Big Banks Begin Imposing Gun Control on Their Customers

(ZHE) Seemingly following Andrew Ross Sorkin’s suggestions, and echoing the virtue-signaling from Dick’s Sporting Goods et al., megabank Citigroup is setting restrictions on the sale of firearms by its business customers. As a reminder, Andrew Ross Sorkin wrote in the NY Times that banks could control guns, if Washington won’t. Liberty Blitzkrieg’s Mike Krieger exclaimed that even in today’s world replete […]

The Fed Has Its Finger On The Button Of A Nuclear Debt Bomb

This article was originally published by Brandon Smith at Alt-Market.com

I hear a lot of talk lately in the alternative media (and even the mainstream media) of the potential for World War III. The general assumption when one hears that term is that “nuclear conflict” is imminent. But a world war does not necessarily have to be fought with nukes. For example, we are perhaps already witnessing the first shots fired in a global economic war as the Trump administration gets ready to implement far-reaching trade tariffs. This action might provide cover (or justification) for destructive attacks on the U.S. fiscal system by China, Japan, Russia, the EU, OPEC nations, etc. The ultimate attack being a dumping of their U.S. debt holdings and the death of the dollar’s world reserve status.

Of course, an economic “world war” between nations would in itself be a smokescreen for and an even more insidious internal war being waged against the global economy by central banks.

There is a longstanding misconception that central banks always manipulate economic conditions to make them appear “healthy” and that the main concern of central bankers is to “defend the golden goose.” This is false. According to the evidence at hand as well as open admissions by central bankers, these private institutions have throughout history also deliberately created financial crises and collapses.

The question I always get from people new to the field of alternative economics is — “Why would central bankers crash a system they benefit from?” This question is drawn from a flawed understanding of the situation.

First, there is the assumption that economic systems are static rather than fluid. In reality, vast sums of wealth can be transferred into and out of any notion on a whim and at the speed of light. The collapse of one economy or multiple economies does not necessarily include the destruction of banker wealth. Even if wealth was their top goal (which it is not), global banks and central banks do not see any particular economy as a “cash cow” or a “golden goose.” From their behavior and tactics in the past, it is more likely that they see national economies as mere storage containers.

Banks can pour their wealth, which they create from thin air, into one or more of these many available containers. They can circulate that wealth within the container for a time and then pour all their wealth out at a moment’s notice. One container is no more valuable to them than any other container, and sometimes sacrificing a container can be beneficial.

The perceived destruction of a national economy can often be exploited as a means to a greater end. Usually this “greater end” means exploiting the crisis to justify centralization of power or the transfer of power from the public into the hands of an elitist class.

I have outlined the history of such transfers on numerous occasions, including the liquidity crisis of 1914 (just after the establishment of the Federal Reserve) leading into World War I and the subsequent hoarding of financial power by banks as well as the creation of the League of Nations.

Or how about the artificial bubble in multiple asset classes created by the Federal Reserve in the 1920s through low interest rates? A bubble which was then burst through the aggressive raising of interest rates at the onset of the Great Depression. This crash coincided with other fabricated economic disasters in Europe and Asia, leading to social despair, the rise of communism and fascism and World War II. This crisis benefited the banking establishment greatly as thousands of smaller independent banks were crushed and a handful of major banks devoured all assets. And, let’s not forget that WWII led to the creation of globalist edifices like the United Nations, the IMF, World Bank, the beginning roots of the European Union, etc.

Every new economic calamity seems to consolidate property and bureaucratic control into the hands of the same class of technocrats. And each calamity is linked to a very important economic factor — massive debt dependency.

So, let’s fast forward to today’s era of burgeoning crisis and how central banks like the Fed are feeding the fire of disaster. I would like to focus most of all on our debt situation to illustrate how the Fed can and will trigger an explosion, a controlled demolition of our financial system. What is our debt situation in the U.S. today?

The Consumer Debt Bomb

Total American household debt skyrocketed beyond $13 trillion at the end of 2017, well beyond historic highs. This is the fifth consecutive year of household debt increases, including credit cards, auto loans, mortgages, student loans, etc. This trend suggests that the “economic recovery” so far has not actually been based on any legitimate wealth creation or resurgence, but an even greater dependence on the same debt that helped cause the crash of 2008. The Fed’s money printing did NOT trickle down to consumers as was originally promised.

While these sectors of consumer debt did not necessarily enjoy the same near-zero rates as banks and corporations did after the crash and the bailout bonanza, their rates are now rising along with the Fed’s rate increases. This is affecting numerous asset classes including housing markets and auto loans.

The cold hard reality is that as the Fed raises interest rates all other areas of the economy come under pressure. The average citizen, with his/her record debt levels, is now subject to the machinations of the central bank through the arbitrary shifting of a single data point like “inflation”.

The Corporate Debt Bomb

This debt bomb is possibly the most subversive and the least understood. I have been warning about how corporate debt and rising interest rates could cause a stock market crash for quite some time, but only recently have mainstream analysts caught up to this realization.

Today, institutions like S&P Global Ratings are showing that at least 37% of 13,000 corporations examined have a debt to earnings ratio of five times, making them “highly leveraged.” This debt level is also even higher than it was in 2007 just before the collapse of Lehman and the beginning of the credit crisis.

The concern goes beyond debt holdings, though. Consider the fact that corporations have been exploiting low interest rates to borrow incredible sums of cash for the sole purpose of purchasing their OWN stocks. Stock buybacks are basically a legal form of market manipulation in which companies buy stocks back from the public and greatly reduce the number of existing stocks circulating in the market, thereby artificially increasing the value of each stock overall and keeping the Dow in the green.

Stock buybacks have been the primary fuel for the longest bull market in history, a bull market so fake that even the mainstream media has been questioning its validity lately. Stock buybacks are completely dependent on cheap debt, and cheap debt is disappearing as the Fed continues raising interest rates. The natural reaction by stock markets will be a crash.

Some people may question whether or not the Fed is actually doing this “deliberately,” or if they are simply ignorant. I would refer them to the recently released Fed minutes from 2012, in which Jerome Powell, now the chairman of the Federal Reserve, talked repeatedly of the negative reaction that would occur within markets once the Fed began cutting its balance sheet holdings and raising interest rates after addicting equities markets to the drug of easy profits.

Jerome Powell himself is recorded as knowing exactly what will happen as interest rates rise, and he is continuing to raise them anyway, while also cutting the Fed balance sheet far faster than was originally telegraphed to the public. How can anyone in their right mind argue that the Fed is not bringing the U.S. economy down deliberately?

