• Category Archives Banking
  • $350 Trillion In Securities In Limbo: LIBOR To Be Phased Out By 2021

    Unofficially, Libor died some time in 2012 when what until then was a giant “conspiracy theory” – namely that the world’s most important reference index, setting the price for $350 trillion in loans, credit and derivative securities had been rigged for years – was confirmed. Officially, Libor died earlier today when the top U. K. regulator, the Financial Conduct Authority which regulates Libor, said the scandal-plagued index would be phased out and that work would begin for a transition to alternate, and still undetermined, benchmarks by the end of 2021.
    As Andrew Bailey, chief executive of the FCA, explained the decision to eliminate Libor was made as the amount of interbank lending has hugely diminished and as a result ‘we do not think markets can rely on Libor continuing to be available indefinitely.”

    This post was published at Zero Hedge on Jul 27, 2017.


  • Mark Hanson Reveals “The Next Housing Bubble”

    The striking Case-Shiller regional charts shown below, courtesy of MHanson.com, make Mark Hanson angry: “so, 2006/2007 was the largest house price bubble ever, but there is nothing to see here in 2017?” and sarcastically points out that “if this isn’t a house price bubble, I would hate to see one.”
    His bottom line:
    If 2006/07 was the peak of the largest housing bubble in history with affordability never better vis a’ vis exotic loans; easy availability of credit; unemployment in the 4%’s; the total workforce at record highs; and growing wages, then what do you call ‘now’ with house prices at or above 2006 levels; worse affordability; tighter credit; higher unemployment; a weakening total workforce; and shrinking wages? Whatever you call it, it’s a greater thing than the Bubble 1.0 peak.
    And visually:

    This post was published at Zero Hedge on Jul 27, 2017.


  • Are We There Yet? Here Is Howard Marks’ “Bubble Checklist”

    As first reported yesterday, in his latest nearly-30 page memo, a distinctly less optimistic Howard Marks – hardly known for his extreme positions – “sounded the alarm” on markets by laying out a plethora of reasons why investors should be turning far more cautious on the risk, and summarizing his current view on the investing environment with the following 4 bullet points:
    The uncertainties are unusual in terms of number, scale and insolubility in areas including secular economic growth; the impact of central banks; interest rates and inflation; political dysfunction; geopolitical trouble spots; and the long-term impact of technology. In the vast majority of asset classes, prospective returns are just about the lowest they’ve ever been. Asset prices are high across the board. Almost nothing can be bought below its intrinsic value, and there are few bargains. In general the best we can do is look for things that are less over-priced than others. Pro-risk behavior is commonplace, as the majority of investors embrace increased risk as the route to the returns they want or need. Among the items on Marks’ of the items, the one we focused on yesterday, had to do with Marks recurring warnings on ETFs and passive investing. To be sure, he also covered pretty much everything else from equities, to the record low VIX, to FAANG stocks, to record tight credit spreads, to EM debt, to PE and even Bitcoin.

    This post was published at Zero Hedge on Jul 27, 2017.


  • Asian Metals Market Update: July-27-2017

    Factors which can affect markets
    Short covering and renewed building of long positions will be there in gold and silver if they continue to rise today and tomorrow. If gold rises after the US July nonfarm payrolls (on 4th August) then I expect it to rise to $1508.10 before the end of this quarter. Short term gold and silver are bullish. Medium term to long term will trend after the US NFP will be the key.
    Expectation that the pace of interest rate hikes will be slower than markets discounted resulted in a crash of US dollar and zoom of gold. Copper had already risen before the FOMC so the impact was not felt. Next in line is next week’s US July nonfarm payrolls. Interest rate chapter of the Federal Reserve is closed for now. Technically a higher close today and tomorrow in gold, silver, copper and crude oil can result in another five percent gains by next week.

    This post was published at GoldSeek on 27 July 2017.


