Monday, May 5, 2014

Is This The Reason For The Relentless Treasury Bid?

Over the weekend, Bloomberg had an interesting piece about two of the main reasons why while stocks continue to rise to new all time highs, the expected selling in bonds - because in a normal world, what is good for stocks should be bad for bonds - isn't materializing, and instead earlier this morning the 10 Year tumbled to the lowest since February, while last week the 30 Year retraced 50% of its post-Taper Tantrum slide, or in short a complete disconnect between stocks and bonds.
In a world awash with U.S. government bonds, buyers of the longest-term Treasuries are facing a potential shortage of supply.

Excluding those held by the Federal Reserve, Treasuries due in 10 years or more account for just 5 percent of the $12.1 trillion market for U.S. debt. New rules designed to plug shortfalls at pension funds may now triple their purchases of longer-dated Treasuries, creating $300 billion in extra demand over the next two years that would equal almost half the $642 billion outstanding, Bank of Nova Scotia estimates.

“It’s driven by a scarcity and liquidity valuation,” Guy Haselmann, an interest-rate strategist at Bank of Nova Scotia, one of the 22 primary dealers that trade with the Fed, said in an April 28 telephone interview from New York. “The pressure on the long-end will be for lower yields.”

Fixed-income demand has “far outpaced the supply,” Brett Cornwell, vice president of fixed-income at Callan Associates, an adviser to pension funds with $2 trillion of assets, said by telephone from San Francisco on May 1. “We should continue to see this de-risking of corporate pension plans.”

Pensions that closed deficits are pouring into Treasuries and exiting stocks to reduce volatility after a provision in the Budget Act of 2013 raised the amount underfunded plans are required to pay in insurance premiums over the next two years. It also imposed stiffer fees on those with shortfalls.

In the next 12 months alone, buying from private pensions will create $150 billion in demand for longer-maturity Treasuries, based on Bank of Nova Scotia’s estimates.
Interesting... but certainly nothing new to Zero Hedge readers. After all, we have been explaining until blue in the face for well over a year, that it is the Fed's sequestration of "high quality collateral" through trillions in QE (in effect monetizing the deficit through duration-risk exposure) and the illiquidity risks it generates that explains the Fed's eagerness to commence, and continue, tapering as the amount of available bonds to the private market has simply collapsed, especially at the longer end.
First recall from our August piece on "What The Fed Owns: Complete Treasury Holdings Breakdown"
As everyone knows (since the data is public), in the most recent week the Fed's balance sheet rose to a record $3.646 trillion, an increase of $61 billion in the past week, and a record increase of $813 billion over the past year, a whopping 30% rise in the balance sheet in 12 short months. What may not be known is the exact distribution of Fed Treasury holdings by maturity. So without further ado, here it is. Of note, observe that what once was a predominantly 'short-end' balance sheet (consisting mostly of no-coupon, money equivalent Bills), has become almost entirely a "5 and over" current coupon carry affair. Which also is why the Fed now takes over the entire bond market at a rate of 0.25% per week.

Perhaps the best source of real, actionable financial information, at least as sourced by Wall Street itself, comes in the form of the appendix to the quarterly Treasury Borrowing Advisory Committee (TBAC, aka the Goldman-JPM chaired supercommittee that really runs the world) presentation published as part of the Treasury's refunding data dump. These have informed us in the past about Goldman's view on floaters, as well as Credit Suisse's view on the massive and deteriorating shortage across "high quality collateral." This quarter was no different, only this time the indirect author of  the TBAC's section on fixed-income market liquidity was none other than Citi's Matt King, whose style is well known to all who frequent these pages simply because we cover his reports consistently. The topic: liquidity. Or rather the absolute lack thereof, despite what the HFT lobby would like.

... [D]espite what various new "technology" lobbies, such as the HFT's, all of which are merely peddling legal millisecond frontrunning services, the TBAC's conclusion is the opposite: be afraid, be very afraid. Because just when you need liquidity it will be gone.

First, how does one define liquidity? Here is how the smartest guys in the room (and Matt King truly is one of the smartest guy) do:

As the chart points out, the biggest falacy constantly perpetuated by market naivists, that liquidity and volume (in this case in fixed income) are one and the same, is absolutely wrong. Of course, in equity markets it is far worse because while volumes are crashing, liquidity is far worse.

...

In other words, while the Fed, and the TBAC, both lament the scarcity of quality collateral and liquidity in non-Fed backstopped security markets, it is the Fed's continued presence in the (TSY) market in the first place, that is making a mockery of bond market liquidity and quality collateral procurement. And without faith in a stable credit marketplace, there is no way that a credit-based instrument can ever truly become the much needed "high quality collateral" to displace the Fed's monthly injection of infinitely funigble and repoable reserves (most benefiting foreign banks).
The most important chart that nobody at the Fed seems to pay any attention to, and certainly none of the economists who urge the Fed to accelerate its monetization of Treasury paper, is shown below: it shows the Fed's total holdings of the entire bond market expressed in 10 Year equivalents (because as a reminder to the Krugmans and Bullards of the world a 3 Year is not the same as a 30 Year). As we, and the TBAC, have been pounding the table over the past year (herehere and here as a sample), the amount of securities that the Fed can absorb without crushing the liquidity in the "deepest" bond market in the world is rapidly declining, and specifically now that the Fed has refused to taper, it is absorbingover 0.3% of all Ten Year Equivalents, also known as "High Quality Collateral", from the private sector every week. The total number as per the most recent weekly update is now a whopping 33.18%, up from 32.85% the week before. Or, said otherwise, the Fed now owns a third of the entire US bond market.

