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Where Is China’s Hidden Debt Bomb

Bloomberg asks where China’s debt bomb is hiding. Actually it’s not hidden at all. Here it is. 

  • $21 Trillion Debt Mountain. Roughly the same size as the entire US Banking Sector. It took the US 220 years to get to that number, it took China just 5 years of explosive credit growth. 
  • $6 Trillion In Shadow Banking. Actually, no one knows how large this number is. I have read good data/reports putting this number at $10-15 Trillion range.  
  • Empty cities, shopping centers, massive speculative bubble in real estate, built out infrastructure, rising cost of labor and export driven economy.

 There you go, in plain sight for everyone to see. 

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Where Is China’s Hidden Debt Bomb Google

 

Bloomberg Writes: Where Is China’s Debt Bomb Hiding?

Photograph by Sandro Bisaro

Chinese cities are carrying levels of debt, with Shanghai at 123 percent

As fears rise of companies going bankrupt and local governments defaulting, and with speculation mounting about a coming “Bear Stearns Moment,” it’s worth looking at which parts of China are most indebted.

Digging down into the debt morass, region by region, has only just recently become possible. Following orders from Beijing regulators, as of the end of January and for the first time ever, all of China’s 30-some provinces (including the big, centrally administered cities of Beijing, Shanghai, Tianjin, and Chongqing) have released figures showing their relative states of indebtedness.

Although there’s plenty to worry about, the picture is a very mixed one, with debt-to-revenue ratios varying from a low of 69 percent in the coastal province of Shandong to as high as 156 percent in the fast-expanding megalopolis of Chongqing, previously run by disgraced leader Bo Xilai.

Other top Chinese cities also showed high levels of debt, with Beijing at 135 percent and Shanghai at 123 percent. Still, they didn’t come close to matching some of their global peers, such as the city of Osaka, Japan (181 percent), or the province of Ontario, Canada (226 percent), notes a recent Moody’s Investors Services (MCO)report on China’s provincial debt burdens.

China’s “local government-related debt is not a monolithic system but one that varies greatly,” writes Moody’s analyst Debra Roane in the March 25 report. She also points out that Canadian provinces are able to manage mounting debt because of their “access to a wide range of taxes that they can adjust independently”—not an option for China’s provinces or cities.

Besides overall amount of debt, the Moody’s report looks at other factors influencing the ability of localities to manage their financial obligations. An important one: debt maturity. By that measure, the danger zone shifts to China’s coastal provinces such as Jiangsu (with more than one-third of its debt due this year) and Zhejiang (about 30 percent due before next January). Beijing and Sichuan province also showed high levels of short-term debt.

The composition of the debt is changing, with borrowers increasingly relying less on bank loans and more on less-regulated sources like shadow banking. Those provinces most dependent on trust products, one popular variety of shadow credit, include the coal-mining province of Shanxi with 27 percent, followed by Chongqing at 15 percent. Next is Zhejiang, Jiangsu, and Hebei province near Beijing, all at more than 10 percent. The use of such new products as trusts “complicates the ability of the government to monitor such debt and the ability of market participants to judge the level of indebtedness of local governments,” the report says.

A final concern is the degree to which provinces rely on land sales for their revenue. Again, Zhejiang, Jiangsu, and Chongqing are among the most dependent, with Fujian and Shandong rounding out the top five. (Tibet relies less on land sales than any other region in China.) “While this revenue source has proven to be quite lucrative, it has also been highly volatile and therefore not a reliable source for debt repayment,” warns Moody’s.

One way to make indebtedness less of a risk would be to allow municipalities or provinces to issue bonds, particularly to help cover infrastructure projects that may not provide returns for many years (to date, bond financing by local governments is largely barred). “It’s not fair if projects that will benefit future generations are funded only through the tax payments of the current generation. So it’s OK to issue some bonds but under strict conditions,” said Chinese Finance Minister Lou Jiwei at a recent conference in Beijing, reported China Daily on March 26.

For the big picture? As of June 30, 2013, total local government debt and contingent liabilities had reached 17.89 trillion yuan (almost $2.9 trillion), up 63 percent from the end of 2010, announced China’s National Audit Office at the end of last year.

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America’s Experiment In Debt Slavery Continues Unabated

In a nutshell, the article below has  a number of highly educated attorneys and doctors whining that they cannot afford to buy a new BMW or Audi and get a loan on a large house because of their huge student loan balances. As I shed a tear for them, this is a big problem. Roughly 37 Million Americans now have some sort of a student debt, totaling $1 Trillion. Some are even using student loans as their primary source of income: Student Loans Replace Home Equity ATM’s. 

