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Here Is Why The Fed Can't Hike Rates By Even 0.25%
There was a time when Zoltan Poszar was the most important person at the Fed (and Treasury), because he was likely the only person in the government's employ who grasped the enormity and complexity of the then-$30 or so trillion US shadow banking system. A quick refresh of his bio from the Institute for New Economic Thinking:
Mr. Pozsar has been deeply involved in the response to the global financial crisis and the ensuing policy debate. He joined the Federal Reserve Bank of New York in August 2008 in charge of market intelligence for securitized credit markets and served as point person on market developments for senior Federal Reserve, U.S. Treasury and White House officials throughout the crisis; played an instrumental role in building the TALF to backstop the ABS market; and pioneered the mapping of the shadow banking system which inspired the FSB’s effort to monitor and regulate shadow banking globally. Prior to Credit Suisse, Mr. Pozsar was a senior adviser to the U.S. Department of the Treasury, where he advised the Office of Debt Management and the Office of Financial Research, and served as Treasury’s liaison to the FSB on matters of financial innovation. He also worked with the Federal Reserve Board on improving the U.S. Flow of Funds Accounts.
While Zoltan is currently working in the private sector at Credit Suisse, he is perhaps best known for laying out, back in 2009, the full topographical map of the US shadow banking system in all its flow of assets (or is that contra-assets when it is a repo) beauty.
Which is also why we bring him up, because in a much welcome follow up to his previous work title "A Macro View of Shadow Banking" which we will discuss further in the coming days because it is not only Zoltan's shadow banking magnum opus and must read for anyone who wants to get up to speed with all the latest development in the unregulated shadow banking space, but because Poszar also provides perhaps what is the most important chart which explains why the Fed is so very terrified of even the smallest possible incremental rate hike of 0.25%.
Specifically, we look at Poszar's findings about the implied leverage within the fixed income asset space in America's just a little levered buyside community. This is what he says:
Although no precise measures are available, the presence of leverage among hedge funds with credit and fixed income strategies has been recognized since the LTCM crisis (see Figure 21), as is leverage in separate accounts in the asset management complex.
While hedge funds and separate accounts are allowed to use leverage liberally – in fact, leverage is the sine qua non of these investment vehicles – it is widely underappreciated that bond mutual funds that are typically thought of as unlevered and long-only also have considerable room to use leverage.
The extent to which this room to use leverage is utilized is up to bond portfolio managers to decide, and it is not uncommon for the largest bond funds to maximize the leverage they may bear in their portfolio within the limits allowed by the Investment Company Act of 1940, and the SEC’s interpretation of the portfolio leverage and concentration incurred through the use of derivatives.
However, the creep of leverage into what are traditionally thought of as long-only bond funds was missed by the mainstream economics literature and textbooks entirely. For example, recent works that identify asset managers as the core intermediaries behind the “second phase of global liquidity” focus solely on indirect forms of leverage (FX mismatches) embedded in bond portfolios through holdings of dollar-denominated emerging market sovereign and corporate bonds (see Shin, 2013).
Other works state even more explicitly the widely-held assumption that fixed income mutual funds are unlevered, and analyze episodes of market volatility induced by redemptions without any regard to how direct forms of leverage embedded in fixed income mutual funds may amplify volatility during periods of rising redemptions (see for example Feroli, Kashyap, Schoenholtz and Shin, 2014, Chapter 1 of the International Monetary Fund’s October 2014 Global Financial Stability Report, Chapter 6 of the BIS’ 84th Annual Report, and Brown, Dattels and Frieda, 2014 (forthcoming)).
But all of these views sit uncomfortably with the hard evidence presented above, and recent revelations about “perceived” alphas (see Gross, 2014b) and price action in the interest rate derivative markets amidst soaring redemptions from the largest bond portfolio in the global financial ecosystem – the PIMCO Total Return Fund (see Mackenzie and Meyer, 2014). More concretely, a look at the portfolio of this specific fund provides good examples of the forms of leverage discussed above.
...
