The document provides a bi-weekly market summary and analysis by Fasanara Capital. It discusses the ECB's recent policies to manually remove catalysts from the markets. It argues these policies delay necessary restructuring and add new debt on old debt. The next 6 months will be key to assess outcomes. Fasanara expects continued market resilience but is positioning portfolios with hedges for potential fat tail risks in the coming years from failing European policies.
Is the world heading towards an unprecedented zero-interest rate economy? In a globalized world like today’s, where economies are extremely interdependent,
relative prices are one of the most important key driver for increasing exports. An
appreciation of the domestic currency could scuttle export and bring the fragile economy
back to recession. This would happen if all the other countries decide to keep interest
rates steady. Is it rational to increase rates when all the others keep them steady? The
answer is clearly no. Following Dr. Keith Weiner’s theory of interest and price2
, a zero interest rate economy
can be regarded as a singularity point in Astrophysics. Once the interest rate falls to a
certain point known as “event horizon”, the theory says, then it cannot escape and rise.
Once that point is reached it becomes evident that (sovereign and private) debts cannot
be paid off, although the truth is that it was impossible to pay off them since the very
moment they were issued.
Greece eurozone and the euro the body is getting really rottenMarkets Beyond
Greece debt trap is inextricable: there is no way out of a default/restructing - debt "reprofiling" is just a joke since it would require 21% compound annual growth for 10 years to go back to 60% debt/GDP ratio.
As a result of the financial crisis and global recession public debt burdens have risen to critical levels in a number of Western European countries. Emergency loans from the EU and IMF have eased funding pressures, but have only bought the region time; painful fiscal adjustment and an improvement in competitiveness is required if the region is to enjoy a sustainable recovery.
Eastern Europe, while rebounding through exports and industrial output, will underperform its emerging-market peers in 2010. Business and consumer sentiment in the region is fragile, and its currency and bond markets are vulnerable to contagion from problems in the euro zone or a rise in risk aversion more broadly.
This presentation takes a look at the economic outlook for both Western and Eastern Europe.
Principales conclusiones de la reunión del BCEFinect
Deutsche Bank ha realizado un informe en el que analiza las principales conclusiones de la reunión del BCE la semana pasada y las claves del inicio del programa de compra masiva de deuda, iniciado ayer. Asimismo, los analistas comentan los posibles efectos que esto puede tener en los mercados y vaticinan posibles escenarios a futuro en la eurozona.
O programa de ajustamento económico para Portugal - Décima Primeira Revisão Cláudio Carneiro
O relatório avalia a conformidade com os termos e condições estabelecidos no Memorando de Entendimento como actualizada após a Décima Revisão do Programa de Ajustamento Económico Português. A avaliação baseia-se nos resultados de uma Comissão Europeia conjunta (CE) / Banco Central Europeu (BCE) / Fundo Monetário Internacional (FMI) missão pessoal para Lisboa entre 20 de fevereiro e 28 de fevereiro de 2014. A missão concluiu que a implementação do programa é amplamente na pista. O déficit orçamental de 2013 foi de 4,9 por cento do PIB, significativamente abaixo da meta de 5,5 por cento Programa do PIB. A maioria dos indicadores econômicos apontam para uma recuperação econômica contínua e as autoridades estão empenhadas em implementar as reformas fiscais e estruturais necessárias para se recuperar o crescimento sustentável. Envelope de financiamento do programa continua a ser suficiente. Aprovação das conclusões desta revisão permitirá o desembolso de 2,5 bilhões de euros (1,6 mil milhões pela UE e EUR 0.9 mil milhões pelo FMI), elevando o total desembolsado para Portugal para EUR 77 mil milhões o que representa cerca de 97 por cento do total disponível financeiro assistência.
Is the world heading towards an unprecedented zero-interest rate economy? In a globalized world like today’s, where economies are extremely interdependent,
relative prices are one of the most important key driver for increasing exports. An
appreciation of the domestic currency could scuttle export and bring the fragile economy
back to recession. This would happen if all the other countries decide to keep interest
rates steady. Is it rational to increase rates when all the others keep them steady? The
answer is clearly no. Following Dr. Keith Weiner’s theory of interest and price2
, a zero interest rate economy
can be regarded as a singularity point in Astrophysics. Once the interest rate falls to a
certain point known as “event horizon”, the theory says, then it cannot escape and rise.