While it’s a complex financial and personal matter, I would advise people to think twice before getting their college degree. Particularly, if they really on college loans to finance the matter. While it is not a popular opinion, colleges are, more or less, worthless. Let me give you an example.

Let’s take Person A. who starts out as a plumber making $40,000 a year (increasing at 2% per year) right after high school and Person B. who goes to college and graduates with a history degree and a $100,000 debt load. Even if Person B is able to get a better paying job of let’s say $50,000 (which is questionable) it won’t be until about their retirement age that they will be able to catch up, financially speaking, to person A. If at all. According to my quick financial calculations. Making University education not only obsolete, but unnecessary. 

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America’s Experiment In Debt Slavery Continues Unabated Google

 

Ap Writes: $1 trillion student loan debt widens US wealth gap

Rising college costs add to $1 trillion student loan debt, widening US wealth gap

Every month that Gregory Zbylut pays $1,300 toward his law school loans is another month of not qualifying for a decent mortgage.

Every payment toward their student loans is $900 Dr. Nida Degesys and her husband aren’t putting in their retirement savings account.

They believe they’ll eventually climb from debt and begin using their earnings to build assets rather than fill holes. But, like the roughly 37 million others in the U.S. saddled with $1 trillion in student debt, they may never catch up with wealthy peers who began life after college free from the burden.

The disparity, experts say, is contributing to the widening of the gap between rich and everyone else in the country.

“If you graduate with a B.A. or doctorate and you get the same job at the same place, you make the same amount of money,” said William Elliott III, director of the Assets and Education Initiative at the University of Kansas. “But that money will actually mean less to you in the sense of accumulating assets in the long term.”

Graduates who can immediately begin building equity in housing or stocks and bonds get more time to see their investments grow, while indebted graduates spend years paying principal and interest on loans. The standard student loan repayment schedule is 10 years but can be much longer.

The median 2009 net worth for a household without outstanding student debt was $117,700, nearly three times the $42,800 worth in a household with outstanding student debt, according to a report co-written by Elliott last November.

About 40 percent of households led by someone 35 or younger have student loan debt, a 2012 Pew Research Center analysis of government data found.

Allen Aston is one of the lucky ones, having landed a full academic and financial-need scholarship at Ohio State University. The 22-year-old software engineer from Columbus estimates it let him avoid about $100,000 in debt.

Without loans to repay, Aston is already contributing 6 percent of his salary to a retirement fund that is matched in part by his employer and doesn’t have the same financial concerns his friends do.

“I’m making the same money as them, but they have student loans they’re paying back that I don’t. So, it definitely seems noticeable,” he said.

At the other end of the spectrum is Zbylut, an accountant-turned-attorney in Glendale, Calif. He’s been chipping away at nearly $160,000 in student debt since graduating in 2005 from law school at Loyola University in Chicago. Now 48, the tax attorney estimates he could have $150,000 to $200,000 in a 401(k) had the money he’s paid toward loans gone there.

“I’m sitting here in traffic. I’ve got a Mercedes behind me and an Audi in front of me and I’m thinking, ‘What did they do that I didn’t do?'” Zbylut said by cellphone from his Chevrolet. He’s been turned down twice for the type of mortgage he needs to buy a home big enough for himself, the fiancee he would have married already if not for his debts and her 10-year-old son.

“I have more education and more degrees than my father, as does she than her parents, and yet our parents are better off than we are. What’s wrong with this picture?” he said.

Student debt is the only kind of household debt that rose through the Great Recession and now totals more than either credit card or auto loan debt, according to the Federal Reserve Bank of New York. Both the number of borrowers and amount borrowed ballooned by 70 percent from 2004 to 2012.

Of the nearly 20 million Americans who attend college each year, about 12 million borrow, according to the Almanac of Higher Education. Estimates show that the average four-year graduate accumulates $26,000 to $29,000 in loans, and some leave college with six figures worth of debt.

The increases have been driven in part by rising tuition, resulting from reduced state funding and costlier campus facilities and amenities. Compounding the problem has been a trend toward merit-based, rather than need-based, grants as institutions seek to attract the higher-achieving students who will boost their standings.

