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The Debt Avalanche
Today's Wall Street Journal featured a story about the upcoming "debt avalanche" faced by many of the major banks which have mountains of corporate bonds coming due.
Yet the U.S. Treasury offloaded another load of fresh fiatco bonds without a hitch, and Treasury yields proceeded to plunge again. Why are the banks worried when so many "yield thirsty" investors are so anxious to lap up 1% and 2% 2-year bonds? Why worry when the issuance of such 1% - 2% debt to replace 7% notes is likely to plunge funding costs even further, thus assuring vast profits in the future?
| COUPON | MATURITY DATE |
CURRENT PRICE/YIELD |
PRICE/YIELD CHANGE |
TIME | |
| 3-Month | 0.000 | 02/25/2010 | 0.03 / .03 |
0.002 / .002 | 14:00 |
| 6-Month | 0.000 | 05/27/2010 | 0.13 / .13 |
-0.008 / -.008 | 14:20 |
| 12-Month | 0.000 | 11/18/2010 | 0.26 / .26 |
-0.018 / -.018 | 14:22 |
| 2-Year | 0.750 | 11/30/2011 | 100-00 / .75 |
0-01¾ / -.030 | 14:20 |
| 3-Year | 1.375 | 11/15/2012 | 100-14 / 1.22 |
0-03 / -.032 | 14:13 |
| 5-Year | 2.375 | 10/31/2014 | 101-05½ / 2.12 |
0-06+ / -.043 | 14:13 |
I mean, what CFO at a major bank really cares what happens after 5 years? Chances are that he's going to be working somewhere else anyway:
1. Near bankrupt entities like Fannie, Freddie, Ally Bank, AIG, etc. are always on the hunt for new CFO's.
2. Enterprising new hedge funds are always looking for "experts" at raising money dirt cheap for the casino in order to lever returns.
3. Board of Directors will fire him and he'll eject with a multi-million dollar parachute.
4. New 26-year old mistresses invariably will demand that he relocate to Southern California or South Florida.
"So when are we moving to Los Angeles? I hate this city."
Hey, no problems found here...
Happy Thanksgiving everyone...
I'll be taking the rest of the week off.
Happy tailgating!!!
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The Fembots drinking Skol vodka? What did DOD say about cheap, sleazy and hot? I think you have found the forbidden harem.
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Young ladies are so classy these days.
I wanted to be Britney Spears until Lady Gaga was invented.
she is awesome (you may want to watch before viacom idiots delete it again) a true artist
http://www.youtube.com/watch?v=3uSyNIWyQh4
Problems at Blackstone (BX) ???
Sequenom (SQNM) was en fuego today; something going on ther.
Any predictions on who wins the disco ball tonight on dancing with stars? I'm pullin for Mya and Dmitry because they are soooo hot, I mean who wouldn't want a 3 way with them?
http://www.youtube.com/watch?v=n4OR9ImRFA0
Whooda thunk it! Satan is a girl!
I feel bad for China. If they want to replace American consumption with internal demand, their young woman will have to emulate spoiled, entitled American whores like the Kardasians.
ummmm, don't know if you pay attention, but they already are...
@Brett don't you mean real housewives of Jersey?
http://cdn.sheknows.com/realitytvmagazine/2009/05/real-housewives-of-new-jersey.jpg
CW,
I don't watch TV or know these people. You're killing me. Alien and bizarre.
We're doomed.
@Ms you don't need tv. hopefully you can get up to speed on gaga on youtube. the queen of england invited her to perform on december 7. real housewives are a waste of time.
That is a sign that something is not as it seems with the queen right there. What monarch wants to see that tranny writhing about?
WTF?!? Drag queens? RuPaul wanna-bes?
300 million Americans consume 10 trillion dollars a year; 1.3 billion Chinese, 1 trillion.
The latter has a long way to go.
Mmmmmm Vodka!
Hey! These girls are just trying to break into show business. Give them a break!
No one wants to hear this but the reason fiat currencies exist worldwide is because the world wants a handout. The banksters argued that creating fiat money would provide the "elasticity" needed for economic growth and the avoidance of recessions--but the argument was disingenuous. What they really wanted was leverage over you.
What if you're getting the biggest dollar handout ever (Goldman-Sachs)? You're not producing wealth.........and you know it. Think all that money will ever get spent or do you any good? Won't it just lay dormant in some account somewhere? Think Teddy Kennedy lived a happy fulfilled life? Seems to me the Kennedy family is (and was) perfectly miserable. Not exactly what old Joe Kennedy (the GS of the 20s/30s) had in mind. Are youe paying attention Lord Blankfein?
