The Paradigm Shift Has Begun - This Isn't Going To Be Pretty [View article]
Skeptical, Thanks for looking into that. Number one I suspected as much, and two I had no way of knowing how relevant to the question it may be.
Three seems to be the sticking point. It would boil down to whether they are repledging the same assets, and if so how much? Certainly chasing yields into riskier assets by all types of investors can explain much. However, the fear is that if excessive leverage is being taken on by large banks in the repo market to purchase equities, a rise in interest rates could produce a huge run as they are forced to sell.
Tack, Yes, that's why I asked him to address the Seeking Alpha article.
The Paradigm Shift Has Begun - This Isn't Going To Be Pretty [View article]
Skeptical, I suppose it may help to mention the history of this theory that big banks are using the repo market to fund stock purchases. It was first proposed by *cough* Tyler Durden of Zero Hedge fame. It later gained more traction after making it onto the Huffington Post, though apparently in poorly written form. Then we have this article: http://seekingalpha.co..., here on Seeking Alpha, that presented the theory with more evidence. I don’t know what to make of this, as the inner machinations of large banks are a bit beyond me. Joseph is a proponent of this theory, and is thus warning of the negative consequences we can expect now that the Fed appears to be slowly attempting to cool off the market. I would actually appreciate it if you looked at the above linked article and offered your take on the evidence that was presented. The 3 main points were: 1. A historically new collapse in the loan to deposit ratio of US banks. 2. Primary dealers holding historically large amounts of UST, despite the efforts of the Fed’s QE efforts. 3. A detailed look into the notes of the financial statements of Morgan and Goldman, apparently showing they have 50% and 45.3% of their assets pledged as collateral. These percentages are sharply up from 2008. I know you mentioned that doing the above is illegal in the U.S. Then again, we all thought we were immune from having our brokers re-hypothecating our assets, until MF Global proved us wrong by just doing it in the U.K.
The Paradigm Shift Has Begun - This Isn't Going To Be Pretty [View article]
The point of the article is that the bank can take that bond they've purchased, pledge it as collateral in the repo market multiple times to receive cash (thus leveraging up), purchase securities which have a greater return than the loan with the cash (carry trade), and pocket the difference as profit.
I believe that the bond never leaves their books as part of their Tier 1 capital when pledged. If so, the same bank pledging their bonds can simultaneously make reverse loans to other banks following the same carry trade.
This is the theory on how QE programs are inflating asset prices. Whether right or wrong, what is indisputable is that QE programs *do* inflate asset prices. The author is simply offering a theory as to what the exact mechanism is. Regardless of whether the theory is correct, an end to QE will drive equities down substantially, which may not be a bad thing as they're too expensive on a fundamental basis right now.
Social unrest has already begun. The more conservative fall into the Tea Party movement, while the more liberal fall into the Occupy movement, but unrest is at levels not seen since the Vietnam war, and rising.
While the major parties have more or less been successful at capturing these movements by pointing fingers at the other side, neither can really deal with the extreme anger of their own members. Turkey is showing that despite academic research, massive upheaval does not require food shortages to grow. It just requires the right spark.
Meanwhile, widespread public support for Wikileaks, Anonymous, and the NSA Leaker are showing that criminality is becoming a more socially acceptable form of protest.
Quicker FDA Reviews Can Help Slow The Decline In Cigarette Volumes [View article]
You may want to keep in mind the growth of electronic cigarettes when evaluating operating risks to tobacco.
So long as the Federal Government doesn't do something stupid, users can cut their smoking costs down by 85%, and usage by smokers is accelerating. There are also currently few barriers to entry, and a diverse group of small companies in the sector, so I don't believe there will be anyone capable of developing any pricing power.
The Paradigm Shift Has Begun - This Isn't Going To Be Pretty [View article]
Rope a Dope, your link is addressing rehypothecation of a client's assets by a broker, which is a whole different issue and was already illegal in the U.S. when MF Global went belly up. However, being illegal is irrelevent as nothing prevents domestic assets from being pledged in foreign markets (most often London), which is why no one from MF Global is getting prosecuted.
They can all become tax attorneys...until we institute a flat tax across the board...then they can start doing something productive with their lives. It's amazing how much money is expended in this country on makework that only exists due to poor legislation.
The SEC could be improved greatly by requiring them to prosecute criminal cases, and only file civil actions after they have obtained criminal convictions for a crime. Get rid of deferred prosecution agreements, and no-fault settlements entirely.