“Because there’s a strong correlation in this country between things like SAT scores or ACT scores and wealth or income, the (grant) money ends up going disproportionately to students from wealthier families” who tend to perform better on those tests, said Donald Heller, dean of the Michigan State University College of Education.

Those factors, along with stagnating family incomes and declining savings, have made student loans a much bigger part of funding higher education, Elliott said.

Harvard Business School’s Michael Norton wonders whether greater public awareness of the widening wealth gap in the United States would hasten policy change. Norton conducted a 2011 survey that found that people tend to think wealth is more equally distributed than it is.

But with elected officials from President Barack Obama on down now talking about the wealth gap as an urgent public problem, a more complete picture seems to be emerging, he said.

“Both parties are now saying, perhaps inequality has gotten to the point where it’s not fair when people don’t have a chance to rise, and we need to do something about it,” Norton said.

Targeting the soaring cost of higher education, Obama in August proposed the most sweeping changes to the federal student aid program in decades. His plan would link federal money to new college ratings and reward schools if they help low-income students, keep costs low and have large numbers of students earn degrees.

Lawmakers in Congress also are debating how to address the issue, including proposals to allow graduates with high-interest loans to refinance at lower rates.

The American Medical Student Association supports expanding the National Health Services Corps, which provides loan forgiveness in exchange for service in underserved areas.

Nida Degesys, AMSA’s president, graduated in May 2013 from Northeast Ohio Medical University with about $180,000 in loans. The amount has already swelled with interest to about $220,000.

“There were times where this would make me stay up at night,” Degesys said. “The principal alone is a problem, but the interest is staggering.”

Yet, as costly as medical school was, Degesys sees it as an investment in herself and her career, one she thinks will pay off with a higher earning potential.

College degrees can pay off. College graduates ages 25 to 32 working full time earn $45,500, about $17,500 more than their peers with just a high school diploma, according to a Pew Research Center analysis of census data.

Elliott says the country needs to re-think college financing options to bring debt down and graduation rates up.

“We can’t,” he said, “let debt hinder a whole generation of people from beginning to accumulate wealth soon after graduating college.”

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Obama’s Lack Of Strategic Thinking Delivers Another Win For Russia

Tsar Putin issued a directive to Russia’s central bank to immediately create national processing and payment system as MasterCard and Visa pullout due to the US sanctions. While President Obama believes this move will hurt Russia’s economy, over the long-term this is net positive for Russia. As Russia continues it’s diversification from Western influences by shifting their attention to China and India and by structuring/signing massive long term oil and natural gas deals, the West (EU in particular) might soon find itself competing with 3.5 Billion people for limited natural resources.  In addition, as the US financial companies pull out, the West will continue to have less and less influence over Russia’s economy and currency. Another unintentional and clear win for Russia.  

vladimir_putin1

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Obama’s Lack Of Strategic Thinking Delivers Another Win For Russia  Google

AP Reports: Russia to set up own payment system

MOSCOW (AP) — Russia’s President Vladimir Putin said Thursday that Russia will set up its own payment system to rival Visa and MasterCard after the companies pulled their services from several banks in the wake of the sanctions imposed on the country.

Last week, the United States and the European Union imposed travel bans and asset freezes on two dozen Russians who are believed to be Putin’s close allies, following the country’s annexation of Crimea.

The banks of some of those individuals reported suspension of card services. Visa and MasterCard suspended services for St. Petersburg-based bank Rossiya, which was specifically targeted by U.S. sanctions, and two of its subsidiary lenders.

In a meeting with Russian lawmakers Putin said the country’s central bank is “working hard” to set up Russia’s own payment system, citing the recent troubles facing Rossiya and others.

“This is not our decision,” he said in televised comments. “We have to protect our interests, and we will do it.”

Putin expressed “regret” that the companies halted their services and cited Japan’s JCB or China’s UnionPay as examples of successful card business which started off as domestic companies but have expanded internationally ever since.

Russian officials have criticized the reliance on Visa and MasterCard, saying Russian banks are hostage to international corporations.

Z30

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Why Interest Rates Will Remain Low

According to David Kotok, co-founder, chairman and chief investment officer of Cumberland Advisors,  “long-term rates are likely to stay near current levels for quite a while”.

I tend to agree, but I will go even further. Not only will interest rates stay low, but I would expect the 10-Year Note to retrace back to at least 2% over the next 2-3 years. Why? 

Again, the forecast above is based on our incredibly accurate mathematical and timing work. This work predicts a severe bear market in US equities between 2014-2017 and a subsequent deep recession. As it is now, inflation is nonexistent as we continue to deal with debt liquidating deflationary forces.

