The Great Recession 10 Years Later: Lessons We Still Have To Learn

Ten years ago this month, a recession began in the U. S. that would metastasize into a full-fledged financial crisis. A decade is plenty of time to reflect on what we have learned, what we have fixed, and what remains to be done. High on the agenda should be the utter unpreparedness for what came along.
The memoirs of key decision-makers convey sincere intentions and in some cases, very adroit maneuvering. But common to them all are apologies that today strike one as rather lame.
‘I was surprised by the sudden crisis,’ wrote George W. Bush, ‘My focus had been kitchen-table economic issues like jobs and inflation. I assumed any major credit troubles would have been flagged by the regulators or rating agencies. … We were blindsided by a financial crisis that had been more than a decade in the making.’
Ben Bernanke, chairman of the Fed wrote, ‘Clearly, many of us at the Fed, including me, underestimated the extent of the housing bubble and the risks it posed.’ He cited psychological factors rather than low interest rates, a ‘tidal wave of foreign money,’ and complacency among decision-makers.

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

The Fed Plays the Economy Like an Accordion

We talk a lot about how central banks serve as the primary force driving the business cycle. When a recession hits, central banks like the Federal Reserve drive interest rates down and launch quantitative easing to stimulate the economy. Once the recovery takes hold, the Fed tightens its monetary policy, raising interest rates and ending QE. When the recovery appears to be in full swing, the central bank shrinks its balance sheet. This sparks the next recession and the cycle repeats itself.
This is a layman’s explanation of the business cycle. But how do the maneuverings of central banks actually impact the economy? How does this work?
The Yield Curve Accordion Theory is one way to visually grasp exactly what the Fed and other central banks are doing. Westminster College assistant professor of economics Hal W. Snarr explained this theory in a recent Mises Wire article.
The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.

This post was published at Schiffgold on DECEMBER 27, 2017.

2007 All Over Again, Part 7: Borrowers Start Scamming Desperate Lenders

One of the hallmarks of late-stage bubbles is a shift of power from lenders to borrowers. As asset prices soar and interest rates plunge it becomes harder to generate a decent yield on bonds and other fixed income securities, so people with money to lend (like pension funds and bond mutual funds) are forced to accept ever-less-favorable and therefore far-more-risky terms.
Recall the liar loans that were popular towards the end of the 2000s housing bubble and you get the idea. Lenders were so desperate for paper to feed the securitization machine that they literally stopped asking mortgage borrowers to prove that they could cover the interest.
Here we go again, but this time in the market for leveraged buyout loans:
Yield-Starved Investors Giving In to the Demands of Bond Sellers
(Wall Street Journal) – Demand for leveraged loans is allowing private-equity firms to water down legal safeguards for investors Hellman & Friedman LLC and other investors sought last month to borrow money in the bond market to finance a takeover.
The U. S. private-equity firm offered a yield of about 3%, but few of the protections once considered routine.
Still, the investors bought.

This post was published at DollarCollapse on DECEMBER 27, 2017.

To Avoid Liquidation Panic, HNA Assures Deutsche Shareholders It’s A “Long-Term Investor”

The notoriously acquisitive Chinese conglomerate HNA – which recently had a sharp falling out with Beijing resulting in a margin call “shocksave” – is facing a serious cash crunch in 2018 as nearly a quarter of its $100 billion in debt – a large chunk of which was accumulated during a multi-year buying spree that saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and a large portfolio of international holdings – comes due.
But even as the company resorted to loaning out shares and entering into arcane derivative financing agreements to finance its debt-service payments, it is quickly finding that traditional avenues of financing are disappearing or becoming too costly.
Despite being one of China’s largest conglomerates, HNA has been shut out of stock and bond markets as lenders worry about its outsized debt load, forcing the company to pledge some of its core holdings as collateral for short-term loans, as the Wall Street Journal reported earlier this month.
This has forced the conglomerate to explore other options. To wit, the bank recently pledged some of its Deutsche Bank shares to UBS as collateral for a loan worth roughly $117. It also executed an options strategy known as a collar. This strategy involves purchasing out-of-the-money puts to protect against a large drop in the stock while simultaneously selling out-of-the money calls to offset the cost of the puts.
On Dec. 20, HNA’s unit entered into a new series of collar transactions with Swiss bank UBS Group AG, and pledged its Deutsche Bank shares to UBS in exchange for a total of 2.36 billion euros (US$2.8 billion) in net financing. It also has a margin loan from UBS and ICBC Standard Chartered PLC. In all, the new total amount of financing was about 99 million euros (US$117.6 million) higher than what was disclosed in a similar filing in May.