The following statement and chart from the RBS' Drew Brick pretty much explains it all: "QE has seen the Fed extend its dominion on the US curve away from the short-end and into longer duration paper is patent, too. On a rolling six-month average, in fact, the Fed is now responsible for monetizing a record 70% of all net supply measured in 10y equivalents. This represents a reliance on the Fed that is greater than ever before in history!"

And who can forget, from July when "expert" economists were absolutely certain there would be no tapering after the "Taper Tantrum", that "Fed Tapering Assured As Treasury Projects 30% Slide In Annual Funding (And Monetization) Needs."
As for the Pension Fund bid that too was covered in "Here Comes The Next Great Rotation: Out Of Stocks And Into Bonds":
... if the great rotation out of bonds into stocks was the story of 2013, it now appears that 2014 will see another great rotation - a mirror image one, out of stocks and back into bonds, driven on one hand, of course, by the Fed which will continue to monetize the bulk of net duration issuance for the foreseeable future, but more importantly, by some $16 trillion in corporate pension assets which after (almost) recovering their post-crisis high water market are once again, will now phase out their risky holdings in favor of safe (Treasury) exposure.  As Scotiabank's Guy Haselmann explains, "The rationale is quite simply that the cost/benefit equation changes as the plans’ funding status improves. In other words, the upside for a firm with a fully-funded plan is less rewarding than for an under-funded plan."

Needless to say, the Fed, which is doing everything in its power to push marginal buyers out of a bond purchasing decision and instead to chase Ponzi risk into equities, will not be happy, especially since QE is tapering, and suddenly instead of everyone frontrunning the Fed, the momentum chasers will proceed to scramble after the largest marginal players around - pension funds, which however will be engaging in precisely the opposite behavior as the Fed!
So yes, interesting, but nothing new or surprising and certainly nothing that hasn't been known for over a year.
Which begs the question: while stocks no longer eflect anything except some momentum ignition algo in the USDJPY, and simply go along the path of least Fed resistance, even though the Fed is now actively shutting down its stock goosing machinery, if only for the time being, just like it did after QE1 and QE2 (and everyone knows what happened next), bonds at least on the surface are far more rational. Or were before central-planning.
Which is why we are disturbed - if indeed Bloomberg's report is seen as "news" for bond market managers then things are really far more broken than even we expected, and not even the bond market has any discounting capacity left. We are not that pessimistic - while stocks are merely a policy vehicle and a "report card" for the administration (since the economy's ongoing contraction has to be explained away by snowfall in the winter), the bond market is sufficiently large than not even the Fed can unilaterally dominate it. At least not yet, while the Fed holds "only" 35% of all 10 year equivalents (check back in 3-5 years when the Fed is at its SOMA limit for every CUSIP).
All that said, we agree that there is a bid for Treasurys, but we disagree that the bid is the result of either the collapse in private market supply, or the Pension unrotation - both things that have been known and priced in long ago.
What is far more likely, and what the rumor has been for the past month or so, is that none other than Japan is now allocating its own assets under management into US bonds, particularly into the 10Y+ part of the curve, just as it, together with other yield chasers, have succeeded in extracting every ounce of yield out of the Spanish bond yield, today trading at a ridiculous 2.98%, 100 bps below where it started the year.
Our only question is what type of event could force the GPIF and other fixed income asset allocators to finally stop buying bonds - because if not even the "cheerful" perspective of the US recovery, for 288K jobs certainly is that unless of course one actually reads the writing between the line, can lessen the bid (certainly facilitated by the Ukraine civil war), then we are at a loss what could halt this buying juggernaut into an asset class that the Fed and its central bank peers loathe with a passion, and are hoping will slid back to the mid-3% soon, or else the narrative about some recovery will be completely crushed.

Sunday, May 4, 2014

EES launches Forex CTA Managed Accounts

Elite E Services, Inc. (EES) is a Forex CTA registered with the NFA (member) since 2006 #373609.

EES is now offering the following managed account programs for US and Non-US clients, at US regulated firms:

  • FXV1 - Portfolio of mixed algorithmic systems
  • Currency Bear - Medium term mean-reversion multi-currency basket strategy
  • M3 - High Frequency Forex strategy
If you are interested in a Forex managed account, please contact Elite E Services.

