Value4Risk, LLC

03/01/2020

This could be the spark that ignites WWIII in the region, given Suleimani is Iran's most important and powerful military leader, but also given Teheran’s alliance with Moscow and Beijing.

The CIA once referred to the IRGC commander as the “most powerful operative in the Middle East today.”

As leader of the Revolutionary Guards' most elite Quds force, he directed all unconventional warfare and intelligence activities abroad. For that reason Washington and Tel Aviv had long considered him threat #1 within the Iranian military command structure.

At a moment tensions are on edge after pro-Iran militia protesters attacked and set fire to the outside of the US embassy compound in Baghdad's Green Zone earlier this week, and close to 5000 US paratroopers being sent to the area.

It is to be expected that given the seniority and importance of Suleimani, Iran and its acolytes (Hezbollah, Hamas, etc) will definitely retaliate to this, which could lead to a major escalation in the region.

As a reminder, five days ago Iran’s navy was launching its first joint maneuvers with Russia and China in the northern part of the Indian Ocean.

Most likely, oil prices and gold will soon be rising.

Developing ...

An official with the Iran-backed group known as the Popular Mobilization Forces blamed the United States for the late-night attack on a plane carrying PMF leaders.

13/12/2019

After a landslide victory of PM Johnson & his Tory party, France's president, E. Macron, now pleads w/ Britain ‘not to be an unfair competitor’ after Brexit .... Really?

Clearly, EU leaders, after trying to bully the UK into submission by showing zero flexibility, are getting nervous.

The election results removes the 'uncertainty' putting behind three years of frustration (partly fed by EU's rigid negotiation position). EU leaders would have preferred Labour to win, but their bet on the status-quo was a wrong one, and now they might have to pay the price.

Alas, Brussels continues to fight windmills (like Don Quixote) as it already threatens London if the PM's trade plan diverges from the EU, rather than mirror EU rules, free trade negotiations will be harsh.... Again, bullying?

Though, the EU forgets that while it is a big market for the UK (46% of exports), the opposite is equally true for each of the individual member states.

Worth remembering: even without a UK-EU free trade deal, the WTO will regulate future . There are already trades made w/ many countries on WTO rules (f.ex. US, China, Brazil & Australia). Despite media claims, it will not be the end of the world in the sense that trade would stop and that everything would fall apart w/ a Brexit.

The French President said he hopes the 'UK remains an ally, a friend and an extremely close partner'. EU leaders have said they now want a quick divorce and to move on to talks on a free-trade accord.

13/12/2019

Why would US want to open its ?

Granted, China's vastness offers sizable profits.

BUT...
.. just like Western manufacturing rushed into China 30yrs ago, they now realize it was big mistake. Yes, big profits were cashed-in, but Western were pinned down as well, w/ all the risks it entails:

- heavy hand & arbitrary behavior of Chinese authorities (CCP)
- massive & large scale
- exposure to constant &
- unenforceability of laws & frivolity of Chinese courts
- expensive local labor, bad quality control, & unreliable production

Fortunately, Western firms now pull out of China in order to reduce their dependence, with, f.ex., garment imports falling from >90% to 69%.

So, Western financial groups should learn from their corporate cousins, and not take the bait (aside from above mentioned reasons):

- Beijings' real intention is to simply shuffle debt load around, rather than deal with it directly
- China's fast-rising bad-debt numbers vastly understate banking risks: banks in China are just one big reservoir of waiting to be purged.
- the guarantee of Chinese state to is worth nothing evidenced by recent Tewoo Group USD bond default.

President Trump has agreed to a limited trade agreement with Beijing that will roll back existing tariff rates on Chinese goods and cancel new levies set to take effect Sunday as part of a deal to boost Chinese purchases of U.S. farm goods and obtain other concessions, according to people familiar w...

13/12/2019

Good thing has a new president as she will bring some new fresh air, just like J. Yellen did at the .

C. Lagarde did her 1st press conference telling that she will be different from previous ECB Heads, which is what one would expect.