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

Europe’s Runaway Train Towards Full Digitization Of Money & Labor

Authored by Peter Koenig via The Saker blog,
The other day I was in a shopping mall looking for an ATM to get some cash. There was no ATM. A week ago, there was still a branch office of a local bank – no more, gone. A Starbucks will replace the space left empty by the bank. I asked around – there will be no more cash automats in this mall – and this pattern is repeated over and over throughout Switzerland and throughout western Europe. Cash machines gradually but ever so faster disappear, not only from shopping malls, also from street corners. Will Switzerland become the first country fully running on digital money?
***
This new cashless money model is progressively but brutally introduced to the Swiss and Europeans at large – as they are not told what’s really happening behind the scene. If anything, the populace is being told that paying will become much easier. You just swipe your card – and bingo. No more signatures, no more looking for cash machines – your bank account is directly charged for whatever small or large amount you are spending. And naturally and gradually a ‘small fee’ will be introduced by the banks. And you are powerless, as a cash alternative will have been wiped out.

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

THE U.S. SHALE OIL INDUSTRY: Swindling & Stealing Energy To Stay Alive

While the U. S. Shale Energy Industry continues to borrow money to produce uneconomical oil and gas, there is another important phenomenon that is not understood by the analyst community. The critical factor overlooked by the media is the fact that the U. S. shale industry is swindling and stealing energy from other areas to stay alive. Let me explain.
First, let’s take a look at some interesting graphs done by the Bloomberg Gadfly. The first chart below shows how the U. S. shale industry continues to burn through investor cash regardless of $100 or $50 oil prices:

This post was published at SRSrocco Report on DECEMBER 26, 2017.

Stockman: US Fiscal Path Will Rattle the Rafters of the Casino

As we’ve reported, the US government is spending money like a drunken sailor. But nobody really seems to care.
Since Nov. 8, the US national debt has risen $1 trillion. Meanwhile, the Russell 2000 (a small-cap stock market index) has risen by 30%. Former Reagan budget director David Stockman said this makes no sense in a rational world, and he thinks the FY 2019 is going to sink the casino.
In a rational world operating with honest financial markets those two results would not be found in even remotely the same zip code; and especially not in month #102 of a tired economic expansion and at the inception of an epochal pivot by the Fed to QT (quantitative tightening) on a scale never before imagined.’
Stockman is referring to economic tightening recently launched by the Federal Reserve. It’s not only the increasing interest rates. By next April the Fed will be shrinking its balance sheet at an annual rate of $360 billion and by $600 billion per year as of next October. By the end of 2020, the Fed will have dumped $2 trillion of bonds from its books. Stockman puts this into perspective.

This post was published at Schiffgold on DECEMBER 26, 2017.

Star Wars For The Splitting Soul Of America

Via GEFIRA,
The last episode of the successful movie – Star Wars – is actually a lot less about the stars in space and much more about culture and class. Most importantly, it reflects the dangerously growing disenfranchisement of the race-and-gender obsessed liberal upper class and everyone else.
The movie finally came out, the money started flowing and eventually the reviews arrived. The result? On the primary review sites Metacritic and Rotten Tomatoes the critics loved it, the public did not, which left many wondering why.
Some explanations came out already: the good results are scientific, the bad ones are there because of internet trolls. Nope, there’s nothing scientific about subjective opinions, even if they (allegedly) represent the majority of those who express them. Science is, or should be, objective.