The National Debt Bomb

This debt bomb has a much longer fuse that the other two, but in the wake of a potential global trade war (World War III), the question arises as to how long it will take before major U.S. treasury bond holders like China dump their holdings in retaliation.

With Trump refusing to take a stand against the continued raising of the national debt ceiling, and the addition of his $1.5 Trillion infrastructure spending plan, there is little doubt that our national debt will continue to rise. Therefore, foreign investment is essential.

It is important to remember that the Federal Reserve used to be the largest purchaser of U.S. debt or the “buyer of last resort.” Now, the Fed has ended quantitative easing and is cutting its balance sheet swiftly. So, the only buyers left are foreign central banks and investors. My prediction is that the Fed will not step in if a trade war escalates to a treasury bond dump. Or, that they will not step in until it is far too late to stall the resulting crisis.

In Barack Obama’s eight years as president the national debt was essentially doubled. This is a unsustainable rate of debt issuance, even for a nation with the world reserve currency. If we lose foreign investment and the world reserve currency then that debt accumulation will come back to haunt us.

It is important to remember that whatever happens within our economy and the global economy, central banks like the Fed have fully facilitated the bubbles produced as well as the inversions that result. The Fed knows exactly what it is doing. And all other factors, from the Trump trade wars to foreign dumping of U.S. treasuries and the dollar, will be a distraction from the banking elites truly culpable.

Economic warfare can in some cases be just as devastating as nuclear warfare.  It can wipe out entire populations, give rise to tyrants and enslave the minds of individuals through the weaponization of resource scarcity.  Such wars, though less psychologically immediate as our cinematic fears of atomic doom, should be taken very seriously, and the culprits behind them have to be dealt with harshly.

***

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You can contact Brandon Smith at: brandon@alt-market.com

After 8 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.

Here’s Why Banks Hate Cryptocurrencies

This report was originally published by Tyler Durden at Zero Hedge

Banks like to pretend that they’re so much more established and secure than the world of cryptocurrencies, but as anybody who pays close attention to the headlines would know…that’s just not the case…

Setting aside all of their rhetoric about embracing the blockchain, banks have mostly avoided or opposed cryptos (Goldman Sachs, sensing the opportunity for profit, is one notable exception), often citing their volatility and the ease with which they can be used to launder money as qualities that disqualify them from being taken seriously (though, as we recently witnessed with the US dollar, perhaps banks need to rework this volatility argument a bit).  Even yesterday’s announcement of the first criminal charges against a cryptocurrency trader pales in comparison to the many, many crimes that banks (or even one bank) have settled allegations of. The real answer to why the banks’ dislike cryptocurrencies is probably because they feel threatened. The recent selloff notwithstanding, the rise of cryptocurrencies has continued unabated, despite the efforts of some of the most powerful governments on Earth, while the concept is still very young, it does have potential to shake up the aging fiat system. In order to understand the race between the banks and cryptocurrencies, we developed a visual to see just how “David” is comparing to “Goliath.”

Using data from Yahoo Finance and CoinMarketCap.com, HowMuch.com‘s data team developed a visual that compares the market caps between some of the world’s largest banks and the largest cryptocurrencies. On the left blue column, there are four banks listed from largest to smallest market caps: JPMorgan Chase, Bank of China, Goldman Sachs, and Morgan Stanley. Conversely, the right red column features the total cryptocurrency market, Bitcoin, Ethereum, Litecoin, NEO, Ripple, Bitcoin Cash, Cardano, and Stellar. The larger the circle, the bigger the market cap.

Total Crypto Market Exceeds Size Of JPMorgan; Banks Fight Back In Attempt To Slow Growth

After an extraordinarily volatile (even for bitcoin) start to the year, cryptocurrencies are rallying once again, with bitcoin breaking above $10,000. As of Feb. 16, 2018, the crypto market had a market cap of $470 billion – larger than the size of the United States’ largest bank, JPMorgan Chase.

Bitcoin’s market cap alone is comparable to Bank of China’s. The second largest cryptocurrency by market cap, Ethereum, is comparable in size to Morgan Stanley. It is stats like these that have the global banking sector worried that cryptocurrencies are on track to make a serious impact on their operations.

One of the most recent efforts to help slow the pace of crypto growth were announcements from several banks saying that customers could no longer purchase digital currency with their credit cards. Berkshire Hathaway’s Charlie Munger has called Bitcoin “totally asinine” and Warren Buffet has said he would “buy a five-year put on every cryptocurrency.”

Overall, cryptocurrencies are seeing their size and value top even some of the largest financial institutions in the world. This has caused banks to fight back and attempt to slow their growth. However, even banks clearly don’t know what they really want. After JPMorgan CEO Jamie Dimon famously declared Bitcoin a “fraud”, it is interesting to now see a report published by the investment bank that calls Bitcoin-based ETFs the “holy grail for owners and investors.”

And should the bitcoin ETF become a reality, do you really think banks will turn down those lucrative fees?

What do you think?

3 Things You MUST Know to Protect Your Money (Even If You Know Nothing About the Market)

This article was originally published by Anonymous Financial Guy at The Organic Prepper

In this economic climate, lots of folks are wondering how to protect their money. Some people are forced to invest in retirement funds by their employers, others play the market, some invest on their own, and nearly everyone has checking and savings accounts. But when the amount of money you have goes beyond something you could live off for a month or two, how do you deal with it wisely while minimizing your risk?

There is a history of government seizure or confiscation of assets. This can be found in nearly every country, including both the Federal and State level in the United States. Rather than go into the nature of politics or maintaining a wartime economy or support of an asset-based currency or filling tax revenue shortages through seizures, let’s just acknowledge that a government entity of any sort may choose to make a rule that effects a transfer of a citizen’s wealth to that government for whatever purpose. That is a political risk that will not go away.

Instead, let us focus on contracts and agreements that we can control. Namely, our relationship with banks and custodians. Those agreements can impact our ability to maintain our wealth, ourselves, and hopefully be redeemable for cash upon demand.

There are three rules for protecting your investments and we can learn those through situations that we all read about in the news. Let’s first examine some relatively recent history, here in the United States, when US citizens could watch their wealth evaporate quite legally, because of contracts they did not pay attention to.

Rule #1: Make sure you have more than a Chinese firewall in place between your financial instrument and the reporting entity.

Everyone remembers Bernie Madoff –  many clients of Bernie Madoff lost a lot of money. Was this legal? No – it was a Ponzi scheme, but it’s worth examining as your protection for something Illegal as a counterpoint to what is legal. A Ponzi scheme is when a client’s withdrawals come from other client’s money.