Friday, May 2, 2014

EES: Deliverable Forex Payments Service

Do you make regular payments in Foreign Currency?
Banks can charge up to 7% on Forex transactions. A number of banks (Bank of America, Bank One/First USA, Chase, Citibank, Diners Club, HSBC/Household, MBNA and Washington Mutual/Providian) recently settled a class action lawsuit ”In re Currency Conversion Fee Antitrust Litigation” but they continue to charge huge spreads on Forex payments.
How can the banks get away with it?
A few reasons, first, it’s not illegal. Second, there are companies that offer reasonable rates on Forex payments (such as 1% instead of 7%) but very few use these services. Third, banks are overcharging on the spread, it’s not actually a fee (although it becomes their profit). Since many don’t understand how the Forex markets work, they don’t calculate how much they are losing on these transactions. Finally, since banks are typically the source of funds, many people feel it’s more convenient for the banks to process their Forex payments, or aren’t aware there are alternatives.
What are spot rates?
When you trade Currency you must exchange one for another. Using an example of US Dollars to be exchanged for Euros, you would use the EUR/USD pair as a price reference. Forex traders who speculate in the market trade on spot rates, for example 1.3549 / 1.3551 – this is a 2 pip spread, or .02%. In the above mentioned case where banks charge 7%, this is roughly 700 pips making the spread 1.2849 / 1.4251. It’s virtually impossible to get spot rates on a Forex payment transaction, however it is very possible to get close, which is referred to as ‘near spot’ which can depend on many factors including the currency in question, the size of the transaction, and the market price at that time. Forex payments are referred to as ‘deliverables’ or ‘payments’ in the Forex trading community.
Why use Elite E Services (EES)?
Elite E Services was founded originally in 2002 in New Zealand and opened in USA in 2006 with a focus on international markets and macro analysis. EES has vast experience in the Foreign Exchange markets on multiple levels (as a trader, Forex services vendor, and end user being in international business); as such EES can advise on a multitude of situations.
  • EES works with several payment processors thus being able to source the absolute best rate.
  • EES has a footprint in the United States, Asia, and Europe.
  • EES is a regulated company and only works with regulated companies for Forex payments. EES is a Forex CTA registered with the CFTC and NFA Member (373609).
  • EES can provide FX advisory and hedging.
To learn more about this service or order, please contact Elite E Services here or by calling (646) 837 0059

EES: Euro tests ability to move in any direction


NFP causes EUR/USD to drop 50 pips and then almost immediately recover.  Is this an indication of a currently directionless EUR/USD?  The pair has been +/- 200 pips the 1.37 handle since December 2013.

Today’s US April employment report was undoubtedly the strongest report of 2014, surprising the market with a headline print of +288K versus expectations of +218K. While the headline print was impressive, the upward revisions to the March and February readings by +11K and +25K respectively was also a positive sign – When applied to today’s April number, it brings the net amount of jobs added to 324K jobs and raised the 6-month moving average to just over 200K jobs (202.5 to be precise). More notably, this solidifies the view that ‘weather’ related distortions are now behind us, and we can look forward to a bright 2Q. 

Trade the news - Open a Forex Account

Wednesday, April 30, 2014

EES: Can the Euro continue to climb?

Take a look at the following daily EUR/USD chart:


Certainly, there are many technical traders that would say EUR/USD is about to pop.  But fundamental influences, including but not limited to the situation in Russia/Ukraine, an unresolved debt crisis in Europe, and other economic factors, should give technical traders pause about being long EUR/USD at these levels.

Helping the EUR/USD pair are their central banking friends across the pond at The Fed, that have today sent stock markets to all time highs, giving traders little reason to buy the USD, which seems to have reached its peak as a global reserve currency.

Tuesday, April 29, 2014

Exclusive: FXDD Closing in on a Possible Sale to a Major US Broker

Forex Magnates has today learned from multiple independent industry sources that FXDirectDealer (FXDD) is moments away from striking a deal with one of two major U.S. online FX brokers.
Over recent months – and even years – there has been constant speculation about FXDD’s ability to make deals with names such as OANDA and FXCM, which were repeatedly mentioned as the possible acquirers, as per feedback compiled by our research.
Forex Magnates was unable to provide further details around the time of initial publication as the above mentioned parties were either unreachable or unavailable for comment, ahead of any official announcement, but believes such a deal could be good for clients as it could provide a larger financially backed organization behind an already successful brand if such a deal goes through.
Recent major deals by large US brokers in the last few quarters included the acquisition of Currensee by OANDA CorporationFXCM acquiring Faros Trading, and Gain Capital’s recent acquisition of Galvan research announced earlier this month.
FXDD had a few hurdles with the National Futures Association (NFA) recently, some of which were costly, as the regulatory landscape in the U.S. has nearly squeezed out the once plethora of FX brokers that flourished-with the latest exit seen from Institutional Liquidity LLC (ILQ) – announced just weeks ago.

Isolated Russia Makes Friends: To Hold Military Drill With China; Strikes Multi-Billion Deals Qatar And Iran

The G-8 may be no more as the G-7 throws every possible case of harsh language known to man at the Kremlin, which obstinately refuses to back down, while re-escalating sanctions against a Russia which merely has done what the US does every single time its national interest abroad is threatened, but one thing is becoming ever clearer: while the west isolates Russia with ever stricter measures, Russia has decided to make some new friends.
China and Russia will hold a "maritime cooperation-2014" drill in East China Sea at end-May, Voice of Russia reports on its Chinese-language website yesterday.

China and Russia will conduct reconnaissance in the area within 3 days to prepare for the drill, the report says, citing an unidentified representative from Russian navy.

Earlier, the Russian military delegation of the Russian Navy, led by Viktor Karamazov Couchepi, arrived in Shanghai. Naval officials and representatives of the General Command of the Pacific Fleet met the Russian military delegation.
Such as Iran:
Iran and Russia are negotiating a power deal worth up to $10 billion in the face of increasing US financial alienation. The construction of new thermal and hydroelectric plants and a transmission network are in the works. Iran’s Energy Minister Hamid Chitchian met his Russian counterpart Aleksandr Novak in Tehran on Sunday in order to discuss the potential power deals, according to Iran’s Mehr news agency.

