Seeking Alpha
View as an RSS Feed

Michael Parmar  

View Michael Parmar's Comments BY TICKER:

Latest  |  Highest rated
  • By 2015 Hard Commodity Prices Will Have Collapsed [View article]
    Wow - an eye opener!

    Well argued and your article has changed my view - makes a lot of sense.
    Sep 16, 2012. 05:06 AM | 18 Likes Like |Link to Comment
  • La Fed Aux Folles [View article]
    As for your "fed will make a loss" point; the MBS it could take on include some % of impaired valuations and non-performnig loans which, if the housing market picks up, could recover....

    ... any way ,the fed is on thin ice with this one and has definitely gone into the house price management business..

    if you are interested i can tell you about my views on alternative exit strategies and scenarios
    Sep 16, 2012. 04:49 AM | Likes Like |Link to Comment
  • La Fed Aux Folles [View article]
    That's the first article I've seen actually focussing on what the Fed did and questioning what it is about.

    This QE3 = open ended MBS purchase. So that means, unlike AAA treasury purchases (part of tier 1 bank assets) it is now offloading the risk weighted assets.

    QE1-2 was there to replace the cash drained from core 1 because of interbank wholesale market liquidty problems, but it didnt stop deleveraging: banks have too much crap on their balance sheets still so cant lend out: their RWA /teir1 ratios are stretched.

    So helping them offloading some of their RWAs makes space in the top to bring in some new ones.

    Now if i were a bank with a customer in the market buying 40bn MBs per month, i'd start writing more to flip to the Fed. This creates a moral hazard problem. But it also opens the possibility to lending more to something other than more mortgages.

    This one has been branded QE1 but it is, I believe, VERY different in the incentives it creates for banks.

    They may well flip their mortgages and invest in other types of RWAs... but the incentive is there.
    Sep 16, 2012. 04:46 AM | Likes Like |Link to Comment
  • 1 Small Step For Macro Policy, 1 Giant Leap For The Fed [View article]
    MBS is aimed at letting banks offload some risk weighted assets from balance sheets whereas previous QE was aimed at providing liquidity/cash in the hope that the cash would prevent a liquidity crisis in the banks (which it did at the time).

    But that hasn't stopped deleveraging and reduction in velocity of money.
    So this time they are aiming for the velocity itself.

    if banks offload their crappy MBS to the Fed it makes space on their balance sheets for more.. that is the theory
    Sep 16, 2012. 04:11 AM | Likes Like |Link to Comment
  • Exactly How Much Can We Expect From Stocks On QE3? [View article]
    I disagree, The Fed has moved the market, the smart money is already looking beyond the QE3 and asking what next?
    Sep 16, 2012. 04:05 AM | 4 Likes Like |Link to Comment
  • Exactly How Much Can We Expect From Stocks On QE3? [View article]
    Marking a bottom........??
    Sep 16, 2012. 04:03 AM | 1 Like Like |Link to Comment
  • Updating Market Expectations: Fed Raises Its GDP Forecast [View article]
    Thanks for your comments!

    The idea behind open-ended MBS is that because QE1 and QE2 focused on treasury buying which is high quality bank assets it provided liquidity in the face of deteriorating asset quality and deleveraging but as you rightly point out, it did not affect velocity.

    It prevented a multi-bank solvency crisis by un-freezing the inter-bank lending market - too many banks were depending on wholesale lending to each other for short term funding. Ultimately, the banks and individuals have been deleveraging (the credit crunch turned into a deleveraging trend)

    Lack of lending from banks is hampering credit to the real economy, particularly the housing market.

    This time, the Fed is aiming to shore up velocity directly by offering to buy MBS directly from bank balance sheets. This reduces their risk weighted assets which is the top bit of the ratio they have to maintain in their assets/cash ratios.

    By doing this, they are hoping banks will offload their existing MBS to the FED, and start lending more direct to homebuyers.

    This also creates a moral hazard problem which will be interesting to see how it gets solved, because, if I were a bank and now had a customer (the Fed) looking to buy $40bn per month of mortgages, I would look to lend more, not being too worried about the quality of who I am lending to, since the Fed has my back.

    I think this will be a significant boost to the US housing market, but for the wrong reasons.

    Inevitably, later down the road, the Fed will have to deal with the moral hazard issues it is creating.
    Sep 16, 2012. 03:54 AM | Likes Like |Link to Comment
  • There's No Longer A Bernanke Put [View article]
    Good article.
    The wealth transmission effect was outlined as a the target in the Jackson hole speech for both the stock market and housing market.

    Hence the emphasis on MBS this time. The effect of that is profound: banks will have a chance to offload their crappy MBS onto the Fed, free up their burden of their cash to risk weighted asset ratios and begin lending to households again. There is a moral hazard issue here, which will become apparent in due course.
    Sep 15, 2012. 06:18 AM | 1 Like Like |Link to Comment
  • Exactly How Much Can We Expect From Stocks On QE3? [View article]
    Good article. Indeed as you say "This leads us to the critical question. What more can we expect from the stock market from here?"