  • 26/7/17: Credit booms, busts and the real costs of debt bubbles

    A new BIS Working Paper (No 645) titled ‘Accounting for debt service: the painful legacy of credit booms’ by Mathias Drehmann, Mikael Juselius and Anton Korinek (June 2017 provides a very detailed analysis of the impact of new borrowing by households on future debt service costs and, via the latter, on the economy at large, including the probability of future debt crises.
    According to the top level findings: ‘When taking on new debt, borrowers increase their spending power in the present but commit to a pre-specified future path of debt service, consisting of interest payments and amortizations. In the presence of long-term debt, keeping track of debt service explains why credit-related expansions are systematically followed by downturns several years later.’ In other words, quite naturally, taking on debt today triggers repayments that peak with some time in the future. The growth, peaking and subsequent decline in debt service costs (repayments) triggers a real economic response (reducing future savings, consumption, investment, etc). In other words, with a lag of a few years, current debt take up leads to real economic consequences.
    The authors proceed to describe the ‘lead-lag relationship between new borrowing and debt service’ to establish ’empirically that it provides a systematic transmission channel whereby credit expansions lead to future output losses and higher probability of financial crisis.’

    This post was published at True Economics on Wednesday, July 26, 2017.


  • First Anadarko, Now Whiting: Second Shale Company Slashes CapEx Budget

    On Monday we reported that Anadarko, which previously had been lamenting the egregious amount of liquidity in the energy sector, became the first company to slash its full year capex budget by $300 million from a previous range of $4.5-$4.7 billion. As noted in our discussion, this was a material event not only for APC but the entire sector as “the Anadarko news is clearly negative for its shale peers, most of whom are set to announce similar capex declines.”
    Moments ago, this was confirmed when Whiting Petroleum, the largest oil producer in North Dakota’s Bakken region, became the second shale driller in the current cycle to slash its full year capital spending budget by 14% to $950 million from a prior estimate of $1.1 billion. .
    Whiting CEO James J. Volker explained it as follows: ‘One of our priorities is to maintain a strong balance sheet while delivering high returns and sustainable growth to investors. We plan to reduce capital spending to $950 million while achieving 14% production growth from first quarter to fourth quarter 2017. This is a testament to the high quality of our asset base, which is also evident in the strong 23% growth in proved reserves from year-end 2016 levels. A large component of this growth was driven by the effect of enhanced completions in the Williston Basin.’
    The recent collapse in WLL’s capex as a result of the drop in oil prices is shown below, and at the current budget it appears that there will be little if any incremental capex growth from here.

    This post was published at Zero Hedge on Jul 26, 2017.


  • FOMC Preview: Just 2 Things To Watch For In Today’s Fed Statement

    Unlike the June Fed meeting, the FOMC announcement at 2pm today is expected to be an uneventful affair: as DB’s Jim Reid pointed out earlier, “given its late July and given the Fed will likely announce an end to balance sheet reinvestment in September (starting from October), this could be a relatively dull meeting.”
    Big picture: the FOMC is expected to keep interest rates unchanged at this meeting at 1.00%-1.25%, after hiking last month. According to RanSquawk, all analysts surveyed by Reuters expect the Fed to keep rates unchanged. The market agrees with them: Fed Funds currently price in a 0% chance of a rate hike today.
    And, as BofA notes, the market is clearly not expecting any Fed balance sheet reduction today either:

    This post was published at Zero Hedge on Jul 26, 2017.


  • The Fed Delays Raising Rates As It Waits Patiently For The Economy To Collapse – Episode 1342a

    The following video was published by X22Report on Jul 26, 2017
    DR Horton posts slowest growth, this has to do with the housing market losing steam, not because of lumber prices or the weather. The Fed is holding steady on interest rates, they say they are going to unwind their balance sheet. They are waiting patiently for the economy to come crashing down, if rate increase didn’t trigger it, they will raise rates one more time. The USD is crashing as the Fed raise rates the dollar collapses further.


  • Beware The Ides Of October…

    – Mark Twain (maybe)
    We have been speaking a lot about how the liquidity in the market today is different than in the past. The chart below reflects this better than anything we have seen.

    The monetary base in the U. S. has exceeded M1, the most narrow definiton of money, since the financial crisis. The monetary base consists of money in circulation and reserves held at the Fed (see definition below).
    The M1 money multiplier is still less than one, which reflects that for every dollar created by the Fed – an increase in the monetary base – results in a less than one dollar increase in the money supply (M1). Credit and deposit creation of commercial banks is thus still impaired, though improving and its repairment may be one reason why the Fed is a bit nervous and in tightening mode.
    A rapid turnaround and improvement in the money multiplier, which may be also be reflected in improving bank net interest margins and growing balance sheets, could act as an early indicator of potential inflationary pressures and a flag that the massive amount of high powered money in the financial system is being converted to credit based money.