How can this happen? Well, in order for this to be successful, you need to have a security, a sales force, and a custodian (reporting agency) all working together, in one house. Checks and balances in the US financial system virtually assure (that as long as the regulators are doing their jobs) an issuer of a security may not report on their own value while they sell their issue directly to clients. This, however, is exactly what Bernie Madoff did. He offered his own “strategy” to his own clients and made his own statements as to client value.

Knowing this, Rule #1 for protecting your bank accounts and investment accounts is to make sure you have more than a Chinese firewall in place between your financial instrument and the reporting entity that tells you what your balance is. A lot of folks with checking accounts as well as IRA or investment accounts at the same national banks should pay close attention to this. We will discuss why in detail presently.

If you own the data, and you control the asset, guess what? That is why banks and custodians call the shots. Everybody else plays by their rules. That is where the control is.

Rule #2: Read your custodial and banking agreements.

Not too long ago, there was a company named Lehman Brothers, which was a Wall Street finance firm that became heavily invested in CDOs (mortgages mostly) in 2008 and whose over-leveraged collapse heralded the 2009 market crash. Now there is quite a bit worth knowing about Lehman Brothers, but for the purpose of this article, I would like to highlight one significant aspect involving the clients of Lehman Brothers Prime Brokerage Services, whose accounts on deposit were considered assets of Lehman Brothers for firm-level financing in what is known as rehypothecation.

Since these client monies were considered firm-level collateral for lending purposes, those assets were frozen while Lehman Brothers went through bankruptcy proceedings. What is different with this scenario than with the Bernie Madoff scenario is that the rehypothecation aspect of assets on deposit through Lehman Brothers Prime Brokerage Services was in the fine print of the actual custodial agreement.

It was legal. The assets were separately accounted for on the client level and they remained in the client’s name, but the effect of client money being a “co-signer” for Leman Brothers’ open market fundraising made that money subject to the claims of creditors.

Market circuit breakers, black box algorithms and the technology underlying the stock market have changed dramatically since the year 2000, and a lot of folks do not quite realize exactly how much. Now, this topic is pretty detailed and could easily cover several pages itself, but for the purposes of our article, we’ll just cover absolute basics.

Fractional ownership of shares and omnibus trading: It used to be that a single stock was set at a price and that is what you paid for it. Now, not only can you own an account for partial shares, but block trading (also called omnibus trading) of large lots of shares with multiple owners is commonplace. It actually gave rise to major discount brokers like Etrade and Scott Trade in the late 90s. But technology on the trade routing side progressed immeasurably after the NASDAQ in the early 2000s went “public” and began to attempt to resell trade and order routing software to other world exchanges.

Circuit breakers:  Sept 11, 2001, is probably going down as the last time the overall market would be shut down due to a calamitous event because now exchanges have circuit breakers in place. In the old days, market makers were required to buy or sell particular issues on demand, thus the term ‘market maker’. If there was power to the exchange and floor, traders placing orders, then stocks were changing hands.

Today, the entire market process is automated to a very large extent. Computers control large orders almost as they are confirmed by the exchanges. That is how fast the market reacts – within milliseconds. Obviously, there is potential for issues, and that is where market circuit breakers come into play. For example, a circuit breaker may look at each issue (stock) individually, and if too much momentum is experienced either up or down in too short a time, the circuit breaker engages. Then, all trades are held and may potentially be backed out. Keep in mind this is after a confirmation has been issued but before settlement. We will talk more about settlement, but for now, just be aware that major stock exchanges have the ability to halt individual issues, in addition to the actual halting of trading (giving trade confirmations) and if that happens, those frozen trades go into to limbo for a period of time (potentially days) and may be kicked back or canceled.

Now, most average investors will never experience this, because your common, the retail public has very limited, very controlled access to actual trade windows.

Rule #3: Just because you have a confirmation, it doesn’t actually mean you have a trade or anything resembling settlement.

Know your trade windows and anticipated settlement times so you can get in front of a problem before it gets exponentially worse.

Now let’s talk a little more about the settlement of securities. Another aspect to be aware of in your custodial agreements is exactly how your security gets settled and turned into cash. You place a trade and the trade happens according to schedule. Then there is a period of time for settlement where those funds may not necessarily be available to commit elsewhere. This is your estimated settlement time. It is somewhere between Trade Date +1 day and Trade Date + 3 days depending on what you are buying or selling.

After that period of time, then you have monies available in your brokerage money market fund (as long as your custodian can’t rehypothecate it right?. Well, at least not with government money market funds. Proprietary money market funds maybe not…they have their own rules.) Then you can request for those funds to go into your bank account so that you can withdraw the cash physically.

But not always. If for whatever reason, things really go sideways and your brokerage firm cannot “sell” your position, your brokerage agreement may allow your custodian to settle your trade-in kind. This means a physical delivery of the stock certificate you were trying to sell. Once again…see Rule #2 and beware of your agreements.

So you can see that with a brokerage account of any kind, the potential to have your trades held, or not settled directly before even getting to your bank might throw your planning a bit off.

So… what about big banks?

Let’s re-visit using national, well-known banks for both banking and brokerage or securities. While this is a big mess if you follow financial industry and banking industry history, rather than go into any details, now that you have a little bit of understanding of the mechanics of the industry, what do you think of this?

• A national bank that controls your checking and savings accounts (and potentially what you can access on a daily basis)


• And that national bank also has the convenience of brokerage services


• And that national bank even has their own proprietary mutual funds and money market funds.

The five largest banks in the US could be directly described as above. Not to ring any alarms, but if there was going to be a call for capital controls to prevent a bank run, where do you think the government would be wisest to focus their efforts?

There are ways to get in front of these modern issues and red flags to be aware of.

• Remember the 3 Rules.


• Keep 6-12 months worth of living expenses of cash on hand.


• Use multiple banks, brand names are fine, just keep in mind separation of all brokerages and banks. Having multiples of banks and brokerages can be a pain but will be worth it for diversification of sources.


• For each account, you need to separately write down in a single location the best contact number, your account number, and passcodes and the 3 best ways for them to receive written instructions. (Email? Fax? Weblink? Trading software?)


• Always maintain a physical copy of a blank withdrawal form and ACH request form. Know if these need to be notarized or not and know where to send them.

I just wanted to paint a picture of one small piece of the current financial system. I hope this was helpful to the folks out there who aren’t privy to the nuances of modern finance.

***

About the Author

Anonymous Financial Guy is a blue jeans and flannel wearing critical-thinking financial advisor who enjoys systems and structure, understanding underlying limitations, and has a healthy dislike of authority.