Alas, she suffers from same "three wise monkeys" syndrome as her predecessors (see no evil, hear no evil, speak no evil), as she says:

1st: " is not seeing ".

I beg to argue as truly resembles w/ its low-growth & low-inflation environment, coupled w/ loose .

2nd: "negative rates seem to work" even if she said "ECB is very aware of the side effects."

The question is "working" for whom? The ECB's imposition of negative interest rates creates absurd situation in which banks don't want to hold deposits - hurting social systems & savings rates. Also, more ECB has grave side effects for a region that has already lived w/ negative interest rates for last 5yrs.

3rd: "downside risks have become somewhat less pronounced.”

Really? Geopolitical risks are high, core of US-China trade dispute is unsolved, growth is sluggish, protectionism rises (f.ex. Brexit will take place now that Torries won elections), etc.

All this does not bode well.

New European Central Bank President Christine Lagarde on Thursday projected an optimistic tone after the central bank left interest rates unchanged.

21/11/2019

Here is something I do not grasp: why would the US approve licenses for American businesses to deal with Huawei???

After all these talks about Washington viewing Beijing as a more dangerous threat than Moscow....
... earlier this week, the Commerce Department started issuing (300x) licenses to some US firms to conduct business with Huawei.

D. Trump’s idea behind granting licenses is to produce positive "trade optimism" and save stocks from rolling over - trying to ‘compensate’ for US Congress passing a bipartisan law condemning Beijing on HKG protests.

We’re talking about the same D. Trump and his administration that spent a great deal of effort in labeling Huawei as a national security threat....

(BTW, D. Trump already behaved similarly w/ Chinese phone company ZTE back in May 2018)

That would be a sad example of a black swan (aka tail risk): small probability that the Head of the United States would allow Chinese espionage to establish Trojan horses (why else would you call Huawei technology) on US territory, but it did (almost) happen and the impact (severity) for the US would (have been) be (negatively) huge ...

Alas, extreme risks are almost always caused by human behavior, be it complacency, ego, or outright incompetence.....

A bipartisan group of 15 U.S. senators urged the Commerce Department to suspend ...

20/11/2019

At least someone assertive in the Western world....

And, as expected, Beijing (and also HKG) authorities are not pleased at Washington's interference in China’s domestic affairs by passing a bipartisan bill supporting the HKG freedom fighters.

This US vote is the most forceful diplomatic challenge to the communist dictatorial regime in Beijing, and it just happens as Washington and Beijing are trying to bridge their differences in terms of trade disputes.

The bipartisan sénatorial measure requires yearly reviews of HKG’s special status under US law to assess the extent to which Beijing chips away the city’s freedom and autonomy.

While....

- the legislation tells freedom fighters that the US Congress has their back and that the US fully supports the principles of democracy and rules of law in HKG.

- this US provision tells Xi Jinping Washington is not kidding,
.... one thing is setting a limit, the other thing is to enforce and sanction it.

Given the current context in HKG, the status would clearly be breached by China; however, again, it’s unclear what would happen next, and what are the criteria that define such a breach.

Beijing will now walk away from current trade negotiations with Washington, and stocks on Wall Street will tank.

The Senate unanimously passed legislation that would re-examine U.S. support for the Hong Kong government as clashes between police and protesters seeking to counter Beijing’s influence grow more violent.

19/11/2019

Without falling into hysteria nor McCarthyism, technology driven firms should be very careful.

Chinese theft of IP in the United States costs $225-600 billion annually as well as thousands of jobs.

Digital data proliferation together with mobile devices and "postmodernist thought" has made it so that even a low-level employee can find and steal massive quantities of IP.

Granted, technology has also made it easier to hack into corporate systems remotely and download massive quantities of data.

And, yes, diversity brings about a lot of advantages to the workplace (cf. increased creativity, increased productivity, etc.)
. BUT .. concomitantly caution is needed about the types of profiles, particularly for technology sensitive economic sectors (cf. AI, communications, robotics, nano technology, cloud services, consumer products, internet, infrastructure, etc.)

