Banzai7 Periodic Table of Wall St. Criminal Elements
by ilene - November 17th, 2010 3:12 am
Here’s another hilarious piece of artwork by William Banzai7. It was previously reprinted at Zero Hedge, but I somehow missed it. Click on the table to enlarge. – Ilene
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CARNAGE
by ilene - November 16th, 2010 9:51 pm
CARNAGE
Courtesy of The Pragmatic Capitalist
The QE trade is unwinding in dramatic fashion as the market slowly realizes that QE is not in any way inflationary. As I mentioned last week the smart money markets (fixed income and FX) were foreshadowing this as early as last week. The air pocket created by Ben Bernanke created an incredible trading opportunity for investors who weren’t blinded by confidence in the Federal Reserve. Just two weeks ago I said:
“Would add (to shorts) into any move over 1200. Would LOVE to see 1220″
My position is that the market is misinterpreting the economic impact of QE in the long-term. My market position has always been that we could rally to these levels and that at these levels the market has become overly optimistic. If I am wrong I will lose some money and move on. It’s part of the business.
Like clockwork the market touched 1220, bounced and sold-off. The carnage across markets is broad. The only things rallying are volatility, USD and US treasuries. In essence, the leveraged QE inflation trade is collapsing. You can thank Ben Bernanke for this. When you create distortions in the market you get volatility, uncertainty and ultimately a collapse in prices. Keeping market prices “higher than they otherwise would be” is not a recipe for economic growth.
The most worrisome development is dissension inside the EMU. Austria is now threatening to withhold their contribution to the Greek bailout unless Greece can prove that they have fulfilled their requirements for aid:
“The cost of insuring against default by Greece and the premium investors demand to hold the country’ bonds rather than lower-risk German Bunds jumped on Tuesday after Austria said Athens had not met aid commitments.
Five-year credit default swaps were 100 bps wider on the day at 950 bps, according to monitor Markit, while the 10-year yield spread between Greek and German government bonds was 15 bps wider at 923 bps.
Greece has not fulfilled commitments for its European Union-backed aid package, Austrian finance minister Josef Proell said on Tuesday, adding that Vienna had not yet submitted its contribution for December.”
That’s not the only concern in the markets. Municipal bonds in the US continue to crash as a market that was priced for perfection now begins to price in some risk. Commodity markets are…
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WHALEN: HOW TO PREPARE FOR THE NEXT BANKING CRISIS
by ilene - November 13th, 2010 10:43 pm
WHALEN: HOW TO PREPARE FOR THE NEXT BANKING CRISIS
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Courtesy of The Pragmatic Capitalist
- Many on Wall Street believe that net interest margin or NIM among U.S. banks is at record levels. They are right, but not in the way that many investors and analysts expect.
- Unfortunately, measured in dollars, gross interest revenue of the banking industry has been cut by a third over the past three years due to the Fed’s zero interest rate policy. Banks, savers are literally dying from lack of yield on assets due to QE/ZIRP.
- In the post WWII period, Fed interest rate cuts resulted in significant reduction in average mortgage borrowing costs for households — until 2008, when mortgage rates implied by the bond market fell significantly but households were not able to refinance.
- Fees charged by Fannie Mae and Freddie Mac, and a mortgage origination cartel led by the big four
banks (BAC, WFC, JPM, C), are now 4-5 points on new origination loans vs less than 1 point during housing boom. Huge subsidy for largest zombie banks effectively blocks refinancing by millions of households.- These fees, which can add up to 7 to 10% of the face value of the loan, raise mortgage rates to borrowers by hundreds of basis points. Banks and the housing GSEs, however, saw significant benefits in declines in funding costs thanks to low fed funds rates.
Opportunities:
- For banks and investors, one of the biggest opportunities for gain is to invest in the stronger regional banks that are acquiring troubled or failed institutions. Resolution results in losses, but also creates value for investors andsociety.