It Begins: Bank Now Threatening To Close Accounts If Customers Use Coinbase

Because cryptocurrencies are a threat to the banking elite, they are now threatening to close accounts if customers link them to Coinbase.

Goldman Sachs: 2017 In 100 Charts

Goldman Sachs" Sumana Manoghar, Hugo Scott-Gall, and Navreen Sandhu wax lyrical in their introduction to the 100 most interesting charts of 2017...

In this very special edition, straight from our hearts, We pro?le 100 of our best and most compelling charts. They tell the story of a changing world; and below it starts. But for now we’ll quickly run you through the major parts.

 

We begin with rising capex: Who is spending to defend? Is disruption overrated? Who else can Amazon upend? The potential in India? Can China’s overcapacity mend? Are people eating healthier? How do millennials spend?

 

We explore each of these themes and tell you how they link. We have some fun charts in here too. And surprises. Wink wink. We hope they join the thematic dots as you see them in sync, But most of all we hope that these charts make you think.

 

There are quotes, stats, and a crossword also in here, Plus a thematic poster to spread the holiday cheer. Let us know what you think and if anything is unclear, We’ll be back soon with more. Until then, Happy New Year.

The over-arching theme appears to be that of disruption... and survival.

The Empire Strikes Back: 2017 has been a year of incumbents defending against disruption

The Force Awakens: Seeking a revival in global capex

Disruptive new entrants…

…often trigger a response from incumbents

Innovation to disruption: Tracking tech cost curves

The Last Jedi: Japan remains a unique opportunity

Attack of the Clones: Automation and the future of jobs

Who is disrupted by automation? Labour

Can the pricing power of brands be restored?

The Phantom Menace: Obesity and deconstructing the notion of healthier eating

A New Hope: The deregulatory wave

Where does China stand out?

On a parting note, some charts that surprised us

 

Source: Goldman Sachs

 

 

Financial Times Survey: Banks" Brexit Relocations By March 2019 Much Lower Than Feared

In the run-up to the recent agreement on phase I of Brexit, there was mixed news on the extent to which jobs in the City of London would be relocated to other European hubs, primarily Frankfurt. On one hand, we discussed the meeting between US Commerce Secretary, Wilbur Ross, and executives of JPM, Goldman, HSBC and other banks at Wilton’s restaurant during his trip to London in early November. The banks warned that they were close to a “point of no return” on moving jobs.

A group of large financial institutions with big London operations, led by Wall Street’s pre-eminent banks, have told the US commerce secretary that Britain’s unstable government and slow progress in Brexit planning may force them to start moving thousands of jobs out of City in the near future. The warnings came on Friday during a closed-door meeting between executives from the banks, which included JPMorgan Chase, Goldman Sachs and HSBC, and Wilbur Ross during the US commerce secretary’s visit to London, according to people briefed on the discussions.

A week earlier, we reported the head of Swiss bank, UBS, saying that the possibility that a fifth of its 5,000-strong UK workforce would be shifted was now unlikely to materialise following some “regulatory and political clarification about what we need to do”.
 
We can now, thanks to a survey by the Financial Times, get a better idea of the likely London exodus by March 2019 after the newspaper reviewed public statements by fifteen of the UK’s biggest financial institutions and conducted interviews with more than a dozen executives about Brexit plans. According to the newspaper, the number is…

The UK’s biggest international banks are set to move fewer than 4,600 jobs from London in preparation for Brexit — just 6 per cent of their total workforce in the financial centre — according to Financial Times research.

 

The FT analysis contrasts with consultants’ original claims that tens of thousands of jobs could move from London after Brexit — including an EY study this week that claimed 10,500 could leave on “day one”.

Some bankers say the lower estimates emerged as they thought through how many jobs and operations would need to move to the EU if the UK loses access to the bloc’s single market. “Every city wants thousands of people, but what are they going to do?” said one senior executive at a large US institution, adding that the thousands of people sitting in his London office “cover clients” who will mostly be remaining in the UK.

Two banks in particular, Deutsche Bank (not surprisingly) and JPMorgan Chase, had stated that several thousand jobs could move, although the FT estimates that the number is likely to be only several hundred. It’s the same with Goldman, despite Lloyds Blankfein’s famous tweet about spending “a lot more time” in Frankfurt.

In the case of Deutsche Bank, where Sylvie Matherat, head of regulation, publicly said up to 4,000 jobs could move, the FT estimates that just 350 jobs may leave by April 2019. The figure amounts to 5 per cent of Deutsche’s London headcount, a proportion broadly in line with other big banks. At JPMorgan, where chief executive Jamie Dimon warned before the Brexit vote of up to 4,000 London job losses, the number leaving before April 2019 is set to be closer to 700. Goldman Sachs, which has taken a new office in Frankfurt that could accommodate 1,000 people, expects to move fewer than 500 from London. HSBC is still planning to move “up to 1000 people”, although its chief financial officer recently said the figure could fall.

So the initial London exodus by March 2019 will be fairly modest and the banks have the prized transition period of two years. However, some banks are leaving the door open for further relocations in the aftermath of Brexit. According to Rob Rooney, CEO of Morgan Stanley International the real Brexit story will only be apparent “three to five years out”. As the FT explains.

Several banks say they are planning to move relatively few people in the immediate aftermath of Brexit because it will take time for their EU operations to build up. They expect to have very small balance sheets when the EU entities begin handling client business on April 1, 2019, and to be able to run some of the risk and support functions for those small EU entities from London.

Next year, banks are likely to begin “repapering” some clients to their new EU entities. The FT noted that one bank EMEA CEO said that he expected the ECB to push for more “market risk to be run onshore”.

However, a key question will be, where do the clients want to do business? We could be wrong, but our guess is that the majority will opt for the status quo if at all possible. The EU has already inflicted the nightmare of MiFID II on them.
 

North Korea Hacks Bitcoin Exchanges Attempting To Steal Amid Bubble Warnings

The value of soaring crypto-currencies is creating a bubble financial analysts continue to warn about, but it’s also making it overly appealing to cyber thieves.  North Korean hackers are now attempting to steal bitcoin, as experts warn of an impending financial dilemma.

Ashley Shen, an independent security researcher, said: “We assume one of the reasons why Bitcoin is being attacked is because the price keeps increasing and we think it’s reasonable for hackers (to target). Digital currency might be easier to gain than physical currency. So I think it’s reasonable.”  Amid speculation only, bitcoin is up 1500% in 2017, making theft attempts by the rogue regime unavoidable.