Once that point is reached it becomes evident that (sovereign and private) debts cannot
be paid off, although the truth is that it was impossible to pay off them since the very
moment they were issued.
Greece eurozone and the euro the body is getting really rottenMarkets Beyond
Greece debt trap is inextricable: there is no way out of a default/restructing - debt "reprofiling" is just a joke since it would require 21% compound annual growth for 10 years to go back to 60% debt/GDP ratio.
As a result of the financial crisis and global recession public debt burdens have risen to critical levels in a number of Western European countries. Emergency loans from the EU and IMF have eased funding pressures, but have only bought the region time; painful fiscal adjustment and an improvement in competitiveness is required if the region is to enjoy a sustainable recovery.
Eastern Europe, while rebounding through exports and industrial output, will underperform its emerging-market peers in 2010. Business and consumer sentiment in the region is fragile, and its currency and bond markets are vulnerable to contagion from problems in the euro zone or a rise in risk aversion more broadly.
This presentation takes a look at the economic outlook for both Western and Eastern Europe.
Principales conclusiones de la reunión del BCEFinect
Deutsche Bank ha realizado un informe en el que analiza las principales conclusiones de la reunión del BCE la semana pasada y las claves del inicio del programa de compra masiva de deuda, iniciado ayer. Asimismo, los analistas comentan los posibles efectos que esto puede tener en los mercados y vaticinan posibles escenarios a futuro en la eurozona.
O programa de ajustamento económico para Portugal - Décima Primeira Revisão Cláudio Carneiro
O relatório avalia a conformidade com os termos e condições estabelecidos no Memorando de Entendimento como actualizada após a Décima Revisão do Programa de Ajustamento Económico Português. A avaliação baseia-se nos resultados de uma Comissão Europeia conjunta (CE) / Banco Central Europeu (BCE) / Fundo Monetário Internacional (FMI) missão pessoal para Lisboa entre 20 de fevereiro e 28 de fevereiro de 2014. A missão concluiu que a implementação do programa é amplamente na pista. O déficit orçamental de 2013 foi de 4,9 por cento do PIB, significativamente abaixo da meta de 5,5 por cento Programa do PIB. A maioria dos indicadores econômicos apontam para uma recuperação econômica contínua e as autoridades estão empenhadas em implementar as reformas fiscais e estruturais necessárias para se recuperar o crescimento sustentável. Envelope de financiamento do programa continua a ser suficiente. Aprovação das conclusões desta revisão permitirá o desembolso de 2,5 bilhões de euros (1,6 mil milhões pela UE e EUR 0.9 mil milhões pelo FMI), elevando o total desembolsado para Portugal para EUR 77 mil milhões o que representa cerca de 97 por cento do total disponível financeiro assistência.
Greece's race to default and european banks' recapitalizationMarkets Beyond
Greece will default by end of October and the ECB will dramatically expand its balance sheet to provide liquidity to banks and buy Spanish and Italian sovereign debt in the secondary market to maintain financing costs at acceptable levels.
What is needed to cleap up the eurozone house - clean-up the banks and restru...Markets Beyond
European banks have been very good at lobbying to make sure European countries are baling out Greece and others, whilst our analysis shows that they could sustain a PIGS default.
‘Deflationary Boom Markets’
‘Deflationary Boom Markets’ is the name of the game. Deflation forces Central Banks into action. Central banks to push Bonds and Equities higher, inflating the bubble some more, although on a rougher path and with higher volatility than we got accustomed to in recent years.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Global Macro-economics, Trends, Portfolio ImplicationsNikunj Sanghvi
My presentation to the Bombay Chartered Accountants' Society International Economic Study Circle on Global macro-economics, trends, portfolio implications
Aug 7th 2013
Mumbai, India
The allocator shows in detail our view on the financial markets and give insight on our asset, sector and geographical allocation. It can go from 0 - 100% in equity and is actively rebalanced on a monthly basis.