    This post was published at Zero Hedge on Jul 26, 2017.


  • Markets On Hold Ahead Of FOMC Meeting Conclusion This P.M.

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    (Kitco News) – World stock markets were mostly firmer in subdued trading overnight, as the marketplace awaits today’s FOMC meeting conclusion. U. S. stock indexes are slightly higher just ahead of the New York day session.
    Gold prices are moderately lower today on more profit-taking from the shorter-term futures traders, after recent price gains.
    Traders and investors are awaiting the conclusion of the Federal Reserve’s Open Market Committee meeting (FOMC) that began Tuesday morning and ends early this afternoon with a statement. No changes in U. S. monetary policy are expected. However, the Fed could indicate the timing of reducing its big balance sheet of U. S. securities. The tone of the FOMC statement will also be important for markets. Just recently Federal Reserve Chair Janet Yellen has sounded a more dovish tone on U. S. monetary policy.
    In overnight news, the U. K.’s second-quarter GDP came in at up 0.3% on the quarter and up 1.7%, year-on-year. Those numbers were right in line with market expectations.

    This post was published at Wall Street Examiner on July 26, 2017.


  • The Two Charts That Dictate the Future of the Economy

    If you study these charts closely, you can only conclude that the US economy is doomed to secular stagnation and never-ending recession.
    The stock market, bond yields and statistical measures of the economy can be gamed, manipulated and massaged by authorities, but the real economy cannot. This is espcially true for the core drivers of the economy, real (adjusted for inflation) household income and real disposable household income, i.e. the real income remaining after debt service (interest and principal), rent, healthcare co-payments and insurance and other essential living expenses.
    If you want to predict the future of the U. S. economy, look at real household income. If real income is stagnant or declining, households cannot afford to take on more debt or pay for additional consumption.
    The Masters of the Economy have replaced the income lost to inflation and economic stagnation with debt for the past 17 years. They’ve managed to do so by lowering interest rates (and thus lowering interest payments), enabling households to borrow more (and thus buy more) with the same monthly debt payments.
    But this financial shuck and jive eventually runs out of rope: eventually, the rising cost of living soaks up so much of the household income that the household can not legitimately afford additional debt, even at near-zero interest rates.
    For this reason, real household income will dictate the future of the economy. If household incomes continue stagnating or declining, widespread advances in prosperity are impossible.

    This post was published at Charles Hugh Smith on Tuesday, July 25, 2017.


  • Michael Kors Buys Jimmy Choo For $1.2 Billion

    Michael Kors announced it has agreed to acquire iconic shoemaker Jimmy Choo for 896 million ($1.17 billion), as the US company seeks to offset slower growth in its core handbag business. As part of the recommended all cash acquisition the entire issued and to be issued ordinary share capital of Jimmy Choo will be acquired by JAG Acquisitions (Michael Kors Bidco), a wholly-owned subsidiary of Michael Kors.
    Each scheme shareholder will receive 230p in cash for each Jimmy Choo share, valuing Jimmy Choo’s existing issued and to be issued ordinary share capital at just under $1.2 billion. The offer price of 230p is final and will not be increased, except that Michael Kors Bidco reserves the right to increase the amount of offer price if there is an announcement on or after date of this announcement of an offer or possible offer for Jimmy Choo by a third party offeror or potential offeror.
    In a statement, Michael Kors described itself as ‘the ideal partner for Jimmy Choo,’ saying it would ‘support the growth of Jimmy Choo through retail store openings and further development of its online presence as well as through an expanded assortment of additional fashion product offerings.’

    This post was published at Zero Hedge on Jul 25, 2017.