“[Expansion of] Iran-Russia relations are not only to the benefit of the two nations, but also are beneficial to entire region,” Iranian President, Hassan Rouhani, stated in a meeting with Novak in Tehran on Sunday, reported Iran’s FARS news agency.

Plans include the construction of hydroelectric and thermal generating plants and a new transmission network. The possibility of Russia exporting 500 megawatts of electricity to Iran is also on the cards, said Mehr.

The strengthening of economic ties between the two countries is of heightened significance given both economic sanctions on Iran, imposed with the aim of encouraging Iran to cut its uranium stockpiles, and new economic sanctions on Russian officials imposed on Monday.

On Sunday, Chitchian reportedly stressed “the need for further expansion of economic ties between Tehran and Moscow, particularly in the energy and commerce spheres,” stated Mehr.

Moscow has additionally been discussing the trade of 500,000 barrels a day of Iranian oil for Russian goods with Tehran. The protracted deal, first reported at the beginning of April could be worth as much as $20 billion, and has rattled Washington because it could bring Iran's crude exports above one million barrels a day - the threshold agreed upon in the nuclear deal between the P5+1 powers - US, Britain, France, China, Russia and Germany – and Iran.
And such as Bahrain:
The governments of Bahrain and Russia have signed a deal to cooperate on investments, at a time when U.S. and European governments are imposing economic sanctions on Russia over the crisis in Ukraine.

Bahrain is a U.S. diplomatic ally in the Gulf, and its decision suggests Western sanctions may not deter other countries from continuing to expand business ties with Russia.

In a statement on Tuesday, the Russian Direct Investment Fund (RDIF) said it had signed a memorandum of understanding with Bahraini sovereign wealth fund Mumtalakat to identify and work together on investment opportunities in their countries. Mumtalakat chief executive Mahmood al-Kooheji will join the RDIF's international advisory board, helping to formulate its strategic direction, the statement added.

The Bahraini fund is one of the smaller sovereign funds in the Gulf, with $7.1 billion of assets as of last September. The RDIF is a $10 billion fund created by Russia's government to make equity investments, mainly in the Russian economy.
If nothing else, at least it shows just how seriously the rest of the world (away from those G-7 members who are as insolvent as the US of course) is taking US sanctions and threats of retaliation. Meanwhile, back in the US, rigged stocks hit intraday highs on what we would otherwise call BTFWWWIIID... if only there was a D.

Suspicious Deaths Of Bankers Are Now Classified As "Trade Secrets" By Federal Regulator

