The ink on the final Volcker Rule has not dried yet, and already the TBTF armies of lawyers have found all the loopholes in the rule they need to continue prop trading as if nothing has changed. Enter Goldman Sachs which as the WSJ reported, is raising a new fund, to which it will contribute 20% in capital, which will make investments in commercial real estate-backed loans including office buildings, hotels, and shopping centers. "Goldman has raised more than $1 billion for the new fund, according to people briefed on the matter. The fund aims to boost that total to $2 billion, and Goldman expects to invest "up to 20% of total equity commitments," according to September marketing documents reviewed by The Wall Street Journal." Just how did Goldman get the green light to allocated up to $400 million for what is clearly a prop trading bet: "because regulators excluded many real-estate loans from the tough restrictions on investment funds, allowing Wall Street firms to continue making concentrated bets—sometimes risky ones—with their own capital." In other words, when it comes to reflating the precious real estate bubble, anything goes.
- Apple, China Mobile sign long-awaited deal to sell iPhones (Reuters)
- U.S. growth hopes help shares shrug off China money market jitters (Reuters)
- Rule Change on Health Insurance Rattles Industry (WSJ), Obamacare's signup deadline on Monday has its exceptions (Reuters)
- Tale of Two Polish Mines Shows Biggest EU Producer’s Woes (BBG)
- Probes See U.K. Market Manipulation Reports Rise 43% (BBG)
- Shoppers Grab Sweeter Deals in Last-Minute Holiday Dash (BBG)
- Banks Mostly Avoid Providing Bitcoin Services (WSJ)
- Secret Handshakes Greet Frat Brothers on Wall Street (BBG)
Blackstone Group appears to be trying to oligopolize the business of renting single-family homes in the U.S.. As Bloomberg reports, after the housing crash left more than 7 million foreclosed homes in its wake, the investment firm has spent more than $7.8 billion purchasing about 41,000 single-family homes for rental conversion. The world's largest private equity firm has quickly become the largest landlord (of rental homes) in the U.S. and in October, Blackstone offered the first-ever "rental-home-backed" security on Wall Street. One has to wonder if this was the plan all along?
First hint of what happens when the heavily subsidized industry is being encouraged to try to stand on its own wobbly feet.
- MOAR: BOJ Said to See Significant Room for More Bond Purchases (BBG)
- Meltdown Averted, Bernanke Struggled to Stoke Growth (Hilsenrath)
- New Mortgages to Get Pricier Next Year (WSJ)
- Republicans to Seek Concessions From Obama on Debt Limit (BBG)
- Hunting for U.S. arms technology, China enlists a legion of amateurs (Reuters)
- Jury Begins Deliberating in Case of SAC Portfolio Manager (WSJ)
- BP to Write Off $1 Billion on Failed Well (WSJ)
- Rajan Unexpectedly Keeps India Rates Unchanged to Support Growth (BBG)
- Thai protesters say they will rally to hound PM from office (Reuters)
- SEC Brings Fewer Enforcement Actions, Slows Early-Stage Probes (WSJ)
- Fed’s $4 Trillion Assets Draw Lawmaker Ire Amid Bubble Concern (BBG)
- Ex-Goldmanite Fab Tourre fined more than $1 million (WSJ)
- EU Banks Shrink Assets by $1.1 Trillion as Capital Ratios Rise (BBG)
- Japan to bolster military, boost Asia ties to counter China (Reuters)
- China condemns Abe for criticizing air defense zone (Reuters)
- Insider-Trading Case May Hinge on Phone Call (WSJ)
- Republicans Gird for Debt-Ceiling Fight (WSJ)
- Mario Draghi pushes bank union deal (FT)
- German Coalition Plans More Pension Money (WSJ)
- Oil Supply Surge Brings Calls to Ease U.S. Export Ban (BBG)
Real estate is currently a tale of two distinct trends. In formerly hurting markets such as Arizona, Nevada and Florida, private equity investors have flooded into what is a now gigantically crowded to “buy-to-rent” trade. Meanwhile, in the prime markets such as New York City and San Francisco, we have seen the “money laundering trade,” where rich oligarchs move their often ill-gotten gains into trophy real estate assets abroad. We have seen many signs all year that the first key pillar to the manufactured rise in housing was becoming strained, as rents continued to rise while incomes continued to fall. As far as the second pillar, well at some point the oligarchs will have purchased enough homes in London and Manhattan and then what? Interestingly, the seemingly unstoppable rental market in Manhattan is showing signs of cracking...
