinese economy combined with tepid demand among many developed countries. As China moves away from its reliance on commodity-intensive industries such as steelmaking and textiles, its demand for many materials has slowed down and, in some cases, even contracted…


For nearly a decade, producers struggled to keep up with the robust demand from China. But with Chinese output now slowing—its gross domestic product is expected to rise 7% this year, down from 10.4% five years ago—no economy has emerged to take up the slack.

In the end, central banks continue to keep conditions loose, seemingly oblivious (or perhaps willfully ignorant) to the fact that low rates and booming equity markets are contributing to the supply glut without effectuating a concomitant increase in demand. Meanwhile, producers — such as heavily indebted US shale companies — are forced to keep producing in order to keep what little revenue is still coming in flowing, a dynamic which is exacerbated when companies take on debt (and thus more interest expense) to stay alive:

Even if governments have the capacity for more fiscal stimulus, few have the political will to unleash it. That has left central banks to step into the void. The Federal Reserve and Bank of England have both expanded their balance sheets to nearly 25% of annual gross domestic product from around 6% in 2008. The European Central Bank’s has climbed to 23% from 14% and the Bank of Japan to nearly 66% from 22%...


Producers have their own share of the blame. In a lower commodity price environment, producers typically are reluctant to cut production in an effort to maintain their market shares.


In some cases, producers even increase their output to make up for the revenue losses due to lower prices, exacerbating the problem of oversupply.

Here is the vicious cycle visualized:

*  *  *

For those wondering how this will play out, consider that sooner or later, in order to avoid liquidation and stave off severe disinflationary pressures, someone will have to call in "Helicopter Janet" and once the cash paradropping begins well, we'll see you in the Weimar Republic.

Developers weren’t “allowed to pay for land purchases with borrowed money from PRC banks,” said Cheong Yin Chin, a Singapore-based analyst at independent research firm CreditSights Inc. “They raised money offshore, the proceeds were remitted to China as shareholders’ equity to the onshore subsidiaries, so it becomes a form of equity and you can use equity to buy land.”

In the immediate aftermath of yesterday's destructive Nepal earthquake, which has led to hundreds of aftershocks and a constantly rising death toll, currently exceeding 2000, the most visually stunning, if quite deadly, phenomenon was a massive avalanche on Mt. Everest and leading to at least 17 casualties, including a Google executive, and 61 injured.

According to Xinhua, the avalanche began Saturday on Mount Kumori, a 7,000-meter-high mountain just a few miles from Mount Qomolangma, also known as Mount Everest, gathering strength as it headed toward the base camp where climbing expeditions have been preparing to make their summit attempts in the coming weeks, he said. Numerous climbers may now be cut off on routes leading to the top of the world's highest peak.

The avalanche plowed into a part of base camp, a sprawling seasonal village of climbers, guides and porters, flattening at least 30 tents, Tshering said. All of the dead and injured were at base camp.

For a sense of the base camp's location relative to the rest of the world's tallest mountain refer to the image below, taken from a May 2014 WSJ story discussing the "dangerous business" of Everest, when 16 sherpas died in what was previously the deadliest disaster in the mountain's history.

Survivors reached over Internet messaging services described a scene of terror as the snow and ice roared through the nearby Khumbu Icefall and into the camp.

The nationalities of base camp victims were unclear as climbers described chaotic attempts to treat the injured amid fears of more landslides and aftershocks that continue to rattle the region. Chinese media "West China City Daily" reported that a Chinese climber and two Sherpa guides were among the dead.

Dan Fredinburg, a Google executive who described himself as an adventurer, was among the dead, Google confirmed. Lawrence You, the company's director of privacy, posted online that Fredinburg was with three other Google employees hiking Mount Qomolangma. Fredinburg served as product manager and the head of privacy at Google X. has further details:

The avalanche — or perhaps a series of avalanches hidden in a massive white cloud — plowed into a part of base camp, a sprawling seasonal village of climbers, guides and porters, flattening at least 30 tents, Tshering said. All of the dead and injured were at base camp.


Survivors reached over Internet messaging services described a scene of terror as the snow and ice roared through the nearby Khumbu Icefall and into the camp.


Azim Afif, the 27-year-old leader of a climbing team from University of Technology Malaysia, said in an interview on the service WhatsApp that his group was in a meal tent waiting for lunch when suddenly the table and everything around them began shaking.


When they ran outside, they saw "a wall of ice coming towards us," and heard the cries of Sherpa guides shouting for people to run for their lives, he wrote. "We just think to find a place to hide and save our life."


The small team planned to sleep together Saturday night in one large tent "to make sure if anything happen, we are together," Afif said. Quickly, though, climbing teams scattered across the camp and began to work together to search for survivors.


Gordon Janow, the director of programs for the Washington-based guiding outfit Alpine Ascents International, said from Seattle that his team had come through the avalanche unscathed. Their first goal was to deal with the devastation at base camp, he said, and they would then try to create new routes to help climbers stuck above the treacherous Khumbu Icefall. The icefall, which is just above base camp, is a key route up the lower part of Everest.


"Everybody's pretty much in rescue mode, but this is different from some independent climbing accident where people can be rescued and taken somewhere else," Janow said. "I don't know where somewhere else is."

Follow some truly epic photos as the avalanche was headed toward base camp...