When the bear market hits (we are almost there), the FED will have no choice but to abandon their “tightening” plan. Instead, a year from now they will be flooding the market with further liquidity/stimulus to try and avoid any further collapse. As you can understand, in such a interest rate environment, short-term rates will remain at zero while long-term tail of the yield curve will flatten once again. 

If you would like to find out exactly when the bear market of 2014-2017 will start (to the day) and it’s internal composition, please Click Here. 

Percent growth

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Why Interest Rates Will Remain Low   Google

The Daily Ticker Reports: Short-term interest rates likely to stay near zero for 2 more years: David Kotok

A week after Janet Yellen unnerved financial markets in her first press conference as Fed chair, markets have settled down. The Dow (DJI), which fell 114 points after she suggested the Fed could raise interest rates “something on the order of six months” after ending its asset purchases, has made up for close to half its losses that day. And the 10-Year Treasury yield (^TNX) has dropped slightly, to 2.7% from 2.78%, raising Treasury prices, which move inversely to yields.

David Kotok, co-founder, chairman and chief investment officer of Cumberland Advisors, tells The Daily Ticker that long-term rates are likely to stay near current levels for quite a while unless the economy tanks — in which case they could drop to near 2% — or inflation takes off, sending rates sharply higher. And he expects short-term rates — which are set more directly by the Fed — will remain near zero. 

“The Fed is still easy. The interest rate is still near zero and it’s going to be there for two more years,” says Kotok who describes himself as an “unabashed fan of Janet Yellen.”

Indeed, in its latest policy statement Fed said that it continued to anticipate near zero short-term rates “for a considerable time after” after it ends asset purchases so long as inflation is under 2% and long-term inflation expectations are contained. At the current rate of Fed tapering, those purchases would end in December. 

The Fed had previously tied raising short-term rates to an unemployment rate at 6.5% or below but dropped the jobless rate reference in its latest communique.

Future Fed policy will be not only data-dependent but also a reflection of the makeup of its policy-making Federal Open Market Committee, says Kotok, noting that the 12-person committee is currently short three members and more changes will follow after those vacancies are filled.

“The nature of the Federal Open Market Committee is likely to develop [as] more dovish, a little less hawkish … because of the changes in personalities in the next year,” says Kotok.

President Obama has nominated former vice chair of Citigroup Stanley Fischer as Fed vice chairman and Lael Brainard, former Undersecretary of the Treasury for International Affairs, to the Fed board. Current Fed Governor Jerome Powells, who served in George H.W. Bush’s White House, has been re-nominated (his current erm is expiring). Also, Cleveland Fed Bank President Sandra Pianalto is expected to leave at the end of May. 

The Senate banking committee has held hearings on the nominations but the full Senate hasn’t voted yet on the nominations. 

Watch the video above for more on David Kotok’s view of future Fed policy and tell us your expectations for Fed policy.

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Real Estate Mirage Breaks Down

AKA, dead cat bounce in the real estate market is over. According to the National Association of Realtors, pending home sales index “unexpectedly” fell 0.8% in February and 10.5% from a year ago level. This should not be unexpected to the readers of this blog. In fact, I have predicted that the housing market is topping out and rolling over as far back as September of 2013. If you would like to get a complete real estate report and learn exactly what will happen over the next few years, please read my comprehensive report. Real Estate Collapse 2.0 Why, How & When 

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Real Estate Mirage Breaks Down  Google

WSJ Reports: Vital Signs: Housing’s Recovery Is Losing Momentum

The National Association of Realtor’s pending home sales index unexpectedly slipped 0.8% in February, pushing the index 10.5% below its year-ago level. And with the January index revised down, pending home sales have fallen for eight consecutive months.

The downtrend foreshadows weakness in future existing home sales. (The pending sales index is based on contract signings, while sales are counted after closings.) While weather may have caused some buyers to hold off from housing hunting, affordability is becoming more of a challenge. Price increases and higher mortgage rates are pricing some potential buyers out of the market.

The NAR forecasts existing-home sales will total 5.0 million this year, down slightly from nearly 5.1 million in 2013.

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Ukraine’s Navy Dolphins Defect To Join Russia & Other Insanity

The insanity that surrounds Russia, the US/EU and Ukraine continue unabated. I present you with the best of it….just in today’s news.   

