Yellen: Fed balance sheet to take years to shrink

Federal Reserve Chair Janet Yellen says "it could take until the end of the decade" to shrink the Fed's record investment portfolio to more normal levels.
The Fed's response to the 2008 financial crisis has swollen its balance sheet to more than $4.4 trillion from less than $1 trillion roughly six years ago. Fed officials responded to the downturn in the economy with three rounds of bond purchases to try to hold down long-term borrowing rates to spur spending.
The Fed plans to end its latest round of buying Treasurys and mortgage bonds after its next meeting in October. It would then look to reduce its balance sheet once it begins raising a key short-term rate from its record low near zero.

This post was published at Yahoo

Companies’ Stock Buybacks at Biggest Pace Since 2007; Companies Rewarding Investors?

In yet another sign of market over-exuberance, the Wall Street Journal reports Share Repurchases Are at Fastest Clip Since Financial Crisis.
Corporations bought back $338.3 billion of stock in the first half of the year, the most for any six-month period since 2007, according to research firm Birinyi Associates. Through August, 740 firms have authorized repurchase programs, the most since 2008.
The growth in buybacks comes as overall stock-market volume has slumped, helping magnify the impact of repurchases. In mid-August, about 25% of nonelectronic trades executed at Goldman Sachs Group Inc., excluding the small, automated, rapid-fire trades that have come to dominate the market, involved companies buying back shares. That is more than twice the long-run trend, according to a person familiar with the matter…

This post was published at Global Economic Analysis on September 17, 2014.

China Launches CNY500 Billion In “Stealth QE”

It has been a while since the PBOC engaged in some “targeted” QE. So clearly following the biggest drop in the Shanghai Composite in 6 months after some abysmal Chinese economic and flow data in the past several days, it’s time for some more. From Bloomberg:
CHINA’S PBOC STARTS 500B YUAN SLF TODAY, SINA. COM SAYS PBOC PROVIDES 500B YUAN LIQUIDITY TO CHINA’S TOP 5 BANKS: SINA Confused what the SLF is? Here is a reminder, from our February coverage of this “stealth QE” instrument.
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The topic of China’s inevitable financial crisis, and the open question of how it will subsequently bail out its banks is quite pertinent in a world in which Moral Hazard is the only play left. Conveniently, in his latest letter to clients, 13D’s Kiril Sokoloff has this to say:
Will the PBOC’s Short-term Lending Facility (SLF) evolve into China’s version of QE?While investor attention has been fixated on China’s deteriorating PMI reports and fears of a widening credit crisis, China’s central bank is operating behind the scenes to prevent a wide-scale financial panic. On Monday, January 20th, 2014, when the Shanghai Composite Index (SHCOMP, CNY 2,033) fell below 2,000 on its way to a six-month low and interest rates jumped, the central bank intervened by adding over 255 billion yuan ($42 billion) to the financial system. In addition to a regular 75 billion yuan of 7-day reverse repos, the central bank provided supplemental liquidity amounting to 180 billion yuan of 21-day reverse repos, which was seen as an obvious attempt to alleviate liquidity shortages during the Chinese New Year. However, it is worth noting that this was the PBOC’s first use of 21-day contracts since 2005, according to Bloomberg. Small and medium-sized banks were major beneficiaries of this SLF, as the PBOC allowed such institutions in ten provinces to tap its SLF for the first time on a trial basis. A 120 billion yuan quota has been set aside for the trial SLF, according to two local traders.

This post was published at Zero Hedge on 09/16/2014.

NYT: Subprime Loans Rear Their Ugly Heads Again

Remember the subprime mortgage loans that helped spark the 2008-09 financial crisis?
They may be gone for a while, but other areas of the subprime lending market, particularly auto loans, have begun to look worrisome, The New York Times reports.
Deep subprime auto loans, those made to people with credit scores below 550, soared 13 percent in the second quarter from the year-earlier period, according to Experian.
"We're five years into the new cycle, so you've got to imagine that there are excesses cropping up," William Ryan of Portales Partners research firm told the paper.

This post was published at Money News

China Industrial Growth Slows, Power Generation Negative 1st Time in 4 Years; Stimulate Now, Crash Later

Cries for more stimulus ring loudly in China because Chinese industrial output slowed to 6.9%. That is a number that any country in the world would be more than pleased with, but China’s target is 7.5%.
Why 7.5%? In fact, why should there be any targets at all? The economy is not a car that can be steered by bureaucrats to perfection.
Nonetheless, Calls Grow for More Stimulus, as China August Factory Growth Slows to Near Six-Year Low.
China’s factory output grew at the weakest pace in nearly six years in August while growth in other key sectors also cooled, raising fears the world’s second-largest economy may be at risk of a sharp slowdown unless Beijing takes fresh stimulus measures.
Industrial output rose 6.9 percent in August from a year earlier – the lowest since 2008 when the economy was buffeted by the global financial crisis – compared with expectations for 8.8 percent and slowing sharply from 9.0 percent in July.
“The August data may point to a hard landing. The extent of the growth slowdown in the third quarter won’t be small,” said Xu Gao, chief economist at Everbright Securities in Beijing.