Submitted by Pam Martens and Russ Martens of Wall Street On Parade,
It doesn’t get any more Orwellian than this: Wall Street mega banks crash the U.S. financial system in 2008. Hundreds of thousands of financial industry workers lose their jobs. Then, beginning late last year, a rash of suspicious deaths start to occur among current and former bank employees.  Next we learn that four of the Wall Street mega banks likely hold over $680 billion face amount of life insurance on their workers, payable to the banks, not the families. We ask their Federal regulator for the details of this life insurance under a Freedom of Information Act request and we’re told the information constitutes “trade secrets.”
According to the Centers for Disease Control and Prevention, the life expectancy of a 25 year old male with a Bachelor’s degree or higher as of 2006 was 81 years of age. But in the past five months, five highly educated JPMorgan male employees in their 30s and one former employee aged 28, have died under suspicious circumstances, including three of whom allegedly leaped off buildings – a statistical rarity even during the height of the financial crisis in 2008.
There is one other major obstacle to brushing away these deaths as random occurrences – they are not happening at JPMorgan’s closest peer bank – Citigroup. Both JPMorgan and Citigroup are global financial institutions with both commercial banking and investment banking operations. Their employee counts are similar – 260,000 employees for JPMorgan versus 251,000 for Citigroup.
Both JPMorgan and Citigroup also own massive amounts of bank-owned life insurance (BOLI), a controversial practice that pays the corporation when a current or former employee dies. (In the case of former employees, the banks conduct regular “death sweeps” of public records using former employees’ Social Security numbers to learn if a former employee has died and then submits a request for payment of the death benefit to the insurance company.)
Wall Street On Parade carefully researched public death announcements over the past 12 months which named the decedent as a current or former employee of Citigroup or its commercial banking unit, Citibank. We found no data suggesting Citigroup was experiencing the same rash of deaths of young men in their 30s as JPMorgan Chase. Nor did we discover any press reports of leaps from buildings among Citigroup’s workers.
Given the above set of facts, on March 21 of this year, we wrote to the regulator of national banks, the Office of the Comptroller of the Currency (OCC), seeking the following information under the Freedom of Information Act (See OCC Response to Wall Street On Parade’s Request for Banker Death Information):
The number of deaths from 2008 through March 21, 2014 on which JPMorgan Chase collected death benefits; the total face amount of BOLI life insurance in force at JPMorgan; the total number of former and current employees of JPMorgan Chase who are insured under these policies; any peer studies showing the same data comparing JPMorgan Chase with Bank of America, Wells Fargo and Citigroup.
The OCC responded politely by letter dated April 18, after first calling a few days earlier to inform us that we would be getting nothing under the sunshine law request. (On Wall Street, sunshine routinely means dark curtain.) The OCC letter advised that documents relevant to our request were being withheld on the basis that they are “privileged or contains trade secrets, or commercial or financial information, furnished in confidence, that relates to the business, personal, or financial affairs of any person,” or  relate to “a record contained in or related to an examination.”
The ironic reality is that the documents do not pertain to the personal financial affairs of individuals who have a privacy right. Individuals are not going to receive the proceeds of this life insurance for the most part. In many cases, they do not even know that multi-million dollar policies that pay upon their death have been taken out by their employer or former employer. Equally important, JPMorgan is a publicly traded company whose shareholders have a right under securities laws to understand the quality of its earnings – are those earnings coming from traditional banking and investment banking operations or is this ghoulish practice of profiting from the death of workers now a major contributor to profits on Wall Street?
As it turns out, one aspect of the information cavalierly denied to us by the OCC is publicly available to those willing to hunt for it. On March 24 of this year, we reported that JPMorgan Chase held $10.4 billion in BOLI assets at its insured depository bank as of December 31, 2013.
We reached out to BOLI expert, Michael D. Myers, to understand what JPMorgan’s $10.4 billion in BOLI assets at its commercial bank might represent in terms of face amount of life insurance on its workers. Myers said: “Without knowing the length of the investment or its rate of return, it is difficult to estimate the face amount of the insurance coverage.  However, a cash value of $10.4 billion could easily translate into more than $100 billion in actual insurance coverage and possibly two or three times that amount” said Myers, a partner in the Houston, Texas law firm McClanahan Myers Espey, L.L.P.
Myers’ and his firm have represented the families of deceased employees for almost two decades in cases involving corporate-owned life insurance against employers such as Wal-Mart Stores, Inc., Fina Oil and Chemical Co., and American Greetings Corp. (Families may be entitled to the proceeds of these policies if employee consent was required under State law and was never given and/or if the corporation cannot show it had an “insurable interest” in the employee — a tough test to meet if it’s a non key employee or if the employee has left the firm.)
As it turns out, the $10.4 billion significantly understates the amount of money JPMorgan has tied up in seeking to profit from workers’ deaths. Since Wall Street banks are structured as holding companies, we decided to see what type of financial information might be available at the Federal Financial Institutions Examination Council (FFIEC), a federal interagency that promotes uniform reporting standards among banking regulators.
The FFIEC’s web site provided access to the consolidated financial statements of the bank holding companies of not just JPMorgan Chase but all of the largest Wall Street banks. We conducted our own peer review study with the information that was available.
Four of Wall Street’s largest banks hold a total of $68.1 billion in BOLI assets. Using Michael Myers’ approximate 10 to 1 ratio, that would mean that over time, just these four banks could potentially collect upwards of $681 billion in tax free income from life insurance proceeds on their current and former workers. (Death benefits are received tax free as is the buildup in cash value in the policies.) The breakdown in BOLI assets is as follows as of December 31, 2013:
Bank of America    $22.7 billion
Wells Fargo             18.7 billion
JPMorgan Chase      17.9 billion
Citigroup                   8.8 billion
In addition to specifics on the BOLI assets, the consolidated financial statements also showed what each bank was reporting as “Earnings on/increase in value of cash surrender value of life insurance” as of December 31, 2013. Those amounts are as follows:
Bank of America   $625 million
Wells Fargo           566 million
JPMorgan Chase    686 million
Citigroup                     0
Given the size of these numbers, there is another aspect to BOLI that should raise alarm bells among both regulators and shareholders. The Wall Street banks are using a process called “separate accounts” for large amounts of their BOLI assets with reports of some funds never actually leaving the bank and/or being invested in hedge funds, suggesting lessons from the past have not been learned.
On May 20, 2008, Bloomberg News reported that Wachovia Corp. (now owned by Wells Fargo) and Fifth Third Bancorp reported major losses on failed gambles with BOLI assets. “Wachovia reported a $315 million first-quarter loss in its bank-owned life insurance program, known as BOLI, because of investments in hedge funds managed by Citigroup Inc. Fifth Third said in a lawsuit filed last month that it had losses of $323 million from Citigroup’s Falcon funds, which slumped more than 50 percent in the past year as the subprime market collapsed.” Citigroup’s Falcon Strategies hedge fund had lost as much as 75 percent of its value by May 2008.
Following are the names and circumstances of the five young men in their 30s employed by JPMorgan who experienced sudden deaths since December along with the one former employee.
Joseph M. Ambrosio, age 34, of Sayreville, New Jersey, passed away on December 7, 2013 at Raritan Bay Medical Center, Perth Amboy, New Jersey. He was employed as a Financial Analyst for J.P. Morgan Chase in Menlo Park. On March 18, 2014, Wall Street On Parade learned from an immediate member of the family that Joseph M. Ambrosio died suddenly from Acute Respiratory Syndrome.
Jason Alan Salais, 34 years old, died December 15, 2013 outside a Walgreens inPearland, Texas. A family member confirmed that the cause of death was a heart attack. According to the LinkedIn profile for Salais, he was engaged in Client Technology Service “L3 Operate Support” and previously “FXO Operate L2 Support” at JPMorgan. Prior to joining JPMorgan in 2008, Salais had worked as a Client Software Technician at SunGard and a UNIX Systems Analyst at Logix Communications.
Gabriel Magee, 39, died on the evening of January 27, 2014 or the morning of January 28, 2014. Magee was discovered at approximately 8:02 a.m. lying on a 9th level rooftop at the Canary Wharf European headquarters of JPMorgan Chase at 25 Bank Street, London. His specific area of specialty at JPMorgan was “Technical architecture oversight for planning, development, and operation of systems for fixed income securities and interest rate derivatives.” A coroner’s inquest to determine the cause of death is scheduled for May 20, 2014 in London.
Ryan Crane, age 37, died February 3, 2014, at his home in Stamford, Connecticut. The Chief Medical Examiner’s office is still in the process of determining a cause of death. Crane was an Executive Director involved in trading at JPMorgan’s New York office. Crane’s death on February 3 was not reported by any major media until February 13, ten days later, when Bloomberg News ran a brief story.
Dennis Li (Junjie), 33 years old, died February 18, 2014 as a result of a purported fall from the 30-story Chater House office building in Hong Kong where JPMorgan occupied the upper floors. Li is reported to have been an accounting major who worked in the finance department of the bank.
Kenneth Bellando, age 28, was found outside his East Side Manhattan apartment building on March 12, 2014.  The building from which Bellando allegedly jumped was only six stories – by no means ensuring that death would result. The young Bellando had previously worked for JPMorgan Chase as an analyst and was the brother of JPMorgan employee John Bellando, who was referenced in the Senate Permanent Subcommittee on Investigations’ report on how JPMorgan had hid losses and lied to regulators in the London Whale derivatives trading debacle that resulted in losses of at least $6.2 billion.
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Sunday, April 27, 2014

