Demand Slides For 2Y Treasuries As Yield Surges To Highest Since Sept 2008

The last time the yield on a 2-Year TSY auction was as high as it was today – 1.922% to be specific, tailing the When Issued 1.899% by 0.3bps – was just a few days after Lehman Brothers failed, with one difference: back then it was sliding, while now the rate on 2Y paper is surging, up from just 1.21% at the start of the year, and up from 1.765% just last month thanks to the latest Fed rate hike.

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

BIS Issues An Alert: Tightening “Paradoxically” Leading To Excessive Risk Taking; Reminds What Happened Last Time

Valuations in asset markets are ‘frothy’ and investors are basking in the ‘light and warmth’ of the ‘Goldilocks economy’, believing that nothing can upset a future of ‘sustained growth and low interest rates’. We observe a heavy dose sarcasm from the media briefing coinciding with the Bank for International Settlements’ (BIS) latest quarterly review. Specifically, we wonder why is it always the BIS which warns its central bank members and investors about the risk of an approaching financial crisis…and why do most of them never listen. We’re not sure, but here we go again, with the BIS warning that conditions are similar to those before the crisis.
As The Guardian reports:
Investors are ignoring warning signs that financial markets could be overheating and consumer debts are rising to unsustainable levels, the global body for central banks has warned in its quarterly financial health check. The Bank for International Settlements (BIS) said the situation in the global economy was similar to the pre-2008 crash era when investors, seeking high returns, borrowed heavily to invest in risky assets, despite moves by central banks to tighten access to credit. The BIS was one of the few organisations to warn during 2006 and 2007 about the unstable levels of bank lending on risky assets such as the US subprime mortgages that eventually led to the Lehman Brothers crash and the financial crisis.

This post was published at Zero Hedge on Dec 4, 2017.

European Banks – The Next Crisis – The Unseen Cause in Plain View

The clouds have not lifted from the heart of the financial center within the European Union on the continent. The origin of the next crisis is unseen yet in plain view if you care to look. Ten years since the financial crisis of 2007-2009, the core fundamental problems in the banking sector have not yet been resolved and still fester beneath the surface. Indeed, following the collapse of the investment bank Lehman Brothers, a financial tidal wave swept the world. The collapse of the mortgage backed securities market in the States, set off a contagion where the crisis spread at a rapid pace around the world. European banks tried to compete with New York adopting similar carefree lending. In the end, the Draconian measures from Brussels and constantly adding regulation to all levels of business mixed with tax increases, prevented the economy itself from truly recovering only further preventing a bank recovery.
***
The Federal Reserve had pumped in $250 billion into its big banks and Hank Paulson, I believe, allowed Lehman and Bear Sterns to collapse to reduce competition for Goldman Sachs eliminating two of the five investment banks. The entire affair was set in motion by the Clinton repeal of Glass-Stegall at the recommendation of the father of negative interest rates, Larry Summers.

This post was published at Armstrong Economics on Aug 22, 2017.

The Most Important Chart For Stocks

We have previously shown the chart below on countless occasions, so we are content to see that increasingly more banks are showcasing it as the biggest potential threat to the future of the market’s artificial levitation. Here is BofA’s Martin Mauro explaining why “investors may be well served by locking in some profits in US stocks.”
Central banks turning off the liquidity spigot: Among the most striking market developments in recent years has been the coordinated efforts by the world’s central banks to supply liquidity by purchasing financial assets. Investment Strategist Michael Hartnett points out that since the collapse of Lehman Brothers in 2008, central banks have bought $10.8 trillion in assets, and that liquidity has propelled financial markets all over the world.
That phase, as Citi’s Matt King warned two months ago, is ending.

This post was published at Zero Hedge on Aug 8, 2017.

