en Nasdaq Volatility Spikes As "Exuberance Has Turned To Panic" <p>With the &quot;generals&quot; finally meeting their reality-maker, investors appear to be questioning the DotCom bubble-like highs as momentum collapses. &quot;Exuberance has turned to panic pretty quickly,&quot; notes one asset manager and after a very rapid plunge in recent days, <strong>options traders are piling into protection at a pace not seen since Q4 2008</strong>.</p> <p>The Nasdaq-S&amp;P implied vol spread is more than double its 5 year average...</p> <p><a href=""><img height="346" src="" width="600" /></a></p> <p><em>(ignore the spikes as they represent rolls as opposed to trends)</em></p> <p>&nbsp;</p> <p><a href=""><em>As Bloomberg reports, </em></a><strong>options traders are betting the pain is far from over in the Nasdaq 100 Index,</strong> driving the cost of protection to its highest relative to the S&amp;P since the middle of the financial crisis in 2008.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>It&rsquo;s the latest exodus from risk in the U.S. equity market,</strong> with selling that started in energy shares spreading to everything from health-care to banks. Technology companies, which until recently had been spared because of their low debt burden and rising earnings, joined the rout as investors focus on elevated valuations among the industry&rsquo;s biggest stocks.</p> <p>&nbsp;</p> <p><strong>&ldquo;Exuberance has turned to panic pretty quickly,&rdquo;</strong> said Stephen Solaka, managing partner of Belmont Capital Group in Los Angeles, which oversees about $400 million.<strong> &ldquo;Technology stocks have had quite a run, and now they&rsquo;re seeing momentum the other way.&rdquo;</strong></p> <p>&nbsp;</p> <p>Options are signaling more trouble ahead just as professional speculators dump bullish wagers on the group. Hedge funds and large speculators have pared back their long positions on the Nasdaq 100 for a fourth week out of five, data from the Commodity Futures Trading Commission show.</p> <p>&nbsp;</p> <p>&ldquo;Tech names had become a crowded long, and now we are seeing the unwind,&rdquo; said Pravit Chintawongvanich, a New York-based derivatives strategist at Macro Risk Advisors. &ldquo;Investors are willing to pay up for protection in tech and growth names. It is probably justified. You could see this volatility spread widen even further.&rdquo;</p> </blockquote> <p><strong>Even after a 16 percent plunge from a record in November, Nasdaq 100 companies still trade at 16.3 times projected profits, higher than the S&amp;P 500&rsquo;s 15.4 ratio.</strong> Scott Minerd, chief investment officer for Guggenheim Partners LLC, said in an interview that technology stocks will tumble even further this year as investors flee to safety and buyers stay on the sidelines.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="934" height="539" alt="" src="" /> </div> </div> </div> Commodity Futures Trading Commission NASDAQ Nasdaq 100 Volatility Wed, 10 Feb 2016 00:45:00 +0000 Tyler Durden 523194 at Australia Admits Recent Stellar Job Numbers Were Cooked <p>Two months ago the Australian media, which unlike its US counterpart refuses to be spoon fed ebullient economic propaganda, called bullshit on the spectacular October job numbers, when instead of adding 15,000 jobs as consensus expected, Australia's Bureau of Statistics reported that a whopping 58,600 jobs had been added.&nbsp; We covered this in "<a href="">Australian Media Throws Up All Over 'Stellar' Jobs Report: "Don't Believe The Jobs Figures</a>!"</p> <p>One month later, the situation got even more ridiculous, when instead of the expected 10,000 drop in November, the "statistical" bureau announced that 71,400 jobs had been added, the most in 15 years, <strong>and the equivalent of 1 million jobs added in the US</strong>. Once again the local media cried foul as we documented in "<a href="">Australian Media Throws Up All Over 'Stellar' Jobs Report, Again"</a></p> <p>Indicatively, for a sense of how grotesque the jobs "data" was, the chart below shows that while the October report was a 6-sigma beat, the November was an even more laughable 8-sigma.</p> <p><a href=""><img src="" width="600" height="454" /></a></p> <p>&nbsp;</p> <p>Two months later we find that the media, and all those mocking the government propaganda apparatus, were spot on, because moments ago today, Australia Treasury Secretary John Fraser, during testimony to parliamentary committee, admitted that jobs growth for the two months in question "may be overstated."&nbsp; What's the reason? The same one the propaganda bureau always uses when its lies are exposed: "technical issues", the same explanation the Atlanta Fed used in its explanation for a strangely belated release of its GDP Now estimate <a href="">one month ago</a>.</p> <p>Here's <a href="">Bloomberg with more</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Australia has had some technical issues with its labor data, which “look a little bit better” than would otherwise have been the case, the secretary to the Treasury said, commenting on record employment growth in the final quarter of 2015.