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

Christmas Tree Protectionism

Whether it’s for cheap steel or cheap tires, Americans are supposed to be afraid of trade with China because it provides us with products we want at low prices. But to the damage allegedly inflicted on our economy by those who would save us money, must we now add…artificial Christmas trees?
According to a November 27 story in Breitbart News, Chinese companies dominate the domestic market, and their fake trees are ‘driving’ Christmas tree-growers in Oregon out of business. The number of fake trees sold in the U. S. ‘more than doubled’ from 2010 to 2016 (my wife and I contributed to that statistic, purchasing our beloved tree in 2014) while the number of Christmas trees cut and sold dropped by twenty-six percent. The number of ‘active growers’ dropped by thirty percent. All of which is supposed to alarm us.
There’s no reason to be concerned. Demand for real trees is declining in favor of artificial trees because more consumers prefer their convenience, quality, and price. Breitbart claims this is a ‘vicious cycle,’ but it’s just a reflection of consumer desire.
Consumers in the U. S. are buying fake trees because they are cheaper, and because they believe fake trees to be healthier and safer. In a market economy we each decide to the best of our ability which products and services we require; that’s an important part of life in a free society. Oregon tree-growers will suffer the ill-effects of this trend, but players in the market voluntarily take that risk (for which they rightly deserve any reward). Consumers save money, which can then be spent on other things we desire, and our homes have fewer allergens. Perhaps even fewer fires.

This post was published at Ludwig von Mises Institute on December 26, 2017.

Yes, governments CAN go bankrupt. And no, it’s NOT impossible…

[Editor’s Note: As we’re coming up on the end of the year, we thought it would be appropriate to republish some of our most popular articles. Today’s was originally published on March 13, 2017] In the year 1517, one of the most important innovations in financial history was invented in Amsterdam: the government bond.
It was a pretty revolutionary concept.
Governments had been borrowing money for thousands of years… quite often at the point of a sword.
Italian city-states like Venice and Florence had been famously demanding ‘forced loans’ from their wealthy citizens for centuries.

This post was published at Sovereign Man on December 26, 2017.

The Yield Curve Accordion Theory

The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.
***
Yield curves flatten out when investors believe a recession is looming. This results from the demand for long-term bonds rising as investor confidence wanes. As demand shifts out along upward sloping supply, long-term bond prices rise and yields fall. On the other end of the yield curve, short-term bond rates rise. This is a result of investors demanding fewer short-term securities and more long-term securities. In response, suppliers of short-term securities lower prices to attract investors. The black dots along the red line in the above figure gives the 2007 yield curve. It is flat because the Great Recession of 2008 and 2009 was just around the bend.

This post was published at Ludwig von Mises Institute on December 26, 2017.

Man Who Delivered Gift-Wrapped Horseshit To Steven Mnuchin Compares Himself to Jesus

An LA County psychologist who thinks President Trump’s tax bill stinks to high heaven, compared himself to Jesus after admitting he delivered a gift-wrapped box of horseshit as a Christmas present to Treasury Secretary Steve Mnuchin. Robby Strong told AL.com he dropped off the box of horse manure at Mnuchin’s house as an ‘act of political theater’ to hammer home the point that ‘Republicans have done nothing for the American worker.’
Boldly taking the Christ-analogy to a place it has never gone before, Strong told SoCal radio station 89.3 KPCC that “what I did, I would like to compare to what Jesus did when he went into the temple and overturned the tables of the money-changers, who were exploiting the people financially in the name of religion.”
‘In the long run, if we don’t do stuff like this, what are we going to have left?’ Robby told KPCC. ‘I feel like that’s what the GOP has done to the American people,’ added the man who, bizarrely, is a psychologist with the LA Department of Mental Health.
Things start to make much more sense, however, once we learn that Strong claims he was an organizer for the Occupy LA movement; predictably he sides with critics of the $1.5 trillion tax overhaul who say it favors corporations and the wealthy, CBS Los Angeles reported.

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

“You All Just Got A Lot Richer” – Trump Confirms The Biggest Problem With The GOP Tax Cut

As we’ve pointed out time and time again, the biggest problem with the Trump tax cuts is that they overwhelmingly benefit the rich. In fact, shortly after the initial nine-page outline of the program was unveiled by Gary Cohn and Steven Mnuchin, the nonpartisan Tax Policy Center released an analysis that showed the wealthiest 1% of Americans would accumulate more than 80% of the benefit from the tax bill.
One need only glance at this chart from JP Morgan to see how shabbily middle- and working-class voters are treated by the tax bill.
This is a big problem – particularly if the administration hopes to come anywhere near the 2.9% rate of GDP growth sustained over the next 10 years, a feat that would amount to the longest period without a recession in US history. That’s because when the wealthy receive tax breaks, they tend to save the money instead of putting it to productive use – at least at first – as we discussed last week.