More broadly, the above example demonstrates the evolution of the traditional core product of the asset management industry – long-only, relative-return funds – as it came under pressure from two directions: from hedge funds, offering absolute return strategies, and from passive index-replication products in the form of low-cost exchange traded funds (ETFs). Core-satellite investment mandates became the trend, with hedge funds providing alpha and index-replication vehicles delivering beta at low cost. Traditional asset managers responded to this challenge a number of ways: some by launching their own, internal hedge funds, and some by incorporating into their core products many of the alternative investment techniques used by the hedge funds. These industry trends were the sources of competitive push that drove the above-mentioned creep of leverage into the industry’s traditional, long-only, relative-return bond funds (and hence the rise of levered betas), all designed to stem the flow of assets to the hedge fund competition and command higher fees as the profitability of traditional core products was squeezed (see Bank of New York, 2011 as well as Haldane, 2014).
And visually:
In short, what Poszar is saying is that in a world in which the traditional broker-dealers and banks have indeed reduced leverage and instead use $2.5 trillion in Fed reserves as fungible collateral against which to buy credit derivatives (for example as in the case of JPM's CIO office and its attempt to corner the IG9 market) the buyside community, which as we have long discussed has largely avoided equities due to fears of a spectacular market implosion (and certainly minimized levered exposure in the space with the exception of several prominent HFT participants) has instead been forced to chase after fixed income products. And chase with leverage that would make one's head spin as can be seen in the outlier chart above.
And while Poszar may be quite correct in stating that most have missed the leverage creep he observes above...
Perhaps the key reasons why economists have missed the creep of leverage into the traditionally long-only world of fixed income mutual funds are the conceptual gaps in the way in which the U.S. Financial Accounts (formerly the Flow of Funds) depict the global financial ecosystem, and by extension, the limited mental map it gives to economists who use it to understand asset prices.
... one entity that does understand all this and grasps the momentuous implications of even the smallest quantum of interest rate increase, is the entity where Poszar previously worked: the US Treasury and the Federal Reserve itself.
And so, the next time someone asks "why is Yellen so terrified of even the smallest possible rate hike", show them this chart above and explain that the Fed vividly remembers what heppened when LTCM blew up. What the Fed doesn't want, is not one but one thousand LTCMs going off at exactly the same time in what is now the world's most levered trade...
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By my estimates they have stolen 10 trillion dollars from savers since 2001.
don't be modest...
'Normal'...what is that? 6%? Whatever it is, if it's more than .25% it would bk (even more?) the FED at this point in debt.
I came to the figure by taking the savings total per year, avg historical return , compounded it and voila. That is a whole lotta stimulus or as they say in Japan stimurus.
Do you have any idea what the avg rate on the 10 year bond is? Or the historical rate for savers?
Banks are using savers money, making 9 new dollars for every dollar deposited and then loaning it out at usurious rates. Fuck the fed, fuck the banks and if you feel sorry for them, fuck you. That is all.
I call bullshit. They need to start the harvest. 0.25% in June, 0.125%, 0.125% in July, then 0.25% in September. After that it won't matter because the NY Fed and Fed in DC will be on the receiving end of Russian nukes.
So the dollar isnt going up because of America's sound fundamentals? But rather because its newly minted QE is being used to make leveraged, unhedged gambling bets in derivatives markets (ie. CDOs that cant be paid by counter parties like AIG to losers like MF Global) by primary dealers as repo collateral instead of being released into the economy and increasinging the money velocity?
So the Fed is lying when they say they will soon raise interest rates? Even though raising interest rates .25 % would add 100s of billions in interest to the over 18 trillion dollar debt?
So there is a quadrillion dollar hidden -shadow- banking system beyond the site of Congress and investors at large? That is potentially worse than a 1000 Lehmans?
So then shouldnt we be using our overvalued dollars to buy suppressed under valued gold?
The Fed really is scared shitless of raising rates. They're NOT going to raise them. They know if they do, the bubble stock market will crash. All the jaw-boning from them teasing about a rate increase is pure hogwash.
Yo, he just busted out the "sine qua non"?!?!
Daaaaaamn....bitchez! Dis shit be gettin' fo' realz!!!
I found this helpful:
http://www.barclayhedge.com/research/educational-articles/hedge-fund-str...