The Quest To Freeze "Putin's Billions"

Just over a month ago, in the latest round of sanctions against Russia, and specifically Putin's inner circle of advisors and lieutenants, one person was singled out - Gennady Timchenko, part-owner of the Gunvor Group commodities trading company, the fourth largest oil trader in the world with over $90 billion in 2013 revenues.
This name was particularly notable because as part of the justification for adding Timchenko to the list of sanctioned oligarchs, the US Treasury said that "Putin has investments in Gunvor and may have access to Gunvor funds." This is curious because in 2008 The Economist also linked Putin to Timchenko. Timchenko promptly sued but later dropped the case, and The Economist issued a statement. “We accept Gunvor’s assurances that neither Vladimir Putin nor any other senior Russian political figures have any ownership in Gunvor."
Yet somehow, despite the repeated denials that Putin has a direct or indirect interest in the massive oil trading company, the Treasury department apparently knows better. As the NYT reports, "Seth Thomas Pietras, Gunvor’s corporate affairs director, said Mr. Putin “does not and never has had any ownership, direct, indirect or otherwise, in Gunvor,” nor is he “a beneficiary of Gunvor,” and “he has no access to Gunvor’s funds.” After the sanctions statement, Gunvor executives flew to Washington to meet with State Department officials and congressional aides. “We’re providing evidence but have not seen any sort of evidence from them yet and don’t know if we ever will,” Mr. Pietras said. He said the company’s banking partners had been satisfied by its explanations.
The Treasury Department, however, was not. “We remain confident that the information on the relationship between Putin and Gunvor is accurate,” said a Treasury official, who asked not to be identified in a public dispute with the company."
Still, whether or not Putin has a stake in Gunvor is of secondary importance - what matters is that tomorrow, as part of yet another round of sanctions by the US Treasury, among those likely to be on Monday’s list, are Igor Sechin, president of the Rosneft state oil company, and Aleksei Miller, head of the Gazprom state energy giant.
Which brings us to the topic of this post, namely the quest for Putin's billions.
Because if there was anything the Gunvor sanction escalation showed, is that the US is not afraid of going those who are in the Putin circle of not only trust but, certainly, money. To be sure, so far the American government has not imposed sanctions on Putin himself, and according to the NYT, officials said they would not in the short term, reasoning that personally targeting a head of state would amount to a “nuclear” escalation, as several put it. But that doesn't mean the Treasury can't go after those who are nearest to Putin, both in terms of power, and certainly money.
The problem, as the US is starting to realize, is that those alleged billions that Russia's leader may (or may not) have access to are quite difficult to track down. There is much speculation and conjecture, but the facts are still rather slim. Here is what is known:
For years, the suspicion that Mr. Putin has a secret fortune has intrigued scholars, industry analysts, opposition figures, journalists and intelligence agencies but defied their efforts to uncover it. Numbers are thrown around suggesting that Mr. Putin may control $40 billion or even $70 billion, in theory making him the richest head of state in world history.

For all the rumors and speculation, though, there has been little if any hard evidence, and Gunvor has adamantly denied any financial ties to Mr. Putin and repeated that denial on Friday.
The US may not be sure just where Putin's billions are buried preventing a laser-guided strategy, but that just means it will engage in a shotgun approach and slam all those financiers and oligarchs who are closest to Putin - even those whose goodwill is so critical to keep Russian gas flowing to Germany and the UK.
“It’s like standing in a circle and all of a sudden everyone in the circle is getting a bomb thrown on them, and you get the message that it’s getting close,” said Senator Robert Menendez, Democrat of New Jersey, the chairman of the Foreign Relations Committee, describing at a recent hearing the way the sanctions are getting closer to Mr. Putin.
Still, this does beg the question - is Putin really a billionaire? Officially, of course not.
Mr. Putin’s reported income for 2013 was just $102,000, according to a Kremlin statement this month. Over the years, he has crudely dismissed suggestions of personal wealth. “I have seen some papers about this,” he said at a news conference in 2008. “Just gossip that’s not worth discussing. It’s simply rubbish. They picked everything out of someone’s nose and smeared it on their little papers.”