</p> <p>&nbsp;</p> <p>John Fraser, the nation’s top economic bureaucrat, told a parliamentary panel in Canberra Wednesday <strong>that he held discussions on the employment figures with the chief statistician this week</strong>. He didn’t elaborate on the meeting but said the recent strength in the jobs market is encouraging.</p> <p>&nbsp;</p> <p><strong>There were some “technical issues” in October and November that may have made the employment figures “look a little bit better than otherwise would be the case,” </strong>he said. The technical issues relate to “rolling off” of participants in the labor survey.</p> <p>&nbsp;</p> <p>Australia’s economy added 55,000 jobs in October and a further 74,900 in November, before shedding 1,000 in December to produce the record quarterly gain. <strong>Questions regarding the accuracy of the data have been raised following acknowledgment by the statistics agency in 2014 of measurement challenges.</strong></p> </blockquote> <p>Why the sudden admission it was all a lie? Simple: weakness in commodity prices "<strong>is far greater than people had been expecting,” </strong>Fraser said in earlier remarks to the panel. Australia is now "swimming against the tide" because of uncertainties in the global economy, he added.</p> <p>Translation: "we need more easing, and to do that, the economy has to go from strong to crap." And with the Australian economy suddenly desperate for lower rates from the RBA, one can ignore the propaganda lies, and focus once again on the far uglier truth.</p> <p>Which makes us wonder: with the Yellen Fed in desperate need of political cover for relenting on its terrible rate hike strategy, and once again lowering rates to zero or negative, a recession - something JPM hinted at yesterday - will be critical. And what better way to admit the US has been in one for nearly a year than to drastically revise all the exorbitant labor numbers over the past 12 months.</p> <p>You know, for "technical reasons"...</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="852" height="816" alt="" src="" /> </div> </div> </div> Australia CRAP Global Economy Recession Testimony Wed, 10 Feb 2016 00:41:15 +0000 Tyler Durden 523217 at If Knowledge Is Power, Is It Also Wealth? <p><em><a href="">Submitted by Charles Hugh-Smith of OfTwoMinds blog,</a></em></p> <p><em>Ironically perhaps, the ideas that are scarce are those that disrupt &quot;business as usual&quot; by automating what has not yet been automated.</em></p> <p><strong>Let&#39;s consider a syllogism: Knowledge is power, power equals wealth, so knowledge equals wealth.</strong></p> <p><strong>Is this true? Author George Gilder thinks so.</strong> His book <a href=";camp=1789&amp;creative=9325&amp;creativeASIN=1621570274&amp;linkCode=as2&amp;tag=charleshughsm-20&amp;linkId=4SAODIMKJJ26MOM5" target="resource">Knowledge and Power: The Information Theory of Capitalism and How it is Revolutionizing our World</a>, proposes that (in Bill Bonner&#39;s apt phrase) <em>&quot;the economy is fundamentally a learning system, not a way for distributing wealth.&quot;</em></p> <p>In Gilder&#39;s view, new information (i.e. knowledge) enables us to do things better, i.e. increase productivity. New knowledge is what creates value.</p> <p>New knowledge is always surprising, and it naturally disrupts &quot;business as usual.&quot; So those earning money from business as usual must suppress the disruption arising from new knowledge to maintain their incomes/profits.</p> <p>Bonner summarizes the conflict between vested interests (cronies and zombies) and those with new knowledge in this lively fashion:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&quot;In an economy, the person who is the source of most important new information is the entrepreneur. He is the fellow who takes risks and builds a new business.</em></p> <p>&nbsp;</p> <p><em>The cronies want to stop him, before he undermines the value of their old assets and old business models with new information. The zombies want to drag him down, leeching on him so greedily that he runs out of energy.&quot;</em></p> </blockquote> <p><strong>Gilder views vested interests limiting new knowledge as the real threat to the economy. </strong>This is the danger of &quot;regulatory capture,&quot; when vested interests bribe the state (government) to erect barriers to competition to maintain monopolies and rentier privileges.</p> <p>But what&#39;s missing from this view of the economy as a learning system is that value flows to what&#39;s scarce, and information is abundant.</p> <p>In other words, only very specific kinds of knowledge are scarce--the kind that create new goods, services and business models.</p> <p>These new models are precisely what destroys not just &quot;bad&quot; cronyism but &quot;good&quot; jobs. What&#39;s scarce is ideas that automate existing processes.