Rousseff Coup Could Sink Brazil, Emerging Markets

Submitted by Shock Exchange

Rousseff Coup Could Sink Brazil, Emerging Markets

Brazil's President Dilma Rousseff's approval rating has plummeted to 8% amid the country's worst recession in two decades. Her job is at risk too. Earlier this week opponents filed a petition to impeach Rousseff due to allegations of corruption by former president Luiz Inacio Lula da Silva at oil giant Petrobras of nearly $2 billion:

This week opponents of Ms Rousseff, incensed by allegations that "pixulecos" mostly involving ruling coalition politicians have cost Petrobras at least R$6bn (US$1.5bn), took their campaign to congress by filing a petition for impeachment with the speaker of the lower house Eduardo Cunha ... The petition from Mr [Helio] Bicudo, which was backed by the opposition in congress, marks the start of what could be a long process to try to topple the former Marxist guerrilla only nine months into her second four-year term.

Rousseff - hand-picked by Lula da Silva to succeed him - appears to be caught up in da Silva's backdraft. Opposition parties also claim she violated Brazil's fiscal responsibility law when she doctored government accounts to allow more public spending prior to the October election last year. Rousseff in turn described the attempt to use Brazil's economic crisis as an opportunity to seize power a modern day coup.

Inopportune Time For A Coup

Petrobras In Dire Straits

Political turmoil could not have come at a worst time. The Petrobras debacle has been a point of contention for the populace. While the elite profited from bribes and kickbacks at the state-owned oil giant, Petrobras is laying off workers and cutting supplier contracts in order to stem cash burn.

And those efforts may still not be enough to stave off bankruptcy. With $134 billion in debt - $90 billion of it dollar-denominated - Petrobras is the world's most-indebted oil company. With oil prices 60% below their Q2 2014 peak, Petrobras will likely crumble under its debt load.

Budget Requires All Hands On Deck

Brazil's fiscal picture is not much better. The economy contracted nearly 2% in Q2 and the Brazilian real has depreciated against the U.S. dollar by nearly 40% over the past year. That said, the country will find it difficult to grow revenues amid declining commodities prices. Including interest payments, the country's budget deficit was projected to grow to 8%-9% of GDP, prompting S&P to downgrade the Brazil to junk status:

Source: The Economist

Brazil finance minister, Joaquin Levy, immediately did an about face; Levy put forth an austerity plan that suggested a R$65 billion mix of cuts and tax increases could generate a 0.7 percent surplus in 2016. The revival of the CPMF tax on financial transactions is expected to raise about R$32 billion, while healthcare, agriculture subsidies, low-income housing programs and infrastructure are expected to bear the brunt of the cost cuts.

The market reacted positively to the austerity plan - the Brazilian real rallied briefly after it was announced. However, Rousseff will need political capital to get the austerity plan approved by congress and supported by the populace. Any delays could prompt Fitch and Moody's to also downgrade Brazil to junk status. An impeachment of Rousseff would probably cause all three rating agencies to move; such act would surely cause more capital flight and pressure the currency further.

Why Brazil Matters

Brazil is a country of interest due to its bellwether status for emerging markets and its $300 billion in dollar-denominated debt.

If Brazil goes, other emerging markets could also get hit. A free fall in the Brazilian real could trigger defaults if dollar-denominated debt becomes too burdensome for Petrobras and others. Such defaults could leak into global bond funds, trigger margin calls or derivatives defaults for counterparties. According to hedge fund giant Bridgewater Associates, the impact is consideredunknowable, which could cause a selloff in global markets until the risk is contained. Investors should avoid Brazil and the U.S. stock market due to the risk of a coup or protracted impeachment process.

http://www.zerohedge.com/news/2015-09-20/rousseff-coup-could-sink-brazil-emerging-markets

