Lehman

Europe Opens $80 Trillion Shadow Banking Pandora's Box: Will Seek To Collapse Repo "Collateral Chains"

In what may be the most important story of the day, or maybe year, for a world in which there already is an $11 trillion shortfall in high-quality collateral (and declining every day courtesy of Ben's monetization of Treasury paper) so needed to support the deposit-free liability structures of the shadow banking system (as most recently explained here), Bloomberg has just reported that Europe may begin a crackdown on that most important credit money conduit: the $80 trillion+ global shadow banking system, by effectively collapsing collateral chains, and by making wanton asset rehypothecation a thing of the past, permitted only with express prior permission, which obviously will never come: who in their right mind would allow a bank to repledge an asset which may be lost as part of the counterparty carnage should said bank pull a Lehman. The result of this, should it be taken to completion, would be pervasive liquidations as countless collateral chain margin calls spread, counterparty risk soars all over again, and as the scramble to obtain the true underlying assets finally begins.

All I Want For Christmas Is The S&P (The Las Vegas Period)

We are approaching a critical point (again) in the “battle royal” between the forces of inflation and deflation. Deflationary forces are threatening to overwhelm the reflationary push-back of the world’s central banks - although this is not reflected in most equity markets (especially the US). Open-ended QE was only announced by the Fed last Autumn, but the impact on (market-based) inflation expectations plateaued within months and has started turning down. A decision to taper QE would obviously be negative for equities in the absence of a sufficiently strong offsetting improvement in economic fundamentals – which is difficult to envisage right now.

The Bronze Swan Arrives: Is The End Of Copper Financing China's "Lehman Event"?

In all the hoopla over Japan's stock market crash and China's PMI miss last night, the biggest news of the day was largely ignored: copper, and the fact that copper's ubiquitous arbitrage and rehypothecation role in China's economy through the use of Chinese Copper Financing Deals (CCFD) is coming to an end.

Frontrunning: May 23

  • Global shares sink, following 7.3 percent drop in Japan's Nikkei (Reuters)
  • When all fails, pull a Kevin Bacon: Japan Economy Chief Warns Against Panic Over Stock Sell-Off (BBG)
  • White House Feeds IRS Frenzy by Revising Accounts (BBG)
  • In any scandal, lying to Congress is tough to prove (Reuters)
  • Debt limit resets at higher level, budget impasse grinds on (Reuters)
  • China factory data to test political calculations (FT)
  • European Leaders Saying No to Austerity (BBG)
  • And yet, nobody wants in anymore: Iceland’s new coalition government suspends EU accession talks (FT)
  • Oil Manipulation Inquiry Shows EU’s Hammer After Libor (BBG)
  • The Fed Squeezes the Shadow-Banking System (WSJ)
  • Diamond Said to Weigh Backing Barclays Alumni in Venture (BBG)
  • Spain’s Private Jets Disappearing as Tycoons Cut Flights (BBG)

Spot The Odd Continent Out: Total Bank Assets As % Of GDP

There is a reason why in Europe, no matter how much some want to deny it, the Cyprus deposit confiscation "resolution" has become the norm. Quite simply, as BofA summarizes, "Europe's economy struggles with too many banks, too much debt and too little growth. A long history of empire, trade, war and commerce means a long history of banking. The world’s first state-guaranteed bank was the Bank of Venice, founded in 1157, and the world’s oldest bank today is also Italian, Monte Paschi di Siena (founded 1472). In many European countries, bank assets dwarf the size of the local economy and are far in excess of other regions in the world. This is similarly reflected in the local stock exchanges: even now financials account for 42% of the Spanish stock market and 31% of the Italian stock market versus  ust 16% in the US."

JGB Futures Narrowly Avoid Third Halt In Three Days (By A Tick); 5Y Yields Jump To Highest In 22 Months

JGB Futures avoid a third halt in three days by 1 tick (drop 0.99 vs 1.00 handle limit) but two words spring to mind - not orderly. It seems the pendulum of 'inflation repricing channel through the JPY' has begun to swing back towards the JGB market - not what Abe and his cohorts would have hoped for given the deluge of monetization they are up to. As we originally discussed here, the inflation expectations can be spread across bonds or FX and just as we saw in 2007, 2008, and 2011, the initial burst takes place in one market and the normalizes as the other catches up. In this case it was a massive devaluation of the JPY that is now being 'caught up' to by the JGB yields rising. 5Y JGB yields just topped 40bps (from a 9.9bps low on March 5th!!) and their highest since July 2011. Of course, the problem with rising rates is the burden it puts on the government as cost-of-debt accelerates beyond tax revenues with negative trade balances; and if the JGB channel is now 'inflation security of choice' then JPY devaluation will take a back seat (and so will JPY carry trades driving risk-on around the world - as we noted here). And as if that wasn't all exciting enough, Japanese Machine Tool Orders re-accelerated to the downside -24.1% YoY (worst since January).