  • Asian Metals Market Update: July-25-2017

    Factors which can affect markets
    Gold and silver need to break and trade over $1262 and $16.64 for another wave of rise. Sell off will be there if gold does not break $1262 and silver does not break $16.64. Trend after the FOMC statement will be the key. Cautious optimism for gold and silver despite the bullish technical. Crude oil seems to have formed a short term floor around $44 while copper seems to be in the race to outperform silver and zinc.
    Any reduction in Trump related risk is the only key factor that can cause precious metals to move into a short term bearish phase. I still expect an October interest rate hike by the Federal Reserve. Whereas markets are factoring in a December interest rate hike. One needs to watch for Trump related news as US economy is on a strong footing. Mild slowdown in US economy (if any) will be cyclical due to advent of American summer driving season.

    This post was published at GoldSeek on 25 July 2017.


  • S&P Futures Bounce As VIX Hammered, Europe “Euphoric”

    After sliding to 3 month lows on “car cartel” concerns yesterday, European stocks have rebounded after three days of declines, while oil extended gains after Saudi export cuts, with Brent rising above $49 and WTI just shy of $47. Asian stocks fell while S&P futures rose 0.2% to 2,473, putting yesterday’s GOOGL drop on plunging Costs-Per-Click in the rearview mirror.
    Helping today’s episode of global, pervasive complacency is the VIX which was hammered early by 3% in early Tuesday trading, down to 9.17. As previewed on Monday, the dollar rebounded after dropping to its lowest since August as investors await Wednesday’s U. S. interest rate decision; the greenback strength sent Gold lower for the first time in four days.
    US TSYs sell-off in relatively heavy volume after a large futures block trade in London hours and Bunds decline as strong German IFO data weighs. The dollar rallied from overnight low against G-10 and UST move helps USD/JPY trade through yesterday’s high.

    This post was published at Zero Hedge on Jul 25, 2017.


  • World Stock Markets Mixed, Quiet; FOMC Meeting In Spotlight

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    Global equity markets were steady to narrowly mixed in quieter overnight dealings. U. S. stock indexes are pointed toward firmer openings when the New York day session begins. The U. S. indexes are at or near record highs with no early chart clues to suggest they are topping out.
    Gold prices are moderately lower in pre-U. S. session trading, on some normal profit taking from recent gains that saw prices hit a four-week high on Monday.
    Focus of the world marketplace is on the Federal Reserve’s Open Market Committee meeting (FOMC) that begins Tuesday morning and ends early Wednesday afternoon with a statement. No changes in U. S. monetary policy are expected. However, the Fed could indicate the timing of reducing its big balance sheet of U. S. securities. The tone of the FOMC statement will also be important for markets. Just recently Federal Reserve Chair Janet Yellen has sounded a more dovish tone on U. S. monetary policy.
    In overnight news, the closely watched German Ifo business sentiment index rose to a record 116.0 in July, from 115.2 in June. A July reading of 114.9 was forecast.

    This post was published at Wall Street Examiner on July 25, 2017.


  • Lagarde Hints At IMF Being Based In China In Future

    In a comment sure to stir up questions over dollar hegemony (and new world order conspiracy thoughts), IMF Managing Director Christine Lagarde admitted during an event today in Washington that The International Monetary Fund could be based in Beijing in a decade.
    As Reuters reports, Lagarde said that such a move was “a possibility” because the Fund will need to increase the representation of major emerging markets as their economies grow larger and more influential.
    “Which might very well mean, that if we have this conversation in 10 years’ time…we might not be sitting in Washington, D. C. We’ll do it in our Beijing head office,” Lagarde said. Lagarde’s comments build on questions raised in May on The IMF’s push for World Money… Yi Gang, the Deputy Governor of the People’s Bank of China disclosed to the IMF panel that,
    ‘China has started reporting our foreign official reserves, balance of payment reports, and the international investment position reports.’ ‘All of these reports, now, in China are published in U. S dollars, SDR and Renminbi rates… I think that has the advantage of reducing the negative impact of negative liquidity on your assets.’

    This post was published at Zero Hedge on Jul 24, 2017.