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Ukraine’s Navy Dolphins Defect To Join Russia & Other Insanity Google

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Is Gold About To Surge?

There is very little love for the yellow stuff at the moment. Since topping out less than two weeks ago, gold is down 6%. Today,many people and money managers are falling all over each other, suggesting that the gold has topped out and the time to short is NOW. Not so fast. Not according to our mathematical and timing work.

Here is what most people miss. Most people anticipate strong economy, tightening, stronger dollar and somewhat higher interest rates going forward. That is not what our mathematical and timing work shows. Not at all. Quite the opposite.  Our work shows that a severe bear market of 2014-2017 is about to start, ushering in a deep recession where the FED will be forced to flood the market with liquidity once again. Not tighten by any measure. In such an environment (liquidity pump while equity markets decline) gold tends to perform very well. 

That is on top of a favorable technical setup. While I wouldn’t buy just yet, Gold should be on your BUY watch list. If you would be interested in learning when the bear market will start (to the day) and it’s internal composition, please Click Here.  

Gold bars

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Is Gold About To Surge?  Google

Talking Numbers Writes: Why the top could be in for gold

The world is just as unstable now as it was a month ago. Yet,gold is now close to breaking below the $1,300 per ounce level.

Now, before gold bugs start panicking, let’s put this all in perspective: Gold is still up about 7% since the start of 2014. That’s seven times the return of the benchmark S&P 500 index for stocks. In 2014, gold is beating Google (up 3%),Apple (down 3%), Netflix (flat), Twitter (down 27%), and theUS Dollar index (flat) among countless others.

In other words, gold hasn’t been such a bad buy this year. But will that continue going forward?

Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, says gold may take a hit in the short-term but the technicals are showing the yellow metal to be near a critical support level that could make for a buying opportunity.

“It looks to me as if gold has taken its position as the currency of fear once again,” says Ross. “That’s all well and good when Russia is annexing Crimea. But, when those emerging markets start to bottom and you get a strong rally and the macro unrest subsides, obviously, that going to hurt gold prices. That’s what the catalyst behind this big pullback we’ve seen recently.”

Ross sees notes gold has been trading in a range between $1,180 per ounce and $1,420 per ounce since June 201,3 with bullion testing and holding the $1,180 per ounce level in June and a couple of times in December. But, the level Ross is watching is $1,300 – or, to be more specific, $1,292 per ounce. That’s where gold’s 50-day moving average crossed above its 150-day moving average.

“That should be bullish,” says Ross. “It should provide support for this pullback around current levels. A break below that level could send gold down to the low end of that range [$1,180 per ounce]. I think support holds and I think we get another test of the high end of that trading range [$1,420 per ounce]. I would be a trading buyer here of gold.”

Portfolio manager Chad Morganlander of Stifel’s Washington Crossing Advisors is taking the other side of Ross’ trade. After owning gold for six years, his firm sold out its gold position because it sees improvements ahead in the US and European economies as well as improved capital and credit markets.

“Let’s bottom line it: I would be short gold,” says Morganlander. “I would not own gold in my portfolio. We think that the safe haven asset class is not necessary at this point in time.”

Morganlander doesn’t believe the current crisis in Ukraine will have a long-term effect on gold. 
“We think the Russia/Crimea issue is a storm that’s going to pass,” says Morganlander. “Geopolitical premia are going to be compressed.”

That and his expectations of better economic data ahead are leading Morganlander to see gold prices falling. “We would stay away from gold,” he says.

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Warning: Fed Rejects Citigroup. Does Fed Expect Another Credit Event?

I thought that I would never say this, but I actually agree with the FED’s decision. In a “shocking” move Federal Reserve rejects Citigroup and 4 other big banks from raising dividends and boosting buybacks. According to the Fed, Citigroup fell short in some areas of it’s “stress test”, including it’s ability to forecast revenue and losses IF they come under economic or market stress.  

Now, change the IF above into WHEN. The situation we have today is not that dissimilar to the situation in 2007. Before the 2008 collapse. The Fed flooded the market with cheap credit and there was all sort of speculation (primarily in real estate, equities and credit). Based on our mathematical and timing work, the Dow will go through a significant bear market between 2014-2017. While the impact will not be as severe as what had occurred between 2007-2009, the banks will, once again, be stressed to the max. Perhaps the FED realizes this and that’s the real reason behind Citi’s rejection.

OR….perhaps I am giving the FED way too much credit here. 