</p> <p>As Michael Spence and co-authors Andrew McAfee and Erik Brynjolfsson observed in their 2014 essay, <a href="" target="resource">Labor, Capital, and Ideas in the Power Law Economy</a>, <strong>neither capital nor labor have scarcity value in the age of automation and nearly-free credit</strong>.<em>&ldquo;Fortune will instead favor a third group: those who can innovate and create new products, services, and business models.&rdquo;</em></p> <p>Value in the knowledge economy is not distributed equally. The return on abundant human labor and capital are very low, while the scarcity of skills and knowledge that create new products, services, and business models drives most of the gains to the creative class: <em>&ldquo;The distribution of income for this creative class typically takes the form of a power law, with a small number of winners capturing most of the rewards. In the future, ideas will be the real scarce inputs in the world -- scarcer than both labor and capital -- and the few who provide good ideas will reap huge rewards.&rdquo;</em></p> <p>Learning--the acquisition of skills and knowledge--is difficult and costly. Developing new ideas and applying them in the real world is an uncertain process and therefore risky.</p> <p><em><strong>From this perspective, rewards flow not just to what&rsquo;s scarce but to what is inherently risky. Since most ideas fail to reach fruition, new ideas that succeed in boosting productivity are intrinsically scarce.</strong></em></p> <p>In other words, there is no risk-free way to identify and exploit scarcity in a knowledge economy in which vast troves of information and knowledge are free and have no scarcity value.</p> <p><strong>The wild card here is knowledge is increasingly unownable and therefore it cannot be kept scarce for private gain.</strong></p> <p>It seems that while knowledge may be powerful in terms of empowering the learner to improve their own lives, knowledge can only generate wealth if it is scarce and ownable.</p> <p>Ironically perhaps, the ideas that are scarce are those that disrupt &quot;business as usual&quot; by automating what has not yet been automated.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="212" height="130" alt="" src="" /> </div> </div> </div> Cronyism Fail Wed, 10 Feb 2016 00:20:00 +0000 Tyler Durden 523200 at Sweden Arrests 14 For Plotting To Attack Migrant House With Axes, Iron Pipes <p dir="ltr">The Swedes are aggravated with Mid-East migrants.</p> <p dir="ltr">With the highest per capita rate of sheltered asylum seekers in Europe, Sweden has become something of a poster child for migrant mischief.</p> <p dir="ltr">In the wake of the sexual assaults that swept the bloc on New Year’s Eve, the world is suddenly focused on Sweden, where some say police <a href="">conspired to cover up</a> a series of attacks that allegedly occurred in central Stockholm’s Kungsträdgården last August and where a 22-year-old aid worker was recently stabbed to death by a Somali migrant. </p> <p><span style="font-size: 1em; line-height: 1.3em;">The backlash in the country is palpable and recently manifested itself in a move by the “football hooligan” crowd to <a href="">stage an assault</a> on Stockholm’s main train station where dozens of Moroccan migrant children are apparently camped out.</span></p> <p dir="ltr">On Tuesday, in the latest sign that Swedes are becoming increasingly fed up with their government’s policy on refugees, more than a dozen people were arrested for planning an attack on an asylum center. Apparently, <strong>the men were plotting to use “axes, knives, and iron pipes</strong>” against a refugee shelter in Nynashamn, which is located some 60 kilometres (37 miles) south of Stockholm.</p> <p>"Swedish police said Tuesday they had <strong>arrested 14 men for allegedly planning to attack an asylum centre after finding axes, knives and iron pipes in their cars," </strong><a href=";ns_source=twitter&amp;ns_mchannel=social&amp;ns_linkname=editorial&amp;aef_campaign_ref=partage_aef&amp;aef_campaign_date=2016-02-09">France 24 reported</a><strong>.&nbsp;</strong></p> <p>"We believe that the migrant centre was the target of the attack," a police spokesman Hesam Akbari <a href=";ns_source=twitter&amp;ns_mchannel=social&amp;ns_linkname=editorial&amp;aef_campaign_ref=partage_aef&amp;aef_campaign_date=2016-02-09">told AFP</a>. Here's more <a href="">from The Local</a>:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p dir="ltr"><em>Officers rounded up 14 people on Monday night in cars close to the asylum accommodation that is thought to have been the intended target of the plot.</em></p> <p dir="ltr"><em>Batons, knives, iron bars and axes were found in the suspects' vehicles.</em></p> <p dir="ltr">&nbsp;</p> <p dir="ltr"><em>Hesam Akbari, a spokesperson for Stockholm police, told the TT news agency that members of the group were facing a number of charges.</em></p> <p dir="ltr">&nbsp;</p> <p dir="ltr"><em>"The (police) report now concerns three offences. <strong>Preparation for aggravated assault, incitement to aggravated assault and incitement to aggravated arson</strong>," he said.