Here’s More Proof of the Sheer Lunacy of the European Bank Stress Tests: Passed Banks are Already Trying to Collect on Defaulted Claims of European NationsSubmitted by Reggie Middleton on 07/27/2010 12:32 -0500
European banks are already struggling to collect from fellow defaulted, sovereign (allegedly) backed banks yet we are hearing that there is no need to model in default or restructuring in the European bank stress tests. Of Iceland, Greece, Portugal, Ireland and soon Hungary are all just one-off occurrences.
Stay tuned, we might not need QE 2.0 after all...
Is something (abnormally) fishy in the state of precious metals manipulation? GATA's Adrian Douglas (recently famous for facilitating the emergence of whistleblower Andrew Maguire) seems to think so, after his observation that the LBMA has decided to block "access to statistics relating to the trading activities of its member bullion banks. This information has been available to the public since 1997 but as of this week it is available only to LBMA members." His conclusion: "There is a cover-up of back-door injections of liquidity of physical gold, and the LBMA now is trying to conceal trading information. I interpret the LBMA's move to secrecy as a sign that the opportunity to get real metal is closing fast." Read on for his argument...
I’m sorry to be the bearer of bad news. There are no easy solutions. There are only painful, more painful, and really really painful solutions. Both mainstream corrupted political parties have had the chance to put the country back on a prudent fiscal path. They have both failed miserably. One party will spend the country into oblivion and the other country will try to democratize the world with their military machine. There are no fresh ideas from either party. There are the same old stale ideas and rhetoric. - Jim Quinn
The news rocked the global gold market when an almost obscure line item in the back of a 216 page document released by an equally obscure organization was recently unearthed. Thrust into the unwanted glare of the spotlight, the little publicized Bank of International Settlements (BIS) is discovered to have accepted 349 metric tons of gold in a $14B swap. Why? With whom? For what duration? How long has this been going on? This raises many questions and as usual with all $617T of murky unregulated swaps, we are given zero answers. It is none of our business! Since President Richard Nixon took the US off the Gold standard in 1971, transparency regarding anything to do with gold sales, leasing, storage or swaps is as tightly guarded by governments as the unaudited gold holdings of Fort Knox. Before we delve into answering what this swap may be all about and what it possibly means to gold investors, we need to start with the most obvious question and one that few seem to ask. Who is this Bank of International Settlements and who controls it?
Both CalPERS and CalSTRS bounced back from the disaster of 2008, but they're not out of the woods and still face considerable challenges ahead.
Barclays analyst Jeffrey Meli has issued a report "European bank stress tests: A preview" in which he estimates that if properly executed, the Stress Test, whose results are to be announced on July 23, will require an infusion of €85 billion to replenish capital levels. Specifically, quantifying the amount of capital needed would include €36 billion for Spanish cajas, a number far greater than expected to date, €34 billion for the German landesbanks, €8.6 billion for Greek banks and €6 billion for Portuguese banks. Meli concludes: "Spreads have rallied over the past two weeks, suggesting the bar is no longer set so low that any disclosure whatsoever will cause a rally." So all those who plan on buying the news - beware.
After he read a book that he didn't understand, David Brooks came up
with another crackpot distortion of capitalism. This time, he finds a
sharp contrast between bankers and hedge fund managers, whom he lumps
together all other business entrepreneurs. In his latest column he writes:
The smooth operators at the big banks were playing with
other people's money, so they borrowed up to 30 times their investors'
capital. The hedge fund guys usually had their own money in their fund,
so they typically borrowed only one or two times their capital. The social butterflies at the banks got swept up in the popular
enthusiasms. The contrarians at the hedge funds made money betting
against them. The well-connected bankers knew they'd get bailed out if
anything went wrong. The solitary hedge fund guys knew they were on
their own and regarded their trades with paranoid anxiety.
