Monday, December 14, 2015


***Princess DD: Why China Is Looking Beyond the U.S. Dollar…..HSBC says the move to a currency basket shows Beijing wants a more flexible foreign exchange policy. LINK
Princess DD: International Monetary Fund designates China’s yuan as major world currency
Princess DD: Three things to watch this week: Fed, RBA and yuan
The US Federal Reserve’s widely expected interest rate rise will dominate global market sentiment this week, but there are a few things going on domestically and in China,
Australia’s biggest trading partner, that could also steer investor mood.   LINK
Princess DD: US interest rates will rise – and hit 3.5pc by the end of 2017
If rates do not go up on Wednesday it would amount to a massive failure of communication on the part of the Federal Reserve   LINK
Princess DD: Wall Street fears a run on junk bonds — and worse   LINK
Princess DD: Oil falls below $35 per barrel amid Fed Week jitters – business liveLINK
Princess DD: Dollar Advances as Investors Await Fed’s Interest-Rate  Link
Princess DD: Has the Fed waited too long to raise interest rates? LINK
Princess DD:  Announcement: Moody’s: Currency flexibility, policy vigilance supports credit quality of Asian sovereigns   Link  
Princess DD: US is currency manipulator’ LINK
Princess DD: Huge week for the Fed  LINK
Princess DD: China, Tajikistan launch currency swap deal  LINK
Princess DD: India seeks $50-bn currency swap deal with Japan
India’s current account deficit remains at comfortable levels despite the crisis on the export front, but given the rupee’s volatility and concerns over the composition…LINK
Princess DD: China’s ICBC Ready to Open Clearing Bank in Russia
China’s largest state-owned lender by assets, ICBC, is ready to open a clearing bank in Russia for trade settlements in yuan and rubles, ICBC Moscow President Song Yang said Monday.  Read more:  LINK
Princess DD: 3 Main Paths We See For The Euro In The Weeks Ahead  LINK
Princess DD: NZ Dollar falls near 67USc as investors weigh likely impact of Fed rate hike
Princess DD: Interest Free Banking: Russia Debates Unorthodox Orthodox Financial Alternative  LINK
Princess DD: Daily Shot: Good news from…Italy! LINK
Princess DD: Looks like Russia and Iran did a currency swap in November  Transition to National Currencies in Russia-Iran Trade Matter of 2-3 Weeks  The process of switching to national currencies in transactions between Moscow and Tehran may be completed very quickly, a senior Iranian official said.
Read more:  LINK
PrincessDD:  US, European stocks fall as ECB falls short of expectations  LINK
PrincessDD:  UPDATE China Seeks To Divorce The Dollar: What Next? 1998 Replay?
PrincessDD:  India’s Iran opportunity
Iran will emerge on to the world stage after 36 years of isolation. India must double up its diplomacy and commercial engagement with Iran, and move boldly beyond the curtain of ‘civilisational’ ties. Time to put that natural advantage to good commercial use through a vigorous private sector engagement with Tehran.
On December 15, Iran will emerge from 36 years of global isolation. The country’s leadership will have assured the world that its nuclear centrifuges are dismantled, and the process of lifting the three-decade old UN, EU and the U.S. sanctions will begin immediately.  LINK
PrincessDD:  SWIFT already active in 8 Iran banks   LINK
IQD NOVA:  Wow Princess!!!! Don’t know if I am going to be able to read everything!!!
Put Your Seatbelt’s On People. ITS GOING TO BE A CRAZY WEEK!!!
PrincessDD:  Isnt it just? Wow. My head is spinning!  I think Tuesday and Wednesday will be very interesting for sure.
Rejoice:  Another High Yield Domino Falls As $900 Million Lucidus Capital Liquidates
Submitted by Tyler Durden on 12/14/2015 08:04 -0500
Last week, the world began to wake up to the fact that all of the “Chicken Littles” screaming that the sky is falling in high yield were right.