Why Obama's Home Affordable Modification Program Failed (Spoiler Alert: Thank Bank Of America et al)Submitted by Tyler Durden on 12/16/2013 20:41 -0400
Back when the Executive and Congress at least pretended not to abdicate all power to the Fed, one of the centerpiece programs designed to boost the housing market for the benefit of the poor (as opposed to letting Ben Bernanke make marginal US housing a rental industry owned by a handful of private equity firms and hedge funds), was Barack Obama's Home Affordable Modification Program or HAMP, which attempted to prevent foreclosures by lowering distressed borrowers’ mortgage payments. Under the program, homeowners would be given trial modifications to prove they can make reduced payments before the changes become permanent. The program was a disaster as of the 3 million foreclosures that were targeted for modification in 2009, only 905,663 mods have been successful nearly five years later - a tiny 13% of the 6.9 million who applied (still, numbers which Obamacare would be delighted to achieve). Part of the reason: the program's reliance on the same industry that sold shoddy mortgages during the housing bubble and improperly sped foreclosures afterward. But there was much more. For the definitive explanation of everything else that went wrong, we go to Bloomberg's Hugh Son whose masterpiece released today explains how and why once again the banks - and especially one of them - won, and everyone else lost.
As a general rule, extreme economic decline is almost always followed by extreme international conflict. Sometimes, these disasters can be attributed to the human survival imperative and the desire to accumulate resources during crisis. But most often, war amid fiscal distress is usually a means for the political and financial elite to distract the masses away from their empty wallets and empty stomachs. War galvanizes societies, usually under false pretenses. We're not talking about superficial “police actions” or absurd crusades to “spread democracy” to Third World enclaves that don’t want it. No, we're talking about REAL war: war that threatens the fabric of a culture, war that tumbles violently across people’s doorsteps. The reality of near-total annihilation is what oligarchs use to avoid blame for economic distress while molding nations and populations. Because of the very predictable correlation between financial catastrophe and military conflagration, it makes quite a bit of sense for Americans today to be concerned.
"Twas the Friday before the Friday before Christmas..." and as the year end rapidly approaches the mainstream consensus is that 2014 will be another bouyant year for the stock market despite the impact of a potential Federal Reserve tapering. The optimistic view is an easy one. While it isn't popular, or fun, to look at the non-bullish view it is nonetheless important to consider the risks that could potentially lead to a larger than expected loss of investment capital. There is one simple truth about financial markets and investing: what goes up must come down. It is the downside risk that is most damaging to long term investment returns. Therefore, this week's "Things To Ponder" is a sampling of views and thoughts on what to watch out for as we enter the new year.
The Yen has worked of an overbought condition over the last 7 months. How to play it
The last time the housing bubble popped, the "frontier" marginal market of Las Vegas was the first harbinger of what was about to come. It is that again, and as real estate expert Mark Hanson explains, "Las Vegas housing demand has crashed." This is hardly an auspicious sign for the rest of the epically reflated housing market which as we have been tirelelessly pointing out for the past two years, has not recovered, but has merely had its 4th dead cat bounce on the back of i) the implicit bank subsidy of foreclosure stuffing, ii) money laundering by "all cash" foreign buyers using the NAR's anti-money laundering exemption loophole, and iii) private equity zero cost of credit REO-to-Rent programs which are now in their last days.
- Wall Street Exhales as Volcker Rule Seen Sparing Market-Making (Bloomberg)
- GM to End Manufacturing Down Under, Citing Costs (WSJ)
- U.S. budget deal could usher in new era of cooperation (Reuters)
- Ukraine Police Back Off After Failing to Stop Protest (WSJ)
- First Walmart, now Costco misses (AP)
- Dan Fuss Joins Bill Gross Shunning Long-Term Debt Before Taper (BBG)
- China New Yuan Loans Higher Than Expected (WSJ)
- China bitcoin arbitrage ends as traders work around capital controls (Reuters)
- Blackstone’s Hilton Joins Ranks of Biggest Deal Paydays (BBG)
And so it is done (as we detailed here)... and due to be put in place as of April1st 2014 (rather ironically). The 100-plus-pages of rules and regulations prohibit two activities of banking entities: (i) engaging in proprietary trading; and (ii) owning, sponsoring, or having certain relationships with a hedge fund or private equity fund. But the kicker...
"requires banking entities to establish an internal compliance program designed to help ensure and monitor compliance with the prohibitions and restrictions of the statute and the final rule."
Great! Because self-regulation worked so well in the past for the financial services industry.
Volcker Rule Details Revealed: Compensation For Prop Trading Will Be Barred... Just Not Prop Trading ItselfSubmitted by Tyler Durden on 12/09/2013 18:03 -0400
The WSJ has revealed the latest developments of tomorrow's "fluid" Volcker Rule vote on prop trading:
- Volcker Rule Will Bar Compensation Arrangements That Reward Proprietary Trading, Rule Text Says
- Rule Will Exempt Foreign Sovereign Debt From Proprietary Trading Ban, According To Rule Text Reviewed By Wall Street Journal
In other words, prop trading itself will not be explicitly barred, just associated compensation (and banks can still buy as much Italian and Spanish bonds for their accounts as they want). Which means banks can engage in as much prop trading as they wish (which courtesy of $2.4 trillion in excess deposits aka excess reserves is a lot) and bang as much VIX closes as they desire, they just need to have trader bonus "arranagements" to be tied to something else. Like make-believe flow trading which can be manipulated to show anything and everything.