Basel III – IMF – Liquidity Crisis


QUESTION: As of today, Basel III comes in effect. Rumour goes that in a couple of months, there will be a lot of turmoil on the market and it would be the start of the implementation of an SDR like thing where people would lose 20-30% of their value and get stuck with this new currency. You have mentioned before this was in the pipeline but no timing was given. Is it really this close or is it for 2020-2022?

PT’S

ANSWER: The IMF has been pitching Washington to let their SDR become the new reserve currency. They claim this would eliminate the problem of the Fed having to worry about external influence v domestic. Let me say that this will NEVER eliminate the issues of international capital flows. The fixed exchange rate of Bretton Woods never prevented that problem and it was that very issue that brought it crashing down. Until we are ready to begin teaching the meaning of a floating exchange rate system and abandon Keynesian economics, I do not see this problem ever being eliminated.

Basel III is separate from the IMF and its purpose is capitalization of banks — not the reserve currency of a dollar v SDR. Basel III was agreed upon by the members of the Basel Committee on Banking Supervision in November 2010, and was scheduled to be introduced from 2013 until 2015. However, implementation was extended repeatedly to March 31, 2019, and then again until January 1, 2022. The Committee replaced the existing Basel II floor with a floor based on the revised Basel III standardized approaches. This revised output floor is to be phased in between January 1, 2022, and year-end 2026, thereby becoming fully effective on January 1, 2027, if the banking system can survive that long to begin with.

The Basel III leverage ratio framework and disclosure requirements (“the Basel III leverage ratio framework”) was supposed to be raised to protect banks from failures. Many were required to raise more capital. The Net Stable Funding Ratio (“Basel III NSFR standards”) was to be applied to participating banks. Moreover, the committee is monitoring the overall impact of Total Loss Absorbing Capacity (TLAC) and banks’ holdings of TLAC instruments. Capital requirements for market risk as well as the committee’s finalization of post-crisis reforms were all supposed to be back-tested. Additionally, profit and loss (P&L) accounts related to the revised internal models-based approach (IMA) for calculating minimum capital requirements for market risk more specifically.

All of that said, the crisis we have is a LIQUIDITY Crisis. This time it has been created especially by the European Central Bank (ECB). By keeping interest rates negative and punishing banks for having cash, they have (1) lent into real estate to get higher yields but this type of asset cannot be sold easily, (2) buying emerging market debt to get a high-yield like Turkey. Turkey was the favorite of Spanish Banks and the capital controls that Turkey did before the election sent shivers down the spine of institutional investors. The ECB has driven banks into these markets that are notoriously illiquid. This means that under Basel III, banks will not have the liquid assets to support their capitalization requirements. It becomes more likely that the Basel III requirements will be suspended or else there will be a wholesale collapse of the banking system.

We are in Global Cooling!! not warming !!


Published on Mar 8, 2017

The following is a comment I have added.

I agree with the basic premise of Murray; but I have one correction we are in a pause not a mini ice age. The long cycle is likely not to go down, easing all the previous increase for another ~100 years we are only ~900 years into the ~1000 year primary cycle.  The base we are measuring from is 14.0 Degrees Celsius (an arbitrary number) and the 2.0 Degrees Celsius limit that is the point of no return according to AOC is from that point.  We are now just under 15.0 Degrees Celsius so there is only 1.0 Degrees Celsius  of their buffer left.  The following charge shows a simple statistical projection based on current NOAA and NASA data. The chart is in percentages but it shows us that the amount of heat in the atmosphere is not likely to exceed 160 Degrees Celsius until after 2050 so all the projects are going to be 100% wrong!

 

Liquidity Crisis


QUESTION: I have attended the last 2 conferences and you have said the “liquidity” in the stock market will become tighter coming into 2020 and that there will be less stocks available to buy. Does that have something to do with this inflow of capital from Europe as people become more aware? I read your article about the Emerging Market crisis with great interest and remembered what you said. Is there more information you can share with us on this topic?

CDH

ANSWER: Since Quantitative Easing has failed, capital was driven into non-traditional investments to simply try to earn income. There were institutions buying farmland just to lease it out to get 5% annual income. Others ran off into Emerging Markets. Spanish banks are heavily invested in Turkey. The problem is that this trend has caused a liquidity crisis insofar as capital has been invested in assets that are not liquid. Add to this corporate buybacks that are reducing the supply of stocks available.

All I can say is thank God for Socrates. There are so many global trends emerging that by themselves are confusing and would be impossible for a standard domestic analysts to forecast from a personal interpretation perspective. The combination of investment shifts into real estate, Emerging Markets, and corporate buybacks have created an interesting risk factor for liquidity during a financial panic.

 

The 8.6-Year Cycle in the Sun & Solar


Solar storms are important events yet they come in different sizes and different types. They are caused by disturbances on the Sun, and are most often coronal clouds associated with coronal mass ejections (CMEs) that are produced by solar flares emanating from active sunspot regions. They can also erupt from rarer coronal holes. Solar filaments (solar prominences) may in fact also trigger CMEs. What is interesting is that putting the data into our computer produced an 8.6-year cycle that operated in intensity peaking every 224 years. Here is the list of the major solar storms:

2225 BC
1485 BC
≈660 BC
95 AD
265 AD
774–775 carbon-14 spike  (“Red Crucifix” aurora event over British Isles)
993-994 carbon-14 spike (Intense auroras that migrated south during the 990s)
1460 AD
1505 AD
1707 AD
1709 AD
1719 AD

There was a very major storm in 660 BC as well as the Red Crucifix event of 774/775 AD. The event of 774 is the strongest spike over the last 11,000 years in the record of cosmogenic isotopes, but it is not unique by far. Nevertheless, the event of 774/775 AD appears to have been global, with the same carbon-14 signal found in tree rings from Japan, Germany, Russia, the United States, and New Zealand. A similar event occurred in 993 or 994, but it was only 0.6 times as strong and also in 660 BC.

The intensity follows a cycle of 224 years in duration which comports to the same time frame that revealed the Economic Confidence Model. The period of 224 years divided by 26 financial waves of panic revealed the frequency of 8.6-years which was a derivative of Pi – 3,145 days. There are events which take place on the half and quarter cycle events as well, but of course, they differ in intensity. It appears to have also signaled the shift in the sun would have taken place about 2006. Indeed, Sunspot 905 during 2006 showed up warning that the field was reversing the magnetic polarity. With the aura once again moving south, it appears that we are headed into a phase where solar storms will increase. The sunspots have declined sharply 8.6 years later and this warns we may have strange weather into 2024.