Shen and her colleagues have tracked the attacks by hacking groups Lazarus, Bluenoroff, and Andariel  (suspected to be North Korean operations) on financial institutions including banks in Europe and South Korea, an ATM company and Bitcoin exchange.

“Before, when we tracked nation-state attackers, they usually perform cyber attacks which are aimed at confidential data and intelligence,” Shen said.  “However recently we’ve discovered that some of the APT (Advanced Persistent Threat) groups are trying to hack financial institutions like banks and Bitcoin exchanges to gain financial profit.”  So far, North Korea’s attempts to hack into bitcoin exchanges have failed.

“My own opinion is they will probably keep doing the Bitcoins because the price keeps increasing and it’s a good investment… So I assume they will do more Bitcoin attacks and of course they will keep targeting banks because that’s what they did before,” Shen said.

One of her co-researchers, who wishes to remain anonymous because they work for a South Korean bank, told Sky News: “Just a few years ago the attacks were initiated to paralyze the society, but for some time now they’ve been hacking for money – so I kind of wonder if they are facing financial difficulties.”

As Bitcoin has surged in value, particularly over the last week, it has become increasingly attractive to hackers. On Thursday, Bitcoin mining marketplace NiceHash, based in Slovenia, suspended operations after hackers stole 4,700 Bitcoin – at the time worth roughly $64m.

“The vast majority of cryptocurrency use is not criminal. Bitcoin is one of more than 1,000 cryptocurrencies and many people use cryptocurrencies to bank or to transfer money or make investments,” said The National Crime Agency. “We do see cybercriminals using cryptocurrencies as one of a range of ways in which criminals try to launder money. But criminals are mistaken if they believe that cryptocurrencies are untraceable and provide total anonymity.”

The Worst Part Is Central Bankers Know Exactly What They Are Doing

The best position for a tyrant or tyrants to be in, at least while consolidating power, is tyranny by proxy. That is to say, the most dangerous tyrants are those the people do not recognize: the tyrants who hide behind scarecrows and puppets and faceless organizations. The worst position for the common citizen to be in is a false sense of security and understanding, operating on the assumption that tyrants do not exist or that potential tyrants are really just greedy fools acting independently from one another.

Sadly, there are a great many people today who hold naïve notions that our sociopolitical dynamic is driven by random chaos, greed and fear. I’m sorry to say that this is simply not so, and anyone who believes such nonsense is doomed to be victimized by the tides of history over and over again.

There is nothing random or coincidental about our political systems or economic structures. There are no isolated tyrants and high-level criminals functioning solely on greed and ignorance. And while there is certainly chaos, this chaos is invariably engineered, not accidental. These crisis events are created by people who often refer to themselves as “globalists” or “internationalists,” and their goals are rather obvious and sometimes openly admitted: at the top of their list is the complete centralization of government and economic power that is then ACCEPTED by the people as preferable. They hope to attain this goal primarily through the exploitation of puppet politicians around the world as well as the use of pervasive banking institutions as weapons of mass fiscal destruction.

Their strategic history is awash in wars and financial disasters, and not because they are incompetent. They are evil, not stupid.

By extension, perhaps the most dangerous lie circulating today is that central banks are chaotic operations run by intellectual idiots who have no clue what they are doing. This is nonsense. While the ideological cultism of elitism and globalism is ignorant and monstrous at its core, these people function rather successfully through highly organized collusion. Their principles are subhuman, but their strategies are invasive and intelligent.

That’s right; there is a conspiracy afoot, and this conspiracy requires created destruction as cover and concealment. Central banks and the private bankers who run them work together regardless of national affiliations to achieve certain objectives, and they all serve a greater agenda. If you would like to learn more about the details behind what motivates globalists, at least in the financial sense, read my article ‘The Economic Endgame Explained.’

Many people, including insiders, have written extensively about central banks and their true intentions to centralize and rule the masses through manipulation, if not direct political domination. I think Carroll Quigley, Council on Foreign Relations insider and mentor to Bill Clinton, presents the reality of our situation quite clearly in his book “Tragedy And Hope”:

“The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank … sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.”

This “world system of financial control” that Quigley speaks of has not yet been achieved, but the globalists have been working tirelessly towards such a goal.  The plan for a single global currency system and a single global economic authority is outlined rather blatantly in an article published in the Rothschild owned ‘The Economist’ entitled ‘Get Ready For A Global Currency By 2018’.  This article was written in 1988, and much of the process of globalization it describes is already well underway.  It is a plan that is at least decades in the making.  Again, it is foolhardy to assume central banks and international bankers are a bunch of clumsy Mr. Magoos unwittingly driving our economy off a cliff; they know EXACTLY what they are doing.

Being the clever tyrants that they are, the members of the central banking cult hope you are too stupid or too biased to grasp the concept of conspiracy. They prefer that you see them as bumbling idiots, as children who found their father’s shotgun or who like to play with matches because in your assumptions and underestimations they find safety. If you cannot identify the agenda, you can do nothing to interfere with the agenda.

I have found that the false notion of central bank impotence is growing in popularity lately, certainly in light of the recent Fed decision to delay an interest rate hike in September. With that particular event in mind, let’s explore what is really going on and why the central banks are far more dangerous and deliberate than people are giving them credit for.

The argument that the Federal Reserve is now “between a rock and a hard place” keeps popping up in alternative media circles lately, but I find this depiction to be inaccurate. It presumes that the Federal Reserve “wants”  to save the U.S. economy or at least wants to maintain our status quo as the “golden goose.” This is not the case.  America is not the golden goose.  In truth, the Fed is exactly where it wants to be; and it is the American people who are trapped economically rather than the bankers.

Take, for instance, the original Fed push for the taper of quantitative easing; why did the Fed pursue this in the first place? QE and zero interest rate policy (ZIRP) are the two pillars holding up U.S. equities markets and U.S. bonds. No one in the mainstream was demanding that the Fed enact taper measures. And when the Fed more publicly introduced the potential for such measures in the fall of 2013, no one believed it would actually follow through. Why? Because removing a primary support pillar from under the “golden goose” seemed incomprehensible to them.

In September of that year, I argued that the Fed would indeed taper QE. And, in my article “Is The Fed Ready To cut America’s Fiat Life Support?” I gave my reasons why. In short, I felt the Fed was preparing for the final collapse of our economic system and the taper acted as a kind of control valve, making a path for the next leg down without immediate destabilization. I also argued that all stimulus measures have a shelf life, and the shelf life for all QE and ZIRP is quickly coming to an end. They no longer serve a purpose except to marginally slow the collapse of certain sectors, so the Fed is systematically dismantling them.