FX: Debate on last look continues to rage

by Paul Golden Regulators might be suspicious of it, but even market participants who have shifted their stance on last look reckon clients should be allowed to make up their own minds. Over-the-counter markets famously suffer from a lack of transparency given the quote-driven model, feeding fears over dealers with spread-setting monopolies and a lack of transparency over execution process. On the latter, one practice has come under regulatory fire: last look, which refers to market makers having a final opportunity to reject an FX order after a client commits to trade at a quoted price.  Eliminating last look would remove some liquidity from the market Jim Cochrane, ITG The final report of the UK’s Fair and Effective Markets Review referred to the need for improving the controls and transparency around this practice, which it says could be abused by market makers, either by asymmetrically accepting or rejecting orders based on market moves after the order is placed, or by using the order to inform other trading activity before acceptance. It calls for a global set of guidelines to supervise the practice. Both Thomson Reuters and Bats Global Markets have amended their use of last look in recent months, by reducing the time available to reject trades, while large FX banks have clamped down on the activity. In May, Hotspot reduced the time a liquidity provider has to accept/reject a trade from 200 milliseconds to 100 milliseconds, while FXall has implemented an unspecified reduction. Hotspot participants can choose the types of liquidity they would like to access, although Bill Goodbody, senior vice-president, head of FX at Bats, observes that a mix of firm and non-firm liquidity typically yields tighter prices. "For example, bid-offer spreads can be up to 80% tighter than spreads from firm liquidity alone," he says. Goodbody suggests that eliminating non-firm liquidity would be disruptive to the market and would likely lead to wider spreads for investors. "On the basis that non-firm liquidity provision is open, transparent and disclosed to the client, we don’t believe it should be restricted," he says. "Customers should be allowed to choose the way they want to trade." This point is made even more trenchantly by New Change FX managing director Andy Woolmer, who says the elimination of last look would cause spreads to widen to reflect the risk being taken by the market makers and the cost burden of actively policing the absence of last look. "All clients can see their fill rates and who honours their pricing and who doesn’t," states Woolmer. "If clients choose to use market makers with less than perfect fill ratios, that is up to them. They should be prepared to have meaningful conversations with their market makers where they aren’t happy with the service." Last-look pricing offers the hope – but not the guarantee – of a better execution fill rate, often compressing the top of book quote through aggregation and smaller deal sizes, adds ITG director Jim Cochrane. "Eliminating last look would remove some liquidity from the market," he says. "Since the advent of aggregation and high-frequency trading, the spot market has grown considerably – a portion of that growth would be put at risk." Customers should be allowed to choose the way they want to trade Bill Goodbody,  Bats The counter-argument is that it would create a level playing field and remove the ability for orders to be handled in an asymmetrical manner, observes James Watson, managing director ADS Securities UK, who compares the ability to cancel orders to having phantom liquidity in the market. Watson describes last look as an appropriate tool for when pricing latency was high and a lack of computer power meant platform performance was often lacking, but also states the market still comes with risk for liquidity providers and that if they cannot guard against this, prices will have to be increased. ITG’s Cochrane says he understands why some observers feel the practice distorts the FX market, adding: "The top of book quote is only available for small trade sizes and if the market is thin, a dealer can move their quotes to a less risky level. "Large trades are therefore susceptible to considerable market impact if liquidity is low and volatility is high. A no-last-look price would be guaranteed for a short time; a last-look trade is not guaranteed at all." As a general principle, Deutsche Asset & Wealth Management is not in favour of last look, says its global head of fixed income and FX trading, Juan Landazabal. Further reading   Financial regulation: special focus He rejects the view that eliminating last look would impact the market from a liquidity perspective and says it might even lead to better transparency and conduct, while acknowledging this could also leave the market without a legitimate mechanism to resolve situations where two or more counterparties were tied in price. According to Alex McDonald, CEO of the Wholesale Markets Brokers’ Association, tensions between market makers and counterparties could be reduced by the use of agreed market standards and codes of conduct. "These would be evidenced in the exchange of documentation, making the market fairer for the client whilst encouraging efficiencies in market making and providing narrower spreads for the dealer bank," he says. Watson at ADS agrees that greater transparency around the use of last look and a common standard for reporting the real price in the underlying market could go a long way to addressing concerns. "However, these are industry-wide issues that need to be addressed on a global scale," he warns.

Full article: http://www.euromoney.com/Article/3487423/FX-Debate-on-last-look-continues-to-rage.html?copyrightInfo=true
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Former RBS FX Trader Claims Unfair Dismissal Following FX Rigging Scandal

The slew of dismissals in the wake of the FX market manipulation scandal is coming home to roost for a number of banks. Indeed, as banks came under investigation by UK and US regulators, subsequently incurring some $10 billion in fines, many big banks began a perhaps over-zealous bout of firing embroiled FX traders.

The dismissals may have been too much of a knee-jerk reaction from banks, who sought to save their reputations. Indeed, a number of those fired forex traders have taken legal action against their former employees, claiming that they were unfairly dismissed.

The newest case of a disgruntled former employee is that of Ian Drysdale, a senior FX trader who was suspended from the Royal Bank of Scotland (RBS) in February 2014 and later dismissed. He has filed a claim at a London employment tribunal against RBS for unfair dismissal and breach of contract, according to Reuters.

The Central London Employment Tribunal said in a filing that the hearing is scheduled to start on September 28 and will run for three days.