How much Mr. Putin cares about money has long been a subject of debate both in Russia and in the West. On government payrolls since his days in the K.G.B., the Soviet intelligence agency, Mr. Putin to many seemed driven more by power and nationalism than by material gain. With access to government perks like palaces, planes and luxury cars, he seemingly has little need for personal wealth.

“If he really does have all that money salted away somewhere, why?” asked Bruce K. Misamore, who was the chief financial officer of Yukos Oil before the Russian government imprisoned its top shareholder, Mikhail B. Khodorkovsky, seized its assets and gave many of them to Mr. Sechin’s Rosneft. “What good does it do him? Is it just ego? Presumably, it’s not to pass it down to heirs. I doubt we’ll see Mr. Putin becoming one of the leading philanthropists in the world.”
Philanthropist, no. But if indeed Putin has highly confidential access to up to $70 billion, that would probably make him the wealthiest person on earth. And thus most influential.
Still, with no hard numbers and org charts highlight Putin's equity stakes and bank accounts around there world, there is mostly speculation:
The C.I.A. in 2007 produced a secret assessment of Mr. Putin’s wealth that has never been released, according to officials who have read it. The assessment, the officials said, largely tracked with assertions later made publicly by a Russian political analyst who said Mr. Putin effectively controlled holdings in Gunvor, Gazprom and Surgutneftegaz that added up to about $40 billion at the time.

... the assessment roughly mirrored estimates made publicly at the end of that year by Stanislav Belkovsky, a Russian political analyst with ties to the Kremlin whose public attack on oligarchs several years earlier had presaged the arrest and prosecution of Mr. Khodorkovsky of Yukos.

Mr. Belkovsky told European newspapers in December 2007 that Mr. Putin had amassed a fortune of “at least” $40 billion through sizable shares of some of Russia’s largest energy companies. Mr. Putin secretly controlled “at least 75 percent” of Gunvor, 4.5 percent of Gazprom and 37 percent of Surgutneftegaz, Mr. Belkovsky said, citing only unnamed Kremlin insiders.

“The reality is that Putin has others and entities to move money that he controls or that he might control ultimately,” said Mr. Zarate, the former Bush adviser. “The challenge with him is you don’t have an easy way of drawing the line to the assets he actually owns and controls currently. There’s a dimension of layering and relationships with people with whom he’s close and entities that serve as conduits that make it tricky to determine what is Putin’s and what is not.”
Then, there is the indirect way of estimating Putin's wealth:
In 2010, Sergei Kolesnikov, a businessman, published an open letter saying he had helped Mr. Putin secretly build a billion-dollar palace on the Black Sea. The Kremlin dismissed his claims as “absurd.” In 2012, Boris Y. Nemtsov, an opposition leader, released a report detailing the presidential perks at Mr. Putin’s disposal, including 20 residences, 15 helicopters, four yachts and 43 aircraft.
Indirect estimates, however, always leave much to be desired:
some hunting for Mr. Putin’s private wealth have found obstacles. Last month, Cambridge University Press declined to publish a book by its longtime author Karen Dawisha, a Miami University professor, exploring how Mr. Putin built “a kleptocratic and authoritarian regime in Russia.” The publisher wrote her saying it had “no reason to doubt the veracity” of her book, but deemed the risk of a lawsuit too high, according to letters published by The Economist. In a return letter, Ms. Dawisha called the decision “pre-emptive book burning.”
Which brings us back to Gunvor, which is sternly denying any relationship with Putin, even as the US Treasury openly rejected this explanation, with its explicit language.
Did Putin have some or all of his billions at the Cyprus-based company? Perhaps, but the cross holdings are so well-hidden not even the NSA likely knows who owns what. Indicating the complexity of Russian-oligarch org charts, here is just a "simple" summary of what Gunvor's stakeholder Timchenko owned, via Bloomberg:
The majority of Timchenko's net worth was derived from his 44 percent stake in Cyprus-based oil trader Gunvor Group, which he sold to partner Torbjorn Tornqvist on March 19, 2014, ahead of U.S. economic sanctions. Through Volga Group, his Luxembourg-based investment vehicle, he also holds 23 percent stake in publicly traded Novatek, Russia's second-largest natural gas producer; a 31.5 percent stake in petrochemical company Sibur; and 80 percent of rail company Transoil. 

He owns Sibur through the holding company Sibur Ltd. with billionaire partner Leonid Mikhelson. The pair acquired the company from Gazprombank, the lending affiliate of state-controlled energy company Gazprom, in 2010 and 2011. The investment cost is calculated using the value stated by Gazprombank in December 2010, when it sold the first 25 percent for $1.3 billion. He also has an 80 percent stake in Russian construction company Stroytransgaz, which is valued using the average price-to-sales and price-to-book value multiples of three publicly traded peers: Mostotrest, Budimex and Polimex-Mostostal. 

Through Volga, Timchenko holds stakes in publicly traded Rorvik Timber and Russian Sea Group, a fish farm and seafood processing company, as well as 8 percent of Bank Rossia, 12.5 percent of insurance company Sogaz, 49.1 percent of insurance company Sovag and 30 percent of coal mining company Kolmar. Gunvor holds another 30 percent of Kolmar.