</em></p> <p dir="ltr">&nbsp;</p> <p dir="ltr"><em>The editor of Swedish anti-racism magazine Expo, Mikael Färnbo, told TT that they have previously observed close links between far-right communities in Sweden and Eastern Europe.</em></p> <p dir="ltr">&nbsp;</p> <p><em>"In general terms alone we can say that we know that there are connections," he said.</em></p> </blockquote> <p>Who knows what these 14 men were planning on doing, but the fact that they apparently had "axes, knives, and iron pipes" stashed in their vehicles certainly seems to suggest that something nefarious was likely in the cards.&nbsp;</p> <p>Swedish Radio said the men may have been members of "right-wing groups."</p> <p>You're reminded that the far-right has witnessed something of a resurgence over the past nine or so months in Europe as citizens become increasingly leery of Mid-East refugees. PEGIDA staged bloc-wide protests on Saturday and in Finland, the "Soldiers of Odin" are proof positive that nationalism is alive and well. In Bavaria, a carnival float made to resemble a Nazi tank read: "Asylum defense."</p> <p><img src="" width="600" height="356" /></p> <p>We've long said that it's just a matter of time before the bevy of bad migrant news sparks an outright rebellion among Europeans who are increasingly fed up with the effort to integrate millions of asylum seekers fleeing the violence that besets the Mid-East.&nbsp;</p> <p>It's not that Western Europe isn't compassionate. The bloc's citizens have simply determined that between the Paris attacks, the New Year's Eve sexual assaults, and <a href="">the murder of&nbsp;Alexandra Mezher</a>, enough is enough with the whole multicultural utopia ideal.</p> <p>As the "<a href="">football hooligan</a>" incident underscores, it's only a matter of time before a violent attack on refugees occurs, if not in Sweden, then in Germany, or in Austria where officials are literally prepared to pay migrants €500 to go back to where they came from because nothing says "scapegoating xenophobia" like a trunk full of "axes, knives, and iron pipes."</p> <p>Oh, and the punchline to the whole thing: all 14 suspects were carrying foreign ID papers.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="660" height="393" alt="" src="" /> </div> </div> </div> Eastern Europe Finland France Germany Nationalism Tue, 09 Feb 2016 23:55:21 +0000 Tyler Durden 523212 at Platinum and Palladium Analysis (Video) <p>By <a href=""><span style="text-decoration: underline;"><span style="color: #0066cc;">EconMatters</span></span></a> </p> <div class="separator" style="clear: both; text-align: center;"><a title="Open in new window" class="external" href="" style="margin-left: 1em; margin-right: 1em;" target="_blank"><img border="0" height="271" width="400" src="" /></a></div> <p> We look at Platinum and Palladium metals from the technical side in this video. These often neglected metals are pretty unique and special in their own right, and can offer some great trading setups. </p> <div class="separator" style="clear: both; text-align: center;"><iframe height="266" width="320" src="" frameborder="0"></iframe></div> <div style="text-align: center;"> <p> © <a href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">EconMatters</span></span></a> All Rights Reserved | <a title="Open in new window" class="external" href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">Facebook</span></span></a> | <a title="Open in new window" class="external" href="!/EconMatters" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">Twitter</span></span></a> | <a title="Open in new window" class="external" href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">YouTube</span></span></a> | <a title="Open in new window" class="external" href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">Email Digest</span></span></a> | <a title="Open in new window" class="external" href=";node=80" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">Kindle</span></span></a><strong>&nbsp;</strong><em>&nbsp;</em></p></div> Twitter Twitter Tue, 09 Feb 2016 23:51:22 +0000 EconMatters 523213 at As Goldman Risk Explodes, President Says "No One Should Question Viability Of US Banks" <p>You know it&#39;s serious when the denials begin. Speaking in a Bloomberg TV interview, Goldman Sachs President Gary Cohn explained how<strong><em> &quot;US banks took their medicine early,&quot;</em></strong> adding that &quot;some European banks have been slow getting recapitalized.&quot; Having thrown his &#39;competitors&#39; across the ocean under the bus, Cohn then unleashed his comments with regard Goldman&#39;s own spiking credit risk - <em><strong>demanding that &quot;no one should question the viability of US banks.&quot;</strong></em><br />&nbsp;</p> <ul> <li><strong>*COHN: U.S. BANKS &lsquo;TOOK OUR MEDICINE EARLY&rsquo;</strong></li> <li><strong>*COHN: U.S. BANKS DELEVERAGED AND HAVE ENORMOUS EXCESS LIQUIDITY</strong></li> <li><strong>*COHN: SOME EUROPEAN BANKS HAVE BEEN SLOW GETTING RECAPITALIZED</strong></li> <li><strong>*COHN: NO ONE SHOULD QUESTION THE VIABILITY OF U.S. BANKS</strong></li> </ul> <p>Goldman risk is soaring...