While most Americans are busy Christmas shopping and making preparations for trips to see family, Congress remains hard at work doing what it does best. Giving gifts to Wall Street and trampling on citizens’ civil liberties.
The oil and gas boom in the United States was made possible by the extensive credit afforded to drillers. Not only has financing come from company shareholders and traditional banks, but hundreds of billions of dollars have also come from junk-bond investors looking for high returns. Junk-bond debt in energy has reached $210 billion, which is about 16 percent of the $1.3 trillion junk-bond market. That is a dramatic rise from just 4 percent that energy debt represented 10 years ago. junk bonds pay high yields because they are high risk, and with oil prices dipping below $70 per barrel, companies that offered junk bonds may not have the revenue to pay back bond holders, potentially leading to steep losses in the coming weeks and months. The situation will compound itself if oil prices stay low.
Not everything is as it seems. While the PBOC may be taking a stand on monetarism and its character, it has been very curious that the yuan has not fully participated in the dollar turmoil marking so many other “dollar” dependent nations. While the yuan’s appreciation trend may have been altered, that has not led again to the kind of disorder that marked the currency earlier in the year. Maybe that is due, at least in part, to these expectations that the PBOC will eventually relent on its new approach, but we also think that the PBOC is at least looking the other way on some of the “old tricks” that supported the Chinese version of the dollar short.
We suspect the market will be disappointed by this morning's headlines from China. Chinese rate markets are implying a RRR cut is coming soon (as swap rates drop below deposit rates - previously signaled 2 RRR cuts) but the PBOC announced this morning a muich more focused injection of cash to 20 of the nations' largest banks. RRR cuts, are (theoretically) considerably more broadly stimulative to lending than a $32.8 billion cash injection to banks - which are struggling to lend as demand for loans (given high costs of debt for the firms that need the money the most) is weak. One can only imagine the holes in bank balance sheets that exist if the PBOC is forced to do this. Simply put, no matter how much hope there is, as we noted previously, the PBOC will not be providing broad stimulus.
The best performer among the top-five US banks is U.S. Bancorp (NYSE:USB) and by a wide margin...
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Now that the World Cup is over, and following last week's global macro reporting slumber (aside for the Portuguese risk flaring episode of course), things pick up quite a bit in the coming week. Here are the key events.
Well, if you take the US Supreme Court and representatives of the Federal Reserve System at their own words, the case is pretty clear: the member banks of the Federal Reserve System are private corporations / banks.
Straightforward dispassionate overview of the investment climate
As The Fed tapers and shifts its decision-making process away from rules-based, model-backed strategies in favor of "we'll know when to tighten when we see it" qualitative hand-waving, it seems the need to maintain teams of PhDs - to mutually masturbate over the historical back-fitted effectiveness of their models - is lacking. As The Boston Globe reports, The Federal Reserve Bank of Boston will cut nearly 15% of its workforce - around 160 jobs - in the largest layoff in over a decade... “It’s obviously a tough decision for us and the folks who are here,” Lavelle said. “It’s really about cost and efficiency.” Austerity strikes... (as it turns out the job cuts are due to losing a key customer - The US Treasury!)
It wouldn't be the first time the Fed has "stretched" the truth...
On Sunday, Senate lawmakers unveiled the 442-page plan that will eliminate the mortgage-finance giants; replacing them with a new system in which the government would continue to play a potentially significant role insuring U.S. home loans. The Johnson-Crapo bill would, as WSJ reports, construct an elaborate new platform by which a number of private-sector entities, together with a privately held but federally regulated utility, would replace key roles long played by Fannie and Freddie.
So much for the strict, evil Volcker Rule which was a "victory for regulators" and its requirement that banks dispose of TruPS CDOs. Recall a month, when it was revealed that various regional banks would need to dispose of their TruPS CDO portfolios, we posted "As First Volcker Rule Victim Emerges, Implications Could "Roil The Market"." Well, the market shall remain unroiled because last night by FDIC decree, the TruPS CDO provision was effectively stripped from the rule. This is what came out of the FDIC last night: "Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule." In other words, the first unintended consequences of the Volcker Rule was just neutralized after the ABA and assorted banks screamed against it.