While the majority of engineers & technicians are hard working delivering significant added value to the performances of these organizations, corporates need to monitor very carefully their employees.

Corporate espionage is a formidable threat in its own right, and thus worthy of attention, particularly when it is conducted by rogue and lethal regimes, such as the one in Beijing.

DOJ Confronts Chinese Infiltration With String of Spy Arrests

19/11/2019

There are 535 Confucius Institutes globally, amongst which:

- 88 in USA (& 13 Confucius class rooms).
- 12 in Canada
- 17 in Australia & NZ (& 6 Confucius class rooms)
- 184 in Europe

These Confucius Institutes are based on college & university campus, such as Stanford, UCLA, and Columbia.

The thinking went like this: opening Confucius Institutes would expose these Chinese academics & students to ideas of democracy and traditions of intellectual freedom.

However, naïvety, greed, and complacency on the part of the leadership of Western universities allowed for China to establish Trojoan horses within these universities.

Indeed, appearances are deceiving ...

While officially established to promote Chinese culture, in reality - given the nature of the political regime in China (communist dictatorship) - these institutes are facades for:
- imposing ideological influence over teaching & research.
- promotion of pro-China policies on Tibet, HKG, Xinjiang, etc.
- stealing research by conducting industrial & military espionage.
- running surveillance of Chinese abroad.
- undermining of Taiwanese influence.

Colleges & universities should not be outsourcing academic control, faculty and student oversight or curriculum to a rogue government, such as the one in Beijing.

19/11/2019

Double talk: are we surprised regulators have double standards?

While the US SEC breaths in the neck (rightfully so) of US-listed companies to comply with reporting & financial transparency requirements (f.ex. 10-K & 10-Q), it has been giving for more than a decade a free pass to US-listed CHINESE companies allowing them to avoid complying with these US laws & regulations.

End Oct. 2019 there were 156 U.S.-listed Chinese companies with a market cap of $1.2 trillion using ADRs (American Depositary Receipt - being a negotiable security that represents securities of a (Chinese) company that trades in US financial markets).

Granted, the SEC (& PCAOB - Public Company Accounting Oversight Board)) has been reporting this problem to the Hill & White House, and it has been part of the trade dispute negotiations between Washington & Beijing.

But, why did the SEC allow this to happen in the first place? Why did it not preclude Chinese companies from listing their ADRs on US stock exchanges a decade ago?

Accountants, investment funds, and individual investors need to be reminded of financial reporting risks at Chinese companies whose books and records are out of reach of US regulators.

China is notorious in fabricating financial and economic reports.

A new bill would ensure that U.S.-listed companies comply with American financial reporting rules.

19/11/2019

Be that a warning to Taiwan.

China’s political model “One Country, Two Systems” was meant to woe the Taiwanese, the inhabitants of this island of freedom & democracy that Beijing considers as a ‘rebellious “province”

Ever since 1949 when the free forces of Chiang kai Shek fled to Formosa from mainland China as communist troops of Mao Zedong seized power, Taiwan (aka Republic of China) has been an eyesore for Beijing.

When in 1997 HKG was handed over (and Macau in 1999) to Communist China, Beijing boasted that Taiwan would be subjected to a similar transition system as the one in HKG & Macau should the island re-unite with China.

The heroic protests of the last 25 weeks led by the freedom fighters of HKG have clearly brought to broad daylight that Beijing considers the “One Country, Two Systems” framework an empty shell, and, in fact use it as a Trojan horse.

Taipei should learn from these events and not trust the communist dictatorial regime of Beijing .The day the Taiwanese decide to join the PRC, know that they will NOT be allowed to continue to live freely and democratically. They will be oppressed in the same fashion as the people of HKG, Tibet and the Muslim regions of China.

Taiwan must remain an independent and sovereign country🇼🇸🇼🇸.