There was Third Avenue which announced it would gate investors in a $788 million mutual fund on the way to liquidating over the next several months (as though liquidity is set to return any day now in HY) and then in short order, the “venerable” Stone Lion Capital (founded by none other than Alan Jay Mintz and Gregory Augustine Hanley, both veterans of Bear Stearns distressed debt and HY trading desk) suspended redemptions after receiving “substantial requests.”
Yes, “substantial requests” or, in more colloquial terms, “rats from a sinking HY ship” and as we noted just moments after we confirmed the Third Avenue gate news, “investors inall other junk bond-focused hedge funds, dreading that they too will be gated, will rush to pull what funds they can and submit redemption requests, in the process potentially unleashing a liquidity – and liquidation – scramble within the hedge fund community, which will first impact bonds and then, if the liquidity demands continue, equities as well.”
It’s probably more appropriate to call that a foregone conclusion than “prescient.” That is, if one depositor loses access to his demand deposits and tells a friend about it, it won’t be long before the bank run is on. Same principle here.
Sure enough, just moments ago a third domino fell as Lucidus Capital Partners, a high-yield credit fund founded in 2009 by former employees of Bruce Kovner’s Caxton Associates, has liquidated its entire portfolio and plans to return its $900 million in AUM.
Unsurprisingly, the trouble at Lucidus started in October when a “significant investor” submitted a redemption notice. Following that request, Lucidus decided “to start winding down the portfolio and shedding staff,” according to a person familiar with the fund’s operations who spoke to Bloomberg. “Shrinking trading volume in credit-default swaps and indexes in the wake of the financial crisis posed a challenge to Lucidus, whose founders sought to profit from volatile credit markets when they started the company in 2009, the person said.”
“The fund has exited all investments. We would like to thank our investors and counterparties for their support over the years,” Chief Executive Officer Christon Burrows and Chief Investment Officer Geoffrey Sherry said.
The founders, Geoff Sherry and Darryl Green, were former heads of distressed debt trading at JP Morgan and Donaldson Lukfin, respectively.
Make no mistake, this will just add more fuel to the fire. As we’ve been warning for months, HY faces the dreaded “crowded theatre” scenario wherein the crowd has gotten larger and larger while the exit has become smaller and smaller.
Someone – or, more appropriately, several someones – yelled “fire” and now the rush to the exit is on. The question now is how quickly this spreads across the space and as we said last week, watch HYG and JNK closely to get a read on how quickly the panic is spreading to the more “mainstream” vehicles. 
Unfortunately for those funds who plan on liquidating over the course of the coming weeks or months, liquidity is only going to dry up from here, and that means wide bid-asks and firesale prices, triggering harrowing declines that will only serve to spread more panic,
leading to more redemption requests, and around we go. “After junk-bond prices posted their largest drop since 2011 on Friday, investors say they are bracing for another difficult week, likely featuring hectic trading and large splits between buy and sell orders,”
WSJ warned on Sunday, adding that “gaps as wide as 10% between the price bondholders are willing to accept and buyers are willing to pay are likely to be commonplace until at least the conclusion of the Federal Reserve’s two-day meeting Wednesday, hedge-fund and mutual-fund managers said.”
One hedge-fund manager who spoke to The Jounral said he tried Friday morning to sell loans issued by Clear Channel Communications, now known as IHeartMedia (one of the Third Avenue fund’s largest holdings), at 71 cents on the dollar, the price Wall Street traders quoted him. “No buyers materialized until late afternoon when he received a single bid at 64 cents on the dollar, an offer he refused,” WSJ says, rather ominously.
By the way, remember that the Street isn’t going to be willing to inventory any of this paper, especially into a falling market. So ask yourself this: who’s going to buy this stuff? And if buyers can be found, at what price?
We close with the following observation from Bloomberg’s Richard Breslow:
One of the sad side-effects, is successful strategies, with liquid investments that are built for volatile markets and have no gates, become the piggy-bank for everyone that needs cash. Investors end up liquidating the good ones and are forced to keep the bad ones.

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