Indeed, the repercussions of the trials will likely be a further headache for the banks, who doubtless just want the issue to go away. Only last week, Perry Stimpson highlighted many of the plaintiffs’ concerns that the sharing of client information was widespread and condoned by senior management.

He went on to tell the East London Employment Tribunal that senior Citigroup staff manipulated the sterling rate to sink $35 million in illicit profits on an M&A deal that the bank was handling.

RBS, which has been heavily bailed out by the British government and remains 73% under public ownership, has been hit hard by $1.3 billion in fines related to market manipulation.

The new case by Mr Drysdale may come as somewhat of a surprise, as the bank was forthcoming in announcing that it was conducting enhanced investigations into the forex rigging scandal. RBS has said that in total it has dismissed three employees and suspended another two in relation to the scandal.

http://www.financemagnates.com/institutional-forex/regulation/former-rbs-fx-trader-claims-unfair-dismissal-following-fx-rigging-scandal/

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Russian Bank Caught Using Fake Gold As Reserve Capital

Over the past several years, incidents involving fake gold (usually in the form of gold-plated tungsten) have emerged every so often, usually involving Manhattan's jewerly district, some of Europe's bigger gold foundries, or the occasional billion dealer. But never was fake gold actually discovered in the form monetary gold, held by a bank as reserve capital and designed to fool bank regulators of a bank's true financial state. This changed on Friday when Russia's "Admiralty" Bank, which had its banking license revoked last week by Russia's central bank, was reportedly using gold-plated metal as part of its "gold reserves."

According to Russia's Banki.ru, as part of a probe in the Admiralty bank, the central bank regulator questioned the existence of the bank's reported quantity of precious metals held in reserve. Citing a source, Banki.ru notes that as part of its probe, instead of gold, the "regulator found gold-plated metal."

The Russian website further adds that according to "Admiralty" bank's financial statements, as of August 1 the bank had declared as part of its highly liquid assets precious metals amounting to 400 million roubles. The last regulatory probe of the bank was concluded in the second half of August, said one of the Banki.ru sources. Another source claims that as part of the probe, the auditor questioned the actual availability of the bank's precious metals and found gold-painted metal.

The website notes that shortly before the bank's license was revoked, the bank had offered its corporate clients to withdraw funds after paying a commission of 30%. This is shortly before Russia's central bank disabled Admiralty's electronic payment systems on September 7.

Admiralty Bank was a relatively small, ranked in 289th place among Russian banks in terms of assets. On August 1 the bank's total assets were just above 8 billion roubles, while the monthly turnover was in the order of 40-55 billion rubles. The balance of the bank's assets was poorly diversified: two-thirds of the bank's assets (4.9 billion rubles) were invested in loans. The rest of the assets, about 30%, were invested in highly liquid assets.

Or at least highly liquid on paper: according to Banki.ru the key reason for the bank's license revocation was the central bank's insistence that the bank had insufficient reserves against possible loan losses.

The Russian central bank has not yet made an official statement.

The first question, obviously, is if a small-to-mid level Russian bank was using gold-plated metal to fool the central bank about the quality of its "gold-backed" reserves, how many other Russian banks are engaged in comparable fraud. The second question, and perhaps more relevant, is how many global banks - especially among emerging markets, where gold reserves remain a prevalent form of physical reserve accumulation - are engaging in comparable fraud.

Finally, what does this mean for gold itself, whose price on one hand is sliding with every passing day (thanks in part to what is now a record 228 ounces of paper claims on every ounce of physical gold as reported before), even as it increasingly appears there is a major global physical shortage. If the Admiralty bank's fraud is found to be pervasive, what will happen to physical gold demand as more banks are forced to buy the yellow metal in the open market to avoid being shuttered and/or prison time for the executives?

http://www.zerohedge.com/news/2015-09-12/russian-bank-caught-using-fake-gold-reserve-capital

The True Cause Of The 'Black Monday' Crash

The market crash that sent the Dow Jones Industrial Average plummeting by more than 1,000 points within minutes of the opening bell on August 24 has been partially blamed on a SunGard software problem that led to a large number of ETFs temporarily trading at heavy discounts to their net asset values.

However, according to Ben Hunt, chief risk officer at Salient Partners, the real cause of the crash was not a computer glitch, but rather a larger problem with the prevailing ETF trading mentality.

Allocation Versus Investing

In a new note, Hunt discussed the difference between investing and portfolio allocation.

Investing involves buying shares of a stock that represent fractional ownership of a money-generating company. ETFs by definition are funds, which means that they represent an allocation to a particular theme, rather than an actual asset that buyers want to own.

