The correlation between stock prices and margin debt continues to rise (to new records of exuberant "Fed's got our backs" hope) as NYSE member margin balances surge to new record highs. Relative to the NYSE Composite, this is the most "leveraged' investors have been since the absolute peak in Feb 2000. What is more worrisome, or perhaps not, is the ongoing collapse in investor net worth - defined as total free credit in margin accounts less total margin debt - which has hit what appears to be all-time lows (i.e. there's less left than ever before) which as we noted previously raised a "red flag" with Deutsche Bank. Relative to the 'economy' margin debt has only been higher at the very peak in 2000 and 2007 and was never sustained at this level for more than 2 months. Sounds like a perfect time to BTFATH...
Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system. Now, I realize that everyone knows the Fed is “printing money.” However, when you look at the list of bailouts/ money pumps it’s absolutely staggering how much money the Fed has thrown around.
To the DOJ, a $13 billion receipt is the "largest ever settlement with a single entity." To #AskJPM, a $13 billion outlay is a 100%+ IRR. And perhaps more relevant, let's recall that JPM holds $550 billion in Fed excess reserves, on which it is paid 0.25% interest, or $1.4 billion annually. In other words, out of the Fed's pocket, through JPM, and back into the government. Luckily, this is not considered outright government financing.
Five years have passed since the onset of what is sometimes called the Great Recession. While the economy has slowly improved, there are still millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope. Who was to blame?
"The government, writ large, had a hand in creating the conditions that encouraged the approval of dubious mortgages. It was the government, in the form of Congress, that repealed Glass-Steagall, thus allowing certain banks that had previously viewed mortgages as a source of interest income to become instead deeply involved in securitizing pools of mortgages in order to obtain the much greater profits available from trading. It was the government, in the form of both the executive and the legislature, that encouraged deregulation..."
- Judge Jed Rakoff
Remember the main reason why the Fed should have tapered, namely the illiquidity in the bond market it is creating with its feverish pace of collateral extraction, and conversion of quality collateral into 500x fwd P/E dot com dot two stocks? Here to put it all in context is Scotiabank's Guy Haselmann: "Through its QE policy, the Fed buys $3 of mortgages for every $1 of origination. The consequence is that secondary mortgage market liquidity has been decimated: it is as bad as when Bear Stearns failed." That's just MBS for now. However, since the Fed has refused and refuses to taper, the same liquidity collapse is coming to Treasury's first, then corporates, then ETFs, then REITs and everything else that the Fed will eventually monetize. Just like the BOJ.
On the day when the CFTC begins considering 'speculative position limits', believed to be "the signal rule of [his] tenure at the Commission," Bart Chilton has had enough. Having "left traders in their own" during the shutdown, Chilton expressed "excitement" at his new endeavours after sending his resignation letter to President Obama this morning (more poetry? - or body doubles?) "I'm reminded of the old Etta James song, 'At Last,'" said Mr. Chilton, one of the agency's three Democratic members. "At last, we've got this rule here," and at last, he would be leaving the CFTC. This leaves us wondering whether Chilton, no longer burdened by the shackles of his meagre compensation, perhaps can finally do what he has been promising to do for years - become a whistleblower - after all he has insinuated so many times he knows where all the "dirt" is; unless, of course, it was all for show.
It is a common view that the shutdown, the debt-limit debacle and the repeated failure to enact entitlement and pro-growth tax reform reflect increased political polarization. John Taylor believes this gets the causality backward. Today's governance failures are closely connected to economic policy changes, particularly those growing out of the 2008 financial crisis. Despite a massive onslaught of legislation and regulation designed to foster prosperity, economic growth remains low and unemployment remains high. Claiming that one political party has been hijacked by extremists misses this key point, and prevents a serious discussion of the fundamental changes in economic policies in recent years, and their effects.