This post was published at Global Economic Analysis on Saturday, September 13, 2014.

Meet The Bubblebusters: Federal Reserve Launches A Committee To “Avoid Asset Bubbles”

Just when we thought that the Fed is pulling an Obama and has “no strategy” to deal with what not some fringe blog but Deutsche Bank itself proclaimed was the bubble to end, or rather extend, all bubbles, when it said that “the bubble probably needs to continue in order to sustain the current global financial system”they surprise us once again when they report that, drumroll, the Fed has formed a committee led by the former head of the Bank of Israel – best known for using de novo created fiat money to buy AAPL stock as part of “prudent monetary policy” – Vice Chairman Stanley Fischer, to monitor financial stability, which according to Bloomberg is “reinforcing the Fed’s efforts to avoid the emergence of asset-price bubbles.”
Because contrary to what even five-year-olds know by now, the Fed is supposedly not promoting theemergence of bubbles but is actually “avoiding” them. No, really.

From Bloomberg on the Fed’s committee for the prevention of asset bubbles:
Joining Fischer on the Committee on Financial Stability are Governors Daniel Tarullo and Lael Brainard, according to the central bank’s latest Board Committee list. Fed officials want to ensure that six years of near-zero interest rates don’t lead to a repeat of the excessive risk-taking that fanned the U. S. housing boom and subsequent financial crisis.

This post was published at Zero Hedge on 09/13/2014.

End Of Empire – The ‘De-Dollarization’ Chart That China And Russia Are Banking On

History did not end with the Cold War and, as Mark Twain put it, whilst history doesn’t repeat it often rhymes. As Alexander, Rome and Britain fell from their positions of absolute global dominance, so too has the US begun to slip. America’s global economic dominance has been declining since 1998, well before the Global Financial Crisis. A large part of this decline has actually had little to do with the actions of the US but rather with the unraveling of a century’s long economic anomaly. China has begun to return to the position in the global economy it occupied for millenia before the industrial revolution. Just as the dollar emerged to global reserve currency status as its economic might grew, so the chart below suggests the increasing push for de-dollarization across the ‘rest of the isolated world’ may be a smart bet…

This post was published at Zero Hedge on 09/12/2014.

Read this and find out if you’ll be eligible for Scottish passport in 10 days

Santiago, Chile
Anyone who’s ever seen the movie Braveheart has heard of William Wallace, one of the original heroes of Scottish independence.
Though Mel Gibson’s highly fictionalized account was one of the most historically inaccurate movies in modern cinema, Wallace did, in fact, lead Scottish rebels against English invaders. And he died for his cause.
Wallace was severely tortured after being convicted of high treason against King Edward I; he was dragged by horses, hung nearly to the point of death, revived, relieved of his manhood, ritualistically disemboweled, made to watch his entrails set ablaze… then finally beheaded.
Not the way you want to go.
That said, the movement for Scottish independence lived on, and England folded in 1357, ending a 60-year war between the two nations.
For the next 350 years Scotland remained an independent state until… go figure… a financial crisis.
In a desperate attempt to become (almost overnight) a major world trading power in the 17th century, the government of Scotland backed a comically ill-fated attempt to colonize Panama.
It failed miserably. Yet the investment in the Darien Scheme (as it was known) amounted to up to half of Scotland’s total money supply.
When it went bust, Scotland was nearly broke.

This post was published at Sovereign Man on September 9, 2014.

Big Banks Manipulated $21 Trillion Dollar Market for Credit Default Swaps (and Every Other Market)

Derivatives Are Manipulated Runaway derivatives – especially credit default swaps (CDS) – were one of the main causes of the 2008 financial crisis. Congress never fixed the problem, and actually made it worse.
The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market.
Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed (see below) … through gamed self-reporting.
Reuters noted last week:
A Manhattan federal judge said on Thursday that investors may pursue a lawsuit accusing 12 major banks of violating antitrust law by fixing prices and restraining competition in the roughly $21 trillion market for credit default swaps.
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‘The complaint provides a chronology of behavior that would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence,’ [Judge] Cote said.
The defendants include Bank of America Corp, Barclays Plc, BNP Paribas SA, Citigroup Inc , Credit Suisse Group AG, Deutsche Bank AG , Goldman Sachs Group Inc, HSBC Holdings Plc , JPMorgan Chase & Co, Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG.
Other defendants are the International Swaps and Derivatives Association and Markit Ltd, which provides credit derivative pricing services.
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U. S. and European regulators have probed potential anticompetitive activity in CDS. In July 2013, the European Commission accused many of the defendants of colluding to block new CDS exchanges from entering the market.
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‘The financial crisis hardly explains the alleged secret meetings and coordinated actions,’ the judge wrote. ‘Nor does it explain why ISDA and Markit simultaneously reversed course.’