Scaramucci: First Fired by Goldman Sachs, Now the White House

Were it not for the profanity-laced tirade that Donald Trump’s briefly tenured Director of Communications offered up to a New Yorker reporter, it might be considered a badge of honor to get fired from both the great vampire squid, Goldman Sachs, and by the President whose administration is firmly ensnared in Goldman Sachs’ tentacles.
Wall Street veteran and hedge fund titan, Anthony Scaramucci, who was fired yesterday after a 10-day stint as Director of Communications for Trump’s White House, told reporter Courtney Comstock in 2010 at Business Insider that he had been ‘fired from Goldman a year and five months’ into his tenure there as an investment banker. Scaramucci was rehired by Goldman a few months later, but in a sales position.
Scaramucci’s ties to Wall Street are extensive, including a stint as Managing Director at Lehman Brothers, the iconic investment bank which filed bankruptcy in September 2008 during the height of the financial crisis.
Scaramucci founded SkyBridge Capital in 2005 and in 2010 it purchased a hedge fund of funds from Citigroup, the behemoth Wall Street bank that received the largest bailout in U. S. history during the financial crisis.

This post was published at Wall Street On Parade on August 1, 2017.

The G20 Beyond the Public Agenda

Since its beginning in 1999, the G20 had been a mere finance ministers’ meeting. But when the Panic of 2008 hit, President George W. Bush and President Nicolas Sarkozy of France were instrumental in changing the G20 to the leaders’ meeting it is today.
The Panic of 2008 was one of the greatest financial catastrophes in history. In the aftermath of the Lehman Brothers collapse in September 2008, attention turned to a previously scheduled G20 meeting of finance ministers in November.
At the time, the G7 was the leading forum for economic coordination, but China was not in the G7 and its help would be needed to bail out the global economy.
Once China was included, the door was open to other large emerging markets economies, such as India and Brazil. The guest list was expanded and the G20 leaders’ summit was born.

This post was published at Wall Street Examiner on July 8, 2017.

Lighten Up to Tighten Up

One way or another, I’m gonna find you
I’m gonna get ya, get ya, get ya, get ya
– Blondie
Perhaps the presidency has been an overly solemn office since, oh, the days of Millard Fillmore, the dreary weight of all that mortal responsibility – slavery, war, more war, depression, yet more war, nukes, we shall overcome, terror, Lehman Brothers, Ferguson, Russia here, there, and everywhere…uccchhh….
And so, at last: a little comic relief. I mean, imagine Grover Cleveland putting the choke-slam on Thomas Nast. Dwight Eisenhower punching out Edward R. Morrow. Jack Kennedy applying the Macumba Death Grip to Walter Lippman. Nahhhh. But Donald (‘The Golden Golem of Greatness’) Trump versus CNN! Now that’s a matchup worthy of the WWF Hall of Fame. I just kind of wish the big fella had gone all the way and put in Anderson Cooper’s mug instead of the CNN logo box. Make it truly up front and personal since, let’s face it, Andy has been the most visible conduit of Jeff Zucker’s animadversions.
At least The New York Times seemed to take the prank in stride, calling it, ‘an unorthodox way for a sitting president to express himself.’ Well, yes! Nicely put. They didn’t call for the Commander-in-Chief to be stripped down to his silk small-clothes and be run through a gantlet of aggrieved trannies. Well, I dunno, maybe that’s next….

This post was published at Wall Street Examiner on July 3, 2017.

The Next Financial Crisis Has Already Arrived In Europe, And People Are Starting To Freak Out

Did you know that the sixth largest bank in Spain failed in spectacular fashion just a few days ago? Many are comparing the sudden implosion of Banco Popular to the collapse of Lehman Brothers in 2008, and EU regulators hastily arranged a sale of the failed bank to Santander in order to avoid a full scale financial panic. Sadly, most Americans have no idea that a new financial crisis is starting to play out over in Europe, because most Americans only care about what is going on in America. But we should be paying attention, because the EU is the second largest economy on the entire planet, and the euro is the second most used currency on the entire planet. The U. S. financial system is already teetering on the brink of disaster, and this new financial crisis in Europe could turn out to be enough to push us over the edge.
If EU regulators had not arranged a ‘forced sale’ of Banco Popular to Santander, we would probably be witnessing panic on a scale that we haven’t seen since 2008 in Europe right about now. The following comes from the Telegraph…
Spanish banking giant Santander has stepped in to the rescue ailing rival Banco Popular by taking over the failing lender for 1 in a watershed deal masterminded by EU regulators to avoid a damaging collapse.
Santander will tap its shareholders for 7bn in a rights issue to raise the capital needed to shore-up Popular’s finances in a dramatic private sector rescue of Spain’s sixth-largest lender.
It will inflict losses of approximately 3.3bn on bond investors and shareholders but crucially will avoid a taxpayer bailout.