    Markets will be putting QE3 into context and look at to other indicators of economic performance and the likely effect of issues of the coming weeks
    Sep 15, 2012. 05:42 AM | 4 Likes Like |Link to Comment
  • Deconstructing Market Expectations [View article]
    I did explain in the article where expectations S&P500 comes from.

    And I used the Feed's crystal ball re GDP forecsts.
    Sep 14, 2012. 08:39 AM | Likes Like |Link to Comment
  • Deconstructing Market Expectations [View article]
    Thanks for your comment.

    To answer your questions
    "So ‘expectations’ are based on S&P Forecasts ; what forecasts ? those of Sam Stoval ?, of operating earnings, of reported earnings; top down or bottoms up earnings , over the next quarter, next year or over the next 2 years ? "

    These are my views and calculations of what/how the S&P "prices in" future information. In this case the future information was real GDP growth.

    I am not aware of anyone else that looks at current S&P pricing from a "future information" perspective and don't look at anyone elses' S&P forecasts. As i said, most forecasts are based on historical trend data which is meaningless in this context: it can be summed up in historical VAR and autoregressive modelling techniques which do 90%+ of the lifting since past information (and by assumptive extension, expectations that people held at the time) is contained in past prices.

    "You continue to say that SPY is expected to rise by 12%; so is this driven by the Fed real GDP forecast being expected to rise from let’s say 2.1 to 2.352 ? Is that what drives the 12% return expectation on the SPY ? That is ( 2.352 – 2.1 ) / 2.1 = 12%"

    What i am saying is:
    Given the most likely way (in a statistical sense) that S&P reacts to future GDP estimates AND given where the market was in 2012H1 AND assuming the Fed forecast of GDP is the only GDP view of the future AND this future comes true, THEN the S &P is likely to follow a particular path (because that is the way it has followed future GDP data in the past).

    Looking then at where the S&P was in 2011, we can calculate the % "expected" growth in the S&P since we have now estimated where the market expects the S&P to be in the future. This = 12% annual growth between end of 2011Q3 and end of 2012Q3. So far the average quarterly value of S&P has grown 11% between that time to date. After today, make that just over 12%.

    Just to clarify, these are my own estimates and methods for calculating "expectations -based" S&P returns. I don't refer to other S&P forecasts.

    As the first commenter very insightfully pointed out: past expectations formation is not necessarily an accurate guide to future expectations formation, especially in these times.

    indeed, and bearing this in mind, that is why i looked at average annual GDP growth and average annual S&P over a long period of time - to capture a sense of the "long run" trend that is LESS likely to shift much, so another assumption is that "ASSUMING markets form expectations now as they have in the past over the long run".
    Sep 13, 2012. 08:14 PM | 1 Like Like |Link to Comment
  • Deconstructing Market Expectations [View article]
    Thanks for your comment!

    I had a look at your article and it is good to see consistent evidence derived in an entirely different (market based) context.
    Sep 13, 2012. 07:43 PM | Likes Like |Link to Comment
  • Deconstructing Market Expectations [View article]
    Thanks,. thats right the market didnt buy the "giant spike in GDP just around the corner". but with central bank open ended puts (with varying degrees of conditionality) in play, the market is starting to look beyond the next tail risk event and thinking, for now, whether the economy recovers or the put is in play, same difference, someone has our back...

    ... and has started to price it in, ever since 2011q4 (ECB LTROs, central coordinated bank action, see my earlier article about adverse selection problem being averted by central bank action)

    so the two broad next questions are: will the CB puts work? and for how long? since the actions are openended the market doesnt have to speculate AS YET about withdrawal, which brings it to the next question (but is related to withdrawal) : when/by how much will we recover?

    This article is saying: when expectations change about that (assuming they are FEd ones for now) and if they change downwards by X% then what is the likely effect on the current path?
    Sep 13, 2012. 07:30 PM | Likes Like |Link to Comment
  • Deconstructing Market Expectations [View article]
    The point you make is very valid and I could have explained more carefully that not in all cases does S&P500 front run recessions.

    However, in a balance between illustrating points and caveating them, my preference in this case was for brevity. Perhaps the full point I would make is that: the market front runs based on forward looking view, which is not always right, and hence the market gets caught out sometimes.

    Your point about false starts was effectively being made by the first commenter's view about us living in a very different world with so many unknowns today so that looking backwards even to the extent that the way expectations are formed in the past, is not necessarily a guide to the way expectations are formed now or in the future and so things appear to be happening that haven't happened before or rarely happened before.

    So, I do agree a lot with what you said, and what the first commenter said on the subject of caveats.

    Thanks for the clarity
    Sep 13, 2012. 07:20 PM | Likes Like |Link to Comment
  • Deconstructing Market Expectations [View article]
    brilliant! Made me smile :) thx
    Sep 13, 2012. 06:46 PM | Likes Like |Link to Comment