The year 2015 will be remembered as everything but boring. Politics, finance you name it, we had a lot happening at every corner. Consequences of superpowers starts to creep in to the streets. Problems that began in 2015 did not find their end before year ended. What we can expect is that 2016 will match its predecessor. Before that happens let us take a closer look at things that hit or should have hit headlines.
1. The Swiss National Bank unpegged the franc
January 15 - euro and Swiss franc peg was scrapped. Against continuous practice this decision was announced on Thursday. This caused trouble in the market. Standard action would be to make a move during weekend while institutional clients closed their speculative positions. At least two big broker companies went bankrupt because of shorting the franc. When stop-loss hit its maximum many speculators lost their savings of their lives.
2. European Central Bank increase scale of printing
The ECB’s QE (quantitative easing) has been used to buy bonds from the Eurozone members. It started with 60 billion EUR per month. This intervention pushed prices up until May when another act of Greek tragedy was unveiled. The ECB calmed situation and since July we could see prices of bonds again rising.
3. Austrian government pulls back guarantees for bank deposits
After spending 7.6 billion EUR on bad debt created after failure of Hypo Alpe Adria bank Austrian politicians refused to give any guarantee for the whole sector. Recommendation? Inception and onus of financing of a safety-net to any failure of a bank. This special deposit insurance fund should secure Austrians with up to 100 000 EUR in their accounts.
4. China’s stock market
In April when we saw maniacal stage in Chinese stock exchange. Its sharp end can only be matched by its start. Up to 4 million new brokerage accounts opened every single week. Shares were in everyone’s pocket. Inevitably it was also inexperienced, lifetime savers who were ready to risk everything they had to ‘wall-street’ their way to get rich. How loud was their scream we knew in less than 8 weeks. This bubble bursted in July and Beijing is fighting with it until now.
5. Greeks go bankrupt. Again.
Around May another act of insolvent tragedy rolled out. Government of Alexis Tsiparas negotiated with Germans another transfers of billions EUR to roll the debt. It ended with total capitulation. Tsiparas accepted terrible conditions just to prolong the agony served by the EU and its puppet politicians.
6. Train full of gold
August was full of information, misinformation and gossips about a Nazi German train hidden during the Second World War in Poland. Until now we do not know anything about the searching party’s results. Case was slowly silenced and it should come hardly as surprise. Big, attentive spotlight is against interest of those who will at the end welcome this gold in their vault (and it will not be the Polish national reserves).
7. Switzerland accepted the referendum about fraction reserve system
Swiss collected 100 thousand signatures under this petition and referendum will be held deciding fate of fraction reserve system. What we talk here is taking ability to create money from commercial banks and leaving it only to the Swiss central bank (SNB). Exact date is not yet known but the fact that society is taking THIS matter in its hands is a big thing already.
8. FED raises interest rates
The Federal Reserve Bank cooked this frog since beginning of 2015. Finally in December interest rates climbed and since markets having a lot of time to calculate this change reacted moderately. Will tranquillity stay with us for longer? I do not think so as now everyone needs to calculate announced further raises and circumstances are far from good.
9. Sanctions against Russia continue
After countering a coup d’état in Ukraine (planned and sponsored by the US among others) and annexation of Crimea, Russia had to be ‘dealt with’. Sanctions was the weapon of choice and in 2015 axis of the EU – Ukraine – Russia they have been voted and prolonged. Ukraine civil war was overshadowed by events in the Middle East. Making sure that everything go smoothly vote over sanctions was not preceded by any ambassadors’ debate.
10. Fight against paper money and controls of capital transfer
Western governments were relentless in their fight against cash. Quotas available for withdrawal have seen only one direction – down. On top of that in some instances clients need to confess for what the money will be spend. Limits of paper payments had been lowered to 1-3 thousand EUR (depending on the country). Greeks were hit hardest by capital controls. They had their run on the banks in fear of banks bankruptcies.
What we can expect when banking system problems will escalate showed us Ukrainian situation in the beginning of last year. One day Kiev introduced limits of interbank transfers (625 USD per person) and abroad (max. 10 000 USD).
11. Bursting bubble of corporate bonds
2015 brought troubles to corporate world and it shows in the debt market. Corporate bonds were cheaper and cheaper whilst spread were widening and offered yield jumped through the roof. The most difficult situation was observed in production and mining companies’ portfolio. Falling commodity prices took its toll. Below we see their index – note that today’s levels are lower than in 2009 (2008 crisis fallout).
12. Europe’s bail-in
Nearly all EU countries introduced bail-in procedure. This procedure shifts responsibility of bad decisions of bankers to governments. Deposits below 100 thousand EUR will be secured with special insurance funds. In case of a bankruptcy those funds should guarantee withdrawal of money. Simultaneously to bail-in procedure another solution enabling draining subsidiaries by parent companies without asking governments and control agencies of respective state to attest that.
13. Buy Backs (buying your own shares) break records
Last year something unseen before has happened. Companies listed on stock exchanges were buying their own shares like crazy. Big companies spent sometimes 90% of their profit to get their shares off the stock exchange. Puzzling as their modus operandi for buy backs was to do it when bubble burst or slump is here. They signalled this way the end of ‘lows’ and to be able to offer them for higher price.
14. Possible end of bull market and beginning of slump in stock exchanges around the globe
It was easy to spot that during April last year world exchanges reported maximums. Since then we look at slow decrease manifested by ever lower local minimums and maximums. Is it really the end of boom or maybe just a correction of main increasing trend? Many mainstream prophets forecast great occasions ahead especially in America. Recent raise of interest rates made by the FED makes me doubt that.
Every turbulence in asset pricing in stock exchanges was coincided by failures of computer systems and stops in trading. In tough after-holiday period when we saw nearly 10% drop exchnages were shut down every day. Sometimes several times per day. Of course after trade resumed prices returned to their normal levels. Plunge Protection Team serves investors even when they do not see it :-)
15. China, SDR and the new Silk Road
The basket of SDR was widened by Chinese currency. It did not go smoothly of course: the IMF refused application to accept yuan, China sharply devalued their currency and started selling bonds made in the USA kept in reserves for moments like this. Shortly after we saw four mysterious explosions in Chinese harbours and factories and explosion at American weapon storage in Japan. Temperature went down and yuan was finally accepted (not at the expense of USD).
16. Immigrant, bombings and Middle Eastern problem
Geopolitics arena was rich in events during 2015. Wave of immigrants served by éminences grises still bothers our continent. Even recent statements from Polish PM mean that immigration problem will not avoid Poland. France and Germany already felt the pain after collision of two totally different civilisations clashed. This is only beginning of a bigger migraine.
Charlie Hebdo terrorist attack and few more, more severe in Paris; Turkey attacks and other countries of Mediterranean Basin, also shooting down Russian plane – everything was hinting on back room brawl with no rules. For example last attack in Paris let president Hollande rise in polls that were very unfavourable to him before. France now introduced its own Patriot Act limiting civil liberties, all with society’s nod. It will take us some time before we get to the bottom of who is attacking who and why but I know with certainty that this is not the end of the back room brawl.
Superpowers confrontation is clearly visible in the Middle East. Right now nearly everyone who matters has its military there. In Syria – the epicentre of fights – we can see the US, Russia, China and other European countries or neighbours. Shooting down Russian plane by Turkey did not start an open war between engaged world powers but conflict will escalate further in 2016. Apart from the Middle East we saw quarrels in South China Sea over islands. It looks like a next stage in Washington-Beijing conflict which comes on the horizon right now.
This was 2015. Now time to work on 2016 forecast.
Independent Trader Team