This post was published at The Economic Collapse Blog on June 12th, 2017.

LTCM Is Back: One Hedge Fund Uses 25x Leverage To Beat The Market

Before we start, a little history lesson…
At the beginning of 1998, Long-Term Capital Managementhad equity of $4.72 billion and had borrowed over $124.5 billion with assets of around $129 billion, for a debt-to-equity ratio of over 25 to 1.
It was run by finance veterans, PhDs, professors, and two Nobel Prize winners. Everyone on Wall Street wanted a piece of their profits.
But by 1998, that firm was primed to expose America’s largest banks to more than $1 trillion in default risks. The demise of the firm, LTCM, was swift and sudden. In less than one year, LTCM had lost $4.4 billion of its $4.7 billion in capital.
The disaster had all the players – the Federal Reserve, which finally stepped in and organized a bailout, and all the major banks that did the heavy lifting: Bear Stearns, Salomon Smith Barney, Bankers Trust, J. P. Morgan, Lehman Brothers, Chase Manhattan, Merrill Lynch, Morgan Stanley, and Goldman Sachs.
In desperate need of a $4 billion bailout, the crumbling firm was at the mercy of the banks it had once snubbed and manipulated.

This post was published at Zero Hedge on Jun 11, 2017.

Mnuchin Says Trump Administration Never Intended to Restore Glass-Steagall Act

At a time of growing loss of confidence in the credibility of President Donald Trump, his Treasury Secretary, Steven Mnuchin, declared today that the Trump administration never had any intention of restoring the Glass-Steagall Act and separating the taxpayer-backstopped insured commercial banks from the high risk Wall Street investment banks.
Under intense questioning from Senator Elizabeth Warren at a Senate Banking hearing today, Mnuchin effectively said that his idea of supporting a 21st Century Glass-Steagall Act meant doing the opposite of what Glass-Steagall did: he would leave the commercial banks and investment banks under the same roof.
The Glass-Steagall legislation enacted in 1933 did only two key things: it enacted Federal insurance on bank deposits to restore confidence in the country’s deposit-taking banks at a time of unprecedented defaults tied to Wall Street gambles and it barred those insured commercial banks from combining with Wall Street investment banks going forward. That legislation protected the U. S. banking system for 66 years until its repeal in 1999. Nine years later, Wall Street crashed again in epic fashion, blowing up large insured banks like Citigroup, Wachovia and Washington Mutual, along with century old investment banks like Lehman Brothers.

This post was published at Wall Street On Parade on May 18, 2017.

Bull Market, Dude

This one will be familiar to old The Daily Dirtnap subscribers.
Around the summer of 2006, when I was at Lehman Brothers, I started bellyaching in my notes to clients about how the market went up every day. I am a pretty creative guy, so every day I had very colorful (and irreverent) things to say about how stocks went relentlessly higher and how my life sucked.
This went on for a couple of months.
Then, one day I sent out a whining email about stocks and I got back a three-word reply from a hedge fund trader:
‘Bull market, dude.’
In almost 20 years in the investment business, I think those are the most profound words I have ever heard. There is a lot of wisdom in ‘bull market, dude’:
Stop fighting it. It will turn when it turns, not before. In bull markets, you can only be long or flat, not short. Everyone is making money except for you. Stop being a putz. Etc.

This post was published at Mauldin Economics on MAY 11, 2017.

Axiom: “Red Flags” Suggest China Credit Event Is “Closer Than It Appears”

Submitted by Gordon Johnson of Axiom Capital
While we, as well as the few bearish peers we have, have warned of a pending ‘credit event’ in China for some time now – admittedly incorrectly (China has proved much more resilient than expected) – the more recent red flags are among the most profound we’ve seen in years – in short, we agree with fresh observations made by some of the world’s most famous iron ore bears. Thus, while it is nearly impossible to pinpoint exactly when the credit bubble will definitively pop in China, a number of recent events, in our view, suggest the threat level is currently at red/severe.
WHERE IS CHINA AT TODAY VS. WHERE THE US WAS AT AHEAD OF THE SUBPRIME CRISIS? At the peak of the US subprime bubble (before the failure of Bear Stearns in Mar. ’08, and subsequently Lehman Brothers in Sep. ’08, troubles in the US credit system emerged as early as Feb. ’07), the asset/liability mismatch was 2% when compared to the total banking system. However, in China, currently, there is a massive duration mismatch in wealth management products (‘WMPs’). And, at $4tn in total WMPs outstanding, the asset/liability mismatch in China is now above 10% – China’s entire banking system is ~$34tn, which is a scary scenario. In our view, this is a very important dynamic to track given it foretells where a country is at in the credit cycle.