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

2017: A Review Of The Fed, Treasuries, Mortgages and Housing (Volatility and Velocity)

This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
2017 has been an interesting year. Donald Trump was elected President and seated in January 2017. The Federal Reserve kept rates near zero with a massive balance sheet for almost all of Obama’s 8 years as President, then started to raise rates and unwind their massive balance sheet AFTER Trump was elected. Note the decline in M2 Money growth after Trump’s election.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ December 23, 2017.

We Give Up! Part 2: Consumers And Corporations Join The Debt Orgy

Late cycle behavior is everywhere these days. Governments have stopped worrying about deficits, and now the rest of us are apparently joining the orgy.
Corporations, for instance, are buying each other out – mostly with borrowed money – at a record pace:
December’s $361 Billion Deal Haul Is the Busiest in a Decade
(Bloomberg) – Just as most people are packing up for Christmas, dealmakers across the world are rushing to finish up a slew of transactions in industries ranging from consumer to telecom and health care to gambling. Companies have announced about $361 billion of mergers and acquisitions this month, making it the busiest December in at least 12 years, according to data compiled by Bloomberg. On Friday, the last work day before bankers and executives break for the holiday, GVC Holdings Plc of the U. K. agreed to buy bookmaker Ladbrokes Coral Group Plc for as much as 4 billion pounds ($5.4 billion), Deutsche Telekom AG said it will buy Liberty Global Plc’s Austrian unit and Roche Holding AG announced the $1.7 billion acquisition of U. S. biotech Ignyta Inc.

This post was published at DollarCollapse on DECEMBER 22, 2017.

Americans have no savings and with very good reason: housing, education, and health care have seen extraordinary inflation while wages are stagnant.

It has now become a daily ritual in which story after story of broke Americans plaster the web. Yet somehow on the mainstream press, very little is discussed about this topic. Americans are largely broke because inflation is vey real. Housing, education, and health care costs have soared out of control while wages have remained stagnant. The way Americans continue to pay for these items is by going into loan shark levels of debt. There used to be a pretense that ‘we’ actually cared about having a middle class but that is now thrown out the window. At this point, we are in a full on sprint towards low wage capitalism. Many people live on a paycheck to paycheck diet and are berated about saving more for retirement. The reality is, the new retirement model is working until you die.
In the land of no savings
Sunday morning, I wake up and take a stroll through the neighborhood. ‘Did you hear about Bitcoin? Wild right?’ I’m asked by a stranger at the park. ‘Sure seems wild. You own any?’ To which I get the following response, ‘I wish I had some money to even invest!’ I think we live in a world where most Americans are merely spectators to the wild gyrations of the market. They hear about investments too late or mistake speculation with actual investing.

This post was published at MyBudget360 on December 21, 2017.

In Unprecedented Intervention, Swiss Central Bank Bails Out Firm That Prints Swiss Banknotes

In the most ironic story of the day, the company that makes the paper that Swiss banknotes are printed on was just bailed out by the money-printing, stock-purchasing, plunge-protecting, savior-of-global equities…Swiss National Bank.
***
While The SNB has a long and checkered history of buying shares in companies… as we have detailed numerous times, it is no stranger to pumping money into companies all over the world…

This post was published at Zero Hedge on Dec 21, 2017.

Why it’s essential you keep a portion of your savings in physical cash

[Editor’s Note: As we’re coming up on the end of the year, we thought it would be appropriate to republish some of our most popular articles. Today’s was originally published on January 6, 2016] Think of the word ‘money’ for moment. What’s the first image that comes to mind?
Perhaps the folded paper in your wallet. Or the balance in your bank account.
Or perhaps the investments in your brokerage account.
In our modern financial system where unelected central bankers wield totalitarian control over the financial system, all three of these are forms of money.
But the relationship between them is very tenuous, and very risky. I’ll explain:
1) Physical cash No matter where you live in the world, just about every civilized nation on the planet has some form of physical currency in various denominations. Dollars. Pounds. Euros. Yen. Renminbi.
We pass around these pieces of paper as a medium of exchange.

This post was published at Sovereign Man on December 21, 2017.