“The restrictions it imposes on fundamental rights... go further than is reasonably necessary... and therefore fail to meet the proportionality test,” the court said.. Read more at straitstimes.com.

17/11/2019

A U.S. recession is unlikely, because:

1. Fed will pause after cutting rates three times here this year to 1.50-1.75%.

2. the median probability of a recession for the coming year fell to 25% from 35% last month.

3. The U.S. economy is forecast to have expanded at an annualized pace of 1.9% in the July-Sept period, slightly down from 2.0% in the second quarter. Growth is expected to hover around that rate in each quarter through to the second half of 2021, according to economists.

4. Forecasters are counting on Americans to keep spending. Household consumption grew an annualized 4.6% from April to June, the fastest pace since the final quarter of 2017. That reflects a simple reality: households are employed, and their incomes are growing.

5. The unemployment rate, at 3.5%, is the lowest since 1969. And while job creation has slowed this year to an average of 161,000 a month, from 223,000 in 2018, it’s still running above the rate of expansion in the working-age population.

6. Workers have more leverage: The number who are quitting for better-paying jobs is at near-record levels, a trend that’s helping boost wages.

I know the lazy intellectuals that populate the macro universe will say that I am sowing an over-optimistic view .... but I look at the fundamentals.

Despite the manufacturing sector's troubles and Sino-US trade tensions, the prospects of a global economic recession occurring next year are low as fundamentals drivers of growth in major economies still remain healthy, says Goldman Sachs Asset Management.

17/11/2019

Bis Repetita à la Nixon.....

I would not be surprised if President D. Trump would announce his resignation in the coming days for so-called medical reasons ....

D. Trump happened to have paid this afternoon an announced visit to Walter Reed hospital for a physical exam ... just now that....
.. a senior career official at the Office of Management and Budget, Mark Sandy, (basically a CFO kind of guy from the federal government) is going to testify about a budget process that went off the rails when nearly $400 million in US military aid to Ukraine that was withheld earlier this year.....

Indeed, Mark Sandy just spent this afternoon more than five hours on Capital Hill behind closed doors doing a deposition in the House impeachment inquiry into President D. Trump.

Is D. Trump feeling too much heat?

D. Trump faces the toughest political test of his presidency and has essentially two options:

1. Dig in and fight.
2. Walk away before he faces an almost certain impeachment in the House of Representatives.

Trump's instincts are to fight, and he's given no indication so far that he's about to back down as the Democratic leadership builds its case BUT THEN AGAIN .... this announced visit at the Walter Reed hospital ....

To be followed .....

Trump, 73, arrived at Walter Reed National Military Medical Center on Saturday afternoon for the physical exam, which had not been previously announced.

15/11/2019

Why is there no end in sight for HKG protests that erupted 23x weeks ago?

3x main reasons behind this steadfastness:

1. HKG government's non-policy becoming virtually invisible and making no attempt at all to calm the hearts & minds.

2. rogue police behavior: (i) openly applauding death or injury of young demonstrators, (ii) describing protesters as cockroaches, (iii) shooting young demonstrators up close, (iv) firing tear gas near kindergartens & retirement homes.

3. feelings of broken promises and a hopeless future. The "One Country, Two Systems" agreement is an empty shell.

Protest movements are usually about getting something new or breaking a status quo. The HKG movement is all about being able to retain what was promised B&W on its return to China in 1997 as well as fighting the dictatorial repression conducted against the free-minded spirits of HKG.

While expats & Western residents might feel temporary material nuisance, there is a much deeper impact as a result of the protests: the damage the Chinese government caused to the social cohesion of the city.

Xi Jinping & his communist red guard acolytes are afraid of freedom of expression as they know very well that in a free election the Chinese Communist Party would lose its grip on power.

Less than 50 meters from a Chinese People's Liberation Army (PLA) base, student protesters are building a fortress.

15/11/2019

Even if alert park rangers cannot plan exactly for when or where a wildfire might start, they can recognize the right mix of of ingredients which makes one more likely.