... as well as a whole series of photos taken by AFP's Roberto Schmidt who was at base camp on Everest when the avalanche hit, courtesy of Telegraph:


Pictures taken by AFP's South Asia photo chief Roberto Schmidt show an enormous cloud of snow and debris cascading down the mountain as survivors recalled the horrifying moment that disaster struck on Saturday.


"I ran and it just flattened me. I tried to get up and it flattened me again," Singapore-based marine biologist George Foulsham told AFP at base camp. "I couldn't breathe, I thought I was dead. When I finally stood up, I couldn't believe it passed me over and I was almost untouched."


A spokesman for Nepal's tourism department, which issues the permits to climb the world's tallest mountain, said the death toll had risen to 17 and could increase further. "Seventeen have been reported dead so far and 61 are injured," said Tulsi Gautam. "Those who are able are walking down. Others are being airlifted to Pheriche." Here, rescuers use a makeshift stretcher to carry an injured person after an avalanche triggered by an earthquake flattened parts of Everest Base Camp.


Expedition guide Pasang Sherpa searches through flattened tents in search of survivors


An injured porter is transfered onto a makeshift stretcher


Rescuers tend to a sherpa injured in the avalanche


Many had traveled to Nepal for the start of the annual climbing season, which was cancelled last year after 16 sherpa guides were killed in what was previously the deadliest disaster in the mountain's history


People look on at the devastation


Another makeshift stretcher for another casualty


Nepalese Sherpas look up towards an area from where an avalanche descended

The inevitable in Greece gets closer and closer. Looking back, I wonder how many rabbits in the hat there were. More importantly, how many still remain?

black hole

A black swan event is a metaphor for an enormous problem that develops underneath the surface and then suddenly puts the whole financial system at risk. The financial crisis of 2008 was a black swan event, for example, that slowly developed in the US real estate market where excess had ruled in the years before.

Today, market conditions are ideal for a new black swan event to develop. An event like this takes people by surprise, because it matures under the radar in places where no one is looking. Today, for example, everyone is afraid of deflation. That means that everyone is also trying to prepare for deflation.

If everyone takes measures against deflation you get a mass migration to cash and government bonds, however, which are the assets that perform the best in a deflationary environment. Take a look at Japan: the yen had been on the rise for years up until the Japanese central bank took exceptionally aggressive monetary measures to fight the trend (at which they succeeded). Japanese investors historically also like its country’s government bonds, however, ever since deflation tormented the country in the ‘90s. At one point you got a 5% yield on a 10-year Japanese government bond, today you get 0.3% per year for the next 10 years.

Japan 10ySource: Trading Economics, Japan Treasury Department

A comparable drama can be found in Europe today. Even worse, the fear of deflation has grown so much over there that negative interest rates can be spotted in an increasing amount of countries and for increasingly longer maturities. In France, a 10-year bond will still get you 0.35%, while in Germany a government bond with the same maturity will barely yield 0.07%. It only seems like a matter of time before people will have to start paying to keep government bonds in their portfolio. Isn’t that crazy?

Negative interest rates are not exclusive to Europe as well. Last week the first government bond ever with a negative yield was issued in Australia. Not many market watchers saw this coming, which underlines the seriousness of the problem. Negative interest rates change the rules of the game in the financial system, namely. Those who want to save money, have to pay money. Those who create debt, receive additional reward. It is the world upside down, but that is in fact what is happening.

In a few countries in northern Europe a few large investors are already seeing negative interest rates on their mortgage financing. They are not getting a monthly paycheck for creating debt just yet, because at the moment this is still offset by the costs, but it only seems like a matter of time before this mechanism gets going and the larger public gets its hands on it. Because when local countries issue bonds, they often come with a yield that is lower than or equal to the ECB deposit rate, which also dropped below zero (-0.2%) in the meantime (see table below).

ECB deposit

Source: FT, Citigroup

Who is going to save money then? Not a single soul, of course. People will start to create debt en masse, because it is the better and cheaper option. The resulting investments will rise in value, moreover, when an increasing amount of people take on debt in search for returns. Things cannot get a lot crazier than this.

If this is how the system ends up working, we fear that the effects will be irreversible. It is like a black hole that sucks in more and more matter – read: capital – and never lets go. This financial black hole story will also end with a sudden implosion, a flash of light and a big bang, just like in space, and those who do not own hard assets at that point in time could lose every bit of wealth they’ve ever accumulated. As Alan Greenspan, former chairman of the Fed and original promoter of monetary expansion, said once: “Or how you can lose your savings in a blink of an eye”.

The big issue is that we do not see any measure that can reverse this process. Governments are not moving a finger to turn things around; and why would they? They are on the side of the debt creators; the ones that are profiting enormously from this black hole. Central bankers are frustrated, however, because they do not have a lot of tools other than to make monetary demands more flexible, which has the wrong effect: it accelerates the wildfire of negative interest rates.

All of this can only end in financial drama, in our opinion, if no measures are being taken to stop it. Negative interest rates are only attracting more capital, not less, like a black hole in space continuously increasing in size and strength. The ending will be bloody, but that is something no one wants to acknowledge today because returns on government bonds are still the primary focus. We will not participate in this game, for which we cannot envision a happy ending. You are warned!

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