“Like so many things in our modern world, the exchange traded nature of the ETF is a benefit for the few (Market Makers and The Sell Side) that has been sold falsely as a benefit for the many (Investors),” Hunt wrote.

Related Link: Flow Data Reveals Where Money Has Gone The Week Of Black Monday

ETF Trading Benefits Wall Street

Hunt pointed out that it is in the best interest of market makers and sell-side firms to generate trading volume in ETFs, and the idea that a large portion of the August 24 ETF trading volume consisted of stop-loss orders being taken out shows how investors are looking at ETFs in the wrong way.

“If you’re an Investor with a capital I (as opposed to a Trader with a capital T), there’s no good reason to put a stop-loss on an ETF or any other allocation instrument,” Hunt argued. The point of an allocation is to expose a portfolio to a return stream with a particular set of qualities, and the price of the ETF has very little to do with that purpose.

The True Cause Of The Crash

Hunt believes that investors have succumbed to pressures from market makers and sell-side firms to speed up their trading habits and shorten their investing time horizons. This behavior will likely continue to manifest itself in the ETF markets in the form of wild price swings such as the ones witnessed on August 24.

Image Credit: Public Domain

Read more: http://www.benzinga.com/analyst-ratings/analyst-color/15/09/5816556/the-true-cause-of-the-black-monday-crash#ixzz3kyvye1oO
 

Nassim Taleb's Fund Made $1 Billion On Monday; This Is How The Other "Hedge" Funds Did

You can't say Nassim Taleb didn't warn you: the outspoken academic-philosopher, best known for his prediction that six sigma "fat tail", or black swan, events happen much more frequently than they should statistically (perhaps a main reason why there is no longer a market but a centrally-planned cesspool of academic intervention) just had a black swan land smack in the middle of the Universa hedge fund founded by ardent Ron Paul supporter Mark Spitznagel, and affiliated with Nassim Taleb.

The result: a $1 billion payday, translating into a 20% YTD return, in a week when the VIX exploded from the teens to over 50, and which most other hedge funds would love to forget.

The WSJ reports:

Universa Investments LP gained roughly 20% on Monday, according to a person familiar with the matter, a day when the market collapsed more than 1,000 points in its largest ever intraday point decline. Universa’s profits—some realized and some on paper—amounted to more than $1 billion in the past week, largely on Monday, as its returns for the year climbed to roughly 20% through earlier this week.

“This is just the beginning,” said Universa founder Mark Spitznagel, a longtime collaborator with Mr. Taleb, who advises Universa, lectures at New York University and is known for his pessimistic forecasts about the global economy. Mr. Spitznagel himself has spent the last several years warning of a coming correction, one he viewed as inevitable given accommodative policies by central banks around the world.

“The markets are overvalued to the tune of 50% and I’ve been saying that for some time,” said Mr. Spitznagel.

Universa gained renown for its outsize gains in 2008, racking up more than 100% profits for many of its clients. In 2011, it notched around 10% to 30% gains for clients. During the years in between it posted steady, small losses.

The firm focuses on finding cheap, shorter-dated options on the S&P 500 and other instruments it expects to rise in value amid a notable downturn.

During the past week, the value of such options that Universa bought over the past one to two months jumped, said people familiar with the matter.

The Miami-based Universa and some other “black swan” hedge funds that seek to reap big rewards from sharp market downturns have emerged as winners amid the world-wide volatility of the past week, say their investors, racking up double digit gains in roughly the past week.

Incidentally, this is precisely what a "hedge" fund should do: protect against massive, "fat tail" days like this Monday; instead they merely ride the beta train with the most leverage possible, hoping that the Fed will prevent any events that actually need hedging, and blow up in a fiery crash any time the market tumbles. Needless to say this makes most of them utterly useless, especially since one can just buy the SPY for almost nothing, and avoid paying the hefty 2 and 20 (or 3 and 45) fee, which until recently was merely there to fund trading based on inside information aka "expert networks" and "idea dinner" thesis clustering.

And speaking of non-hedging "hedge" funds, the table below lays out the performance of some of the most prominent names through either Friday of last week, or as of mid-week. You will notice three things: i) a lot of minus signs for entities that supposedly "hedge" market drops, ii) Bill Ackman's Pershing Square, which until last month was among the best performers, was - as of Wednesday - down for the year, and iii) Ray Dalio's "risk parity" quickly has become "risk impairty" in an environment where both stocks were sold by the boatload, at the same time that China was dumping US treasurys - a scenario no "risk parity" fund is prepared for.

http://www.zerohedge.com/news/2015-08-28/nassim-talebs-fund-made-1-billion-monday-how-other-hedge-funds-did

HFTs Are Overheating: CenturyLink Reports "Catastrophic" HVAC Failure At NJ2 Data Center, Starting "Safe Shut Down"

If today's ridiculous move is the kind that no retail investors would chase, it is precisely what HFTs around the globe love: nothing but momentum, momentum, momentum. In fact, HFTs are trading so much, they are literally overheating!