This post was published at Washingtons Blog on September 9, 2014.

To Avert Sudden Market Collapse, the Fed Tries to Spook Utterly Unspookable Markets

There have been prior indications – though Wall Street brushed them off. During Fed Chair Janet Yellen’s testimony to the Senate Banking Committee in mid-July and in the Fed’s Monetary Policy Report, some of the most glaring bubbles that the Fed has so strenuously inflated since the Financial Crisis suddenly appeared on the Fed’s official worry radar.
Yellen lamented ‘valuation metrics’ of stocks that appeared ‘substantially stretched.’ She pointed at biotech and social media. PE ratios were ‘high relative to historical norms.’ She even acknowledged the greatest credit bubble in history by fretting about the ”the reach for yield’ behavior by some investors’ and how ‘risk spreads for corporate bonds have narrowed and yields have reached all-time lows.’ And she bared the disconnect between the markets and the Fed: increases in the federal funds rate ‘likely would occur sooner and be more rapid than currently envisioned.’
Other Fed heads have chimed in with warnings of their own, telling the markets that rates could rise sooner and more rapidly than the markets were pricing in. But it all fell on deaf ears. Stocks have risen since, including the very sectors that Yellen tried to prick, and yields have dropped.

This post was published at Wolf Street on September 9, 2014.

Contagion – What the Next Wall Street Crisis Will Look Like

Last week the Fed announced a plan for the next financial crisis that feels to some observers like a plan to burn down the trading houses on Wall Street – or, alternately, guarantee another massive taxpayer bailout of the biggest banks.
The Federal Reserve Board and its regional banks are overflowing with economists. What the Fed does not seem to have is an honest, informed voice to consult about how trading markets think in a severe financial crisis.
Last Tuesday, the Federal Reserve Board along with other bank regulators announced a new liquidity rule for the largest Wall Street banks – the ones that required the massive bailout in the 2008 to 2010 financial crisis. The goal of the new rule, according to the Fed, would be to force the biggest, most complex banks to hold enough ‘high quality liquid assets’ (HQLA) so that they could be easily liquidated if there was a run on the bank, eliminating the need for another taxpayer bailout. So far, so good.
Then the Fed and its fellow regulators did something that raises serious doubts about their market sophistication. They announced that in addition to U. S. Treasury securities, where a flight to safety always flows in a crisis, the big banks could also hold corporate bonds and corporate common stocks in the Russell 1000 index among their newly defined ‘high quality liquid assets’ earmarked for an emergency.
Just six weeks before the Fed anointed non-exchange traded corporate bonds as liquid assets, all the way down to investment grade, the Financial Times ran this opening paragraph in an article by Tracy Alloway:
‘The ease with which investors can trade corporate debt has declined sharply in the five years since the financial crisis according to research that is likely to feed fears over the prospect of an intensified sell-off in the $9.9 trillion US market.’

This post was published at Wall Street On Parade By Pam Martens and Russ Marte.

RED ALERT: The Velocity Of The Monetary Base Collapsed 75%, Europe Is Slipping Back Into A Recession

During the first and second quarters of 2014, the velocity of the monetary base was at 4.4, its slowest pace on record. This means that every dollar in the monetary base was spent only 4.4 times in the economy during the past year, down from 17.2 just prior to the recession. This implies that the unprecedented monetary base increase driven by the Fed’s large money injections through its large-scale asset purchase programs has failed to cause at least a one-for-one proportional increase in nominal GDP. Thus, it is precisely the sharp decline in velocity that has offset the sharp increase in money supply, leading to the almost no change in nominal GDP.
The hoarding of money, then, is attributed to two factors:
A (gloomy) economy after the financial crisis.
The dramatic decrease in interest rates that has forced investors to readjust their portfolios toward liquid money and away from interest-bearing assets such as government bonds
Why you should worry about Europe
It’s not ‘Credit Crisis 2′ but Europe is in rough economic waters again.
Even anemic growth has evaporated and the eurozone risks slipping back into recession. The euro has fallen 5% against the dollarover the past three months.
Here’s The Global Economic Chart Of The Summer

This post was published at Investment WatchBlog on September 7th, 2014.