Or what if you're a lesser offender? A starving musician on food stamps has that hand out. Think s/he would ever produce the sounds of a Don Fagen ("The Nightfly")? Not likely.
I doubt Lord Blankfein has ever heard Don Fagen.
Whether the taxpayers bail out those with their hands out or not is irrelevant to those of us who know how to produce wealth and pioneer on. We have confidence that we know why we're on the planet. Get out of debt. Buy silver, platinum, palladium, and gold (no counterparty risk). Play the markets if you want to. Leave enough FRNs in the bank to pay your taxes (if the Feds devalue they can go float for their taxes).
My definition of success is to shoot your age in golf. Remember, in this world there is no free lunch.
I saw Steely Dan at the Tower Theater in Upper Darby (Philadelphia, really) last Saturday night. AWESOME! They played the whole "Royal Scam" album, my favorite. Genius, pure genius.
I couldn't shoot a 28 on the FRONT NINE, let alone an eighteen hole championship course. I shot a 29 on a par 3 once... :)
These purchases feel fictional. Fiction will not hold back an avalanche.
Your avalanche is too tame for my taste.
http://www.getoutdoors.com/goblog/uploads/avalanche.jpg
http://www.colorado.edu/geography/class_homepages/geog_3251_sum08/02_loo...
We should train them at the junior colleges to be CFOs, this would help with the unemployment problem, Obama could start this program now.
Forget training at the junior colleges; start training at the strip clubs. Want to find young, eager minds to mold who know how to sell, can quickly adjust to varying perceptions of the value of goods/services, and who aren't exactly the "rules and regulations" types? That's your spot to find future CFOs.
deflation folks.... the banks are now caught in a massive short squeeze of the "obvious trade" of shorting Treasuries... Dipshit wannabe cookie-cutter economists........
Want to be a famous bank economist? Have mommy and daddy pay for everything.
-(Any wonder why Keynesianism is so popular? And I'm not talking about Post-Keynesian's... they know what the fuck they're talking about).
http://www.chinaeconomicreview.com/today-in-china/2009_11_24/Credit_pressure.html
Credit pressureBy Tim Burroughs
China's financial regulators continue to tread the fine line between serving the nation's economic needs and keeping its banks in order The tug-of-war over monetary policy between China’s central bank and its banking regulator earlier this year reduced the country’s economic dilemma to a single conflict. On the one hand, the People’s Bank of China (PBoC) wanted to promote credit growth as a means of sustaining the economic recovery. On the other, the China Banking Regulatory Commission (CBRC), wary of past calamities, didn’t want domestic lenders doling out cash with abandon.
The tensions no longer spill over quite so keenly into the press, but after total new loans came to US$1.08 trillion in the first half of the year, the issue remains a pertinent as ever. So the regulators are treading carefully.
Reports that Beijing would asks major banks to increase their capital adequacy ratios to 13% next year – up from an average of around 11%, a shift it was estimated would leave Bank of China needing US$14.6 billion in fresh capital – were met with a swift denial by the CBRC. Rather than imposing across-the-board targets, the regulator said, banks have been warned to meet their current capital requirements or face sanctions. Punishments include limits on market access overseas investments and new branch openings.
The CBRC has been tightening its grip on lenders for a while now: The capital adequacy ratio increased by two percentage points to 10% at the end of last year; credit provisions must now total at least 150% of bad loans; and the issuance of subordinated bonds has been curtailed.
These are cautious tweaking of the regulatory system, not wholesale alterations in monetary policy. While more diligent enforcement of existing rules on capital adequacy requires banks to raise more money if they want to lend more money, a return of interest rate hikes, credit quotas and required reserve ratio increases (making banks hold back a higher proportion of their assets) isn’t likely. At least, not yet.
Shen Mingao, Citi’s chief China economist, expects a slow exit from stimulus conditions, with credit growth easing in 2010, but remaining at a faster pace than in normal years.
“In general, [interest] rate hikes do not happen at the beginning of a policy exit. Open market operations, hikes of bank reserve requirement rates, normalization of credit growth, project control and other administrative interventions can be expected to come before rate hikes are considered,” he wrote in a note dated November 23. “When rate hikes are unable to cool off the economy, credit control is often the last resort.”
Unless inflation jumps, deposits drop sharply or other central banks impose aggressive tightening measures, Shen doesn’t expect an interest rate hike until at least the third quarter of 2010.