I received numerous emails, some civil and some hostile, as to why I was crazy to think the Fed would ever end QE. I knew the taper would be instituted because I was willing to accept the real motivation of central banks, which is to undermine and destroy economies within a particular time frame, not secure economies or kick the can indefinitely. In light of this, the taper made sense. One great pillar is gone, and now only ZIRP remains.

After a couple of meetings and preplanned delays, the Fed did indeed follow through with the taper in December of that year. In response, energy markets essentially imploded and stocks became steadily more volatile over the course of 2014, leading to a near 10% drop in early fall followed by foreign QE efforts and false hints of QE4 by Fed officials as central banks slowed the crisis to an easier to manage pace while easing the investment world into the idea of reduced stimulus policies and reduced living standards; what some call the “new normal”.

I have held that the Fed is likely following the same exact model with ZIRP, delaying through the fall only to remove the final pillar in December.

For now, the Fed is being portrayed as incompetent with markets behaving erratically as investors lose faith in their high priests. This is exactly what the bankers that control the Fed prefer. Better to be seen as incompetent than to be seen as deliberately insidious. And who knows, maybe a convenient disaster event in the meantime such as a terrorist attack or war (Syria) could be used to draw attention away from the bankers completely.

During the taper fiasco in 2013, Goldman Sachs first claimed that the Fed would taper in September. They lost billions of dollars on bad currency bets as the Fed delayed.

Then, Goldman Sachs argued that there would be no taper in December of that year; and they were proven to be wrong (or disingenuous) once again.

Today, with the interest rate fiasco, Goldman Sachs claimed a Fed rate hike would likely take place. They were wrong. Now, once again, they are claiming no rate hike until next year.

Are we beginning to see a pattern here?

How could an elitist-run bank with proven inside connections to the Federal Reserve be so wrong so often about Fed policy changes? Well, losing a billion dollars here and there is not a very big deal to Goldman Sachs. I believe they are far more interested in misleading investors and keeping the public off guard, and are willing to sacrifice some nominal profits in the process. Remember, these are the same guys who conned nations like Greece into buying toxic derivatives that Goldman was simultaneously betting against!

The relationship between international banks like Goldman Sachs and central banks like the Federal Reserve is best summed up in yet another Carroll Quigley quote from “Tragedy And Hope”:

“It must not be felt that these heads of the world’s chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called “international” or “merchant” bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks.”

Goldman Sachs and other major banks act in concert with the Fed (or even dictate Fed actions) in conditioning public psychology as much as they manipulate finance. First and foremost, globalists require confusion. Confusion is power.  What better way to confuse and mislead the investment world than to place bad bets on Fed policy changes?

We are only going to be faced with ever mounting mixed messages and confusion from the mainstream media, international banks and central banks. It is important to always remember, though, that this is by design. A common motto of the elite is “order out of chaos,” or “never let a good crisis go to waste.” Think critically about why the Fed has chosen to push forward with earth-shaking policy changes this year that no one asked for. What does it have to gain? And realize that if the real goal of the Fed is instability, then it has much to gain through its recent and seemingly insane actions.

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The post The Worst Part Is Central Bankers Know Exactly What They Are Doing appeared first on The Sleuth Journal.

JPMorgan, BofA Trading Revenues Tumble 15%; Blame Lack Of Volatility, "Excitement"

Stop us when you"ve heard this before... and you"ve heard it exactly two times in the last two quarter: both Bank of America and JPMorgan warning their revenue will be down double digits year over year because volatility is so low, and traders are so paralyzed, there is much less money to be made trading either flow or prop, or simply from collecting commissions.

Well, today marks the third time in the last three quarters when both JPMorgan and Bank of America both said - again - that there hasn’t been a rebound in the relentless slump in trading revenue.

Speaking at an investor conference in New York on Tuesday, JPMorgan CFO Marianne Lake said that revenue from trading has dropped 15% so far this quarter compared with the same period a year ago, while Bank of America CEO Brian Moynihan gave the same decline for his firm. Both said the business faces a difficult comparison to last year, when activity spiked after Donald Trump’s surprising presidential election win.

Commenting on the ongoing deterioration in bank revenues, Lake said that “there hasn’t been that many catalysts, it hasn’t been that exciting,” Lake said. “Volatility sill remains pretty low across the spectrum; it’s a very competitive environment.”

Lake spoke alongside Goldman Sachs CFO Marty Chavez and BofA COO Tom Montag, who said at a conference last month that the languor that has plagued their trading businesses in the last two quarters has persisted into the fourth period. According to Bloomberg, Chavez said his bank’s commodities unit is on pace for its worst year in the firm’s history as a public company.

With traditional revenue streams clogged, banks are forced to come up with alternatives. Sure enough, JPM claimed that the lack of volatility hasn’t been a problem in the bank"s corporate and investment bank, where fees should rise in the “high single digits” as activity levels have been healthy, Lake said. And, if passed, the proposed U.S. tax changes should continue to help that business, Lake said.

Clearly markets aren"t too worried, with JPM stock soaring to all time highs, and BofA trading at pre-financial crisis levels.

DB"s "2018 Credit Outlook" - Killer Charts Point To Bearish Not Benign Conclusion

DB’s Jim Reid has released his “2018 Credit Outlook”. In our first pass on this 60-pager earlier, we noted that Reid characterised 2017 as the most “boring year ever”, since it will go down as one of, if not the least, volatile year for the majority of asset classes.

Heading into 2018, Reid characterises risk assets as a tightrope walker who’s successfully negotiated a hire wire since the 2008 crisis. However, the confidence of our risk asset funambulist was always fortified by the knowledge that there was a huge safety net direct beneath him in the shape of the central bank put. In Reid’s own words.

The best analogy for our view on 2018 is that risk assets are like a highly skilled but still relatively inexperienced tightrope walker. Our tightrope walker started his career immediately after the GFC and earned his apprenticeship in very difficult conditions with lots of crosswinds but with the knowledge that a huge safety net existed beneath him. This allowed him to walk across the narrow line with slow but ever-increasing confidence, skill and aplomb. In our analogy the safety net is the central bank put that has continued to help financial markets’ confidence over the last several years in spite of very challenging conditions.

As the tightrope walker steps from December 2017 into January 2018, he’s going to notice a disconcerting change in his safety net.

However in 2018 our tightrope walker will have to move onto the next phase of his career where the structural support of the safety net will likely be slowly weakened. Every time he looks down he’ll figuratively see a central banker loosen or take away a supporting rope. As such his skills and confidence are likely to be tested more than in recent years.

