Is The 505 Trillion Dollar Interest Rate Derivatives Bubble In Imminent Jeopardy?

All over the planet, large banks are massively overexposed to derivatives contracts.  Interest rate derivatives account for the biggest chunk of these derivatives contracts.  According to the Bank for International Settlements, the notional value of all interest rate derivatives contracts outstanding around the globe is a staggering 505 trillion dollars.  Considering the fact that the U.S. national debt is only 18 trillion dollars, that is an amount of money that is almost incomprehensible.  When this derivatives bubblefinally bursts, there won’t be enough money in the entire world to bail everyone out.  

The key to making sure that all of these interest rate bets do not start going bad is for interest rates to remain stable.  That is why what is going on in Greece right now is so important.  The Greek government has announced that it will default on a loan payment that it owes to the IMF on June 5th.  If that default does indeed happen, Greek bond yields will soar into the stratosphere as panicked investors flee for the exits.  

But it won’t just be Greece.  If Greece defaults despite years of intervention by the EU and the IMF, that will be a clear signal to the financial world that no nation in Europe is truly safe.  Bond yields will start spiking in Italy, Spain, Portugal, Ireland and all over the rest of the continent.  By the end of it, we could be faced with the greatest interest rate derivatives crisis that any of us have ever seen.

The number one thing that bond investors want is to get their money back.  If a nation like Greece is actually allowed to default after so much time and so much effort has been expended to prop them up, that is really going to spook those that invest in bonds.

At this point, Greece has not gotten any new cash from the EU or the IMF since last August.  The Greek government is essentially flat broke at this point, and once again over the weekend a Greek government official warned that the loan payment that is scheduled to be made to the IMF on June 5th simply will not happen…

Greece cannot make debt repayments to the International Monetary Fund next month unless it achieves a deal with creditors, its Interior Minister said on Sunday, the most explicit remarks yet from Athens about the likelihood of default if talks fail.

Shut out of bond markets and with bailout aid locked, cash-strapped Athens has been scraping state coffers to meet debt obligations and to pay wages and pensions. With its future as a member of the 19-nation euro zone potentially at stake, a second government minister accused its international lenders of subjecting it to slow and calculated torture.

After four months of talks with its eurozone partners and the IMF, the leftist-led government is still scrambling for a deal that could release up to 7.2 billion euros ($7.9 billion) in aid to avert bankruptcy.

And it isn’t just the payment on June 5th that won’t happen.  There are three other huge payments due later in June, and without a deal the Greek government will not be making any of those payments either.

It isn’t that Greece is holding back any money.  As the Greek interior minister recently explained during a television interview, the money for the payments just isn’t there…

“The money won’t be given . . . It isn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega.

This crisis can still be avoided if a deal is reached.  But after months of wrangling, things are not looking promising at the moment.  The following comes from CNBC…

People who have spoken to Mr Tsipras say he is in dour mood and willing to acknowledge the serious risk of an accident in coming weeks.

“The negotiations are going badly,” said one official in contact with the prime minister. “Germany is playing hard. Even Merkel isn’t as open to helping as before.”

And even if a deal is reached, various national parliaments around Europe are going to have to give it their approval.  According to Business Insider, that may also be difficult…

The finance ministers that make up the Eurogroup will have to get approval from their own national parliaments for any deal, and politicians in the rest of Europe seem less inclined than ever to be lenient.

So what happens if there is no deal by June 5th?

Well, Greece will default and the fun will begin.

In the end, Greece may be forced out of the eurozone entirely and would have to go back to using the drachma.  At this point, even Greek government officials are warning that such a development would be “catastrophic” for Greece…

One possible alternative if talks do not progress is that Greece would leave the common currency and return to the drachma. This would be “catastrophic”, Mr Varoufakis warned, and not just for Greece itself.

“It would be a disaster for everyone involved, it would be a disaster primarily for the Greek social economy, but it would also be the beginning of the end for the common currency project in Europe,” he said.

“Whatever some analysts are saying about firewalls, these firewalls won’t last long once you put and infuse into people’s minds, into investors’ minds, that the eurozone is not indivisible,” he added.

But the bigger story is what it would mean for the rest of Europe.