- Acquiring failed banks from
…
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BERNANKE CONFIRMS THAT QE2 IS NOT FOCUSED ON MAIN STREET
by ilene - November 3rd, 2010 7:41 pm
BERNANKE CONFIRMS THAT QE2 IS NOT FOCUSED ON MAIN STREET
Courtesy of The Pragmatic Capitalist
The most interesting development in today’s FOMC announcement came from the details released by the NY Fed. Specifically, they noted that they will focus on shorter duration bonds via the new QE program. The ten year yield is surging on this news to 2.62%. The five year is tanking to 1.12%. This is very odd because short rates are already very low. There’s really no need to focus on shorter bonds if the Fed is truly trying to stimulate loan growth. If the Fed is intending to reduce borrowing costs and really generate an economic impact they should be targeting long bonds – the bonds that home loans and most auto loans are based on. If the Fed were trying to target households via this program they would have targeted the 7-10′s and 10-17′s. But their focus is in the 5-6 range.
Of course, one of the unintended consequences of QE is that recent expectations of long dated maturities purchases is driving down the yield curve and negatively influencing net interest margin at banks. Unless I am missing something (which could very well be the case) it appears to me as though Mr. Bernanke is trying to keep the curve steep. In doing so, he is directly communicating to us all that he is not worried about reducing our borrowing costs, but is instead worried about keeping the bank net interest margins intact. QE2 was never intended to boost Main Street. It is entirely focused on helping the banks. Mr. Bernanke continues to believe that he can generate economic recovery if he gets the banks back to full strength.
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ELECTION RESULTS: BIG WIN FOR THE GOP, POTENTIAL BIG LOSS FOR THE ECONOMY
by ilene - November 3rd, 2010 4:31 pm
ELECTION RESULTS: BIG WIN FOR THE GOP, POTENTIAL BIG LOSS FOR THE ECONOMY
Courtesy of The Pragmatic Capitalist
The country has spoken and they are not happy with the Obama economy. And rightfully so. It has been a remarkable disappointment thus far. President Obama’s biggest mistakes were often highlighted by me in real time:
- He should have chosen to bailout Main Street over Wall Street.
- He never should have appointed Geithner or Summers. They were merely attempts to rehash the Clinton economic team and unfortunately, due to his ignorance of the economic environment, President Obama had no idea that these men played a significant role in causing the crisis.
- He absolutely never should have reappointed Ben Bernanke. Mr. Bernanke has rehashed all of Alan Greenspan’s “flawed” policies and has chosen to focus on the banking sector at every twist and turn of this crisis.
- He should have saved his health care plan for term two and focused on helping Americans get the jobs they so badly needed.
- He should have dropped the hammer on Wall Street with harsh regulation. We have become a nation by the banks and for the banks and the de-regulation of the 90′s is largely to blame. We need to end the financialization of this country and get back to 3-6-3 banking as opposed to relying on our bankers to generate economic growth while also mis-allocating resources.
- He has had every opportunity to become the champion of Main Street. Instead, he appears no different than his many predecessors who have been slaves to bank lobbyists.
This election is largely a referendum on the Obama economy. Unfortunately, I am concerned that the change is not necessarily any better. Specifically, I am most concerned about a return to the ways that got us into this mess in the first place:
- I am concerned that we are moving back towards a belief that business is efficient and rational and therefore does not need to be regulated.
- I am concerned that gridlock will lead to severe budget constraints. Like it or not, we are in a balance sheet recession. And when you’re in a balance sheet recession someone must run a surplus or economic growth will decline. That is simply an accounting identity. With the private sector paying down
…
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QEII Announced, Fed Set to Buy $600 Billion in Bonds, Reinvest $250 Billion More; Fed Micromanaged Economy to Oblivion; No Miracles Coming
by ilene - November 3rd, 2010 3:35 pm
QEII Announced, Fed Set to Buy $600 Billion in Bonds, Reinvest $250 Billion More; Fed Micromanaged Economy to Oblivion; No Miracles Coming
As expected, the Fed announced a "modest" $600 billion second round of Quantitative Easing. Estimates rated as high as $2 trillion.
Please consider the Fed’s Statement Regarding Purchases of Treasury Securities
On November 3, 2010, the Federal Open Market Committee (FOMC) decided to expand the Federal Reserve’s holdings of securities in the System Open Market Account (SOMA) to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. In particular, the FOMC directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase an additional $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.
The FOMC also directed the Desk to continue to reinvest principal payments from agency debt and agency mortgage-backed securities into longer-term Treasury securities. Based on current estimates, the Desk expects to reinvest $250 to $300 billion over the same period, though the realized amount of reinvestment will depend on the evolution of actual principal payments.