<br /><a href=""><img height="311" src="" width="600" /></a></p> <p><em>We wonder how long before any discussion of stress in the banking system will be deemed &quot;hate speech&quot; and be deleted from the propaganda stream?</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="968" height="501" alt="" src="" /> </div> </div> </div> goldman sachs Goldman Sachs Tue, 09 Feb 2016 23:30:00 +0000 Tyler Durden 523193 at "I Don't Trust Deutsche Bank" David Stockman Unleashes Truth Bomb: "When The Crunch Comes, Bank CEOs Lie" <p>Following this morning&#39;s proclamation by Deutsche Bank co-CEO John Cryan that Germany&#39;s largest bank is &quot;rock solid,&quot; David Stockman exposed the ugly truth that everyone appears to have forgotten from just 7 years ago...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em><strong>&quot;in my experience is that when the crunch comes, bank CEOs lie&quot;</strong></em></p> </blockquote> <p>Stockman details the Morgan Stanley, BofA, Lehman, and Bear Stearns bullshit that occurred before exclaiming...</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>I don&#39;t trust Deutsche Bank. I don&#39;t trust what they&#39;re saying.</strong> And there&#39;s reason why the banks are being sold all across the world... because <strong>people are realizing once again that we don&#39;t know what&#39;s there </strong>[on bank balance sheets].&quot;</p> </blockquote> <p>Worth considering before tomorrow&#39;s European open...</p> <p>&nbsp;</p> <p><iframe width="560" height="315" src="" allowscriptaccess="always" frameborder="0"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="214" height="143" alt="" src="" /> </div> </div> </div> Bear Stearns Deutsche Bank Germany Lehman Morgan Stanley Tue, 09 Feb 2016 23:14:43 +0000 Tyler Durden 523210 at Falling Oil Prices Not The Reason For America's Economic Woes <p><a href=""><em>Submitted by Antonius Aquinas via,</em></a></p> <h3><span style="text-decoration: underline;"><strong>Why Should a Decline in Oil Prices be Bad?</strong></span></h3> <p>The dramatic fall in the global price of oil is being cited by the financial press, government officials, and academia as the catalyst for the recent abysmal U.S. economic data which shows that the economy is, in all likelihood, sliding into a recession or worse.</p> <p>&nbsp;</p> <p style="text-align: center;"><img alt="Oil_cartoon_12.09.2014_large" class="aligncenter wp-image-43160" height="355" src="" width="600" /></p> <p style="text-align: center;">Oil prices in dire straits&hellip;</p> <p>While falling oil prices sound like a plausible explanation for the abysmal financial numbers, anyone with a modicum of economic sense (which excludes much of the financial Establishment) can see that it is merely a smokescreen to obfuscate the real culprit.</p> <p>The fall in oil prices, while detrimental to many oil producers, should actually be a boon for the rest of the economy, especially those industries that are heavily reliant on energy. Lower fuel prices mean lower production costs leading to,&nbsp;<em>ceteris paribus</em>, greater output.</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="1-Gasoline, weekly" class="aligncenter wp-image-43156" src="" style="width: 600px; height: 265px;" /></a></p> <p style="text-align: center;">The price of gasoline has declined precipitously &ndash; click to enlarge.</p> <p>&nbsp;</p> <p>For consumers, lower oil prices mean lower utility bills and cheaper gasoline, both of which mean more disposable income for either savings or more consumption. Why would greater disposable income lead to a recession?</p> <p>Naturally, lower prices are not good for oil producers. But a decline in one sector of the economy (albeit an important one), does not lead to a general collapse. While the energy sector may be contracting, industries that use fuel should be able to expand as their production costs fall.</p> <p>&nbsp;</p> <p style="text-align: center;"><img alt="Kipper Williams cartoon 6 January 2015" class="aligncenter wp-image-43159" height="500" src="" width="399" /></p> <p style="text-align: center;">What constitutes great news in oil exploration nowadays</p> <p>&nbsp;</p> <h3><u><strong>The Pseudo-Prosperity of the Printing Press</strong></u></h3> <p><strong>The Federal Reserve&rsquo;s Quantitive Easing (QE), Zero Interest Rate Policy (ZIRP), Operation Twist (OT), and their variations have created a massive bubble in asset prices which is now beginning to burst.</strong> All of these polices have been undertaken to save the banking system from collapse after the crisis of 2008. Since the start of the Great Recession, none of the problems that have led to it have been addressed.</p> <p>Not only has the stock market been artificially inflated by the Federal Reserve, but it has come at a devastating cost in the decimation of savers, as the return on their money has dropped to next to nothing. This, of course, has had debilitating consequences on retirees and seniors.