According to a notice mailed out moments ago by CenturyLink, its NJ2 data center has just experienced a "critical" HVAC data failure.

Incident Notification
All times listed are in Central time zone.

Time and Date of Event: 10:08, 08/27/2015
Location: ZZNJ2

Event Description: The south side of the NJ2 data center is having a critical HVAC event. Clients are being requested to begin a safe shut down of devices immediately.

Current Status: Steps are being taken by the data center to safely shut down client devices by request due to temperature concerns on the South side of the building.

Next Status Update: 30 mins

* * *

Here are some specifics on the NJ2 data center:

Real Estate Summary

    Located near Newark International Airport; 15 minutes from Manhattan, NY
    Four story building
    Total building interior (sf) = 223,022
    Raised floor (inches) = 12

Electrical Summary

    PSE&G provides power feeds
    Power density minimum (W/sf) = 150
    Generator configuration = N + 1
    Total Power Capacity = 16 MW
    Minimum two fuel replenishing companies

Mechanical Summary

    Cooling system configuration = N + 1
    CenturyLink manages temperature and humidity to strict ASHRAE standard

Fire Detection and Suppression Summary

    VESDA provides early warning detection
    FM200

How do we know HFTs are involved? Moments ago, BATS issued an advisory:

BATS Weehawken Network Point-of-Presence (NJ2 PoP) Advisory

August 27, 2015 12:26:21

Please be advised that the CenturyLink Weehawken, NJ data center (NJ2) maintaining a BATS PoP has reported a critical HVAC issue. Per CenturyLink, the cage will not have cooling over the next couple of hours at a minimum, so BATS would like to advise Members utilizing the BATS NJ2 PoP of potential impact that could result from overheating of equipment. BATS has shutdown all non-critical infrastructure at the NJ2 PoP at this time and will continue to monitor the situation. There is currently no customer impact but BATS will advise with material updates to this situation in NJ2 and if customer impact is expected.

IMPORTANT: There is no customer impact at this time in NY5 or NY4 (Secaucus) and all BATS exchange platforms are operating normally.

And while BATS may be safely offline and trading out of a redundant location, one wonders just how many other "wealth effect" mission critical HFTs clients of CenturyLink are about to go offline, and whether the entire market is about to go down with them?

This is a developing story: more as we see it.

http://www.zerohedge.com/news/2015-08-27/hfts-just-overheated-centurylink-reports-catastrophic-hvac-failure-nj2-data-center-s

1000s Of Political Figures Are Stashing Cash In Swiss Accounts, Foreign Ministry Admits

In spite of all the attention the nation has received in recent years, SCMP reports that thousands of so-called "politically exposed persons”, or PEPs - a category that includes heads of state and other top officials - hold Swiss bank accounts, a Swiss foreign ministry official said. But, perhaps not for much longer as Bern aims to finalize a law aimed at simplifying the process of freezing and unblocking such funds.

As The South China Morning Post reports,

Swiss authorities estimate that “there are thousands of PEPs [with accounts] in Switzerland, not hundreds,” Valentin Zellweger, who heads the ministry’s Directorate of International Law, told reporters on Monday.

Switzerland has repeatedly been embarrassed by revelations, splashed across front pages worldwide, of global political heavyweights hiding funds - sometimes embezzled from public coffers - in the Alpine nation’s famous banks.

But the country has not taken such scandals sitting down: it has been freezing suspicious assets for a quarter century.

By the end of this year, Bern aims to finalise a law aimed at simplifying the process of freezing and unblocking such funds.

In total, Switzerland has since 2003 returned a total of around US$1.8 billion embezzled by Ferdinand Marcos of the Philippines, the late Nigerian military dictator Sani Abacha, former Peruvian spy chief Vladimir Montesinos, Jean-Claude Duvalier of Haiti and others.

That is more than any other country has returned and represents a quarter of the US$4billion to US$5 billion in assets restituted globally, Swiss authorities said last year.

Swiss authorities are currently co-operating with a number of countries, among them Haiti, Egypt, Tunisia and Ukraine, to return stolen assets that have been frozen following changes in power, said Zellweger.

Specifically, they are working to return US$40 million to Tunisia, a “big slice” of the US$60 million stashed during the era of former leader Zine al-Abidine Ben Ali, he said.

But the killing of Egypt’s general prosecutor has slowed co-operation with Cairo on returning funds linked to former President Hosni Mubarak, he said.