Taken together, the Desk anticipates conducting $850 to $900 billion of purchases of longer-term Treasury securities through the end of the second quarter. This would result in an average purchase pace of roughly $110 billion per month, representing about $75 billion per month associated with additional purchases and roughly $35 billion per month associated with reinvestment purchases.
QEII Duration
The Fed is going to be stuck with this garbage on its balance sheet for a long time as the following table shows.
That table explains the Fed’s exit plan: None.
The Fed will hold 29% of the garbage it buys for at least 7 years. The Fed may hold all of it to duration. Don’t worry, the Fed does not have to mark-to-market any of these holdings, regardless of what happens to interest rates.
Doubts Persist
MarketWatch reports Fed to buy $600 billion in bonds
The Federal Reserve pledged on Wednesday to start a controversial new billion bond-buying spree to rescue the economy from its current doldrums.
The Fed said it would buy up to $600 billion in long-term Treasurys until the end of June 2011, about $75 billion this month, in a strategy called quantitative
…
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The Calm Before The Storm
by ilene - November 3rd, 2010 12:51 pm
Note: Michael wrote this prior to the elections. – Ilene
The Calm Before The Storm
Courtesy of Michael Snyder at Economic Collapse
An eerie calm has descended upon world financial markets as they await perhaps the two most important financial events of the year this week. On Tuesday, investors will be eagerly awaiting the results of one of the most anticipated midterm elections in U.S. history. On Wednesday, the Federal Reserve is expected to end months of speculation by formally announcing the details of a new round of quantitative easing. If either the election or the meeting of the Federal Reserve open market committee delivers a highly unexpected result, it could have a dramatic impact on world financial markets. In fact, many are looking at this week as a potential turning point for the U.S. economy. The decisions that are made or not made this week could set us down a road from which the U.S. economy may never recover.
At this point, it looks like the Republicans will take control of the U.S. House of Representatives and will pick up a number of U.S. Senate seats as well.
There are many in the financial world who already consider Barack Obama to be the most "anti-business" president in U.S. history, so a defeat for the Democrats on Tuesday would be greatly welcomed by many on Wall Street. Barack Obama’s decline in popularity since he was elected has been absolutely stunning. According to Gallup, Barack Obama had an average approval rating of just 44.7% during the seventh quarter of his presidency, which was a brand new low. In fact, Obama’s average approval rating has fallen during every single quarter since he took office. Things have gotten so bad for Obama that one new poll has found that 47% of Democrats now think that Barack Obama should be challenged for the 2012 Democratic presidential nomination.
However, if the Democrats were able to do surprisingly well on Tuesday, it would not only shock the political pundits, but it would also likely put world financial markets in a very bad mood.
If the Republicans do very well on Tuesday, it will likely mean that there will be no more extensions for those receiving long-term unemployment…
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Firms That Fought Dodd-Frank May Profit Under Republican House – Bloomberg
by ilene - November 3rd, 2010 11:55 am
Firms That Fought Dodd-Frank May Profit Under Republican House
By Clea Benson and Phil Mattingly, Bloomberg
Republicans will try to rein in regulators implementing a sweeping overhaul of financial rules and press for a smaller federal role in the mortgage market as they return to a majority in the House of Representatives and a stronger minority in the Senate.
Taking control of the House and bolstering their position in the Senate will increase Republicans’ sway over the direction and independence of the Consumer Financial Protection Bureau and over any technical fixes Congress makes in rules governing the trading of derivatives. Networks projected that Republicans won the seats needed to claim a majority of the House.
Republicans say they will use the House Financial Services Committee to ensure that regulators such as the Commodity Futures Trading Commission and the new consumer protection bureau do not write rules that lawmakers consider too restrictive on the banking industry.
“We don’t want them to regulate capriciously, arbitrarily, without engaging in a cost-benefit analysis,” Representative Jeb Hensarling, a Texas Republican on the panel, said in an interview before the election.
A slowdown in rule making or added pressure on regulators may benefit companies such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp., which lobbied against portions of the Dodd-Frank law and predicted the measure would hurt their financial results.
President Barack Obama called attention to the Republican agenda in his weekly radio and Internet address Oct. 23, saying House and Senate members “are now beating the drum to repeal all of these reforms and consumer protections.”
More here: Firms That Fought Dodd-Frank May Profit Under Republican House – Bloomberg.