</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="2-TMS-2 plus FF rate" class="aligncenter wp-image-43157" src="" style="width: 599px; height: 350px;" /></a></p> <p style="text-align: center;">Broad US money supply TMS-2 and the Federal Funds rate &ndash; click to enlarge.</p> <p>&nbsp;</p> <p><strong>The Obama Administration, with little opposition from Republicans, has increased the federal deficit to nearly $20 trillion from the $9 trillion it had inherited with little or no hope of any reduction</strong>. Its wasteful stimulus program of a few years ago has done nothing to improve conditions while its collectivist health care initiative has placed crushing burdens across the economic spectrum.</p> <p><strong>What is even scarier is that Obama is apparently clueless about current economic conditions, as he mindlessly demonstrated in his (thankfully) last State of the Union Address:</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;Anyone claiming that America&rsquo;s economy is in decline is peddling fiction. What is true &ndash; and the reason that a lot of Americans feel anxious &ndash; is that the economy has been changing in profound ways, changes that started long before the Great Recession hit and hasn&rsquo;t let up.&rdquo;</p> </blockquote> <p>Obama is correct in one sense: there is a &ldquo;profound change&rdquo; that is happening in the economy, however, it is a change for the worse which he and his harmful policies have created.</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="3-Federal Debt" class="aligncenter wp-image-43158" src="" style="width: 600px; height: 285px;" /></a></p> <p style="text-align: center;">Federal debt since the 1990s &ndash; Obama took office in January 2009 &ndash; click to enlarge.</p> <p>&nbsp;</p> <p>Not surprisingly, in their rebuttal to the speech, the Republicans offered little in substance. Instead, they chose a spokesperson whose only claim to fame was her infamous decision as governess of South Carolina to remove the Confederate flag from state buildings. Needless to say, the choice of Nikki Haley met with disgust among the party&rsquo;s base. The GOP is not called the &ldquo;stupid party&rdquo; for nothing!</p> <p><em><strong>Unfortunately, for the vast majority of Americans, there is little likelihood that the present Administration or the next, be it of a different party, will turn things around. Instead, there will probably be more of the same.</strong></em></p> <p><u><strong>Until there is a change in ideology where the corrupt notions of money and credit creation via the printing press and the running of gargantuan deficits are debunked, American living standards will never improve.</strong></u></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="486" height="252" alt="" src="" /> </div> </div> </div> Federal Deficit Federal Reserve Money Supply None Obama Administration Recession South Carolina Tue, 09 Feb 2016 23:05:00 +0000 Tyler Durden 523195 at What's Dragging Down European Banks: Oil And Commodity Exposure As High As 160% Of Tangible Book <p>Yesterday, when looking at the <a href="">exposure of the Canadian banking sector to energy</a>, we found something disturbing: according to an RBC analysis, local banks were woefully underreserved.</p> <p><a href=""><img src="" width="501" height="412" /></a></p> <p>&nbsp;</p> <p>Yet while clearly overly optimistic about the severity and the duration of the commodity crunch, at least Canada's banks do provide some information, which however is more than can be said about most European banks. As Morgan Stanley writes, "<strong>Europeans have not typically disclosed reserve levels against energy exposure, making comparison to US banks challenging. </strong>Moreover, quality of books can vary meaningfully. For example, we note that Wells Fargo has raised reserves against its US$17 billion substantially non-investment grade book, while BNP and Cred Ag have indicated a significant skew (75% and 90%, respectively) to IG within energy books. Equally we note that US mid-cap banks typically have a greater skew to higher-risk support services (~20-25%) compared to Europeans (~5-10%) and to E&amp;P/upstream (~65% versus Europeans ~10-20%)."</p> <p>Morgan Stanley then proceeds to make some assumptions about how rising reserves would impact European bank income statements as reserve builds flow through the P&amp;L: in some cases the hit to EPS would be . </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>A ~2% reserve build in 2016 would impact EPS by 6-27%, we estimate:We believe noticeable differences exist between US and EU banks’ portfolios in terms of seniority and type of exposure. As such, applying the assumption of a ~2% further build in energy reserves in 2016, versus ~4% assumed for large US banks, <strong>we estimate that EPS would decline by 6-27% for European-exposed names (ex-UBS), with Standard Chartered, Barclays, Credit Agricole, Natixis and DNB most exposed.