If Greece is allowed to fail, it would tell bond investors that their money is not truly safe anywhere in Europe and bond yields would start spiking like crazy.  The 505 trillion dollar interest rate derivatives scam is based on the assumption that interest rates will remain fairly stable, and so if interest rates begin flying around all over the place that could rapidly create some gigantic problems in the financial world.

In addition, a Greek default would send the value of the euro absolutely plummeting.  As I have warned so many times before, the euro is headed for parity with the U.S. dollar, and then it is going to go below parity.  And since there are 75 trillion dollars of derivatives that are directly tied to the value of the U.S. dollar, the euro and other major global currencies, that could also create a crisis of unprecedented proportions.

Over the past six years I have written more than 2,000 articles, I have authored two books and I have produced two DVDs.  One of the things that I have really tried to get across to people is that our financial system has been transformed into the largest casino in the history of the world.  Big banks all over the planet have become exceedingly reckless, and it is only a matter of time until all of this gambling backfires on them in a massive way.

It isn’t going to take much to topple the current financial order.  It could be a Greek debt default in June or it may be something else.  But when it does collapse, it is going to usher in the greatest economic crisis that any of us have ever seen.

So keep watching Europe.

Credit to Economic Collapse

Iran: S-300 Delivery from Russia Coming Soon

Moscow and Tehran have concluded talks on the delivery of Russian S-300 missiles to Iran which should take place "quite" soon, Iran’s DeputyForeign Minister Hossein Amir-Abdollahian said on Monday, according to the AFP news agency.

"The negotiations on the subject have ended in success. I estimate that the S-300 delivery will take place in quite a short time," Amir-Abdollahian was quoted as having said in Moscow.

"It will be done at the soonest opportunity possible," he added after meeting his Russian counterpart, Mikhail Bogdanov.

The Russian foreign ministry has not confirmed the announcement, but noted the "importance of maintaining a regular Russian-Iranian dialogue" in a statement Monday.

In April, Russian President Vladimir Putin signed a decree lifting a ban on the delivery of S-300 anti-missile rocket systems to Iran.

Russia cancelled a contract to deliver the missile system to Iran in 2010, under pressure from the West following UN sanctions imposed on Iran over its nuclear weapons program. Putin has explained that his decision was motivated by Iran's drive to find a solution in talks over its nuclear program.

Washington has voiced concern over the deal, but Iran hailed the decision as a step towards "lasting security" in the region.

Tehran has previously said the missiles would be delivered by the end of the year, but Russia has denied this and said the delivery of the system “is not a matter of near future.”

Credit to Arutz Sheva

Implants to aid payment with a wave of the hand

Is it retail therapy gone mad? The dawn of a new cyborg age? Or a new meaning to going down under?

Whatever the case, a fair proportion of Australians are receptive to technology mixing with their precious human organic flesh, if it means making payments at retail stores is easier.

A survey, commissioned by global payments firm Visa, found 25 per cent of Australians were “slightly interested” in having a commerce-oriented chip implanted in their skin.

Research firm UMR conducted the survey for Visa, interviewing 1000 local consumers.

A subcutaneous chip would let consumers pay at a retail terminal without a wallet, credit card, smartphone or smartwatch. They would simply wave their bare hand over a terminal.

The finding was revealed as Visa and University of Technology Sydney announced a partnership to explore the future of wearable technology. Visa’s research looked at the wearable technology Australian consumers were interested in using for payments.

Thirty-two per cent would be interested in paying with a smartwatch; 29 per cent with a smart ring, and 26 per cent with smart glasses.

It is little wonder Visa regards Australians as adventurous with tech. “Australians are among the world’s earliest adopters of new technology,” said George Lawson, Head of Emerging Products and Innovation for Visa in ANZSP.

There’s nothing new about implanting tags under the skin. The US firm VeriChip obtained approval to do just that more than a decade ago.

Their chip consisted of a tiny antenna and an identification number. It was designed to be implanted in the soft tissue between the thumb and index finger and detected by a radiofrequency identification (RFID) scanner.

Before you see the human species morphing towards a cyborg future, there is a cautious note. Research in the past has linked subcutaneous chips to cancers in laboratory animals at the implant site.