Ken Rogoff Warns Of The Exaggerated Death Of Inflation

Authored by Kenneth Rogoff, originally posted at The Guardian,
Is the era of high inflation gone forever? In a world of slow growth, high debt, and tremendous distributional pressures, whether inflation is dead or merely dormant is an important question. Yes, massive institutional improvements concerning central banks have created formidable barriers to high inflation. But a significant part of a central bank’s credibility ultimately derives from the broader macroeconomic environment in which it operates.
In the first half of the 1990s, annual inflation averaged 40% in Africa, 230% in Latin America, and 360% in the transition economies of eastern Europe. And, in the early 1980s, advanced-economy inflation averaged nearly 10%. Today, high inflation seems so remote that many analysts treat it as little more than a theoretical curiosity.
They are wrong to do so. No matter how much central banks may wish to present the level of inflation as a mere technocratic decision, it is ultimately a social choice. And some of the very pressures that helped to contain inflation for the past two decades have been retreating.
In the years preceding the financial crisis, increasing globalisation and technological advances made it much easier for central banks to deliver both solid growth and low inflation. This was not the case in the 1970s, when stagnating productivity and rising commodity prices turned central bankers into scapegoats, not heroes.
True, back then, monetary authorities were working with old-fashioned Keynesian macroeconomic models, which encouraged the delusion that monetary policy could indefinitely boost the economy with low inflation and low interest rates. Central bankers today are no longer so naive, and the public is better informed. But a country’s long-term inflation rate is still the outcome of political choices not technocratic decisions. As the choices become more difficult, the risk to price stability grows.

This post was published at Zero Hedge on 09/07/2014.

New bill: Congress engineering yet another financial crisis

September 5, 2014 Santiago, Chile
Say hello to the next financial crisis, brought to you courtesy of the dumbest new bill of the week: H. R. 5148: Access to Affordable Mortgages Act.
Ordinarily whenever an individual wants to borrow money for a mortgage, the bank conducts due diligence… both on the borrower as well as the property.
It’s in the banks’ interest (as well as the banks’ depositors) to ensure that the property is at least worth as much as the amount being borrowed. Duh.
Congress doesn’t agree. Apparently when banks conduct property appraisals, that seems to unfairly discriminate against some segment of the population trying to buy crap properties.

This post was published at Sovereign Man on September 5, 2014.

Gold Daily and Silver Weekly Charts – No My Jobs, Man

“I don’t know if the people on Wall Street are not really getting out and seeing what’s really going on.
When you go to small towns, like I do, and talk to people – people don’t have much confidence in the numbers you hear.”
Ronnie Squires, Winner of CNBC’s Guess the Jobs Number Contest
The Non-Farm Payrolls number sucked out loud with a fairly stupendous miss. If you back out the imaginary jobs from the Birth Death report, the economy added about 40,000 real jobs, of a generally low quality. Chief Strategists and economists took delight in the tenth of a percent decrease in unemployment, a generally misleading statistic. And of course, stocks rallied. Given the need for the central banks to keep printing money, and the ECB’s endorsement of that approach, the hit on the metals this week makes quite a bit of sense from a perception management standpoint of the porcine persuasion. Here is my most probable forecast for the future. Be sure to make a note of it. The next time there is a financial crisis, which is likely to be in the not too distant future, almost to a person the economists and talking heads of the status quo will express shock and bewilderment saying, ‘who could have seen this coming?’ Unless of course there is some foreign scapegoat who can be conveniently blamed for the collapse of a house of cards. And then, from their Olympian heights of privilege, the overpaid pundits will quickly fall back into their most comfortable, ideologically blind slogans. There is too much government, or there is not enough stimulus or the unfortunate many are just lazy and stupid. And meanwhile, given the lack of reform of the financial and political system, the average American family, which they will all claim to uphold and revere, is being led down a blind alley of officially tolerated corruption, and strangled.

This post was published at Jesses Crossroads Cafe on Sept 5, 2014.

Jim Rickards: 3 ‘Snowflakes’ that Could Trigger Financial Collapse

As you probably recall, Mr. Rickards anticipates a financial crisis worse than 2008. The possible catalysts are many, but the outcome is certain. The analogy he makes in his book The Death of Money is to an avalanche: “The climbers and skiers at risk can never know when an avalanche will start or which snowflake will cause it.”

This post was published at Daily Reckoning

The Federal Reserve Explained in 7 Minutes

Is the Federal Reserve a government institution? How and when was this central bank of the United States formed? Why are US citizens forced to divulge all their financial information under penalty of law, yet that of the Federal Reserve remains veiled? The following short video sheds light on this otherwise dark banking enigma.

For more information on this shady outfit, read this brief article on exactly how the Federal Reserve System works. And see a simple, illustrated example of the subtle fleecing of the US currency system since the Fed’s inception.

Money, Power & Wall Street

Here is the PBS Frontline series on the issues behind the current global financial crisis.

Money, Power and Wall Street

Watch full-length episodes of PBS documentary series FRONTLINE for free. Money, Power and Wall Street – In a special investigation, FRONTLINE goes inside the struggles to rescue and repair a shattered economy