Clive Corcoran

Financial World: Atlantic Widens While Pacific Narrows

One suspects that, just as in the case of Japan in the 90's following the massive bubble collapse in the Nikkei and real estate, some of the US banks have really horrendous balance sheets and the Administration is reluctant to have to finally come clean on the matter which is what would be implied in a break up and sale to third parties.

Interestingly it is the European Union's new financial regulation powers which is forcing the pace in the UK, although it is fair to say that Chancellor Darling is becoming increasingly exasperated by the fact that the UK basket case banks are not lending and hoarding cash to try to repair their balance sheets.

The gamble that the US is taking is that they may have underestimated the time required to repair the financial damage done over the last few years from bankers lending against collateral that is now seriously impaired. That in essence appears to have been the Japanese error and, as you suggest, it may turn out to be the American miscalculation as well.

The Prudent Banker-Self Regulation Myth Lives On

jack

I agree that not all banks are imprudent but the so called "light touch" regulations - effectively on both sides of the Atlantic - allowed monster banks to emerge with inadequate risk controls. As of today the UK are beginning the break up of two such monsters - Royal Bank of Scotland and Lloyds/HBOS. It would be good if this was the start of a trend.

Unresolved Financial Troubles: Three More Warning Shots

The implication that I see from all three themes is that the Fed is walking a very tight rope on the US dollar/zero interest rate dilemma and it is very delicately balanced.... too delicately in my opinion.

S&P Case-Shiller Rolling Over?

Between free tents and 20% up on my house over the next two years I know who would get my vote.

'Dollar Up Stocks Down' Will Likely Change Soon

For a calm and considered investment manager which you seem to be Roger, the question of whether we go up or down 100 points in the near term may be academic. For lots of highly leveraged hedge funds (and they do still exist) the question of whether the indices go up or down by that much AND whether the carry trades that they're also in go up and down on a pro rata basis can mean the difference between big bonuses or looking for another gig.

It is the stirrings of the old shadow banking system playing with a newly invigorated carry trade - now using the dollar as well as the yen as the funding currency - that is likely to lead to a continuing strong correlation between global equity performance and the appetite for emerging market assets, Australian dollars and certain commodities.

Erratic Behavior by Fed and Treasury Helped Exacerbate Financial Crisis

I would just like to take issue with this comment cited from Larry White.

"If it is known that nobody is “too big to fail”, or too well connected to fail, then lenders will not let financial firms leverage up cheaply in the belief that they will be protected."

That statement sounds very reminiscent of the doctrine that the free market is capable of regulating itself because the self-preservation interests of the relevant lender's shareholders will encourage prudent behavior. This is more or less the same doctrine which Alan Greenspan admitted not so long ago, in testimony to Congress, was his big misconception.

Problem is that the interests of the managers/traders/guns for hire at the big lenders are not aligned with those of the shareholders. Much of the decision making of the business lenders/financial firms is conducted by those who can have moved on to pastures new (including yachts on the Caribbean/Mediterranean) by the time that their imprudent lending judgments become evident

Upside GDP Surprise: Misleading

Judging by Friday's behavior a lot of market players, with the benefit of a few hours to digest the numbers, agreed with the title of the article.
The fact that government statistics are losing their ability to be "misleading" may be one of the biggest headaches facing Washington

Saudis Drop WTI Oil Contract - But Why?

The NYMEX have also announced that they will begin trading futures against this new ASCI immediately. So there will be no opportunity to evade the CFTC's regulations at least for the contracts traded in New York. However with a universal benchmark index which can presumably trade in Dubai, Singapore etc - this move does allow for jurisdictional arbitrage and ways to avoid oversight.

Bear Market Rallies and Lessons of History

Dave W

"The dot Com boom was the consequence of a technological revolution."

There are always good reasons to be cited both at the time, and in hindsight for the bubbles - the immediate precipitating factors are not really the issue - it is the bubble like mania which then flourishes as a result of whatever "cause" historians ultimately want to base their story on.

The 2006/7 bubble was not precipitated by "sub-prime" - rather by many years of building overly complex financial instruments that was ready and able to take all of the sub-prime borrowers and stick them in the financial sausage machine.

Bear Market Rallies and Lessons of History

Thank you for this very well researched and presented piece.

As suggested each of the thee periods cited for the big moves of your first graph had different economic/financial circumstances, different demographics and different policy responses.
What makes all three similar is that they depict the way that human beings are prone to blowing up unsustainable bubbles and then having to deal with the nasty consequences which inevitably follow.

The bubbles shown are the three biggest - as we know there have been several smaller ones along the way as well.
The current conventional wisdom is that we are a lot smarter today, in terms of our knowledge of financial economics than we were in the 30's or the Japan of the 90's but if one buys into that premise we then have to ask - how did we manage to create the two mega bubbles of 2000 and 2006/7 in such close juxtaposition?

This is the added dimension that makes the current situation most unlike the previous two - we had a rolling bubble which first broke in 2000 was never fully resolved which lead to an even more stupendous bubble of 2006/7 and which the current cheerleaders claim has been virtually done and dusted within a year.

We have either become so much smarter in dealing with such crises ,or so much fatigued by them that, like the frogs who fail to realize that the water is boiling because they were being systematically and incrementally roasted, we simply cannot appreciate the enormity of our current predicaments.

More Weakness, More Volatility

The fact that volatility clusters the way it does is another indictment of the idea that asset returns follow a random walk

The Hindenburg Omen

This is the first time I have encountered this formation and it is intriguing.
Sounds as if the market has to become more internally conflicted than it is yet for all conditions to be met - but the dissonance is clearly increasing as the market goes through its bouts of seeing the outlook ahead as the glass that is half full/half empty - often within the space of a few minutes

Some Ironic Possibilities for the British Pound

Nathaniel

I can agree with a lot of what you say about how the UK has benefited over the last year from being allowed to "debase" its currency more than its eurozone neighbors have been able to. My point is that, if the financing of the public debt -which is going to be problematic to put it politely - runs into serious resistance from foreigners - esp Chinese - because of concerns that sterling is not as "safe" as the euro (and don't forget there has been some discussion about a possible downgrade to the AAA status on the UK government debt) then lenders may precisely require the discipline that would be imposed on the UK by having to adopt the euro.
Complacency runs pretty high at present about the manner in which all of this debt is going to be sold. I would maintain that any disruptions in the sovereign debt market from another bout of financial instability could, especially given the US's need to fund massive deficits as well, lead to a shakeout of the more marginal national currencies - of which sterling is certainly one.

The Economy Is Bipolar: Get Used to It

Bipolar disorders are an appropriate response to being placed in a "double bind" situation, which is a fairly good characterization of the problematic nature of the US economy and its current "recovery".
It's all a matter of hurry up and wait!

Bear Market Rallies and Lessons of History

AlbertaRocks

The chart reveals the strong inverse relationship between the US Dollar and the S&P 500.
What I have been finding even more extraordinary from an inter-market perspective is to look at the positive correlation between the AUD/JPY and the Emerging Markets Index.
I intend to post something on this but the R2 value for daily changes between EEM and the AUD/JPY cross rate is approximately 0.62