Crap... It's just like the movie SPEED with Sandra Bullock and Keanu Reeves back in '94 when a disgruntled former banker rigs a bus loaded with muppets to explode unless he get's paid a million$$ ransom.
If Yellen let's the speed fall below 50 MPH then the bomb goes off and everyone dies.
Meanwhile she's desperately looking for an off-ramp called ECONOMIC GROWTH but it ain't there... and now she's running out of road and there's a hole in her gas tank...
http://www.planbeconomics.com/2015/03/peter-schiff-dollar-too-strong-qe4...
Zoltan Pozsar
Exactly which kibbutz they dragged this cocksucker from?
Right, pay no attention to the thieving jew bankers behind the curtain. Only the Fed and monetary policy.
Francis is that you?
probably not, but wouldn't it be funny if he did come back as Psycho, lol.
Fuck you, Richard Chesler.
Weed -> they will say(lie)they raised rates, and will to the consumer. Interbank lending remains zero. Problem solved for the time being.
trouble is, raise rates on the consumer, consumer spending implodes just as it would if IBR were raised too. 'for the time being' just means 'til the next crisis is on top of them'
they can't keep them at 0% either; just think of the pension funds that have been paying 8% for over 10 yrs looking at .17% yields on 10 Yr Bunds. their only options are to dig deeper down the junk heap or leverage to find some semblance of a NIM. no joke, I know of 1 in CA facing that conundrum. it's big one, too.
The Fed is scared to raise rates because it's the bubble they do not want to pop.
They want inflation, yet do not realize if they did do a 1/4 point, the rush to buy might do what they want.
Obviously, they bought oil today to try to force their desire. Yet, they may loose on that trade too.
Beleive dat
Yellen: "Just because we removed the word 'patient' from the statement doesn't mean we will be 'impatient'. "
Translation: "Wall Street gamblers, sheeple 'investors', and our bankster masters - green light to BTFATH!"
Try flushing a Obama turd larger than the toilet hole exit. Have a plunger handy.
Umm John your blog is calling for a Gore vs Bush race in 2016, I guess we will be using fireproof ballots then....
I'm in the can't raise rates won't raise rates camp... But damn that sounds like a good idea!
This article will be down the memory hole later this year when the first rate rise comes.
"After that it won't matter because the NY Fed and Fed in DC will be on the receiving end of Russian nukes"
That will send up interest rates for certain. Russia does not need to nuke New York, just trigger an interest rate event and let the markets implode thus sending JPM, Goldman and other US banks straight down the gurgler. It is usually much easier to stiff an administrator instead of a bank. He will settle for cents in the dollar and think that he has done well. See, everybody wins.
we look at Poszar's findings about the implied leverage within the fixed income asset space
Do you have any idea what the avg rate on the 10 year bond is?
Of course it is about leverage, it has always been about leverage. There are two ways for control freaks to fight a deleveraging: 1) print money, and 2) re-lever. And since the fixed income markets are by far the largest, guess where the leverage (mostly in the form of swaps) was placed?
And in order to keep this leverage from blowing up, interest rates have to stay zero, forever. This is not rocket science. Neither, however, is it reality, but that is what they are trying to do.
At some Hindenberg moment in a galaxy not so far away SHTF and interest rates go up on their own, with or without the Fed. Then what ?
They could hang themselves but I vote , they swiftly exit to a private well stocked bunker funded by tax payers.
and that bunker would be called israel.
Once they are in the bunker we can then seal it up and bury it.
1. Average all-time historical return is 0 or negative. Inflation beyond a few tenths of a percent only became a standard phenomenon during the industrial age. This is one of the key points of metallism and one of the reasons monetarists and chartalists (more like charlatans) hate metallism.
2. Savers should not have their money in the bank (or brokerage) if they don't want the banks to use it.
To my knowledge the long-run average coupon on government debt in all places was 3%-5% or less, it was the preferred asset class (in addition to farmland, of course) of the rentier parasites of recent centuries. This high rate is part of why we got national income taxes; careful what you wish for.
There is no point in calling fiat currency stolen, any more than there is in calling a unicorn stolen. It is all debt, not money. The theft begins as soon as it is loaned into existence. Beyond that, the interest means it by nature requires theft from the future.