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Warning: Fed Rejects Citigroup. Does Fed Expect Another Credit Event?  Google

AP Writes: Fed blocks Citigroup from raising dividends

Federal Reserve bars Citigroup, 4 other big banks from raising dividends, boosting buybacks

WASHINGTON (AP) — The Federal Reserve on Wednesday barred Citigroup from raising its dividend or boosting its stock buybacks, saying it’s too hard to predict how some parts of the bank’s global operation would fare in a sharp economic downturn.

It was a setback for Citigroup Inc., one of the nation’s biggest banks, which has been cutting jobs and trimming some businesses in an effort to improve its finances.

Citi was the biggest of five banks whose plans the Fed rejected as part of its so-called “stress tests,” an annual check-up of the nation’s biggest financial institutions. This year 30 banks underwent the tests to determine if they have large enough capital buffers to keep lending through another financial crisis.

Citi had asked the Fed’s permission to buy back $6.4 billion in shares through the first quarter of next year, and to raise its dividend to 5 cents each quarter, up from a penny per quarter now.

New York-based Citigroup was blocked from raising its dividend in 2012, too, after failing its stress test. Later that year it brought in a new CEO, Mike Corbat, with a mandate to speed up its turnaround. .

Corbat said Wednesday that the company is “deeply disappointed” by the Fed decision. The dividend and buyback would have been a “modest level of capital” for shareholders, and Citi still would have exceeded requirements for its financial health, he said in a written statement.

The Fed announcement caused investors to re-assess bank stocks across the board. Citigroup’s stock was down more than 5 percent in after-hours trading.

CLSA analyst Mike Mayo called Citi’s rejection “a shocker.”

“Citi needs to make this defeat into victory by improving the pace of restructuring,” Mayo wrote in a note. That would include selling off businesses and holding managers more accountable, especially after executives had offered reassurances about how the bank is monitoring its finances, Mayo said.

The Fed said that the capital plans of Citigroup fell short in some areas, including its ability to forecast revenues and losses in parts of its global operations, should they come under economic stress.

As with Citigroup, the Fed said it found deficiencies in the capital plans of HSBC North America Holdings, RBS Citizens Financial Group, Santander Holdings USA and Zions Bancorp. The central bank, however, approved requests outright from the other 25 tested banks, which included JPMorgan Chase, Wells Fargo and Morgan Stanley, in addition to Bank of America and Goldman Sachs

Before the financial crisis, Citigroup’s dividend peaked at $5.40 per quarter in 2007. After eliminating its dividend altogether in 2009, it reinstated a payout in June 2011 at a token penny per quarter, where it remains.

The dividends and share buybacks that the Fed weighed are important to ordinary investors, and banks. The banks know that their investors suffered big losses in the financial crisis, and they are eager to reward them. Some shareholders, especially retirees, rely on dividends for a portion of their income.

But raising dividends costs money. The regulators don’t want banks to deplete their capital reserves, making them vulnerable in another recession. Buybacks also are aimed at helping shareholders. By reducing the number of a company’s outstanding shares, earnings per share can increase.

A handful of banks that won approval from the Fed to raise dividends quickly announced plans to reward investors.

Wells Fargo said it would raise its dividend a nickel to 35 cents per share starting in the second quarter. It also boosted its planned share buybacks. Morgan Stanley announced it would double its dividend for the second quarter to 10 cents a share from the current 5 cents. It will also buy back as much as $1 billion of its shares through March 2015. Capital One Financial Corp. expects to buy back $2.5 billion of its shares but maintain its dividend at 30 cents a share.

The announcement Wednesday follows last week’s results of the Fed’s annual “stress tests.” The central bank determined that the U.S. banking industry is better able to withstand a major economic downturn than at any time since the financial crisis struck in 2008. The Fed said that only one of the 30 biggest banks in the country needed to take more steps to shore up its capital base. That bank was Zions.

The companies raising dividends and boosting share buybacks should have an advantage in winning investors, said Michael Scanlon, managing director at John Hancock Asset Management.

“From a total return perspective, all this is good,” he said. “The Fed is recognizing that there is continuing healing that’s taking place at the banks,” he said. “From a capital standpoint, these institutions are in a far better position than they were a few years ago.”

Citigroup and the other big Wall Street banks, as well as hundreds of others, were bailed out by the government during the crisis. The banking industry has been recovering steadily since then, with overall profits rising and banks starting to lend more freely. The banks have mostly repaid the taxpayer bailouts.