</strong></p> <p>&nbsp;</p> <p>Marking to market of high yield and lower DCM/credit trading is also likely to be an issue (and we forecast FICC down ~5% in 2016):We previously showed that CS had the biggest percentage of earnings from HY and already had the worst of peers YoY FICC in 3Q, which we fear could continue to drag, despite a vigorous focus on restructuring.</p> </blockquote> <p>A matrix of boosting reserves would look as follows on bank EPS:</p> <p><a href=""><img src="" width="600" height="388" /></a></p> <p>But the biggest apparent threat for European banks, at least according to MS calulcations, is the following: while in the US even a modest 2% reserve on loans equates to just 10% of Tangible Book value...</p> <p><a href=""><img src="" width="600" height="304" /></a></p> <p>... in Europe a long overdue reserve build of 3-10% for the most exposed banks, would immediately soak up anywhere between 60 and a whopping 160% of tangible book!</p> <p><a href=""><img src="" width="600" height="350" /></a></p> <p>Which means just one thing: as oil stays "lower for longer", and as many more European banks are forced to first reserve and then charge off their existing oil and gas exposure, expect much more diluation. Which, incidentlaly also explains why European bank stocks have been plunging since the beginning of the year as existing equity investors dump ahead of inevitable capital raises.</p> <p>And while that answers some of the "gross exposure to oil and commodities" question, another outstanding question is what is the net exposure to China. As a reminder, this is what Deutsche Bank's credit analyst Dominic Konstam said in his explicit defense of what needs to be done to stop the European bloodletting:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The exposure issue has been downplayed <strong>but make no mistake banks are heavily exposed to Asia/MidEast and while 10% writedown might be worst case for China but too high for the whole, it is what investors shd and do worry about </strong>-- whole wd include the contagion to banking hubs in Sing/HKong</p> </blockquote> <p>Ironically, it is Deutsche Bank that has been hit the hardest as the full exposure answer, either at the German bank or elsewhere, remains elusive; it is also what has cost European banks billions (and counting) in market cap in just the past 6 weeks. </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1162" height="678" alt="" src="" /> </div> </div> </div> Barclays Book Value China Deutsche Bank High Yield Morgan Stanley Standard Chartered Wells Fargo Tue, 09 Feb 2016 22:38:19 +0000 Tyler Durden 523199 at S&P Downgrades Banks With Highest Energy Exposure; Expects "Sharp Increase" In Non-Performing Assets <p>Moments ago S&amp;P continued its downgrade cycle, this time taking the axe to the regional banks with the highest energy exposure due to "expectations for higher loan losses." Specifically, its lowered its long-term issuer credit ratings on four U.S. regional banks by one notch: <strong>BOK Financial Corp., Comerica Inc., Cullen/Frost&nbsp; Bankers Inc., and Texas Capital Bancshares</strong>. The&nbsp; outlooks on these banks are negative. </p> <p>It also revised the outlook on BBVA Compass Bancshares to negative from stable and affirmed the 'BBB+/A-2' issuer&nbsp; credit ratings.</p> <p>We assume the non-regional mega banks are insulated from such actions because they are the primary beneficiaries of the Fed's generous $2.5 trillion in excess reserves which will allow banks to mask as much of O&amp;G portfolio deterioration as is necessary to "weather the cycle."</p> <p>What is notable is that among the S&amp;P non-sugarcoated comments are some true fire and brimstone gems, which suggest that the big picture for banks with substantial energy exposure is about to get far worse. Here is what S&amp;P said:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>These rating actions follow a review of U.S. regional banks with large energy&nbsp; loan portfolios as a percentage of both total loans and Tier 1 capital. </strong>Since we revised our outlooks to negative on five regional banks in January 2015, energy prices have declined by more than one-third and the asset quality of energy loan portfolios has deteriorated materially, albeit from fairly benign levels. <strong>Throughout 2015, criticized and classified assets climbed significantly, and in the fourth quarter, several regional banks with large energy loan portfolios reported increases in loan loss provisions and energy loss reserves to varying degrees, and, in certain cases, nonperforming assets (NPAs) also rose.</strong></p> <p>&nbsp;</p> <p><strong>Given further declines in energy prices in recent months, less hedging activity by borrowers, and potentially more difficulty for borrowers to cure (i.e., resolve) borrowing base deficiencies through capital raises or asset sales, we think troubled debt restructurings and NPAs in the energy sector will increase, <span style="text-decoration: underline;">possibly sharply</span>, in coming quarters</strong>. We also think banks will increasingly emphasize the potential loss content among rising levels of NPAs that we expect to see throughout 2016. In addition, we think <strong>regulatory scrutiny of energy loan portfolios will increase in 2016, including during the upcoming Shared National Credit (SNC) exams (two will be conducted in 2016) and the annual stress tests regulators mandate, which may encourage the use of higher loss assumptions.