Through A-group, the billionaire controls 70 percent of Avia Group, which develops ground infrastructure for the business aviation center at Moscow's Sheremetyevo airport, Avia Group Nord, which provides business-aviation services for flights out of Saint Petersburg's Pulkovo international airport, and a 99 stake in private jet operator Airfix Aviation. He also controls Finland's Hartwall Areena along with billionaire partners Boris and Arkady Rotenberg.
Confused yet? Here is more on the ties between the commodity magnate and the Russian president from a 2008 FT profile:
...many wonder whether Gunvor’s rapid expansion over the past five years – just as the Kremlin has moved in on private oil production – is due to more than just vision.The company has “one very good friend,” a former partner says. “He is at the very top level,” says another.

Some have speculated whether there are ties that bind Gunvor’s other co-founder, Gennady Timchenko, and Vladimir Putin, Russia’s president from 2000 until last week. As the company emerges from obscurity, some details of the connections between the two are finally becoming clear. The company claims that it has not benefited from any political favours. 

The company’s rise provides a glimpse into a secretive clique of businessmen close to Mr Putin who have made immense fortunes under his presidency but have so far stayed far away from public scrutiny. Even as Mr Putin completes a stage-managed transfer to the role of prime minister, installing his hand-picked successor, Dmitry Medvedev, as president, they are finding it increasingly hard to escape the spotlight. This year, Mr Timchenko for the first time made it on to the Forbes rich list with an estimated fortune of $2.5bn.

In a scanty paper trail, corporate records from St Petersburg show Mr Timchenko and a committee headed by Mr Putin participated in one business in the early 1990s. Bankers say the company, Golden Gates, was established to build an oil terminal at St Petersburg’s port but foundered in a clash with organised crime.

Mr Timchenko’s trading company, meanwhile, was a beneficiary of a large export quota under a scandal-tainted oil-for-food scheme set up by Mr Putin when he worked as head of the city administration’s foreign economic relations committee in 1991, local parliament records show. The trader also built close ties with Surgutneftegaz, a Kremlin-loyal oil company, inviting speculation he may have built a significant stake there.
Keep in mind, this is just one billionaire in Putin's entourage: consider the spaghetti chart of cross-holdings, ownerships and stakes if one charts Putin with all his closest oligarchs. As for those who ended up "less than close" with Putin, just Google Khodorkovsky.
And somehow the Treasury is supposed to keep tabs on all such relationships and track stakeholder interests which in all likelihood were defined only by a verbal arrangement? Of course, it isn't.
Which is why in tomorrow's round of sanctions, the US Treasury will most likely push further and, as rumored, may go as far as the two most powerful men in Russia (behind Putin of course) - the heads of Rosneft and Gazprom.
Will Jack Lew's department finally sink a battleship in its shotgun approach to isolating the financial pawns, knights, bishops and rooks in Putin's chessgame? And if so, what happens if suddenly Putin realizes that the US financial trap may be getting warmer and warmer, and even the nuclear option is being contemplated. Will that be enough to force the former KGB spy to backtrack after over 2 months of opportunities to do just that? Somehow we doubt it, and in fact it will likely accelerate the Russian offensive both in the Ukraine and elsewhere around the world.
If nothing else, though, in a few more months of escalating sanctions of those most near and dear to Putin, if not Putin himself, the world may finally have its first official glimpse of what and where are "Putin's billions."

Saturday, April 26, 2014

PBOC Pressures USD Hegemony; Starts Yuan-Denominated Gold & Oil Trading

With 23 foreign central banks diversifying from US Dollars to Renminbi and the PBOC actively aiding numerous major financial hubs around the world with bilateral currency swap agreements, it seems yet another nail in the coffin of US dollar hegemony just got hit...
  • *PBOC AIMS TO SET UP GLOBAL PAYMENT SYSTEM FOR YUAN: SEC. NEWS
  • *PBOC TO MAKE GOLD, OIL FUTURES YUAN DENOMINATED: SEC. NEWS
Nothing lasts forever, no matter how much you believe...
PBOC plans to start yuan-denominated gold and oil futures to help establish a global payment system for the Chinese currency, Guo Jianwei, deputy director of the second monetary policy department of the People’s Bank of China, is cited by Shanghai Securities News as saying.
PBOC will continue to push reform of interest rates, exchange rates and the capital account
The pace of Renminbi use is accelerating...
"In the first quarter, the RMB settlement of trade in goods amounted to 1.0871 trillion, accounting for the proportion of total import and export customs of 18.4% over the same period," said Guo Jianwei, 18.4% and 11.7%, two figures, hidden vitality, accounting for just three months time improved 6 percentage points, indicating that the use of the renminbi is growing internal demand.
It seems the level of interest in diversifying away from the US Dollar is growing...
At the end of last year, China's total with 23 foreign central banks or monetary authorities signed bilateral currency swap agreements, the total size of more than 2.5 trillion yuan.

Recently, the central bank after another with Britain and Germany signed a memorandum of agreement RMB clearing and settlement central bank, the European offshore RMB business to accelerate.

It is noteworthy that, in addition to London, Paris, Frankfurt, Luxembourg, Singapore, striving for offshore yuan trading center with only the United States "sitting on the sidelines."
The goal seems clear... 
"Renminbi is a new bright spot in the next cross-border RMB business development." Guo Jianwei, said the central bank will continue to advance the future of interest rates, exchange rate reform, capital projects, and expand the range of RMB payment using to promote the yuan-denominated policies, thereby establishing renminbi The global payment system and so on.
http://www.zerohedge.com/news/2014-04-25/pboc-pressures-usd-hegemony-starts-yuan-denominated-gold-oil-trading