Let's face it, the fines are often jokes in comparison to the amounts gained. This is especially true in cases where the victimized shareholders pay fines to allow management to escape prosecution (HSBC anyone?).
As for patent trolls, they do need to be brought to heel, but we need reform of U.S. patent law to effect real change. For starters, expire any patent that has not been used in a product or service for five years.
The whole point of a patent is to balance the need to reward innovators against the stifling of future innovation that government enforced monopolies create. If a entity can't bring a product to market, the government should have no interest in granting a monopoly.
Housing Prices Are Being Dangerously Distorted By Big Institutional Money [View article]
The press doesn't care about new family formation, or the Fed obliterating all of the traditional methods middle class Americans accumulate wealth.
Just wait until existing homeowners start blowing through their equity on HELOCs again. Why, then the economy will really take off...for a while anyway.
I likened the crisis to the greatest transfer of wealth in U.S. history when home prices fell 30%, while mortgage debt outstanding fell about 1%. This is just the next chapter.
Mark Palmer reiterates his caution on Bank of America (BAC -2.4%) as the Article 77 hearing over its $8.5B MBS settlement gets underway. Stakes are high given BofA has reserved just $8.5B for potential payouts, but objectors - including AIG, Triaxx, and 3 FHLB banks - will point to recoveries received by MBIA and Ambac north of $0.60 on the dollar. With losses at $108B - well, you do the math. Yes, the bar for the objectors to overcome is a high one, but - thanks to a series of recent rulings - not as high as a year ago. [View news story]
Meanwhile, new clouds are gathering on the horizon. Two state AG's are threatening to sue over continuing violations of National Mortgage Settlement. http://nyti.ms/13BBh5i
From what I can recall, it took some armtwisting to get all the state AG's to sign off on it.
I don't find it likely that BAC was able to comply with all 304 new rules they agreed to as part of the settlement. The AG's probably signed off on the deal becuase they knew they'd get $25 bill now, plus a new rope to hang BAC (and others) with.
Falling Commodity Prices Could Burst The U.S. Farmland Bubble [View article]
A crash could form very quickly, as most farmers have virtually all of their net worth wrapped up in acreage, and are in debt up to their eyeballs.
If food prices fall, it will create a chain reaction. Farmers default, as they are no longer able to make loan payments, acreage gets dumped on the market, further devaluing collateral, pushing more farmers into default. Exacerbating the decline will be seed and chemical prices, which rode the spike in food prices up, but aren't likely to come back down.
It’s going to be a great time to be a farmer who owns his own land, and a horrible time to those who leveraged up over the past few years.
Quote: "Rather, the problem with bubbles is that they burst"
This isn't really true. A bubble in housing prices destroys new family formation. A bubble in commodities destroys manufacturing companies. Bubbles create massive carnage and disruptions on the way up, as well as the way down.
The Paradigm Shift Has Begun - This Isn't Going To Be Pretty [View article]
Thanks for looking into that. Number one I suspected as much, and two I had no way of knowing how relevant to the question it may be.
Three seems to be the sticking point. It would boil down to whether they are repledging the same assets, and if so how much? Certainly chasing yields into riskier assets by all types of investors can explain much. However, the fear is that if excessive leverage is being taken on by large banks in the repo market to purchase equities, a rise in interest rates could produce a huge run as they are forced to sell.
Tack,
Yes, that's why I asked him to address the Seeking Alpha article.
The Paradigm Shift Has Begun - This Isn't Going To Be Pretty [View article]
I suppose it may help to mention the history of this theory that big banks are using the repo market to fund stock purchases. It was first proposed by *cough* Tyler Durden of Zero Hedge fame. It later gained more traction after making it onto the Huffington Post, though apparently in poorly written form. Then we have this article: http://seekingalpha.co..., here on Seeking Alpha, that presented the theory with more evidence. I don’t know what to make of this, as the inner machinations of large banks are a bit beyond me.
Joseph is a proponent of this theory, and is thus warning of the negative consequences we can expect now that the Fed appears to be slowly attempting to cool off the market.
I would actually appreciate it if you looked at the above linked article and offered your take on the evidence that was presented. The 3 main points were:
1. A historically new collapse in the loan to deposit ratio of US banks.
2. Primary dealers holding historically large amounts of UST, despite the efforts of the Fed’s QE efforts.
3. A detailed look into the notes of the financial statements of Morgan and Goldman, apparently showing they have 50% and 45.3% of their assets pledged as collateral. These percentages are sharply up from 2008.