Credit to The Australian

Martin Armstrong Warns "Kiss Your Pension Fund Goodbye"

I have been warning for some time thatgovernment was eyeing up pensions.The amount in private pension funds is about $19.4 trillion. The question that has been debated in secret behind the curtain is how to justify to the people taking that over. I have been warning that if this is seized by government, it will come after 2015.75. Just how that is to be accomplished was finally settled by the Supreme Court without any justification constitutionally.

The US Supreme Court ruled last week in the unanimous, 8-page decision in Tibble v. Edison holding that employers have a duty to protect workers in their 401(k) plans from mutual funds that are too expensive or perform poorly. That is simply astonishing since there is no constitutional requirement for even government to provide social benefits. 

The Supreme court held in HARRIS v. McRAE, 448 U.S. 297 (1980) it was explained that the constitution is negative not positive. There is no duty imposed upon the state to provide a program for that would convert the constitution from a negative restrain upon government to a positive obligation to provide for everyone.

If we take the fact that the constitution isNEGATIVE and was a restrain upon government, then this latest ruling is completely unfounded. Monday’s unanimous ruling sends a warning to employers that they now must improve their plans and it is now an obligation to project employees. This comes just in time for then the next step is government to seize private funds and prosecute employers who choose badly a fund manager. 

This fits perfectly just in time for the Obama administration’s next assault as they prepare a landmark change of its own by issuing rules requiring that financial advisers put the interest of customers ahead of their own. This creates a very gray area wide enough to justify public seizure of pension funds under management.

This ruling will have a dramatic impact upon investment management and we have already received calls asking about using our model for management purposes since it has one of the longest track records that can be verified in the industry. What this ruling imposes is a tremendous duty upon the plan fiduciary who must now back up his decision with proof. This may also have the impact of foreclosing new fund managers from entering the business since they will lack the track record.

Yet this decision is even deeper. It sets the stage to JUSTIFY government seizure of private pension funds to protect pensioners. When the economy turns down and things get messy, they are placing measures in place to eliminate money in and physical dimension, closing all tax loopholes, shutting down the world economy with FATCA, and preparing for the final straw of Economic Totalitarianism with the Supreme Court reversing its entire construction of the Constitution to impose a duty upon employers to ensure the 401K plans perform in a world where interest rates are going negative. You really cannot make up this level of insanity.

The message here is not that all 401(k)s are bad or too expensive. In fact, costs have fallen 30 percent over the past decade as more plan sponsors turn to low-cost passive investing options. But this can be highly dangerous for to lower costs they turn to government debt where there is no need for fund management decisions. Yes, when I did hedge fund management, the cost was 5% annually plus 20% performance. 

That cost went to staff around the world that had to monitor positions and the world economy on a 24 hours basis. You paid also NOT to trade for most losses took place when traders were bored are would trade to try to make money when there was nothing to be done. Our track record was the best ever in the industry with the lowest drawn down perhaps in fund management. But that risk reduction cost money.

Today, costs vary widely. Plans with more than $100 million in assets usually have total annual costs below 1% whereas the biggest plans usually are below 0.50%. In small plans, the costs can be as high as 2% today. The focus is now on cost – not performance.

Financial service companies can charge a range of management, administrative, marketing, distribution and record-keeping fees for 401(k) plans. Plan sponsors can assume the costs, but employees are paying at least 85% of all fees typically. It is true that most workers do not know they pay the bulk of the share of costs. A 2011 AARP survey found that 71% of retirement savers do not think they pay any investment fees at all. It is true that the fees make a huge difference in returns over time. However, this drive to lower costs has also lowered the quality of funds management.

The U.S. Department of Labor estimates that a 1% point difference on a current account balance of $25,000 will reduce total accumulations by 28% over 35 years, assuming average returns of 7% and no further contributions. The focus is all on these management fees without any consideration of the problem. Trying to manage money varies according to the size of the fund. The more you gather, often the lower the performance because the markets are not unlimited. You can pick up the phone and say “sell at the market” when you have a $100 million fund, you cannot do that with a $100 billion fund. So the management fee was also a means to reduce the number of clients and it was never a question of unlimited capacity to trade. The numbers on performance would decline with greater amounts of money under management for the manager lost flexibility.