Similar to Fasanara Capital Bi-Weekly Notes - July 13th 2012 (20)
Fasanara Capital | Investment Outlook
1. Fake Markets: How Artificial Money Flows Kill Data Dependency, Affect Market Functioning and Change the Structure of the Market
Hard data ceased to be a driver for markets, valuation metrics for bonds and equities which held valid for over a century are now deemed secondary. Narratives and money flows trump hard data, overwhelmingly.
‘Fake Markets’ are defined as markets where the magnitude and duration of artificial flows from global Central Banks or passive investment vehicles have managed to overwhelm and narcotize data-dependency and macro factors. A stuporous state of durable, un-volatile over-valuation, arrested activity, unconsciousness produced by the influence of artificial money flows.
- Passive Flows: The Prehistoric Elephant In The Room
- ETFs Are Taking Over Markets
- The Impact of Passive Investors on Active Investors: the Induction Trap
- How Narratives Evolve To Cover For Fake Markets
- Defendit Numerus: There is Safety in Numbers
- What Could We Get Wrong
2. Be Short, Be Patient, Be Ready
Markets driven by Central Banks, passive investment vehicles and retail investors are unfit to price any premium for any risk. If we are right and this is indeed a bubble (both in equity and in bonds), it will eventually bust; it is only a matter of time. The higher it goes, the higher it can go, as more swathes of private investors are pulled in. The more violently it can subsequently bust.
The risk of a combined bust of equity and bonds is a plausible one. It matters all the more as 90%+ of investors still work under the basic framework of a balanced portfolio, exposed in different proportions to equity and bonds, both long. That includes risk parity funds, a leveraged version of balanced portfolio. That includes alternative risk premia funds, a nice commercial disguise for a mostly long-only beta risk, where premia is extracted from record rich markets that made those premia tautologically minuscule.
Fasanara Capital | Investment Outlook
1. The Future Is Wide Open: Avoid The ‘Illusion Of Knowledge’ Trap
The single most dangerous thinking trap / optical illusion for investors today is to look at Trump, Brexit and Italy Referendum as non-events, buried in the past. We believe that 2017 may likely be driven by the same factors that failed to shape 2016. The non-events of 2016 are likely to be the drivers of 2017. Finally, we will get to find out if Brexit means Brexit, if Trump means Trump, if a failed Italian referendum means early elections and a membership of the EMU in jeopardy down the line.
2. Structural Shift: These Are Transformational Times
The macro outlook of the next years will be influenced the most by these structural trends:
› Protectionism, De-Globalization & De-Dollarization. In Pursuit of Inclusive Growth
› End of ‘Pax Americana’. The ascent of China. Geopolitical risks on the rise
› End of ‘Pax QE’. Markets without steroids, but still delusional.
› 4th Industrial Revolution: labor participation rate falling from 63% to 40% in 10 years?
3. Our Baseline Scenario: Bubble Unwind, Equities and Bonds Down
Starting this 2017, our major macro convictions are as follows:
› Global Tapering to progress
› US Dollar to keep grinding higher
› European Political Instability to worsen
› US Equities to weaken
1. Reflation Phase To Be Temporary, More Downside Ahead
Earlier on in 2016, ‘random and violent markets’ went off to panic mode out of (i) fears over China’s messy stock market and devaluing currency, (ii) plummeting oil price, (iii) strong US Dollar. Today, we believe complacent markets are similarly illogical and over-shooting, this time on the way up. As we re-assess the validity of the underlying risks, we expect a shift in narrative in the few months ahead and a sizeable sell-off for risk assets.
2. Four Key Conviction Ideas
We analyze below our key ideas for the next 12 months:
Short Chinese Renminbi Thesis. In Q1, China only managed to keep GDP in shape by means of graciously expanding credit by a monumental 1 trn $. Unsurprisingly, at 250% total debt on GDP, you cannot borrow 10% of GDP per quarter for long, without a currency adjustment, whether desired or not.