What we are now witnessing in financial markets is a bad combination consisting of global economic slowdown, risky corporate leveraged bond products (f.ex. CLOs), suspect repo collateral chains, and illiquid pricing (cf. CLOs lost 5% in Oct. 2019).

While the trouble that is brewing in the corporate finance market is not really new angst, merely the continuation of doubts that have persisted since 2018. What’s different now though is how it affects other sectors such as the repo market.

The whole point of securitization (and CLOs are one of the securitized products) was and remains one goal: turning illiquid assets into liquid securities, or in other words funding, f.ex. corporate leveraged loans, by means of repo through using CLOs as collateral.

The problem, again, with how MBS was used in the same way 10 yrs ago was uncertainty about pricing - the ugly thing that kills collateral potential in repo & repo transformation.

And, what we are seeing recently are more and more indications of risky and irregularly priced CLO’s and corporate junk more generally.

Some securities in the $680 billion market for collateralized loan obligations, or CLOs, lost about 5% in October, reflecting worries about rising risk in the complex investment vehicles.

15/11/2019

First, let's give credit where credit is due: it is China that in 2008 pulled the world out of a recession when it rolled out a ¥4 trillion financial package to stimulate the economy.

Alas, today, if the world economy would once again fall into recession, China would not be able to pull out such a white rabbit from its hat.

Why? Because the Chinese economy is not only really slowing down ( 6% GDP and unofficial. 4% ), but the growth of bad assets is also getting cumbersome.

China’s economy started slowing in 2012 below the mythical 8%, albeit the country's debt mountain became ever bigger.

Indeed, China's total debt/ GDP (incl. central & local gov, households, fin. sector, and nonfin.) went from roughly 200% in 2012 to 300% today.

What happened? Credit expansion that took place since 2012 has just been offsetting the surge in bad loans. The net effect has been zero credit transmission to the real economy constraining economic growth, which in a time of collapsing total social credit in China is not a good thing.

Officially, NPL represent approx. 5% of total lending in China, but the shadow number is more likely closer to 10%, not to mention close to 25% of total loans that are bad loans already offloaded w/ centrally controlled asset management companies (AMC).

China's economic slowdown and trade tensions between the world's top two economies have dampened German businesses' spirits. Many German firms operating in China report a "gloomy" business outlook.

23/10/2019

Supply chain risk management for banks provide a number of benefits:

(1) It identifies hidden exposures. The approach helps managers identify which nodes in the network create the greatest risk exposure—often highlighting previously hidden or overlooked areas of high risk.

(2) It avoids the need for predictions about rare events. The approach determines the optimal response to any disruption that might occur within the supply network, regardless of the cause. Rather than trying to quantify the likelihood that a low-probability, high-risk event will strike, firms can focus on identifying the most important exposures and putting in place risk-management strategies to mitigate them.

(3) It reveals supply chain dependencies and bottlenecks. Companies can also use the analyses to make inventory and sourcing decisions that increase the robustness of the network. This includes taking into account the likely scramble among rival companies to lock in alternative sources if a supplier’s disruption affects several firms.

(4) It promotes discussion and learning. In the course of analyzing the supply chain in this way, managers engage in discussions with suppliers and internal groups about acceptable levels of TTR (time to recovery) for critical facilities.

20/10/2019

Politicians during election campaigns mostly talk about the wealthy (cf. tax the rich) and the middle-class (cf. economy is not working for middle-class families), but tend to forget the poor people, namely those struggling hard to make both ends meet.

The story below is about one of those hard workers whose contribution is vital for you and me to thrive, and for rich people to become richer. It's a public secret that people working at Amazon warehouses are known to work w/ miserable salaries while doing backbreaking jobs under very stressful conditions (almost no breaks, fast pace, seemingly menial jobs, etc.).

Now, while rhetoric about middle-class & the rich makes great politics, it often results in terrible policies.

In the US alone, some 45 million Americans live in poverty (13.8% of US population), while roughly 100 million live in 'near poverty'. In other words, more than 40% of US population is in deep disarray.