The Supreme Court case clearly shows that lack of understanding of the industry yet the battle centered on the 401(k) plan’s use of retail-class mutual funds when less-expensive institutional shares were available. The difference between those classes typically is 25 basis points. This will now  put pressure on large plans to cut costs further but will not have much impact on smaller plans. That is because big plans have the buying power to negotiate better deals but at the same time they are the easy target for lawyers making them much more attractive targets for litigation.

Cutting management fees to the bone may in fact set the stage for massive losses for many of the older better traders are now just resigning. The quality of the funds management is more likely than not going to decline noticeably.

Between the court ruling and the Obama administration’s push for stronger fiduciary rules send a strong message that government can much easier seize the pension fund management industry of course to “protect the consumer”.

Credit to Zero Hedge

Vladimir Putin's ally issues chilling warning to the West: 'Tanks don't need visas'

One of Vladimir Putin's closest aides has issued a chilling warning to the West: "Tanks don't need visas".

Deputy premier Dmitry Rogozin - seen by some as a future Kremlin president - claimed the West is now scared of Moscow's military muscle.

His outspoken words come as the West remains at loggerheads with Russia over Putin's seizure of Crimea, and alleged military strongarm tactics in eastern Ukraine.

Vowing to exploit the vast mineral riches of the Arctic, Rogozin claimed that America and Euorpe "are afraid of Russia".

The West is "afraid of the fact that we have started looking around, at our enormous territory", which, he argued, reached far north of existing frontiers in the Arctic.

In overall charge of Russia's space and defence industries, he told a TV show that Russia would develop "our huge EurAsia", exploiting vast mineral wealth under the Arctic ice.


 

Even though international bodies have yet to approve Russia's claim to the oil, gas and other natural resources, Rogozin, 51, vowed: "It is our territory, it is our shelf, and we'll provide its security. And we will make money there."

He threatened the West: "I have always joked about it, that they will not give us visas.

"They will put us on a sanctions list - but tanks do not need visas."

An ardent Russian nationalist - who faced US and EU sanctions over the Ukraine crisis - told Russian viewers referring to Moscow's latest high-tech tank: "We should not look at anybody or be offended, we should just go. We are one big Armata."

The Arctic would be the scene of "serious economic collisions in the 21st century", he warned, with the US and Canada among countries with competing claims for the undersea riches.

But Rogozin, who has enjoyed fast-track promotion under Putin, warned corruption not the West was his country's biggest enemy.


GettyRussian Tanks: "They don't need visas" according to a potential Putin successor

"I have always said before and keep repeating our real enemy is not NATO, nor aliens, but our corruption."

He boasted about Russian atomic capability declaring: "Our nuclear shield is strong, it is so strong that I would say it is more powerful than anyone else's.

"This is why Russia today can ensure its strategic security, not only going face to face with the USA, but also face to face with the whole Western coalition."



Credit to The Mirror

Earthquake count more than halfway to last year’s total

Oklahoma earthquake counts already are more than halfway to last year’s total, according to the U.S. Geological Survey.

As of May 18, there were 336 magnitude 3.0 or greater earthquakes recorded in central and north-central Oklahoma, according to USGS Earthquake Hazards Program Central & Eastern U.S. Coordinator Robert Williams.

Williams said there has been a “little bit” of earthquake activity in west-central Oklahoma. According to a map he provided, there have been 338 magnitude 3.0 or greater quakes in the state, as of May 18.

“We’re not halfway through the year and we’re already more than halfway to last year’s total of 585,” he said, on May 19.

Earthquake rates in central and north-central Oklahoma still are high and are not much different from the high rates observed in the second half of 2014, Williams noted.

Of the 336 earthquakes in central and north-central Oklahoma, nine were magnitude 4.0 to magnitude 4.2, he said.

“Because earthquake rates are still very high in central Oklahoma, the likelihood of future, damaging earthquakes has not diminished for central and north-central Oklahoma,” Williams said. “We hope that this continues to be a crucial consideration in earthquake preparedness for residents, schools and businesses in the area.

“Building owners and government officials should have a special concern for older, unreinforced brick structures, which are vulnerable to serious damage during sufficient shaking.”

He said total earthquake numbers may differ slightly from numbers reported by the Oklahoma Geological Survey.

Credit to Enidnews.com

"Extreme Heat Hits India" 539 Dead...47 C (117 F) Degrees