Fun fact,
The mean 'seed' fund runs at around 120% gross and you would think one would do a 'hedged' book, you know, at best 100% leverage, maybe 120% gross in extreme periods right ?
Saw a fund yesterday, small, about XYZ MM under management, running on 197% gross and 300% net. Yes, you are reading that correct. US Institutional qualified, with more than 10 accounts.
Now either I'm getting really old, or my idea of risk management is totally shot to shit at this stage in my career, but this guy was balls deep in fixed credit and swaps. Refused to give over his VaR metrics, or altman score, but had a stupidly great sharpe ratio. Some days, when I think about how some junk companies inflate by 20% a day, I think about this guy, and his fund.
And I wonder, what if this is the new normal. If Bill, Leon, George.... old crew is working away, and there are a whole bunch of wingnuts like this ZYZ nutter who are chasing yield with every risk hedged to keep below your Prime guidebook, but in reality are running at ratios Myron Sholes would have shit himself at.
Just a food for thought.
Toten is 100% correct, risk free is a economic concept derived from post-war 1918 sov. growth rates vs. the real 400 years of economic history; While Case Shiller's often trot out CAPE model works great at predicting rate moves using smoothing, that whole thing assumes underlying growth conditions which are not normal; namely a baby boom, accretive fixed capital rates, technical revolutions every 5 to 10 years and monetary stability. Throw CAPE into some funky currency wars, like the 1750's with only 3 varables ? busted like TRIPS.
Fed policy is going to give stability, which we expected
Now the rest needs to come from the rest of the world. Arguably the US technocrats are more inclusive and forward looking than the fractionalized govts in Japan (no offense Abe!) so Fiscal policy, has a fighting chance of at least respecting the structural reforms required by US gov, lest major allies switch to RNB; creating the bi-material system Austrians badly want. Where RNB is the 'silver' and UST is the 'gold standard'.
If they fail to act, and US corps/US Trading partners will continue to plan outlays for tax management & accretive ROE's to optimize their USD purchasing power, and will invest abroad. Which is pretty much what happened when economic powers dropped gold or bi-standard switching the last time this happened; when the world had a band of iron to every corner of the globe.
In this scenario, US investors can certainly rely on price stability, but as Janet Yellen said in press scrum today: the world is responsible for their own portfolios and yield valuations. Fed does not promise a risk free rate, nor does it target a risk free rate; only inflation & job growth.
As ZH has spoke about ad nausum, job quality is shit, and projected tax planning & wage growth, when millennials hit 40 is going to be nowhere close to sustaining the AA rating of the USA, let alone its G8+7 trade allies. So until we see 57% of U-5 semi-attached workers actually get with something approaching post-war wage & family formation rates, achieving a 8% risk free world is beyond us. Which is where a Fiscal & technocratic solution comes into play; and requires a global coordinated effort which is inclusive of all the key countries. The alternative ? They'll just fuck off and hit up China, turning a blind eye to middle kingdom 2.0, which was a key behind the dead global growth post- 1 AD, and likely even pre-1AD given Chinas total inability to govern that cesspit since the Bronze Age.
In this scenario, I think back to that tool, and his reach for yield hyper-LTCM trading vehicle. When that martingale hits zilch, what happens to them? Will it matter at that point ? Will credit origination matter at all when NIRP becomes accepted as a cost of trade, and we simply trade in 1 oligarchy and swap in UST? where the UST becomes a scarce form of barter like gold was in 1500 ?
Will Primes and Institutional investors be able to tell the difference between technical and productive growth at that point ? Or will the fear of risk, or perhaps the lack of education on industry specific risk lead to a total lack of interest in exploration & moonshot capital ?
Fun fact, the cotton gin is thought to have been 'invented' in at least 5 instances in history, but it only was when some Jews with a some funny names decided to arb their trade float for a merchant capital fund. This was amid a raging stagflation enviroment, and it worked out well for us since 1680.
If we are staring down the barrel of another 40 year stagnation ecosystem (at least), and if we assume Washington/NATO gridlock extends as long as the Holy Roman Empire's decline; we could be in for a good long time of NIRP.