Reid is specifically referring to the growth in the size of the big four DM central bank balance sheets, i.e. the Federal Reserve, ECB, Bank of Japan and the Bank of England. At the end of 2017, the combined size of the big four’s balance sheets is estimated to reach about $14.9 trillion, an increase of about $1.8 trillion on the end of 2016. That’s about to change radically, as he notes.

Assuming fairly neutral and consensus assumptions, central bank balance sheet growth will fall sharply over the next 12-24 months from the near peak levels currently seen.

The chart below shows that on a rolling twelve-month basis, growth will fall sharply, beginning in 2Q 2018. By the end of 2018, DM estimates that the rolling twelve-month growth will have declined about 75% from its 2017 level to about $450 billion. By August 2019, growth will have declined to zero according to DB’s estimate.

As the report notes, this “represents a changing of the guard for ultra-easy policy”. The problem for Reid’s tightrope walker is that he’s come so far, there’s no turning back, even if he knows the risk of a catastrophe is only going to increase for the best part of the next two years. From Reid’s perspective, the threshold in terms of higher risk will be crossed as we move from Q2 2018 in the second half of next year.

So barring an external shock the ECB will be relatively dormant until late in Q2 when speculation will start to mount about what comes next after the current QE extension to the end of September 2018. DB’s expectation is for a quick and full taper in Q4 and the first policy rate hike in June 2019. As such, as we approach the June meeting - which will probably be the earliest that any announcement will occur - more hawkish speculation will likely start to mount about the future of the program. Indeed by the time we get to H2 2018 we’ll potentially be seeing a very different global QE picture to that we’ve been used to in the recent past. By then the Fed will be well into its gradual, but slowly increasing run down of its balance sheet.

As the report notes, the slowdown in QE purchases in 2017 will likely coincide with significantly different conditions to the most recent example in 2014-15.

While markets went through similar balance sheet wind downs through 2014 and into 2015 - driven predominantly by the Fed and ECB - not only was the stock of global QE lower with less central banks conducting such operations, we also had a situation where the tapering was consistent with a reduction in government issuance.

Fast forward to 2018 and a reduction of purchases across the globe could be occurring at a time when there is a move to increase government spending even if this isn’t yet showing up in the forecasts. The US tax plans haven’t been finalized as we go to print but an unfunded tax cut is our base case which will add to the deficit and eventually to treasury issuance. In the UK the budget - seen just before we went to print - included some loosening of the fiscal purse, as the current administration deal with Brexit risks and a population tired of austerity. Even in Germany, the recent election uncertainty and eventual coalition could include some fiscal stimulus.

So we think the tide is turning away from ultra-loose monetary and relatively tight fiscal even if the official fiscal forecasts from most commentators are yet to include much in the way of easing across the globe.

Reid backs up his forecasts with charts for the three key central banks, firstly the Federal Reserve and the Bank of Japan. The chart for the Fed shows that its purchases of Treasuries have never exceeded net supply. In contrast, the BoJ has exceeded net supply during the last four or so years of Abenomics, although the ratio has stabilised at around three times.

Turning to the ECB, the change in ECB purchases versus net issuance will be dramatic as 2018 unfolds.

 

Reid argues that.

Interestingly, if we look at the Fed, BoJ and ECB Government bond purchases versus net supply of domestic Government bonds we can see how the ECB’s removal of QE could be very different to that of the Fed relative to when it started tapering. In addition the supply/demand dynamic for European Government bonds has recently been even more extreme than in Japan…as ECB purchases have recently been seven times net issuance at their recent peak.

So in other words we’ve seen the huge PSPP volume far outstrip the relatively negligible net issuance in the Euro area. While the Fed program was clearly huge in absolute terms, relative to supply it was much more modest. It also declined along with Treasury issuance meaning that yields could be sheltered from the tapering impact.

In Europe we could see government bond QE go from seven times net issuance in Q3 2017 to more in line with it by the end of 2018. As the realisation mounts that ECB QE withdrawal is much more significant in relative terms to that seen in the US in 2014 then fixed income markets could become more vulnerable which may in turn create more volatility and more difficult conditions for credit spreads.
Which…unless we are missing something…sounds very bearish for European credit.

Nonetheless, when it comes to the DB team’s central case for credit spreads in 2018, they are relatively benign. Indeed, DB expects a tightening in Q1 2018, followed by a modest widening from Q2 2018 to the end of the year.

As the report notes, team member “Craig” is more bearish than his colleagues and his views seems more in keeping with the general thrust of the report.

Combining the net purchases versus net issuance data for the Fed, ECB and BoJ, Reid notes.

When we combine these three central bank purchases with net issuance historically in Figure 18 we can see just how supportive the technicals have been for government bonds. This is seemingly peaking out at the end of 2017 and with our forecasts for central bank purchases and a continuation of the 2013-2017 reduction in Government bond net issuance we expect this now to reverse. For choice we think fiscal spending will start to pick up which means these net issuance estimates are probably too aggressive on the downside.

Once again, the correct conclusion would seem to be bearish, although DB seems reluctant to go there. We are even more perplexed when DB cites the risk that inflation will surprise on the upside.

Meanwhile we think the risks to inflation are on the upside…will likely mean that crosswinds pick up as we move through Q2 and into H2 – a period where US inflation might start to more consistently beat on the upside (or at least not consistently miss on the downside) and markets start to think about a June ECB meeting where the end of Euro QE is possibly announced.

Returning to his metaphor of the tightrope walker, DB notes the probability of him remaining on his wire will deteriorate as the year progresses.

If we’re correct on inflation it’s going to be difficult for central bankers to justify anything other than the slow and steady removal of the safety net beneath our intrepid tightrope walker. As such his task will get more difficult purely because his confidence must surely weaken with more risks associated with any fall. As such he’s likely to wobble more. So expect volatility to finally start to increase after surprising many by staying as low for as long as it has done. At this stage the tightrope walker may have enough skill to safely navigate across to the next point (end 2018), however the probabilities of such a successful outcome are likely to be getting lower as the year progresses.

Perhaps Reid has been dissuaded from taking a more bearish stance by the ultra-low environment for volatility which he noted had made 2017 so boring. Indeed, he notes the close correlation between major asset volatility levels and credit spreads.

As we noted in our first pass on DB’s “2018 Credit Outlook”

Reid joins countless other strategists opining on the lack of vol in the past year, asking "why has volatility been so low and can it continue?" His answer is that the most likely reason for volatility being so low is a combination of:

• Synchronised and firm global growth;


• Inflation that has consistently been in the ‘Goldilocks’ range and not accelerating as much as expected in 2017, and;


• Global central bank liquidity which in 2017 has still been close to peak levels.