This artificial prosperity plan for Wall Street has the added benefit of allowing the captured politicians in Washington D.C. to continue their $1 trillion per year deficit spending with no consequences for their squandering of future generations’ wealth. Bernanke and Yellen will never taper, because they can’t. The Fed balance sheet will continue to grow by at least $1 trillion per year until they crash the financial system again. Except this time, there will be no money printing solution. We are all trapped like rats in this monetary experiment being conducted by evil mad scientists. No one will get out alive. Welcome to the new normal. Now eat your cheese.
It's Friday afternoon, do you know where your fortress-balance-sheet bank's massive settlement deal with the government is...
- *JPMORGAN TO PAY $5.1 BILLION OVER FHFA MORTGAGE CLAIMS
- *FHFA SAYS JPM TO PAY ABOUT $2.74B TO FREDDIE, $1.26B TO FANNIE
- *JPMORGAN PAYS $1.1B TO RESOLVE REPRESENTATION, WARRANTY CLAIMS
- *FHFA SAYS IT'S SETTLED FOUR OF THE 18 PLS SUITS IT FILED IN '11
$4 billion of this appears to be part of the $13 billion settlement 'agreed' last week; but still leaves the criminal cases from what we can tell... Full statement below...
- Despite budget win, Obama has weak hand with Congress (Reuters)
- Carney Brings In McKinsey for Bank of England Strategy Rethink (BBG)
- Bill Gates Buys Stake in Spanish Construction Company FCC (WSJ)
- Jerusalem Mayor Barkat Seeks New Term in Race Arabs Sitting Out (BBG)
- J.P. Morgan Aimed to Limit Damage (WSJ)
- EU Lawmakers Reject Draghi Call for Bank Bondholder Clemency (BBG)
- Wall Street Profits May Halve in Second Half (WSJ)
- Petrobras-led group wins Brazil oil auction with minimum bid (Reuters)
- Apple to Refresh IPads Amid Challenges for Tablet Share (BBG)
- Italy plans to offer guarantees on govt bond derivatives (Reuters)
- Berkshire Beats Apple as Favorite Stock of Tiger 21 Group (BBG)
I like Professor Shiller and respect his work. Really, I do, but... Massive bubbles, the sort of the proportion of the 2008 crisis, are nigh impossible to miss if you can add single digits successfully and are able to keep your eyes open for a few minutes at a time. Yes, I truly do feel its that simple. I saw the property bubble over a year in advance, cashed out and came back in shorting - all for a very profitable round trip. Was I a genius soothsayer? Well, maybe in my own mind, but the reality of the situation is I was simply paying attention. Let's recap:
TedBits - Newsletter
David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...
What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...
He calls this condition "Sundown in America".
- BOE Leaves Policy Unchanged as Carney’s Guidance Assessed (BBG)
- Surprise or not, U.S. strikes can still hurt Assad (Reuters)
- Samsung Gear: A Smartwatch in Search of a Purpose (BusinessWeek)
- 'Jumbo' Mortgage Rates Fall Below Traditional Ones (WSJ)
- Capital Unease Again Bites Deutsche Bank (WSJ)
- Technical snafus confuse charges for Obamacare plans (Reuters)
- JPMorgan subject of obstruction probe in energy case (Reuters)
- U.S. Car Sales Soar to Pre-Slump Level (WSJ) - i.e., to just when the market crashed
- BoJ lifts assessment of Japan’s economic health (FT)
- Dead Dog in Reservoir Helps Drive Venezuelans to Bottled Water (BBG)
- Russia Boosts Mediterranean Force as U.S. Mulls Syria Strike (BBG)
Just as natural selection selects for traits that improve the odds of success/survival in the natural world, Economic Darwinism advances people and policies that boost profits and power within the dominant environment. If there was one phrase that summarized the current malaise, it would be "The Federal Reserve's 20-year policy of easy money created an environment virtually assured to select bankers, bureaucrats, educators, and elected officials who least understood the consequences of a credit crisis." In other words, a hyper-financialized environment of near-zero interest and abundant credit rewarded those people and policies that succeed in that environment.