This post was published at Zero Hedge on May 4, 2017.

Fannie and Freddie, Back in the Black

Fannie Mae and Freddie Mac were among the biggest disasters of the financial crisis. In September 2008, nine days before Lehman Brothers failed, the federal government took over the mortgage companies; it eventually spent more than $187 billion bailing them out. For decades, the companies had provided an implicit government backstop to the U.S. mortgage market, buying loans from private lenders and guaranteeing payments to investors. That helped spur a steady rise in home ownership – until the subprime crisis hit and Fannie and Freddie were on the hook for billions in losses.
Lawmakers vowed to overhaul the companies and some planned to wind them down completely. But more than eight years later, Fannie and Freddie still operate under government control – and they’re now a bigger part of the system, guaranteeing payment on just under half of all U.S. mortgages, up from 38 percent before the crisis.
There is one key difference: Any profits the companies generate go to the government instead of investors. The latest payment, a combined $9.9 billion to the U.S. Treasury at the end of March, pushed the total amount of cash Fannie and Freddie have paid to taxpayers to $266 billion, making their bailout one of the most profitable in history.
There’s now a pitched battle over who should get those profits. The companies’ pre-crisis common and preferred stocks still trade over-the-counter, and investors who snapped up the shares, such as hedge fund managers Bill Ackman and John Paulson, say Treasury is breaking the law by taking the money. The fight goes back to a change the Barack Obama administration made to the bailout terms in 2012.

This post was published at bloomberg

Sharpest Plunge in U.S Credit Since Financial Crisis Could Spell Disaster — Ambrose Evans Pritchard

Credit strategists are increasingly disturbed by a sudden and rare contraction of US bank lending, fearing a synchronised slowdown in the U.S. and China this year that could catch euphoric markets badly off guard.
One key measure of U.S. corporate borrowing is falling at the fastest rate since the onset of the Lehman Brothers crisis. Money supply growth in the US has also slowed markedly. These monetary and credit signals tend to be leading indicators for the real economy.
Data from the U.S. Federal Reserve shows that the $2 trillion market for commercial and industrial loans peaked in December. The sector has weakened abruptly as lenders tighten credit, especially for non-residential property. Over the last three months it has dropped at a rate of 5.4pc on annual basis, a pace of decline not seen since December 2008.
The deterioration in the broader $9 trillion market for loans and leases has been less dramatic but it too is shrinking, falling at a 1.6pc rate on a three-month basis. ‘Corporate lending has ground to a halt and I am staggered that the Fed is raising rates. They have made a very big mistake,’ said Patrick Perret-Green from AdMacro.
Credit experts at several big U.S. banks have issued warnings over recent days, albeit sotto voce. “We’ve been surprised how little attention the slowdown in US bank lending has garnered,” said Matt King, global credit strategist at Citigroup.

This post was published at The Telegraph

Just a quick reminder: the Federal Reserve is almost insolvent.

September 10, 2008 was one of the last ‘normal’ days in the world of banking and finance.
That afternoon, the US Federal Reserve published its routine, weekly balance sheet report, indicating that the central bank had total assets worth around $925 billion.
Just a few days later, Lehman Brothers filed for bankruptcy, kicking off the most severe economic crisis since the Great Depression.
And almost immediately the Fed launched a series of unprecedented measures in a desperate attempt to contain the damage.
They called it ‘Quantitative Easing’, which was a fancy way of saying the Federal Reserve was printing money and giving it to the banks and US government.
When the commercial banks needed to sell their non-performing toxic assets, the Fed printed money to buy that garbage.
When the US government needed to borrow trillions of dollars to bail out failing companies, the Fed printed money and loaned it to Uncle Sam.
By January 2015, the size of the Fed’s balance sheet had more than quadrupled to $4.5 trillion.