The Swiss Office of the Attorney General has meanwhile opened a criminal proceeding against two executives and unknown persons from Malaysia’s troubled state investment fund for suspected corruption and money laundering.

Switzerland also recently seized around US$400 million in connection with a massive corruption probe targeting Brazil’s state oil company Petrobras.

Zellweger insisted Switzerland is trying to be “transparent” in its handling of the Petrobas scandal, which involves top executives accused of colluding with construction companies to inflate contracts and bribe politicians.

The Swiss opened their own inquiry into Petrobras in April last year, with authorities vowing to crack down on the large number of suspicious transactions believed to be linked to the case that had moved through the country’s banks.

Switzerland’s attorney general has said the suspected corrupt payments had passed through more than 30 Swiss banks.

This marks a hard blow to the Swiss banking sector, which for years has been striving to clean up its image and crack down hard on money laundering.

“We have to do better,” Zellweger acknowledged, stressing though that Switzerland was the only international banking hub that had provided information about Petrobas-linked transactions.

He said banks in other countries had handled much bigger sums linked to the corruption case, but that those countries were keeping mum.

http://www.zerohedge.com/news/2015-08-26/1000s-political-figures-are-stashing-cash-swiss-accounts-foreign-ministry-admits 

Why Everyone Is So Nervous About What China Does Next, In One Chart

Whether the motive behind China's stunning August 11 devaluation announcement was to get one step closer to the SDR basket by promoting a market-based FX regime demanded by the IMF, to further ease financial conditions in China, to boost exports, or merely to telegraph to the Fed that with the US preparing to hike rates China will no longer be pegged to the USD, is unclear, but one thing that is certain is just how much everyone (ifnot this website) was shocked by the PBOC announcement. Goldman summarizes it best: "The sharp 3% devaluation in the CNY fix last week was a surprise to us."

What happens next? Clearly more devaluation, or else China would not have pursued this step, especially since the paltry 4% deval in one week will hardly move the needle on Chinese exports, which is the real reason why China did this move (weeks after it boosted its official gold holdings by 57%). Goldman also admits as much: "It is hard to have a high degree of conviction in anticipating the increasingly fitful reactions of the Chinese policymakers, and by extension the near-term direction of the CNY. But on a longer horizon, the risks are tilted towards further CNY weakness."

The weakness is further guaranteed when one considers that China has all but tapped out its credit capacity (where even the IMF admits China's debt/GDP is headed to 250%), forcing the country to seek growth not from within (via credit creation), but without, in the form of beggaring its neighbors and promoting its competitiveness using external devaluation (a similar internal devaluation to what Greece has undergone in the past 5 years would result in a very violent civil war), i.e. currency war, as much as the serious people want to avoid calling it for fear headlines such as these (from overnight) will become a daily event...

• TAIWAN DOLLAR FALLS TO WEAKEST SINCE NOV. 2009
• INDIA'S RUPEE DROPS TO LOWEST LEVEL SINCE SEPT. 6, 2013.
• TURKISH LIRA DROPS TO RECORD 2.85 PER DOLLAR, DOWN 0.6% TODAY

... and the FX war will spiral out of  control.And yet that is precisely what will happen.

This is how Goldman pivots to the unpleasant reality of not only China now aggressively engaging fellow exporters, but those same fellow expoerters devaluing preemptively before China gets them:

It is hard to have a high degree of conviction in anticipating the increasingly fitful reactions of the Chinese policymakers, and by extension the near-term direction of the CNY. But on a longer horizon, the risks are tilted towards further CNY weakness. The core of this argument rests on our view that China’s bumpy downshift in growth is likely to extend, making for greater macro and market volatility along the way. China has experienced a substantial credit build-up, which will need to be unwound in coming years. As Andrew Tilton and team have discussed, unwinding such a large credit imbalance is typically associated with a period of below-trend domestic demand growth, and this is coinciding with slowing potential growth as the impulses from labour and capital deepening slow. China’s current account surplus is also not what it used to be, with a growing services deficit offsetting a still large trade surplus. Given this macro backdrop, where a greater contribution to growth from net exports would be very welcome, a 25% appreciation in trade-weighted terms – as the CNY has experienced over the past three years on account of its tight link to the USD – looks increasingly untenable.

And while nobody wants to admit it, the writing on the wall is clear: the age of all out FX warfare is upon us, and only the Fed believes it is immune... if only for the time being.

