Another Roundup: The Great Unwind, Energy Crisis, Pipeline Crisis
So far it’s a slow news day. However, I ran across an interesting article on the banking crisis we’ve been trying to follow lately. It seemed worthwhile to me to bring this to the attention of readers since the current globalist war on Russia is as much or more economic and financial as it is military. This is really the major front in that war, the front on which the globalist elites believed they could vault to world dominance, but appear to have impaled themselves—and their unelite subjects.
As usual, I can’t claim to understand this that well, so I’m excerpting the intro and conclusion. What remains unexcerpted is fairly lengthy and detailed—anyone who groks this stuff should weigh in.
Banking crisis — the Great Unwind
Oct 12, 2022·Alasdair Macleod
There is a growing feeling in markets that a financial crisis of some sort is now on the cards. Credit Suisse’s very public struggles to refinance itself is proving to be a wake-up call for markets, alerting investors to the parlous state of global banking.
This article identifies the principal elements leading us into a global financial crisis. Behind it all is the threat from a new trend of rising interest rates, and the natural desire of commercial banks everywhere to reduce their exposure to falling financial asset values both on their balance sheets and held as loan collateral. And there are specific problems areas, which we can identify:
It should be noted that the phenomenal growth of OTC derivatives and regulated futures has been against a background of generally declining interest rates since the mid-eighties. That trend is now reversing, so we must expect the $600 trillion of global OTC derivatives and a further $100 trillion of futures to contract as banks reduce their derivative exposure. In the last two weeks, we have seen the consequences for the gilt market in London, warning us of other problem areas to come.
Commercial banks are over-leveraged, with notable weak spots in the Eurozone, Japan, and the UK. It will be something of a miracle if banks in these jurisdictions manage to survive contracting bank credit and derivative blow-ups. If they are not prevented, even the better capitalised American banks might not be safe.
Central banks are mandated to rescue the financial system in troubled times. However, we find that the ECB and its entire euro system of national central banks, the Bank of Japan, and the US Fed are all deeply in negative equity and in no condition to underwrite the financial system in this rising interest rate environment.
In the middle of the article the author discusses something that I was looking at earlier in the week—the matter of global systemically important banks (G-SIBs). He provides a table showing the relative condition of these banks, but to give you an idea of where he’s headed, he notes:
We must wish Credit Suisse’s hapless employees well in a period of high uncertainty for them. But this bank, one of thirty global systemically important banks (G-SIBs) is not alone in its difficulties. The only G-SIBs whose share capitalisation is greater than their balance sheet equity are North American: the two major Canadian banks, Morgan Stanley, and JPMorgan. The full list is shown in Table 1 below, ranked by price to book in the second to last column.
The next tier of banks, if you will, with price to book ratios under 1.0 but still well ahead of most world G-SIBs, are mostly American, led by Goldman Sachs at .89. The author doesn’t view any of that as ringing endorsements, simply these banks are as good as they get. Here’s his verdict on US banks:
While highly geared compared with in the past, US G-SIBs are not nearly as much exposed to a general credit downturn as the Europeans, Japanese, and the British. Contracting bank credit will hurt them, but other G-SIBs are bound to fail first, transmitting systemic risk through counterparty relationships. Nevertheless, markets do recognise some risk, with price-to-book ratios of less than 0.9 for Goldman Sachs, Bank of America, Wells Fargo, State Street, and BONY-Mellon. JPMorgan Chase, which is the Fed’s principal policy conduit into the commercial banking system, is barely rated above book value.
Since we’ve been talking lately about Jamie Dimon’s views, that last point is worth noting—especially as Tom Luongo maintains that JPMorgan Chase and Goldman Sachs are the forces behind Jay Powell.
The author then goes on to comment on the global situation. He concludes:
Conclusions
In this article I have put to one side all the economic concerns of a downturn in the quantities of bank credit in circulation and focused on the financial consequences of a new long-term trend of rising interest rates. It should be coming clear that they threaten to undermine the entire fiat currency financial system.
Credit Suisse’s public problems should be considered in this context. That they have not arisen before was due to the successful suppression of interest rates and bond yields, while the quantities of currency and bank credit have expanded substantially without apparent ill effects. Those ill effects are now impacting financial markets by undermining the purchasing power of all fiat currencies at an accelerating rate.
From being completely in control of interest rates and fixed interest markets, central banks are now struggling in a losing battle to retain that control from the consequences of their earlier credit expansion. That enemy of every state, the market, has central banks on the run, uncertain as to whether their currencies should be protected (this is the Fed’s current decision and probably a dithering BOE) or a precarious financial system must be the priority (this is the ECB and BOJ’s current position).