</strong></p> <p>&nbsp;</p> <p>Many banks have been lowering their energy price assumptions ("price decks") for exploration and production (E&amp;P) loans throughout 2015, resulting in reduced borrowing bases (the value of a borrower's reserves against which banks typically lend). <strong>In the next semiannual borrowing-base determination this spring, we expect that borrowing bases will decline further, </strong>mainly because of lower energy prices (i.e., valuations) and possibly lower reserve replacement, <strong>which could lead to more borrower deficiencies </strong>(i.e., loan balances that are greater than the borrowing base). Although banks typically allow borrowers as long as six months to resolve a deficiency, <span style="text-decoration: underline;"><strong>we think many borrowers will have fewer options to cure through debt capital issuances or asset sales and dispositions, which were more common last year</strong></span>. Specifically, the cost of capital has increased for many borrowers, and private equity firms may be less willing to commit additional capital to resolve deficiencies. <strong>In addition, E&amp;P borrowers may have unsecured debt in addition to their reserve-based loans, which could pressure their overall finances and push them into default or bankruptcy.</strong></p> <p>&nbsp;</p> <p>Equally as important, <strong>we think the performance of indirect credit exposures in local energy-focused markets could deteriorate somewhat over the next two years</strong>. Although deterioration has not yet been meaningful, <strong>we still think the energy price slump could hurt commercial real estate (CRE) in these local markets, such as Houston or smaller cities in Texas, throughout 2016 and 2017. </strong>However, we recognize that lower energy prices could have a broad-based positive impact on U.S. consumers and corporations where energy is a significant input cost. <strong>We are also wary of strategies that some banks may execute to aggressively grow their loan portfolios in other loan segments, such as CRE, in order to offset contraction in their energy loan portfolios.</strong></p> <p>&nbsp;</p> <p>Although we expect that banks will likely continue to increase their loan loss provisions and reserves within their energy loan portfolios over the next several quarters, we consider that currently low NPAs, solid preprovision earnings generation, and, in some cases, high risk-adjusted capital (RAC) ratios offer the banks a cushion to absorb higher loan loss provisions<strong>. This was a key factor in our decision to limit our rating actions to one notch at this point.</strong></p> <p>&nbsp;</p> <p>In our analysis of these companies, we evaluate the potential impact of certain adverse scenarios, based on default and net loan loss assumptions for different types of energy lending. For example, <strong>we expect that E&amp;P reserve-based lending will have lower net loss rates than energy services lending because of conservative advance rates on reserve collateral</strong>. We will continue to consider the array of possible assumptions regarding energy loan default and net loss rates, as the cycle develops. At this time, however, we do not believe that these banks' loan loss provisions would exceed preprovision earnings under most foreseeable scenarios, and, thus, our rating actions following this review were limited to a one-notch downgrade.</p> <p>&nbsp;</p> <p>The following table presents a few of the key metrics we are tracking and lists the banks that are included in today's actions, as well as others we believe have above-average exposure to energy.</p> <p>&nbsp;</p> <p><img src="" width="600" height="374" /></p> </blockquote> <p>Is that the end of it? Not even close. Expect much more pain - initially among the regional lenders, many of whom have been given explicit instructions to extend and pretnd as long as possible by the Dallas Fed as <a href="">reported exclusively here before </a>- before we reach a true bottom in bank exposure. </p> <p>Finally, for the full list, here is a breakdown from Raymond James laying out the US banks, both regional and national, with the highest exposure to energy: while some of these were just downgraded, this was for a reason: expect much more negative surprises from these lenders in the coming months as more shale stop servicing their debts. </p> <p><a href=""><img src="" width="600" height="578" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="931" height="580" alt="" src="" /> </div> </div> </div> Commercial Real Estate CRE CRE Dallas Fed default Excess Reserves Non-performing assets NPAs Private Equity ratings Raymond James Real estate Regional Banks Tue, 09 Feb 2016 22:35:52 +0000 Tyler Durden 523204 at