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The Tragedy of the Obama Administration
by ilene - November 3rd, 2010 11:25 am
The Tragedy of the Obama Administration
By Barry Ritholtz at The Big Picture
On election night six years ago, I wrote The Tragedy of the Bush Administration. In it, I despaired that:
“Once in a generation, the stars align for a political leader. There is this perfect moment – too often based on some enormous danger of long-lasting consequences for generations to come.
Once every half century, the perfect combination of leadership and threat, of challenge and response meet. The leader – imperfect, fallible, yet ready to rise to the occasion – grabs the brass ring.
Think Winston Churchill fighting the global threat of the Nazis, Thomas Jefferson writing the Declaration of Independence, JFK’s dare to send a man to the Moon . . .”
The rest of that piece went on to lament how George W. Bush was granted that rare opportunity to grab the brass ring, to rise to the occasion — and failed miserably.
Here we sit, not half a century later as originally surmised, but a mere six years later. I once again find myself lamenting the opportunities wasted by a US President in response to a great cataclysm. In the case of President Obama, it was his response to the financial crisis. The opportunity for greatness presented itself, and was . . . ignored.
The President was swept into office on a wave of Anti-Bush sentiment. The stock market was in freefall, credit was frozen, the recession already 13 months old. As Rahm Emanuel said, “Never waste a good crisis.” A strong leader would have taken advantage of the moment, of the opportunity.
And what an opportunity it was: Over the prior 3 decades, the economy of the United States had been “financialized.” We became much more involved in ‘financial engineering’ than any other more productive engineering. Along with this financialization came increased revenue for the biggest banks and investment houses; greater profits, influence, and power. A wave of deregulation swept over the sector, freeing the banks from meddling oversight.
Thus, as the finance sector got larger and more important, it was paradoxically under ever less scrutiny, supervision, and regulation. With that new found freedom from oversight, the banks promptly blew themselves, and the global economy, to smithereens.
This was the environment in which the President came into office. What did he do in this scenario?
• He appointed two of the architects…
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The Ultimate Insiders’ Take on QE2 and Basel 3--Treasury Encouraged to Issue Debt to Match Fed Purchases
by ilene - November 3rd, 2010 11:04 am
The Ultimate Insiders’ Take on QE2 and Basel 3--Treasury Encouraged to Issue Debt to Match Fed Purchases
Courtesy of EB
This morning, Treasury released the minutes of the Treasury Borrowing Advisory Committee (TBAC). Why these are important, I’ve written previously:
Each quarter, representatives from the banking elite primary dealers meet with top Treasury officials to advise an optimal debt issuance strategy. The Minutes of these Treasury Borrowing Advisory Committee meetings and formal Report to the Treasury are a window into their perceptions and insider knowledge, yet they seldom receive notice--even outside the mainstream financial news outlets.
The most recent minutes do not disappoint and are filled with insight on what we can expect from QE2 and the new Basel 3 bank regulations. The highlights:
- QE2 is expected to be $130 billion per month, or $1,560 over the next year
- QE2 will last at least six months and up to two years
- The total amount of QE2 will be data dependent
- Treasury is encouraged to increase coupon issuance (especially in the 30 year maturity) to address "liquidity" shortfalls as a result of Fed purchases
- The Treasury yield curve is expected to flatten in the 5-10 year sector, with the yield on the 30 increasing with inflation concerns and US Dollar debasement
- Implications for the mortage market are that mortgage spreads relative to Treasurys may initially widen, but will ultimately narrow. However, as the 30 year yield is expected to climb, so should mortgage rates (as if the housing market needed another blow)
- A comparison of the scope of QE2 to "the entire combined expected net issuance of Treasuries, Agencies, Agency MBS and Investment Grade Corporates" leads us to speculate the Fed may end up purchasing these very instruments
- The Fed’s QE2 "exit strategy" may involve simply selling its holdings in small, predictable increments (no mention of term deposits, IOER or other Fed tools)
- As a result of QE2, investors will be edged out of the 2-10 year range and into very short term (T-Bills) and long term (T-Bonds), and into riskier assets in general
- Basel 3 is being implemented at a record pace (beware of unintended consequences)
- Basel 3 will lead to increased lending costs, causing lending to move outside of the regulated banking system into the non-bank financial system
- Basel 3 will force banks to buy sovereigns
…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(