Because they weren't playing with other people's money, hedge fund
managers were more careful than the big banks? How fatuous is Brooks'
analysis? Let's count the ways:
Scientific Proof That High Frequency Trading Induces Adverse Changes In Market Microstructure And Dynamics, And Puts Market Fairness Under QuestionSubmitted by Tyler Durden on 07/12/2010 23:46 -0500
Up until recently, any debate between proponents and opponents of High Frequency Trading would typically be represented by heated debates of high conviction on either side, with discussions rapidly deteriorating into ad hominem attacks and the producer screaming 'cut to commercial' to prevent fistfights. Luckily, all this is about to change. In a research paper by Reginald Smith of the Bouchet Franklin Institute in Rochester titled "Is high-frequency trading inducing changes in market microstructure and dynamics?" the author finds that he "can clearly demonstrate that HFT is having an increasingly large impact on the microstructure of equity trading dynamics. Traded value, and by extension trading volume, fluctuations are starting to show self-similarity at increasingly shorter timescales. Values which were once only present on the orders of several hours or days are now commonplace in the timescale of seconds or minutes. It is important that the trading algorithms of HFT traders, as well as those who seek to understand, improve, or regulate HFT realize that the overall structure of trading is influenced in a measurable manner by HFT and that Gaussian noise models of short term trading volume fluctuations likely are increasingly inapplicable." In other words, the author finds ample evidence that during the past decade (on the NASDAQ) and especially since the 2005 revision of Reg NMS (on the NYSE), stock trading increasingly demonstrates "self similar" fractal patterns, resulting in volatility surges, recursive feedback loops, and a market structure which is increasingly becoming a product of the actual trading mechanism. In the process, as demonstrated by a Hurst Exponent gravitating increasingly further away from 0.5 (i.e., Brown Noise territory), the Markov Process nature of stock trading is put under question, and thus the whole premise of an efficient market has to be reevaluated. Simply said: HFT has been shown to affect the fairness of trading.
The IMF has issued a less than stellar outlook of the US economy after consultations with US government authorities, in which it cautions that even as the outlook has generally improved, major downside risks remain: "On the downside, the backlog of foreclosures and high levels of negative equity, combined with elevated unemployment, pose risks of a double dip in housing; the continued deterioration in commercial real estate poses risks for smaller banks; and financing conditions remain tight, especially for smaller firms reliant on bank finance. Most recently, and tipping the balance of risks to the downside, sovereign strains in Europe have become an increasing concern, potentially impacting the United States through financial market and, in a tail risk scenario, trade links." Also notable is the fund's warning on the state of the US consumer and the perceived overvaluation of the dollar: "It follows, as also emphasized in last year’s Article IV, that the United States can no longer play the role of global consumer of last resort, underscoring the importance of measures to boost growth and demand in current account surplus countries. With the U.S. dollar now moderately overvalued from a medium term perspective, this will need to be accompanied by greater exchange rate flexibility/appreciation elsewhere."
On Tuesday, gold dropped to its lowest level in 6 weeks as investors explore riskier assets. China’s statement that it has no plans to start allocating more gold to its reserves (percentage wise), isn’t giving bulls much to work with this morning. Gold opened at $1212.2 per 100 troy ounces, and dropped to 1195.1 by closing time.
After Repeated Facts Presented That Stress Tests Are Scam, Europe Relents To Disclose Testing Methods, Even As Tests Still Remain A ScamSubmitted by Tyler Durden on 07/06/2010 14:52 -0500
It appears that constant badgering by fringe skeptics that Europe's stress tests are the dumbest thing since, well, our own "stress tests", has prompted European banking regulators to divulge just what the methodology of said testing will be tomorrow, ahead of the result announcement on July 23. According to Reuters: "The Committee of European Bank Supervisors (CEBS) will on Wednesday outline the methodology of a stress test that simulates the impact of a severe economic shock on about 100 banks in the euro zone and other countries, sources close to the process said." The reason: "The move, agreed last week, comes as speculation mounts that national authorities and bankers are massaging the test design to make sure their systems fare well, potentially undermining the regulators' goal to boost confidence in the banks." And because lying within the confines of a set of parameters has never happened before in Europe (well, except for those Goldman facilitated currency swaps with Greece and Italy, and the whole Eurostat scandal) this is supposed to make everyone fully convinced that Europe will for once be fully honest and upfront with everyone.
"We saw in 2008/09 that the endowment approach is not immune to downturns, but these are some of the smartest minds in the investment industry and the high value of their investment proposition is obvious over the long term."
Having rapidly become the only person worth listening to on CNBC, Rick Santelli's insights on the economy are now far more valuable than any other guest's on the Jeff Immelt propaganda station. Which is why we were very happy to find that Eric King's latest interview was with none other than Mr. Santelli. The topics discussed are numerous, varied and and very critical to our economy, covering such concepts as deflation, deficit spending, bailouts, government spending multipliers, Fed transparency, spending cuts, austerity, the folly of Keynesianism, strategic defaults, direct bidders and treasury auctions, and lastly, tea party dynamics, making this a must hear interview for anyone still on either side of the economic fence, and who enjoys listening to Rick for longer than the 45 second segments the CNBC producers will allow.