So what of China’s banks? Will the CBRC’s tinkering (and it said on Monday that it won’t impose controls on the size of bank loans) be sufficient to stave off another non-performing loans (NPLs) crisis?
The credit explosion in China has probably led to a depreciation in loan quality, with money going to places from which it is unlikely to return. At the same time, while domestic banks still have much to learn about risk assessment, their judgment is far better than it was in the 1990s, when the seeds of the previous NPL problems were sown. It will take time for the truth to emerge. Analysts say that there is a lag of at least a year before problem loans appear as warning lights on banks’ balance sheets. Perhaps marking off certain debts as “special mention loans” (a concern, but not yet non-performing) will once again delay the impact.
For now, most banks – and most regulators – are more concerned about raising enough capital to meet next year’s credit demands. According to BNP Paribas, the nation’s 11 largest publicly traded banks may need to raise about US$43.9 billion to ensure they have capital for continued loan growth. Citi estimates that the A-share banks alone require US$16.5 billion by 2011, and that’s excluding US$15.5 billion in fundraising drives already announced.
How can I qualify to get one of the loans that have "....a depreciation in loan quality, with money going to places from which it is unlikely to return.."?
And can they make it in the hundreds of thousands, please?
Courting Convulsion
Disclosure: I'm not one of the economists that Mr. Krugman talks to (nor am I an economist). But it's sure interesting to know that the ones palavering with Mr. Krugman imagine that that the US can possibly return to an economy based on the fraudulent securitization of reckless debt. Does Mr. Krugman think that the production housing industry can resume paving over the nether exurbs with half-million-dollar houses (to be bought with no money down loans by the sheet-rockers working inside them)? Does he think all those people receiving cancellation notices from their credit card issuers are in a position to flash their plastic at the Gallerias this Friday? Or ever will be again? Is he perhaps misusing the term "recovery?" After all, that is generally taken to mean resuming a prior state, which is, in turn, presumed to be a healthy prior state. Is that what the economy of the past decade was? And, incidentally, what exactly is a "consumer?" And why, at the highest levels of journalism in this land, do we refer to citizens that way? As if the American people have no other purpose except to buy things? Or is that the only way an "economist" can imagine them?
We are seeing a comprehensive failure of leadership in every sector and every level of American life - in politics, business, banking, education, news media, medicine, and the clergy. All are determined to pretend that we can somehow continue the habits and behaviors of the pre peak oil era. They are all unwilling to face reality, and are all engaged in mutually supporting each other's dangerous fantasies.
If we don't attend to the transformation of American life by downscaling our activities and changing the way they are carried out, and re-localizing them, we will see our society disintegrate - and I use the word "dis-integrate" with purposeful precision. Everything will come apart - our political arrangements, our households, our health and well-being.
It's important to remind readers that so-called "capitalism" is not to blame. Capitalism is not an ideology. It refers to a set of laws governing the disposition of surplus wealth. There is going to be surplus wealth somewhere in the years ahead, even if our living standards fall substantially, even under the strictures of peak oil. All the communist experiments of the 20th century produced some kind of surplus wealth. All of them were subject to the phenomenon of compound interest. What matters in the disposition of capital are the rules created for accumulating and deploying it. In the USA the past two decades, we ignored the rules, repealed some of the critical laws, and failed to enforce the existing ones so that, when faced by the historic circumstances of peak oil, we allowed fraud and swindling to run wild - just at the moment when we should have taken the most care. That is why our money system ran off the rails.
http://kunstler.com/blog/2009/11/courti ... lsion.html
I agree with the thrust of what you are saying here. There is no going back.
With respect to capitalism distributing surplus wealth, I believe it is simpler than that. In aggregate, wealth is steadily declining as the world population consumes it's finite amount of resources. More people consuming fewer resources at an increasing pace is not a formula for wealth creation. Economies, however organized, simply redistribute the remainder of the world's resources. Technology, scientific advancements, and the accumulated fruits of our labours built upon what has already been established provided an easier lifestyle to date, but this should not be confused with wealth. Did the arrival of fire and the wheel create wealth, or did they simply make life easier? Looking forward, do you see life on this planet getting easier or harder? Richer or poorer? I see wealth destruction.
The beauty of gold as a currency, as I see it, is that it too is finite and it's difficult to extract from the earth. It reflects reality well. If the gold standard existed, our measured individual wealth would be far less than our forefathers because it would have to be spread exceedingly thin to accommodate the growing populations.
This is my thinking for what it's worth.
Winisk...
1. Why in the hell would you want to go back to naivety and waste? Unbalanced pay scales, corrupt government officials paying each other off while fucking everyone but themselves. (They hire trannies for that), kickbacks, glaringly obvious illiteracy and buzz words? Going back is stupid, let's move forward.