The clearest implication of China joining the currency depreciation train is that it further increases depreciation pressures on the rest of the EM FX complex. There are two important channels of transmission here: First, because China as a producer competes with several EMs in global markets, those EM exporters just became a touch less competitive relative to Chinese exporters; and second because China as a consumer is also a large destination for exports from the rest of EM, although in this case there is at least the possibility of a partial offset from any improvement in demand if an easing in financial conditions is delivered. So for EMs that have been trying to address their external balance, and have seen depreciating currencies since 2013, some of that relative price shift has just been undone. And if the recent CNY moves are the start of a journey, even undoing half of the accumulated trade-weighted appreciation of the last three years, this may provoke a meaningful additional bout of currency depreciation across the EM complex.

Translation: once begun, the currency war, which for the time being is being fought with conventional means, has no choice but to become nuclear.

Here, in one chart, is the reason why anyone following China's devaluation is very nervous. And if they aren't yet, they should be. Because if China is indeed intent on catching up with the rest of the EM complex - whose FX is trading about 30% lower - then the resulting devaluation will lead to nothing short of a global FX neutron bomb.

http://www.zerohedge.com/news/2015-08-17/why-everyone-so-nervous-about-what-china-does-next-one-chart

The Biggest Surprise About Claren Road's Upcoming Liquidation

That one (and pretty much all) of Carlyle's hedge funds, namely the commodity-focused Vermillion Asset Management, did not have a good 2015 was well-known after as Bloomberg reported, its founders - Chris Nygaard and Drew Gilbert - left after losses. Actually, losses is putting it mildly: AUM imploded to a paltry $50 million from $2 billion following horrible bets on the path of commodity prices.

As Bloomberg further noted, "losses in Vermillion’s Viridian commodity fund, which invested in oil, metals and agriculture assets, have led to investor redemptions that shrank its size. The vehicle had $1.7 billion when Washington-based Carlyle bought a 55 percent stake in Vermillion in 2012, before starting its decline."

The collapse driven by a record commodity crash, while unpleasant for all the millionaires and billionaires involved, was explainable: the hedge fund which was just a glorified and levered beta chaser, was simply betting everything - and then added some leverage for good measure - that the BTFD "investment strategy" would work and commodities would rebound.

They did not, and Vermillion is now shutting its doors, and leaving Carlyle with another hedge fund implosion on its hands.

But, as noted above, there was nothing particularly surprising about that: invest badly for long enough, and you get wiped out.

What, however, is far more surprising was the fate of that other, far bigger Carlyle hedge funds, Claren Road, which as we learned moments ago from Bloomberg is also on death's door following a whopping $2 billion in redemption requests, representing about half of the firm's total $4.1 billion in AUM.

By way of background, Claren Road was founded in 2005 by former Citigroup Inc. credit traders Brian Riano, John Eckerson, Sean Fahey and Marino. Carlyle bought a 55 percent stake in Claren Road five years ago as part of a push into hedge funds.

At its peak less than a year ago, in September of 2014, Claren Road managed $8.5 billion. Now, in one month, Claren Road is facing redemptions that will pull 48% of the funds investments, forcing across the board liquidations, mass layoffs, and what will ultimately almost certainly be the fund's liquidation. Incidentally, the pain for Claren Road started at the end of 2014:

Claren Road investors had asked to redeem $374 million last quarter, a person with knowledge of the matter said earlier this month. The firm had faced redemptions of $1.9 billion at the end of last year.

Which means that bleeding billions is not exactly a new thing for Claren Road (or Carlyle). And, it goes without saying, a few "expert networks" left in operation would have surely prevented the fund's demise.

But, as in the case of Vermillion, liquidations are perfectly normal, and happen every time there is a major market meltdown, such as what commodities experienced, if not the centrally-planned and central bank-micromanaged US equities, which are the last recourse policy tool for the legacy status quo to preserve confidence in a crumbling global economy.

No, what is most surprising, is that Claren Road actually did not perform that badly: "Claren Road’s main fund gained 1.7 percent in the first two weeks of August, according to the person. It had declined 7.2 percent this year through July. Its smaller credit opportunities fund has lost 6.2 percent this year through mid-month after rising 1.9 percent in the first two weeks of August."

In other words, Claren Road was down a palrty 5.6% through mid-August, or underperforming the broader market by just 5.6% and was likely performing in line or even better than its benchmark, and yet its skittish investors saw that return as sufficient to require a liquidation.

One then wonders: if a single-digit underperformance was enough to lead to the wipe out of one of the formerly biggest hedge funds, just how big, literally and metaphorically, will the hedge fund gates have to be when the central banks finally lose control, and hedge funds experience double digit losses (or get Madoffed).