  • Peak Shale: Anadarko Just Became The First US Oil Producer To Slash CapEx

    It appears that Horseman Global’s Russell Clark may have been spot on with his bearish take on the US shale sector.
    As a reminder, in his latest letter to investors, Clark said that “the rising decline rates of major US shale basins, and the increasing incidents of frac hits (also a cause of rising decline rates) have convinced me that US shale producers are not only losing competitiveness against other oil drillers, but they will find it hard to make money…. at some point debt investors start to worry that they will not get their capital back and cut lending to the industry. Even a small reduction in capital, would likely lead to a steep fall in US oil production. If new drilling stopped today, daily US oil production would fall by 350 thousand barrels a day over the next month.”
    What I also find extraordinary, is that it seems to me shale drilling is a very unprofitable industry, and becoming more so. And yet, many businesses in the US have expended large amounts of capital on the basis that US oil will always be cheap and plentiful. I am thinking of pipelines, refineries, LNG exporters, chemical plants to name the most obvious. Even more amazing is that other oil sources have become more cost competitive but have been starved of resources. If US oil production declines, the rest of the world will struggle to increase output. An oil squeeze looks more likely to me.
    While the bearish thesis has yet to play out, moments ago Anadarko poured cold water on US energy investors after it missed earnings badly, reporting a Q2 EPS loss of 77c, more than double the 33 cent loss expected. However, what was far more concerning to shale bulls (and perhaps oil bears), is that the company admitted that it can no longer support its capital spending budget, and it would cut its 2017 capital budget by $300 million, becoming the first major U. S. oil producer to do so, as a result of depressed oil prices. In March, Anadarko had forecast total 2017 capex of $4.5 billion to $4.7 billion, a continuation of the recent CapEx rebound which troughed in Q3 2016.

    This post was published at Zero Hedge on Jul 24, 2017.


  • Can Financials Lead With A Flattening Yield Curve?

    The financial sector has been getting a lot of attention recently with earnings announcements so we thought we’d weigh in on one aspect of financial stock relative performance that is making it difficult for financials to truly lead this market higher: the flattening yield curve.
    As most of our readers are aware, one way financials in general and banks in particular make money is by capturing the spread between short-term funding costs and long-term lending returns.
    A nice proxy for the margin that is earned is the 10-year minus 3-month US Treasury yield spread. When the spread is expanding (curve steepening) it implies bumper times for financials and vice versa when it is contracting (curve flattening). Well, after the brief steepening episode that occurred between the middle and end of 2016, the yield curve is back to the flattest it’s been all cycle, and flattening still further. That has, so far in 2017, been an impediment to financial stock relative performance and has kept the group from breaking out of its range-bound trend (chart 1).

    This post was published at Zero Hedge on Jul 24, 2017.


  • Asian Metals Market Update: July-24-2017

    News will be the key. Traders and short term investors should be very careful over the next two weeks. There is lot of economic news as well as political news which can result in prices zooming one day and nosediving the next. Day traders should also trade very carefully on days when prices range trade.
    Gold and silver will continue to rise as long as problems with Trump persist. FOMC meet along with other US economic data releases this week can result in a correction but may not move them into a short term bearish phase. I see renewed interest in traders to go for short US dollar and long bullion. Industrial metals also rose due to US dollar weakness.
    There is no FOMC meet in August. US economic data releases from next week till September’s FOMC meet will decide the number of interest rate hikes this year and in the first quarter of next year.

    This post was published at GoldSeek on 24 July 2017.


  • Last Chance for the Dollar to Rally

    I think we need to focus on what is happening to the dollar. The intermediate cycle is now 63 weeks long. Clearly that isn’t normal. I’ve maintained for several years that the end game was going to play out in the currency markets. There has to be consequences to printing trillions and trillions of currency units , and leaving interest rates at 0 for 8 years. I don’t think the consequences are going to be deflation. I think the end game will be inflation, just like it was in the 70’s, and just like it was in 2007 and 2008.
    It’s taken a while to manifest as other countries have jumped into the game and turned on their printing presses as well, so the collapse in the currency I’ve been looking for has taken quite a while to unfold. The first leg down ended in 2008.
    The dollar rally out of the 2014 3 YCL has fooled everyone into thinking the dollar is strong and the euro is going to collapse. So everyone is now on the wrong side of the market. That’s pretty much how every bear market starts with everyone on the wrong side of the boat.

    This post was published at GoldSeek on Sunday, 23 July 2017.