Mexico, Federal Reserve Policy and Danger Ahead for Emerging Markets

Submitted by Nomi Prins  –  www.nomiprins.com

On August 27th, I had the opportunity to address the Aspen Institute, UNIFIMEX and PWC in Mexico City during a Q&A with Patricia Armendariz. Subsequently, on August 28th, I gave the opening talk at the annual IMEF conference. The main issues of concern to local Mexican banks, as well as to Mexico’s central bank, are:

1) How the Federal Reserve’s (and to a lesser extent ECB’s and People’s Bank of China) policies and actions have, and wlil continue to impact their currency and interest rate levels, and

2) The risks posed by the structural, and ongoing problems of too-big-to-fail banks, which remain as much a US as a Mexican problem as manifested by heightened economic, market and financial stress.

I posted the slides from my talk here, including the ten main risks that Mexico (and really all countries) are facing today, as well as the four factors of volatility that I have spoke about many times before. Much uncertainly emanates from central bank policy and the associated artificial stimulation of mega banking institutions and capital markets throughout the world. There is no foreseeable remedy to the long-term damage already caused, and that will continue to grow in the future.

What follows is a related piece that I co-authored with researcher, Craig Wilson that first appeared in Peak Prosperity:

Too big to fail is a seven-year phenomenon created by the most powerful central banks to bolster the largest, most politically connected US and European banks. More than that, it’s a global concern predicated on that handful of private banks controlling too much market share and elite central banks infusing them with boatloads of cheap capital and other aid. Synthetic bank and market subsidization disguised as ‘monetary policy’ has spawned artificial asset and debt bubbles – everywhere. The most rapacious speculative capital and associated risk flows from these power-players to the least protected, or least regulated, locales.

The World Bank and IMF award brownie points to the nations offering the most ‘financial liberalization’ or open market, privatization and foreign acquisition opportunities. Yet, protections against the inevitable capital outflows that follow are woefully inadequate, particularly for emerging markets. Continue reading

For One Day In Brazil, Market Buys What Already Failed

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Janet Yellen wasn’t the only central banker boxed in by recent “dollar” strife. The Brazilian central bank sparked a counter rally in the real after it had crashed to an all-time low. After absorbing a relentless and devastating devaluation, Banco do Brasil had run itself out of further options. They had already claimed that raising the benchmark SELIC rate to 14.25% at the end of July would be “enough”, as the gathering Brazilian depression amidst surging “inflation” paralyzes all assumed flexibility. There is simply nothing left for them to do except further attempts at moral suasion no matter how ridiculous.

For one day, at least, it worked. The real, which had traded below 4.20 to the dollar yesterday, was back above 4.00 today.

Brazil’s currency futures market, where volumes are nearly three times bigger than in the spot market, has led the slide and that is where policymakers are focusing their efforts – holding a series of auctions of currency swaps, dollar repurchase agreements and local debt, all of which helped reduce volatility in the local yield curve and the real.
The central bank has been able to carry out those operations without dipping into $371 billion of foreign reserves, but faces mounting calls to start selling some of those dollar stockpiles.

There are a couple of fatal problems with that view. First, it is repeated everywhere that Brazil holds $371 billion of “foreign reserves” and that is what is reported as a headline figure to the IMF. However, the composition of those reserves has to be taken into account, especially since it includes a remaining $104 billion short position in “financial instruments denominated in foreign currency and settled by other means.” That “short” is, of course, those prior “dollar” swaps Banco had been counting on to alleviate the real’s devaluation going back to the first “dollar” outbreak in the middle of 2013.

ABOOK Sept 2015 Brazil Toast 'Reserves'

Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

As Very “Grim” Earnings Season Unfolds, All Eyes Will Be On Bank of America (ZH)
Monetary Stimulus Doesn’t Work The Way You Think It Does, Redux (FT)
Britain Has One Booming Market That Could Do With A Crash (Economist)
Forty Years Of Greenwashing – The Well-Travelled Road Taken By VW (Bloomberg)
Volkswagen Scandal: The Cost Of A Car Crash Like No Other (Telegraph)
VW Scandal Exposes Cozy Ties Between Industry And Berlin (Reuters)
UK Government Tried To Block Tougher EU Car-Emissions Tests (Guardian)
Volkswagen Scandal Costs Qatar’s Sovereign Wealth Fund $5 Billion (Telegraph)
Volkswagen Managed Faked US Test Results From Germany (Bloomberg)
While EU Governments Demur, Refugees Find A Welcome On The Web (Guardian)
Catalonia Vote Opens With Separatists Tipped To Win (AFP)
Scientists Are Worried About A Cold ‘Blob’ In The North Atlantic Ocean (WaPo)
Humans Have Caused Untold Damage To The Planet (Gaia Vince)

Read much more here: Debt Rattle September 27 2015 – TheAutomaticEarth.com