Short Oil Thesis. Long-term, we believe Oil will follow a volatile path around a declining trend-line, which will take it one day to sub-10$. Within 2016, we expect global aggregate demand to stay anemic and supply to surprise on the upside, inventories to grow, primarily due to the accelerating speed of technological progress.
Short S&P Thesis. To us, the S&P is priced to perfection, despite a most cloudy environment for growth and risk assets, thus representing a good value short, for limited upside is combined with the risk of a sizeable sell-off in the months ahead.
Short European Banks Thesis. We believe that micro policies at the local level, while valid, are impotent against heavy structural macro headwinds, and only the macro environment can save the banking sector in its current form in the longer-term. Macro structural headwinds for banks these days are too heavy a burden (negative sloped interest rate curves, deeply negative interest rates, deflationary economy, depressed GDP growth, over-regulation, Fintech), and will likely push valuations to new lows in the months/years ahead.
Fasanara Capital Investment Outlook | February 1st 2015
1. Seismic Activity On The Rise
2. No Volatility No Gain
3. The Role Of Optionality
4. Crystal Ball
5. Deflation Is A Multi-Year Process
6. Three Big Trades for 2015
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
Webinar Exploring DORA for Fintechs - Simont Braun
Fasanara Capital Bi-Weekly Notes - July 13th 2012
1. July 13th 2012
Fasanara Capital | Bi-Weekly Notes
With the anti-spread device introduced earlier on this month, the ECB attempts at manually
removing a major catalyst from the market, yet again. The list of centrally-planned
backward-looking ‘manual removals of catalysts’ along the way gets longer and longer. At
the end of last year, it was wholesale Dollar financing for European banks (as reflected by
eurusd currency basis) and central banks reacted with unlimited $ liquidity financing.
Shortly afterwards, it was bank’s liquidity and inter-banking financing (as reflected by OIS-
Libor spreads) and the ECB reacted delivering the LTROs. It was then about financing for
Sovereigns (as reflected by spreads to Bunds and absolute yields) and the ECB reacted
making those same banks buy local government paper. Now, the banks dry powder for
purchasing government securities has evaporated, with spreads rising again to cracking
levels, so the ESM/ECB have reacted with attempting to manually cap them via the anti-
spread mechanism. We expected the ECB’s SMP operations (as opposed to LTRO) to be
utilized as best bang for the buck, and this device is just a substitute for it (and a weaker
one). From here, we expect the next potential catalyst to be bank capital, in addition to
bank liquidity, and we may see the ECB moving from LTRO and SMP to larger Asset
Purchases programs (TARP-style), at some point this year or next, to replace over-valued
assets with cash and capital at an inflated bid. Listening carefully to Draghi’s own words last
week may make it transpire.
Two immediate consequences can be expected on such ECB’s crisis resolution policies.
Firstly, incidentally, you may have to wave bye bye to the traditionally-shaped distressed
opportunity in Europe, executed via fire-sales from banks’ balance sheet, as it will be
postponed yet some more. Our own conversations with banks these weeks point in that
direction. Forcing market participants like us into unconventional ways to play on that table,
as we believe there are still mechanisms to capture that value. Secondly, this course of
action will also lead to a more meaningful side-effect, in preventing or further postponing
the full disclosure of losses, ring fencing of bad assets, the removal of such bad assets and
insolvent institutions from the system and the subsequent recapitalization of viable
(illiquid but solvent) institutions; thus critically missing key commonalities to previous
successful crisis economics: resoluteness, transparency, removal of uncertainty. All in all, a
2. multi-year period of slow deleverage, prolonged stagnation and system-wide forbearance
seems more likely than a quick recovery of some sort (and therefore remains the central
case scenario under our Multi-Equilibria market theory). This also means that, as it stands
right now, in the intentions of policy makers, a Japan-style outcome might be the most
likely and luckiest one for Europe.