But one thing is clear: with CPI measures rising at a 10% clip, interest rates and bond yields will continue to rise until something breaks. So far, commercial banks are dumping financial assets to deleverage their balance sheets. The effects on listed securities are in plain sight. What is less appreciated, at least before LDI schemes threatened to collapse the UK’s gilt market, is that the $600 trillion OTC derivative market which grew on the back of a long-term trend of declining interest rates is now set to shrink as contracts go sour and banks refuse to novate them. That means that up to $600 trillion of notional credit is set to vanish, in what we might call the Great Unwind.
This downturn in the cycle of bank credit boom and bust will prove difficult enough for the central banks to manage. But they themselves have balance sheet issues, which can only be resolved, one way or another, by the rapid expansion of base money. And that risks undermining all public credibility in fiat currencies.
In line with the above, I offer a few Luongo tweets. Recall that in our comments note was taken that the Fed appeared to be favoring Swiss banks over Brit banks. We also took note of Blackrock’s struggles, another Luongo prediction that appears to be coming true, based on Dimon’s enmity toward ESG:
In this next tweet when Luongo says “they” he’s referring to the Fed:
And finally—more of Luongo’s predicted chickens look to be coming home to roost:
Luongo is no longer alone:
"Worst.Crisis.Ever." - Traders Begin Making Big Bets On Massive Volatility Ahead
So, moving on to the energy crisis. Here I’ll simply embed and informative 10 minute video discussing the situation in Europe, in which countries are being pressured into reversing their cherished climatist policies. Informative:
Regarding the pipeline situation—yes, it’s a continuing crisis. As various commenters have noted, what insurance company is going to underwrite repair to pipelines when they have no reasonable way to assess the risk of further sabotage? This is the US determined to cut all energy links between Europe and Russia—to the extent possible. Scott Ritter gives a good presentation of much of what’s known about the sabotage of Nordstream. You won’t learn a lot that’s new, but it’s a good summary:
SCOTT RITTER: Pipelines v. USA
Intent, motive and means: People serving life sentences in U.S. prisons have been convicted on weaker grounds than the circumstantial evidence against Washington for the attack on the Nord Stream pipelines.
For military buffs, here’s a 30 minute video. If you can get past the heavily accented—but basically fluent—English, Martyanov gets into the business of radar and anti-missile defenses:
I’ll end with a polling article at Red State. It’s a pretty in depth review of the latest Harvard-Harris poll, which is run by former Clinton pollster Mark Penn—a smart guy.
New Poll Not Only Shows Good News for Election, but for the Health of Nation as Well
The polls seem to be showing a lot of good things for Republicans right now.
One example of this trend is the new Harvard-Harris poll, which has some fascinating things in it that show why Democrats are going to be in big trouble in the November elections. But even more than the midterms, I think it bodes well for the country; because there are signs that the radical nature of the Democrats is driving more people to the center or the right in this poll, as well.
Most respondents — 57 percent — say their financial situation is worsening. Also, 84 percent disagree with Joe Biden and think we are in a recession right now. Approval of Biden’s management on issues was weak across the board. Meanwhile, GOP approval has risen in the last four months – by four points – to 49 percent; Democrat approval is only at 46 percent. President Donald Trump is the most favored politician.
Here’s a tweet that gives a perfect snapshot of the disconnect between the Dems and the subject population:
In case you were wondering, the top 3 Dem issues rank:
J6 - 19th
Women’s Rights - 5th
Climate - 8th
More from Zipperer:
OMG! Here's a number that should wake some Dems up: 64% say that rising crime is "the fault of woke politicians."
A majority, 52%, of DEMOCRATS say rising crime is "the fault of woke politicians"GOP wants to close the border to illegal crossings, increase incarceration of criminals, and reduce gov spending. Does this appeal to you?
60% total said this platform appealed to them. 45% of DEMOCRATS said this platform appealed to them.36% of GOP says that Biden's election in 2020 was illegitimate, but 32% of Dems say that Trump's election in 2016 was illegitimate.
Really interesting poll. You can view the whole thing here:
harvardharrispoll.com/wp-content/upl…
The Demonization of the Unvaccinated: A Look Back
https://brownstone.org/articles/the-demonization-of-the-unvaccinated-a-look-back/
Sheds much light on what's going on in LA politics:
More Leaked Conversations at the Cal Labor Offices Show the DSA-LA Takeover of Los Angeles Continues Apace
https://redstate.com/jenniferoo/2022/10/15/more-leaked-conversations-at-the-cal-labor-offices-show-the-dsa-la-takeover-of-los-angeles-continues-apace-n643655