This post was published at Sovereign Man on March 24, 2017.

“Germany’s Dumbest Bank” Makes $5.4 Billion Transfer In Error

Back in the summer of 2015, Deutsche Bank mistakenly paid $6 billion to a hedge fund client by mistake in a ‘fat finger’ trade on its foreign exchange desk. The embarrassed bank recovered the money from the US hedge fund the next day, and quickly accused junior member of the bank’s forex sales team of being responsible for the transfer in June while his boss was on holiday. AS the FT then reported, instead of processing a net value, the person processed a gross figure. That meant the trade had ‘too many zeroes’, said one of the people.
Fast forward two years later when the German banks have done it again.
As Bloomberg reports, state-owned KfW, which gained notoriety for erroneously transferring hundreds of millions of euros to Lehman Brothers on the day the U. S. firm filed for bankruptcy, appears to have done it again when in February it mistakenly transferred more than 5 billion euros ($5.4 billion) to four banks “because of a technical glitch that repeated single payments multiple times.”
KfW said it discovered the glitch and received the money back without suffering a loss. It was not clear as of this writing if like Deutsche Bank, KfW wold also blame a “junior trader” for the glitch.

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

What Went Wrong in Wall Street Reform: Obama Versus FDR

Following the Wall Street crash of 1929, thousands of banks failed in the United States. More than 3,000 banks went under in 1931 followed by more than 1400 the following year. There was no Federal insurance on bank deposits in those days so both depositors and shareholders were wiped out or received pennies on the dollar when the banks went bust. This deepened the panic and deepened the Great Depression.
Many of the bank failures stemmed from the banks using depositors’ money to speculate in the stock market, sometimes to manipulate the price of their own stock.
Franklin Delano Roosevelt was sworn in as President of the United States on March 4, 1933. Two days later he declared a national banking holiday, meaning that he closed all the banks and sent in the examiners to determine which ones were sound and which ones were insolvent. The banking holiday lasted to March 13. Just three months later, on June 16, 1933, FDR and Congress enacted the Glass-Steagall Act also known as the Banking Act of 1933.
The Glass-Steagall Act created Federal deposit insurance at commercial banks while simultaneously restricting their ability to act as Wall Street casinos and speculate in stocks or risky debt securities. The legislation required that commercial banks had to be separate from investment banks and brokerage firms.
That legislation protected America’s banking system from the hubris of Wall Street traders for the next 66 years until its repeal on November 12, 1999 during the Clinton administration.
It took just 9 years after the lifting of the Glass-Steagall Act for Wall Street to once again crash in epic fashion. But this time, instead of having thousands of insolvent small and medium size banks going belly up around the country, we had behemoth banks like Citigroup, Wachovia, Washington Mutual, Lehman Brothers and Merrill Lynch either going belly up or being propped up through secret funding from the Federal Reserve.

This post was published at Wall Street On Parade on March 15, 2017.

World’s Biggest Banks Fined $321 Billion Since Financial Crisis

Banks globally have paid $321 billion in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing, according to data from Boston Consulting Group.
That tally is set to increase in the coming years as European and Asian regulators catch up with their more aggressive U.S. peers, who have levied the majority of charges to date, BCG said in its seventh annual study of the industry published Thursday. Banks paid $42 billion in fines in 2016 alone, a 68 percent rise on the previous year, the data showed.
“As conduct-based regulations evolve, fines and penalties, along with related legal and litigation expenses, will remain a cost of doing business,” analysts led by Gerold Grasshoff wrote. “Managing those costs will continue to be a major task for banks.”
The era of ever-increasing regulatory requirements is here to stay, BCG said, despite President Donald Trump’s pledge to roll back the 2010 Dodd-Frank Act that reshaped U.S. banking in the aftermath of the collapse of Lehman Brothers Holdings Inc. The number of rule changes that banks must track on a daily basis has tripled since 2011, to an average of 200 revisions a day, according to the report.
“Regulation must be considered a permanent rise in sea level — not just a flowing tide that will ebb or even a cresting tsunami that will recede,” the authors wrote. “We expect this theme to hold despite recent political developments in the U.S.”

This post was published at bloomberg