(FYI: within the EU, poverty is at 9.8% of population, and 21.7% is in near poverty, or in total nearly a third of EU population is socio-economically suffering).

For our societies, this is a ticking time bomb, particularly as automation & AI kick in resulting in more people becoming socio-economically excluded. And yet, policies ignore them.

Billy Foister, 48, went into cardiac arrest while working at the Amazon warehouse in Etna, Ohio, and was said to have been lying on the ground for 20 minutes before he was seen.

20/10/2019

Turkey-backed islamic auxiliaries in N-Syria are already murdering civilian Kurds they find. Turkey hired some 18000 militia coming from the ranks of al-Qaeda and el-Nusra to conquer & ethnically cleanse, alongside Turkish troops, the area from Kurdish people.
These islamic mercenaries are aka the Syrian Democratic Forces, but there is nothing 'democratic' about them, except the name (i.e., it reminds me of the German Democratic Republic (East Germany during the Cold War) - there was also nothing democratic about them).
And, to all those who are worried that thousands of ISIS thugs may come back: ISIS is already back to N-Syria with Turkish protection.
Turkey's military aggression into N-Syria is prompting hundreds of thousands of Kurdish families to flee their homes - the latest humanitarian crisis of Syria's eight-year civil war.
All this is the result of leaders who view standoffs between the Kurds and the islamic troops of Turkey merely as plays between children.
President Trump last week pulled out US forces from N-Syria who until recently were allied with the Syrian Kurds. The exit largely abandons America's Kurdish allies, who have fought ISIS alongside US troops for several years and, before that, in Iraq against Saddam Hussein.

The Turkey-backed militia recorded a video in the border town of Ras al-Ayn in which they threatened to kill all Kurds they found in Northern Syria.

20/10/2019

As business cycles mature, interactions between banking regulations & monetary policies become controversial, with recent history illustrating that actions of one policy dents the credibility of the other. At times, synergies between both are fraught with disaster, and thus there is a need for closer coordination between monetary & macro-prudential policies, especially as financial markets become turbulent.

One of the many reasons why the 2007-08 GFC took place is because as interest rates were kept very low, three things took place concomitantly:

- banks w/ small net interest margins yearned for higher yields and engineered complex & risky structured financial products (mortgage back securities, collateralized debt obligations, etc)

- cheaper debt service incentivized borrowers to take on more debt causing huge refinancing & default risk at maturity.

- US regulators/ lawmakers pushed Fannie & Freddie to make a $200 billion of imprudent loans; the SEC altered the leverage rules for just five Wall Street banks; and federal government overrode anti-predatory state laws.

Nowadays, we are once again witnessing the same phenomena where it seems that we are the master of nothing as monetary policies are operating in silos away from regulations.

Nellie Liang discusses the dangers of having looser financial regulations at the time of monetary policy easing.

20/10/2019

I am proud to announce that I just published my third book: "Principles of Supply Chain Risk Management and Banks".
While supply chain risk management within the banking industry is mostly about external supply chains (i.e., w/ third parties), not much attention is given to internal providers and their connection w/ those third parties.
Similar to logistics firms & manufacturers, banks endeavor in delivering better and more economical products to consumer markets relying in large measure on their ability to procure services from business partners faster and at a lower cost. As efficiency and speed of supply chain networks increase, banks' business activities become an increasingly collaborative & interactive process. To respond optimally, entire supply chains must become one extended network in which every link has a major stake in the success of the originator to the benefit of the client. If banks cannot correctly perceive and satisfy customer needs, then the whole supply chain withers. Purpose of this book is to come up with sets of concepts that help map supply chain networks as a way to strengthen the resilience of a bank. Supply chain risk management assists banks to manage disruption and bounce back from adverse events.

As soon as a bank places the customer at the center of its delivery strategy, that bank has to follow the peculiar business dynamics that influence and shape the client’s business decisions. Almost any business decision has an impact on the supply chain, and in a globalized world, supply chain co....