JGB Futures Halted (Again) For Biggest 2-Day Plunge Since Lehman; 5Y Yields Hit 13 Month Highs

Another night; another Japanese government bond futures halt. The last 2 days have seen JGB prices plunge at the fastest rate since the post-Lehman debacles in Sept/Oct 2008 smashing back to 13 month highs. 5Y yields are surging even more - trading above 34bps now (up from 9.9bps on March 5th). These are simply astronomical moves in the context of JGB history and strongly suggest Abe & Kuroda are anything but in control of the quadrillion Yen domestic bond market as they jawbone inflation expectations into the psychology of the people. Of course, the Nikkei is surging (now up 9% in the last 5 days alone) amid JPY breaking above 102 (but for now it has rallied back to 101.80). Japnese interest rate implied volatility is surging once again also (after its epic collapse last week - which appears the worst-timed lifting of hedges ever, or more like a lifting of hedges into an unwind of actual long positions).

New York Fed Sees Five More Years Of Stock Increases

Normally the New York Fed would not have to bother itself with such Series 7, 63-registration requiring, "financial advisor"-type things as predicting where the stock market will go, especially when it is its own trading desk that provides the impetus for more than 100% of the current equity rally. However, these are not normal times - they are New Normal. And as a result, Fed economists Fernando Duarte and Carlo Rosa have penned a "research" paper titled "Are Stocks Cheap?" in which they view the same reflexive "evidence" that Ben Bernanke himself used to answer a question during a recent press conference if he would still be buying stocks at record levels, namely the risk premium. This is what the NYFed's economists say on the matter: "We surveyed banks, we combed the academic literature, we asked economists at central banks. It turns out that most of their models predict that we will enjoy historically high excess returns for the S&P 500 for the next five years."

Friendly Reminder: CNBC Viewership Plunges To Eight Year Lows

Update: we decided it may be an opportune time to remind readers of this particular fact... not opinion, not propaganda, not insinuation. Fact, which apparently has forced a once informative medium, and now purely propaganda infomercial, to stoop so low to be in need of trolling websites to generate incremental eyeballs.

One of the main, unintended consequences of this development to prop up markets at all costs, even if it means removing all logic and reliance on fundamental data, has been the complete evaporation of interest in any finance-related media, forcing the bulk of financial outlets to rely on such cheap gimmicks as slideshows, pictures of kittens, trolling and generally hiring liberal arts majors straight out of school to copy and paste articles while paying them minimum wage, and providing absolutely no insight (and then wondering why the Series ZZ preferred investors will never get their money back, let alone the A round). However, nowhere is this more obvious than in the relentless imploding viewership of once financial media titan, CNBC, which lately has become a sad, one-sided caricature of its once informative self, whose only agenda is to get the most marginal Joe Sixpack to dump his hard-earned cash into 100x P/E stocks, and where according to data from Nielsen Media Research, the total and demographic (25-54) viewership during the prime time segment (9:30am - 5:00 pm) just tumbled to 216K and 40K - the lowest recorded viewership since mid 2005 and sliding.

Frontrunning: May 8

  • Pentagon Plans for the Worst in Syria (WSJ)
  • Russia and US agree to Syria conference after Moscow talks (FT)
  • Hedge Funds Rush Into Debt Trading With $108 Billion (BBG)
  • Detroit is the new "deep value" - Hedge funds in search of distress take a look at Detroit (Reuters)
  • Commodities hedge funds suffer weak first quarter (FT)
  • But... but... Abenomics - Toshiba posts 62% decline in Q1 net profit (WSJ)
  • Americans Are Borrowing Again but Still Less Than Before Freeze (WSJ)
  • Man Utd announce Alex Ferguson to retire (FT)
  • Asmussen Says ECB Discussed ABS Purchases to Spur SME Lending (BBG)
  • Benghazi Attack Set for New Review (WSJ)
  • Belgium Says 31 People Arrested Over $50 Million Diamond Theft (BBG)
  • Brazilian diplomat Roberto Azevêdo wins WTO leadership battle (FT)
  • Bangladesh Garment Factory Building Collapse Toll Reaches 782 (BBG)

11 Reasons Why The Federal Reserve Should Be Abolished

If the American people truly understood how the Federal Reserve system works and what it has done to us, they would be screaming for it to be abolished immediately.  It is a system that was designed by international bankers for the benefit of international bankers, and it is systematically impoverishing the American people. The Federal Reserve system is the primary reason why our currency has declined in value by well over 95 percent and our national debt has gotten more than 5000 times larger over the past 100 years. The Fed creates our "booms" and our "busts", and they have done an absolutely miserable job of managing our economy. So why is the Federal Reserve doing it?  Sadly, this is the way it works all over the globe today.  In fact, all 187 nations that belong to the IMF have a central bank.  But the truth is that there are much better alternatives.