Because if truly investors are so jittery that one bad quarter is enough to force the 50% of one's cash, then what happens during the market downturn is now very clear, and is precisely what we warned in "How The Market Is Like CYNK", and how investors in China's epic fraud Hanergy learned the hard way: you can make paper profits in a rigged market on the way up all you want, but once the time to cash out comes, you can never leave.

http://www.zerohedge.com/news/2015-08-17/biggest-surprise-about-claren-roads-upcoming-liquidation

US Military Uses IMF & World Bank To Launder 85% Of Its Black Budget

Submitted by Jake Anderson via TheAntiMedia.org,

Though transparency was a cause he championed when campaigning for the presidency, President Obama has largely avoided making certain defense costs known to the public. However, when it comes to military appropriations for government spy agencies, we know from Freedom of Information Act requests that the so-called “black budget” is an increasingly massive expenditure subsidized by American taxpayers. The CIA and and NSA alone garnered $52.6 billion in funding in 2013 while the Department of Defense black ops budget for secret military projects exceeds this number. It is estimated to be $58.7 billion for the fiscal year 2015.

What is the black budget? Officially, it is the military’s appropriations for “spy satellites, stealth bombers, next-missile-spotting radars, next-gen drones, and ultra-powerful eavesdropping gear.”

However, of greater interest to some may be the clandestine nature and full scope of the black budget, which, according to analyst Catherine Austin Fitts, goes far beyond classified appropriations. Based on her research, some of which can be found in her piece “What’s Up With the Black Budget?,” Fitts concludes that the during the last decade, global financial elites have configured an elaborate system that makes most of the military budget unauditable. This is because the real black budget includes money acquired by intelligence groups via narcotics trafficking, predatory lending, and various kinds of other financial fraud.

The result of this vast, geopolitically-sanctioned money laundering scheme is that Housing and Urban Devopment and other agencies are used for drug trafficking and securities fraud. According to Fitts, the scheme allows for at least 85 percent of the U.S. federal budget to remain unaudited.

Fitts has been researching this issue since 2001, when she began to believe that a financial coup d’etat was underway. Specifically, she suspected that the banks, corporations, and investors acting in each global region were part of a “global heist,” whereby capital was being sucked out of each country. She was right.

As Fitts asserts,

“[She] served as Assistant Secretary of Housing at the US Department of Housing and Urban Development (HUD) in the United States where I oversaw billions of government investment in US communities…..I later found out that the government contractor leading the War on Drugs strategy for U.S. aid to Peru, Colombia and Bolivia was the same contractor in charge of knowledge management for HUD enforcement. This Washington-Wall Street game was a global game. The peasant women of Latin America were up against the same financial pirates and business model as the people in South Central Los Angeles, West Philadelphia, Baltimore and the South Bronx.”

This is part of an even larger financial scheme. It is fairly well-established by now that international financial institutions like the World Trade Organization, the World Bank, and the International Monetary Fund operate primarily as instruments of corporate power and nation-controlling infrastructure investment mechanisms. For example, the primary purpose of the World Bank is to bully developing countries into borrowing money for infrastructure investments that will fleece trillions of dollars while permanently indebting these “debtor” nations to West. But how exactly does the World Bank go about doing this?

John Perkins wrote about this paradigm in his book, Confessions of an Economic Hitman. During the 1970s, Perkins worked for the international engineering consulting firm, Chas T. Main, as an “economic hitman.” He says the operations of the World Bank are nothing less than “pure economic colonization on behalf of powerful corporations and banks that use the United States government as their tool.”

In his book, Perkins discusses Joseph Stiglitz, the Chief Economist for the World Bank from 1997-2000, at length. Stiglitz described the four-step plan for bamboozling developing countries into becoming debtor nations:

Step One, according to Stiglitz, is to convince a nation to privatize its state industries.

Step Two utilizes “capital market liberalization,” which refers to the sudden influx of speculative investment money that depletes national reserves and property values while triggering a large interest bump by the IMF.

Step Three, Stiglitz says, is “Market-Based Pricing,” which means raising the prices on food, water and cooking gas. This leads to “Step Three and a Half: The IMF Riot.” Examples of this can be seen in Indonesia, Bolivia, Ecuador and many other countries where the IMF’s actions have caused financial turmoil and social strife.

Step Four, of course, is “free trade,” where all barriers to the exploitation of local produce are eliminated.

There is a connection between the U.S. black budget and the trillion dollar international investment fraud scheme. Our government and the banking cartels and corporatocracy running it have configured a complex screen to block our ability to audit their budget and the funds they use for various black op projects. However, they can not block our ability to uncover their actions and raise awareness.

http://www.zerohedge.com/news/2015-08-14/us-military-uses-imf-world-bank-launder-85-its-black-budget