I know you mentioned that doing the above is illegal in the U.S. Then again, we all thought we were immune from having our brokers re-hypothecating our assets, until MF Global proved us wrong by just doing it in the U.K.
2 Views Of Income Equality [View article]
The Paradigm Shift Has Begun - This Isn't Going To Be Pretty [View article]
I believe that the bond never leaves their books as part of their Tier 1 capital when pledged. If so, the same bank pledging their bonds can simultaneously make reverse loans to other banks following the same carry trade.
This is the theory on how QE programs are inflating asset prices. Whether right or wrong, what is indisputable is that QE programs *do* inflate asset prices. The author is simply offering a theory as to what the exact mechanism is. Regardless of whether the theory is correct, an end to QE will drive equities down substantially, which may not be a bad thing as they're too expensive on a fundamental basis right now.
2 Views Of Income Equality [View article]
While the major parties have more or less been successful at capturing these movements by pointing fingers at the other side, neither can really deal with the extreme anger of their own members. Turkey is showing that despite academic research, massive upheaval does not require food shortages to grow. It just requires the right spark.
Meanwhile, widespread public support for Wikileaks, Anonymous, and the NSA Leaker are showing that criminality is becoming a more socially acceptable form of protest.
Quicker FDA Reviews Can Help Slow The Decline In Cigarette Volumes [View article]
So long as the Federal Government doesn't do something stupid, users can cut their smoking costs down by 85%, and usage by smokers is accelerating. There are also currently few barriers to entry, and a diverse group of small companies in the sector, so I don't believe there will be anyone capable of developing any pricing power.
The Paradigm Shift Has Begun - This Isn't Going To Be Pretty [View article]
The Paradigm Shift Has Begun - This Isn't Going To Be Pretty [View article]
Prosecute The Patent Trolls! [View article]
Prosecute The Patent Trolls! [View article]
Let's face it, the fines are often jokes in comparison to the amounts gained. This is especially true in cases where the victimized shareholders pay fines to allow management to escape prosecution (HSBC anyone?).
As for patent trolls, they do need to be brought to heel, but we need reform of U.S. patent law to effect real change. For starters, expire any patent that has not been used in a product or service for five years.
The whole point of a patent is to balance the need to reward innovators against the stifling of future innovation that government enforced monopolies create. If a entity can't bring a product to market, the government should have no interest in granting a monopoly.
Housing Prices Are Being Dangerously Distorted By Big Institutional Money [View article]
Just wait until existing homeowners start blowing through their equity on HELOCs again. Why, then the economy will really take off...for a while anyway.
I likened the crisis to the greatest transfer of wealth in U.S. history when home prices fell 30%, while mortgage debt outstanding fell about 1%. This is just the next chapter.
Mark Palmer reiterates his caution on Bank of America (BAC -2.4%) as the Article 77 hearing over its $8.5B MBS settlement gets underway. Stakes are high given BofA has reserved just $8.5B for potential payouts, but objectors - including AIG, Triaxx, and 3 FHLB banks - will point to recoveries received by MBIA and Ambac north of $0.60 on the dollar. With losses at $108B - well, you do the math. Yes, the bar for the objectors to overcome is a high one, but - thanks to a series of recent rulings - not as high as a year ago. [View news story]
http://nyti.ms/13BBh5i
From what I can recall, it took some armtwisting to get all the state AG's to sign off on it.
I don't find it likely that BAC was able to comply with all 304 new rules they agreed to as part of the settlement. The AG's probably signed off on the deal becuase they knew they'd get $25 bill now, plus a new rope to hang BAC (and others) with.
Falling Commodity Prices Could Burst The U.S. Farmland Bubble [View article]
If food prices fall, it will create a chain reaction. Farmers default, as they are no longer able to make loan payments, acreage gets dumped on the market, further devaluing collateral, pushing more farmers into default. Exacerbating the decline will be seed and chemical prices, which rode the spike in food prices up, but aren't likely to come back down.
It’s going to be a great time to be a farmer who owns his own land, and a horrible time to those who leveraged up over the past few years.
Don't Fear The Bubble [View article]
"Rather, the problem with bubbles is that they burst"
This isn't really true. A bubble in housing prices destroys new family formation. A bubble in commodities destroys manufacturing companies. Bubbles create massive carnage and disruptions on the way up, as well as the way down.
Why Inflation Never Came [View article]
From a Federal Reserve research paper that finds no link between deflation and depressions.