The Fed has conducted stress tests of the largest U.S. banks annually since 2009, the year after the financial crisis plunged the country into the worst economic downturn since the Great Depression of the 1930s.

Under the stress tests’ “severely adverse” scenario this year, the U.S. would undergo a recession in which unemployment — now at 6.7 percent — would reach 11.25 percent, stocks would lose nearly half their value and home prices would plunge 25 percent.

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Russian Invasion Of Ukraine Is Highly Probable. Stocks To Sell Off?

Western intelligence continues to maintain that Russia’s invasion of Southern and Eastern Ukraine is now “highly probable”. I am starting to get the same type of a feeling after following Russian media. Nothing concrete, just “read between the lines” type of an analysis. In fact, Canada expects the invasion to happen as soon as next week. Here is what we know thus far. 

  • Russian troops on the border of eastern Ukraine — now more than 30,000 — number “significantly more” than what is needed for what Russia is calling a training exercise.
  • These troops include a large number of motorized units, which have the ability to deploy quickly. There also appears to be a higher level of activity among special forces, airborne, and air transport troops inside Russia.
  • Additional intelligence shows more Russian forces “reinforcing” the border region. 

If invasion does happen, the West will not respond militarily. Instead, an all out economic warfare, sanctions and escalation of the cold war are expected. Either way, if invasion occurs, particularly next week, expect the US equity markets to sell off. Big time. 
 

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Russian Invasion Of Ukraine Is Highly Probable. Stocks To Sell Off?  Google

Canada worried about ‘serious possibility’ of Russian invasion in Ukraine within week

OTTAWA – Canada is preparing for a Russian invasion of Eastern Ukraine – and soon, sources say.

“We’re worried about their intentions. I think it’s the view all the G7 leaders that we are very concerned that they haven’t necessarily stopped here,” Prime Minister Stephen Harper said at a press conference in The Hague on Tuesday.

Though the Russian defense ministry says it’s complying with limits, the presence is large, and sources say there’s a “serious possibility” Russia could invade within a week.

“The fact that they explicitly said they have stopped here gives us no confidence. They assured us they wouldn’t do this kind of thing in the first place,” Harper said.

Russia’s next moves are part of the discussion G7 leaders are having, but the government won’t speculate on Canada’s response in the event of an invasion.

Conservative MP James Bezan says for now, sanctions are working.

“I think if we hit them where it hurts – which is in their own personal pocket books – they’ll take a step back,” Bezan said.

And if they don’t – there’s a lot at stake for Canada.

WATCH: Harper says Putin’s mentality on Canadian sanctions has no basis

Russia has made claims to parts of the Arctic – claims Canada doesn’t recognize.

What do its actions in the Ukraine say about the Kremlin’s willingness to pursue those claims?

“If Russia has these ideas of increasing territory, we are a neighbouring state. I think we have to continue to be in lockstep with our partners,” Bezan said.

But Ivan Katchanovski, political studies professor at the University of Ottawa, says any action taken by Putin is less about the West and more about Russia’s interest in Ukraine.

The Ukrainian-born professor says an invasion is likely, but a military response from Canada is not, as long as the battle is contained to Ukraine.

“Western military involvement in Ukraine to prevent such intervention by Russia is not very likely. …It’s not realistic,” he said.

United States President Barack Obama was also asked Tuesday what the U.S. would do if Russia made other land grabs.

He replied that if the country is a NATO member nation – which Canada is – then the U.S. would defend it with force.

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BlackRock Rings The Proverbial Market Bell

BlackRock Inc. Chief Executive Laurence Fink’s letter highlights yet another aspect of short term thinking and speculative spirits in today’s market. Investor activism or forcing companies to either increase dividends, institute buybacks or otherwise increase short-term value through mergers, acquisitions, spin offs, etc…While it might seem like a good idea at the time, leading to a short-term bounce in an underlying issue, over the long-term it’s a big negative. In fact, I already wrote about Share Buyback and its repercussions earlier today. 

Mr. Fink is right on the money. For the most part, corporations should be left alone to manage their businesses over the long term by making necessary investments into capital expenditures, technology, new products and intellectual property. Not squeezing every cent out of their today’s stock market valuation. Yet, such short-term thinking in prevalent in today’s market environment.  Just another sign of a market top? You bet. 