2. If you want to understand wealth, read "The Nature of Capital and Income" by Irving Fisher in 1906 (didn't get published till 1913... the Fed paid him off to keep it out of circulation). Or read Jevons... there's a wealth of incredible economists who had it right wayyyyyy before Mises was a blip on the map, Cournot is the most advanced in the end and he published in 1837. Go figure.
Oh and FYI... Hayek used geometric analysis (Pure Theory), so why the fuck the majority of Austrians still refute legitimate analysis irritates the hell out of me.
Thanks for the suggested reading.
Fiat was invented out of necessity. There isn't a reason in the world to expect that as resources diminish that some other form of 'currency' will supplant our current fiatscos.
The children and great grandchildren not yet born will do what they need to grease the transfer of whatever goods and services they need amongst each other.
Wealth will evolve like everything else, will still be created but likely defined very differently from what we know as wealth. AND it will always remain in the hands of a relative few.
I believe its Dr. Krugman, he earned his degree in journalism at the Barber College of Trenton.
Maybe I'm getting too old but all I can think of looking at those young ladies is a hazmat suit.
I had a slightly different take, they are someones' daughters acting big, craving approval, pretending to be ready for things they are just not quite ready to really take on.
But yeah, seeing my reaction, I had the too old moment too.
one of the benefits living in Bangkok is ....
I hear ya. Not a one of these tarts would get a second look in Soi CB or Nana. Ah.....to be young again!
Oh, I forgot...this is about debt.
WaterWings,
"I wanted to be Britney Spears until Lady Gaga was invented."
Loved it!!
DavidC
IN BONDS WE TRUST!
Did you mean BLONDES? Stay on topic dude.
Heres a fun one for anyone with a bloomie or can overlay graphs or can do that squinty eye thing where stuff merges together.
Look at 2yr corporates and 10yr corporates from 2003 to 2007. Overlay those with the Fed funds rate. Now your textbooks tell you that when the Fed is raising rates then bond folk will want to shorten their duration. So if the Fed is hiking and you're sitting there with 30yr debt you'd be a likely seller...or so says your book.
But thats not what you see. Instead the 2yr yields rise along with the Fed funds rate while yields on 10yr debt barely moves over the whole period. Thats yer inverted yield curve, and my thesis is that we're at least moving toward flattening in a similar fashion.
The duration argument methinks breaks down when one knows how high the Fed is likely to raise rates. If we go up to 2% on Fed funds, then 2yrs will be decimated, but a 10yr at 3.5% can still net a decent spread.
Moral of the story under this thesis, when the Fed signals they're about to hike, it might well be a good time to go farther out on the yield curve and extend yer duration. Food for thought.
are we there yet?
http://stockcharts.com/h-sc/ui?s=$UST10Y:$UST2Y&p=D&yr=1&mn=3&dy=0&id=p38725068556
as an exercise do the same thing for the period 1929-1935 using Homestake instead of $GOLD.
Nein! Der Tintenfisch befiehlt Ihnen, zu kaufen!
Der Vampir Tintenfisch
less debt. more meat.
Deadhead knows MsCreant always gots the goods. He asks, me delivers. In my email today:
http://www2.victoriassecret.com/collection/?cgname=OSBRPNANZZZ&cgnbr=OSB...
MsCreant has the bestest posts!!!
Robo...MsCreant has been kicking your ass. bigtime.
Have to love that SQNM squeeze late from the ILMN spillover...
I know this may not seem like the right forum, but I came across this article on MSNBC's homepage regarding the thousands upon thousands of pets being dumped by owners that have become unwilling or unable to care for them and my heart is breaking...
Friends---PLEASE don't forget the animals during this horrible economic mess---They need us more than ever. Donate or help however you can to your local Humane Society or shelter!!!
Thanks and Happy Holidays to all---
http://www.msnbc.msn.com/id/34117457/ns/us_news-the_elkhart_project/
call 212-902-1000 ask for lloyd
What if we use the remaining TARP money to pay ff US debt? Then give an equal amount of tax cuts to small businesses to spur economic growth. That will do it! Enough with the bailouts and printing money.
admin
http://invetrics.com
So you would use the debt, to pay off the debt. Hmmm.... I am not sure what to do with you...
So when are the markets coming down ?
Have a Happy Thanksgiving Robo - Please don't shack up with the likes of those girls with the Stoly, their sure to be "giving" something (probably a variety of things you would NOT be thankful for).
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