What Reid neglected to mention is that volatility has itself become a tradeable input – making it reflexive in nature - and one which has been shorted to insane levels, both implicitly and explicitly.

The rapid elimination of the central bank security net coupled with rising inflation are transforming the risk profile for Reid’s tightrope walker, as he acknowledges, and one where the chances of a sustained spike in volatility must be commensurately higher. We know from his writings that Reid is a big Liverpool (soccer) fan, as are we. It’s been a frustrating season so far. So often, the build-up play has been excellent while putting the ball in the back of the net has been elusive. We felt like this about DB"s otherwise impressive report.

Goldman"s Asset Arm Takes Big Hit On Venezuelan Bond Bloodbath

The fallout from the Venezuelan bond restructuring has claimed a major victim in Goldman Sachs Asset Management, or rather some of the “muppets” who trusted Goldman to invest their money. However, the route which led Goldman to losing a chunk of client money wasn’t just a case of bad judgement, being riddled with the usual mixture of greed, questionable ethics and government intervention. As we detailed in “Goldman Accused Of Funding Maduro’s Dictatorship”.

Goldman controversially purchased $2.8 billion of 2022 bonds in May 2017 in the state-owned oil producer PDVSA, for about $865 million - or about 31 cents on the dollar. This prompted Julio Borges, President of the National Assembly and head of Venezuela’s opposition, to accuse Goldman of “aiding and abetting the country’s dictatorial regime.” Borges threatened that any future democratic government would not recognise or pay on the bonds. In true Goldman fashion, however, the deal was just too lucrative to pass up, or so it seemed at the time, as Goldman paid a then 30% discount to other Venezuelan bonds with a similar maturity.

 

Goldman’s ”defence” was that it did not buy the bonds directly from PDVSA, consequently it did not transfer funds directly to the Venezuelan regime.

To make matters worse, when the Trump White House extended sanctions against Venezuela over the Summer, including a ban on trading Venezuelan debt, Goldman’s bonds were mysteriously exempt. As we argued here.

“the logic is that if Goldman was forced to liquidate the bonds, or worse was stuck holding them as Venezuela went bankrupt, it would take a huge hit on the nearly $3 billion notional position. As such, Goldman"s advisors to Trump made it quite clear that any sanctions against Venezuela would have to be Goldman Sachs revenue neutral first and foremost. That"s precisely what happened.”

We have to acknowledge, however, that the next comment of ours was only half correct.

“Of course, Venezuela"s default is just a matter of time, but it won"t take place before Goldman dumps its bond holdings to some unwitting retail investor or some German widows and orphans.”

It turns out that Goldman had only dumped part of its holdings prior to the expected default, and is sitting on a sizeable loss, as the FT explains.

Ricardo Penfold, a senior portfolio manager at Goldman Sachs Asset Management, earlier this year swooped on a big slice of a bond issued by PDVSA, Venezuela’s state oil company, people familiar with the matter say. Mr Penfold paid $865m for bonds with a face value of $2.8bn — a price of just under 31 cents on the dollar — reflecting the elevated risks of a default even at the time. While GSAM has since sold off chunks of the bond, it was still listed as the single biggest overall owner of the PDVSA bond maturing in 2022, with a face value holding of $1.3bn at the end of the third quarter. But with Thursday’s announcement that Venezuela would seek to restructure all its foreign bonds, the bond is now trading at 25 cents on the dollar, down from 29 cents at the start of last week. That would translate into a paper loss of $54m in just five days if GSAM has not reduced its stake since the end of the third quarter…

 

GSAM is listed as the single biggest overall owner of PDVSA debts, according to Bloomberg data based on fund filings, with $1.8bn of face value holdings.

 

A Goldman spokesman said: “We are monitoring this situation closely.” The summer deal was particularly controversial, attracting condemnation from the Venezuelan opposition and US senator Marco Rubio, because it in effect constituted a cash infusion for the increasingly autocratic government led by Nicolás Maduro. GSAM bought the bond via an intermediary, but it was sold by the central bank.

As we said, and other analysts agree, Goldman should have seen it coming. From the FT article.

Many investors who had been betting that Venezuela would manage to avoid defaulting are nursing losses. Venezuelan bonds suffered a drubbing in the wake of Mr Maduro announcing plans to restructure the country’s $89bn debt pile. “This has been a well-telegraphed train wreck,” said Robert Koenigsberger, head of Gramercy, an emerging markets-focused asset manager.

 

“There are reasons to expect that prices will go even lower from here.” GSAM and other big Venezuelan bond investors — such as Fidelity, T Rowe Price and Ashmore — could still end up making money from their Venezuelan bond purchases, as analysts expect the ultimate “recovery value” on Venezuelan debt to be higher than where the bonds are trading at now.

While the article suggests the possibility of a more favourable exit for Goldman in due course, the restructuring of Venezuelan debt is not going to be a “plain vanilla” variety. Indeed, it might be more complicated than any previous sovereign debt restructuring. The irony for Goldman, as the FT explains, is that the extension of sanctions by the US Government will make it much harder for the bank to recover its losses.

Venezuela’s plans to restructure its debts are riddled with complications. The mess of bonds issued by the country and PDVSA are hard to disentangle, and oil exports — the country’s sole financial lifeline — are vulnerable to seizures from litigious creditors. However, the biggest wrinkle is the US government’s sanctions on Venezuela, unveiled in August after the GSAM deal. In practice, they prohibit any US institutions from involvement in any Venezuelan debt restructuring.

 

“Sanctions will prevent a conventional exchange offer,” said Lee Buchheit, a senior partner at Cleary Gottlieb, who has represented a series of countries when they restructure their debts. “It’s really not clear what Maduro has in mind, or whether he even has anything in mind."

 

Venezuela owes about $750m in bond arrears and is facing a further $965m of interest payments over November and December, calculates Patrick Esteruelas, global head of research at Emso Asset Management. If Caracas has run out of money — and Russia or China decline to extend more loans to Venezuela — it will have to default. But as long as US sanctions remain in place, this will push Venezuela into financial purgatory of a protracted, unresolvable debt default. “In a world where you can’t pay and you can’t restructure, all you can do is default,” Mr Koenigsberger said. “Even without the sanction, this would have been an exceptionally tough debt restructuring. It will now be exponentially harder than anything we have seen before. And I don’t think that is priced in yet.”

It will be tragically amusing to watch what extraordinary measures the heavily Goldman-influenced White House takes to bail the bank out of its latest predicament.