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BlackRock Rings The Proverbial Market Bell Google

WSJ Reports: BlackRock’s Fink Sounds the Alert

In a shot across the bow of activist investors, BlackRock Inc. Chief Executive Laurence Fink has privately warned big companies that dividends and buybacks that activists favor may create quick returns at the expense of long-term investment.

In so doing, the head of the world’s largest money manager by assets lent his voice to a popular criticism of activist investors, even as his firm sometimes aligns with and may benefit from their efforts.

“Many commentators lament the short-term demands of the capital markets,” Mr. Fink wrote in the letter reviewed by The Wall Street Journal, sent to the CEO of every S&P 500 company in recent days, according to BlackRock. “We share those concerns, and believe it is part of our collective role as actors in the global capital markets to challenge that trend.”

Mr. Fink doesn’t specifically mention in his letter activist hedge funds, which typically take stakes and push for corporate or financial changes, from management ousters to buybacks, dividends and spinoffs. Instead, he addresses a broader concern that markets and companies generally have become too vulnerable to short-term thinking.

But the increasing clout of activists contributed to Mr. Fink’s decision to write the letter, people familiar with the matter said. New York-based BlackRock itself votes about a third of the time with dissident shareholders seeking corporate board representation, according to data from D.F. King & Co., a proxy-solicitation firm.

Activists are attracting more assets and enjoying greater acceptance, even as the debate continues over whether they are good for all shareholders and, more broadly, economic growth.

Critics of activists contend that when companies use cash or new debt to buy back shares or pay cash dividends to shareholders they are forgoing the opportunities to invest in labor, production or other potential avenues of future growth.

This month, Leo E. Strine Jr., chief justice of the Delaware Supreme Court, argued that constant pressure from shareholders may distract company executives and hurt returns. “Giving managers some breathing space to do their primary job of developing and implementing profitable business plans would seem to be of great value to most ordinary investors,” he wrote in the Columbia Law Review.

Activists, who move in and out of stocks more quickly than long-term managers like BlackRock, have said their actions do more than cause short-term pops.

By better focusing management, shedding low-performing businesses and returning unused cash to investors, companies are on stronger footing for the future, they said.

“The critique that activists are short-termed focus is a red herring that typically comes from underperforming companies that have no choice but to promise bluer skies in days to come,” Jared L. Landaw, chief operating officer of Barington Capital Group LP, said in an email. His activist investing firm holds stakes three years, on average, he said.

Unlike activists, BlackRock can’t just sell out of most stocks, as about 85% of its $2.3 trillion in equity assets are held in index funds, which mirror collections of stocks. That long-term view drives the firm’s thinking, even when it supports activists, said Michelle Edkins, BlackRock’s head of corporate governance.

Activists themselves say a big driver of their success in recent years has been the willingness of institutional investors to side with them. Management has to pay more attention when its biggest shareholders echo complaints that others raise.

Dissident shareholders who challenge management scored outright or partial victories in about 60% of board fights in 2013, the highest on record, according to FactSet, whose data go back to 2001.

Of the 30 fights that went all the way to a vote last year, activists won 17.

“Institutional investors are looking at these situations much more on a case-by-case basis” than in the past, said Richard Grossman, a Skadden, Arps, Slate, Meagher & Flom LLP lawyer who represents companies in activist fights. “That pendulum has swung, but it’s swung more to the middle.”

In 50 board fights from July 2009 through June 2013 that activist-nominated directors were up for election, BlackRock voted for dissident nominees 34% of the time, according to D.F. King.

That compares with 11% for Vanguard Group, one of its largest peers. But it is less than some other big investors, including T. Rowe Price Group Inc. and Fidelity Investments, which backed activists 52% and 44% of the time, respectively.

These types of situations can arise over different views on a number of issues, from buybacks to dividends to corporate breakups.

BlackRock voted for some dissident nominees of Jana Partners LLC in that hedge-fund firm’s fight to replace the board of Agrium Inc. last year, according to regulatory filings, a fight that Jana lost. It also supported some of TPG-Axon Capital Management LP’s nominees against SandRidge Energy Inc., in which TPG-Axon gained board seats.

BlackRock voted against Carl Icahn in campaigns against Forest Laboratories Inc. in 2011 and Oshkosh Corp. in 2012, filings show. Mr. Icahn lost both those votes, though in later years he gained board seats at Forest.

Ms. Edkins, BlackRock’s head of corporate governance, said votes are based on the quality of the nominees proposed by activists, which she said have generally improved. She said activist campaigns still represent a small minority of all situations in which BlackRock votes.