More generally, the common denominator of such reaction-only ‘manual removals of
catalysts’ policymaking seems to be adding new debt on old debt, leverage expansion of
the public sector to avoid a disorderly deleverage in the private and public sector,
transferring the costs of the crisis to the future, and to still unaware taxpayers and EUR
holders. As opposed to face reality and tackle the overleverage with financial
restructurings/rescheduling/haircuts and the likes (which we have so far seen only in
Greece’s and Ireland’s PSIs, while having helped fix Sweden’s quick recovery in the early
90’s). Financial engineering on the balance sheet of the ECB , leveraging banks’ balance
sheets to buy government paper, crowding out the private sector and killing trading
volumes to un-precedent levels, soon replacing banks assets with brand newly printed cash
from the ECB itself, are all ingredients of the same debt-laden intervention policy.
Such behind-the-curve policies may work as long as one specific segment of the economy
reaches its tipping point, when it breaks out and calls the bluff. Over the course of the
economic history of previous bubbles, a coveted asset is the object of speculation, typically
Real estate/housing/equity, rising above its fair market value, helped by credit expansion/
easy credit, until it busts and ignites deleverage. Perhaps, given the institutional sovereign
and supra-national players involved, this time around the coveted asset may be debt itself,
debt on debt, as an addictive compulsive behavior with inevitably diminishing returns over
time and larger doses needed next time around, at both the private and public levels, as it
represents a growingly unbearable share of either GDP, government revenues or
household income (which are all declining further as debt grows, under the weight of such
debt itself, and under the cover of deceptive zero-bound interest rates). Imbalances are
building up, as the spread widens and widens between an excessive debt burden and the
real productive economy, industrial output and long-term growth.
Interestingly, as too much cash was parked at the ECB deposit facility, last week the ECB cut
the rate of return from 0.25% to 0%, causing a drop from ca. 800bn to ca. 325bn. Time and
again, deceptive zero-bound interest rates are attempting to push risk-off cash into risk
taking activities, in sort of a desperate way. Next time Draghi will have to either prohibit
3. parking cash outright (war-time capital controls) or put a negative interest rate there. As a
matter of fact, the ECB’s move has not so far yielded any result, as cash simply flowed from
the ECB deposit facility (falling from 800bn to 325bn) into the ECB current account (rising
from 70bn to 500bn), leaving the excess reserves at the ECB broadly unchanged (at 780bn).
To be true, we do not dispute that the ECB, and global Central Banks in general, have
more bullets at their disposal. We are convinced that they do, and may be in a position to
use it, with the appropriate political backing behind it. Expanding their balance sheet by an
additional 20%/30% is a possibility, in our eyes. In fact, we do expect a reflation to new
highs following decisive Central Bank activity at some point over the next few months
(especially should the market correct markedly and spur panic). However, we are doubtful
that they will be surely successful in doing that, as the market is currently pricing in, on our
count. After all, central banks’ balance sheets have quadrupled over the past five years. The
two key questions on investors’ minds should be: why haven’t they then sorted it out by
now? Can they quadruple it again over the next 5 years?
Differently than other market players and observers, we doubt that the latest round of
policymaking has bought much time. Actually, we believe the next 6 months will be will be
key to assess the probability tree diagram around potential outcomes, and may
consequently represent the most interesting window of opportunity for our Fat Tail Risk
Hedging Programs.
The main checkpoints on our count are the following: (i) Germany: from here, it will be
interesting to see, whether Germany will allow its Target2 exposure to rise much further.
It remains to be seen. If they do, then the trade will be to short them against peripheral
Europe, as they will have become, de facto, jointly and severally liable with other European
economies, on many scenarios. But not as yet. Until then, as explained in our last bi-weekly
note, we retain a smaller (than before) long Bunds RV play. (ii) In southern Europe austerity
has not really kicked in, as yet, and political support is at risk already. What we saw in
Greece is still months away in Italy and Spain. Unemployment is there, having prepositioned
at dangerous levels (52% youth unemployment in Spain, 36% in Italy, and rising), waiting to
react to the full wrath of such austerity measures. In Italy, domestic support seems to be
rapidly evaporating. Spain too is dangling on a string, with 52% youth unemployment,
ever-falling real estate valuations and deposits on a steady decline.
