Comptroller of the Currency
This week was very busy with economic data. For the most part, the majority of the data came basically inline with expectations. However, the internals of the various reports were much less encouraging. The most noteworthy report, and the least important from an investment standpoint, was the monthly employment report which came in at 288,000 jobs for the month. As with the bulk of other reports, the more important details were lost to the headlines... full-time employment relative to the working age population has remained primarily stagnant since the financial crisis and actually fell in the latest month. This is a key reason why economic growth continues to struggle.
It would appear that the exuberance over today's better-than-expected car sales data should be tempered significantly. Confirming our warnings, as the Office of the Comptroller of the Currency (OCC) explains, across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates, and originating loans to borrowers with lower credit scores. With average loan-to-value rates above 100%, they have an ominous warning: "risk in auto-lending is beginning to emerge." We are sure this will be dismissed (just as the BIS' warning has been), but with surging charge-offs and increased repackaging (CLOs), and banks holding a lot of this debt, this 'bubble-financing' has all the ingredients for subprime 2.0 contagion.
It wasn’t an edgy blogger but the Office of the Comptroller of the Currency that issued the warning.
If the Fed is looking for definitive proof of bubble euphoria it should look no further than the CLO market: according to Bloomberg, so far in 2014, more than $46 billion of collateralized loan obligations have been raised, after $82 billion were sold in all of 2013. As a result of this epic dash for repackaged trash, JPMorgan boosted its annual forecast for CLO issuance from $70 billion to as much as $100 billion, which means 2014 may end up as the biggest year on record. We assume it is with great irony that Bloomberg summarizes: "The business of bundling junk-rated corporate loans into top-rated securities is booming like never before after the implementation of regulation aimed at making the financial system safer."
- Vietnam mobs set fire to foreign factories in anti-China riots (Reuters)
- Recession-Baby Millennials Scarred by U.S. Downturn Spurn Stocks (BBG)
- U.S. Agents Start Hunting for Sanctioned Russians’ ‘Shiny Toys’ (BBG)
- Russia moves to oust US from International Space Station (FT)
- China Central Bank Calls for Faster Home Lending in Slump (BBG)
- Geithner Must Give S&P Documents in U.S. Fraud Suit (BBG)
- Samsung's 'crown prince' in focus as father hospitalized (Reuters)
- Yahoo buys mobile 'self-destruct' messaging app Blink only to shut it down (Reuters)
- Goldman’s Twitter banker joins hedge fund (FT)
- Keyword being "unexpectedly": Sony Unexpectedly Forecasts Loss Amid PC Restructuring Costs (BBG)
Bailing out banks is not hard when a nation has a sovereign currency and the banks’ debts are denominated in that currency.
6 Years After the Financial Crisis Hit, The Big Banks Are Still Committing Massive Crimes
It doesn’t get any more Orwellian than this: Wall Street mega banks crash the U.S. financial system in 2008. Hundreds of thousands of financial industry workers lose their jobs. Then, beginning late last year, a rash of suspicious deaths start to occur among current and former bank employees. Next we learn that four of the Wall Street mega banks likely hold over $680 billion face amount of life insurance on their workers, payable to the banks, not the families. We ask their Federal regulator for the details of this life insurance under a Freedom of Information Act request and we’re told the information constitutes “trade secrets.”
The positive sentiment stemming from a positive close on Wall Street and saw Shanghai Comp (+0.33%), Hang Seng (+1.09%) trade higher, failed to support the Nikkei 225 (-2.10%), which underperformed its peers and finished in the red amid JPY strength as BoJ's Kuroda failed to hint on more easing. Stocks in Europe (Eurostoxx50 +0.32%) traded higher since the open, with Bunds also under pressure amid the reversal in sentiment.
Alcoa kicked off earnings season yesterday, with shares up 3% in after-market hours. Focus now turns to the release of the FOMC meeting minutes.
"The Vampire Squid Strikes Again"- Matt Taibbi Takes On Blythe Masters And The Banker Commodity CartelSubmitted by Tyler Durden on 02/13/2014 16:15 -0500
The story of how JPMorgan, Goldman and the rest of the Too Big To Fails and Prosecutes, cornered, monopolized and became a full-blown cartel - with the Fed's explicit blessing - in the physical commodity market is nothing new to regular readers: to those new to this story, we suggest reading of our story from June 2011 (over two and a half years ago), "Goldman, JP Morgan Have Now Become A Commodity Cartel As They Slowly Recreate De Beers' Diamond Monopoly." That, or Matt Taibbi's latest article written in his usual florid and accessible style, in which he explains how the "Vampire Squid strikes again" courtesy of the "loophole that destroyed the world" to wit: "it would take half a generation – till now, basically – to understand the most explosive part of the bill, which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry. A tiny provision in the bill also permitted commercial banks to delve into any activity that is "complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally." Complementary to a financial activity. What the hell did that mean?... Fifteen years later, in fact, it now looks like Wall Street and its lawyers took the term to be a synonym for ruthless campaigns of world domination."
Moments ago, the Senate Banking Committee started a hearing on the topic of "Financial Stability And Data Security." We assume the topic discussed will be financial stability, the highly diluted final version of the Volcker Rule, Dodd Drank, the London Whale, and other things legislators have no understanding of. As such it will be a complete waste of time, and the only thing that can possibly force anyone to fix the broken system is the next systemic crash, one which the central banks, already all in with their bailout efforts, will be unable to resolve.
This past week we read some very diverse articles, which, hopefully, will stimulate your grey matter over the weekend as you indulge in melted artifical cheese, processed fillers, and copious amounts of artificial colorings and flavors during the Super Bowl showdown (assuming you did not order any of the party packs). With everybody hoping that someone else is going to pull them out of the quicksand - who is left to do the pulling?
This isn’t the first time in recent months we have heard serious warnings of a new and potentially quite dangerous credit bubble. Recall back in September, when Blackstone’s head of private equity proclaimed that “we are in the middle of an epic credit bubble... the good times will not last forever” Well they should know, because according to the article below from Reuters, the OCC believes Blackstone and many other private equity firms are the “alternative asset managers” directly responsible for its creation.
There is no point in trying to avert or prevent bubbles caused by monetary pumping by regulatory means. If one avenue for bubble formation is cut off, the newly created money will simply flow into another area. In fact, new bubbles almost always become concentrated in new sectors. If there were a genuine desire to keep the formation of bubbles in check, adopting sound money would be a sine qua non precondition. However, no-one who has any say in today's system has a desire to adopt sound money and give up on the failed centrally planned monetary system in favor of a genuine free market system. Our guess is that the booms and busts the current system inevitably produces will simply continue to grow larger and larger until there comes a denouement that can no longer be 'fixed'.
- Winter Storm Expected to Make Northeast Commutes Harder (BBG)
- Invasion of Spanish Builders Angers France Struggling to Compete (BBG)
- Toronto mayor, caught ranting on video, admits drinking a 'little bit" (Reuters)
- IBM's Hardware Woes Accelerate in Fourth Quarter (WSJ)
- Sharp Divisions Come to Fore as Peace Talks on Syria Begin (NYT)
- Afghanistan cracks down on advertising in favor of U.S. troops (Reuters)
- Microsoft CEO Search Rattles Boards From Ford to Ericsson (BBG)
- Banks Sit Out Riskier Deals (WSJ)
- Netflix Seen Reporting U.S. Web Users Reach 33.1 Million (BBG)