Where we watch such key vulnerabilities playing their magic is on the actual money flows
beneath the surface, as opposed to policy actors’ brave words, and the incidental headlines
4. that they engineer out of them. Look no further than Eurosystem flows. For instance,
money spent by the SNB and the Nationalbanken to defend the Swiss Franc and the Danish
Krone against appreciation vs the Euro. SNB has reserves for 60% of its GDP already, having
bought some 50bn Euro while defending the currency floor. Nationalbanken imposed a
negative return of -0.20% on its deposit facility. How much more manoeuvring
room/willingness can be left there to defend those undervalued currencies? And the last
currency peg under stress, most obviously, is the EUR itself. If history is any guide, three
conditions were met in past currency crisis and emerging market crisis: an over-valued
currency (read, the EUR to countries like Italy and Spain), over-indebtedness, as a share of
GDP or the productive economy (rephrased, too much debt and no growth against it), and
current account deficit. By any objective criteria, all three levers are met for certain
countries in southern Europe, making the case for a reshaping of the EUR-fixed currency
regime a genuine one. In advanced economies the readjustment may be slower to occur
than in emerging economies (as we learn from the attached interesting piece looking at past
banking crisis), but it may still do occur over time, including a currency-driven one.
Opportunity-Set
In opportunity land, it would be imprudent not to take advantage of such market resilience
to provide one’s portfolio with your own home-made backstop facilities and firewalls, as
you cannot expect Central Banks to do it for you too. In fact, Risk Premia are nowhere near
where they ought to be should one factor in the even vague possibility of partially failing
European policy making. Our leit-motiv remains to take advantage of current market
manipulation and compressed Risk Premia to amass large quantities of (therefore cheap)
hedges and Contingency Arrangements , thus balancing the portfolio against the risk of
hitting Fat Tail events in the years to come. If we do not hit them, then great, it will be the
easiest catalyst to us hitting the target IRR on the value investment portion of our portfolio
(what we call Safe Haven, or Carry Generator). If we do hit one of those pre-identified low-
probability high-impact scenarios, then cheap hedges will kick in for heavily asymmetric
profiles (we typically targets long only/long expiry positions with 10X to 100X multipliers).
Such multipliers are courtesy of market manipulation and ‘interest rate rigging’ provided
for by Central Bankers. Look no further than that, as we believe that they represent the
only truly Distressed Opportunity right now in Europe. Timing-wise, the next 6 months
may provide the most interesting window of opportunity, for theses uses and purposes.
5. What I liked this week
Denmark to Eurozone: keep your darn euros out. After the ECB set the deposit rate to zero,
Denmark's central bank, had to do one better to keep these people out, setting the deposit
rate to negative 0.2%. Denmark's banks will be losing money on deposits they take in
(unless they charge rather than pay interest), which should keep these banks from taking
large amounts of DKK (converted from euros) from Eurozone depositors. Read
The Deleveraging Trap Read
Draghi's zero deposit rate policy kills euro money market funds Read
Just another scary Spanish capital flight chart Read
W-End Readings
A recent research from BAML, The Longest Pictures, helps put things into perspective as it
collects the longest series possible for a number of key financial variables. Amongst other
stats, a few numbers captured our attention: (i) 10yr treasury yields are at their 220-year
lows in the US, 140years lows in Japan, (iii) adjusted for inflation, equity markets had
negative real returns in nearly 1 out of every 2 years since 1871, and after prior secular tops
(1907, 1929, 1968, 2000) stocks took 20-30 years to recover back to their previous highs (iii)
equities are in their 4th secular trading range, whilst bonds are in their second secular bull
market: every equity breakout has coincided with a secular inflection in the bond market.
The curse of advanced economies in resolving banking crises. The average crisis in advance
economies lasting about twice as long as in emerging market economies. It argues that
macroeconomic stabilization policies in advanced countries often delay the necessary
financial restructuring. Read
The tragic error of excessive austerity Read
6. Francesco Filia
CEO & CIO of Fasanara Capital ltd
Mobile: +44 7715420001
E-Mail: francesco.filia@fasanara.com
16 Berkeley Street, London, W1J 8DZ, London
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