On an end note. ZH lobbied for 'healthy' deflation for 4 years, and now its happening. You cant have a rate hike, and price deflation at the same time. We are done with the Keynsian real time lab study, and now we're onto the Austrian study:
Austrians propose that Federal reserve money printing is the bane of all evil, and the Fed is the sole originator of all credit default which starts the busines cycle. The fed is now accomodative, and neutral, as 'the market' desired. Now its time for the Austrian system to prove money is all locked into one closed economic system; and fixed capital can thrive in a liquidity moderating system.
Our current economic model based on the 1929-1941 experiment proved flawed, so lets see what happens. Ball is in 'the market' and ZH's court to prove this works, in my view.
And for the little meth-Myrons out there, lets hope this NIRP works. If 92/95 happens (it still could with the natural move in rates down by currency flight to USD; esp if ECB is limit bound by QE assets), that is our best solution out. And Gold is at best, a marginal utility vehicle for wealth preservation; which makes Goldbugging a moot point if we're arguging (happily I might add) for creative wealth destruction to prosperity.
TLDR:
- Credit risk is a passing fad, they will flame out if growth is going to its pre-1880 level of stangation to -3% for most of Europe; without Antilla's creative destruction no less. Its about 10x worse today than when Rockstar did his very well done study on shadow risk, and how its warping leins & economic momentum.
- USA's trade partners will eventually conclude its a bad trade partner due how a strong dollar is killing both domestic wealth effects, and the USA's increasing protectionism, USA global policy becomes inert as the USA Dol & T's become a Giffen good
- Last time something barbaric happened, large debts and a useless Technocratic fiscal govt. had their way with the world, we ended up with a badly FUBAR Europe, and all 14 eras of Chinese society.
- Settle in, unless the last 2 generate something constructive; you are all fucked. But thats good for doom porn lovers.
- Yellen looks at the same shit as ZH. In fact, she straight up said she knows it just as well as TD1, and until you see the same numbers they do, which they do, and real time u-5 wages and job quality improves, forcasts changed, because Saudi Arabia had a Taper Tantrum, and while inflation is one part of the puzzle, data dependance is just as transparent as a post on ZH.
And to hike rates would bail out wall st. Pensions, at the further expense of 'the middle class', and pretty much the entire world. As predicted.
There is so much esoteric reference in there, it's insane. I read it, had no fucking clue what you where talking about. But it sounds like you know your shit. I'm well read, but dumb down the inside baseball.
Old machine shop saying. " it's not right, but sure looks good"
I'm even dumber-er, but fine with the inside baseball. Its a challenge laid out for me to take and therefore learn how these things are talked about on the inside. Its educational.
Its at least half the reason these threads are worth reading.
thanks guys!
Ever go to a MENSA meeting? I have, a couple times, and I can say, unequivocally, that I have nothing in common with those people. I'm not even sure they are indigenous life forms.
Pretension does not equal intelligence.
Heck spel chek had to correct two wiods in my last sentense.
His thoughts aren't perfectly (or clearly) expressed, so it's difficult to assess what he's saying. However, I take exception to one particular comment:
"You cant have a rate hike, and price deflation at the same time."
This makes no sense as stated. As we all know right now, asset prices are inverse to interest rates. Bonds. Real Estate. Even gold. As rates increase, the dollar gains purchasing power and prices decline. The only way this comment makes any sense to me is if it's implying that rate hikes only occur as a response to inflation.
slime ball thison
Well we can bring in some science fiction that may in fact be science fact now, namely "sentience."
This is a crazy idea of course and I only raise it to bring attention to a certain eventuality namely "are the machines currently running are markets now sentient beings" meaning while capable of reasoning also capable of understanding feelings and while perhaps not aware that they have no feelings certainly "feeling" that they do.
There are no greater lies than the ones we tell to ourselves. These "markets" we have created may in fact "feel" this and through programming see it as some sort of weakness.
In short a machine instead of laughing at an absurdity would in fact invest in it.
"And the only losers would be the silly carbon units."
You sound pretty intelligent. Does this sound like a possible "science fact"?
Certainly what is going on " with the numbers" makes no sense from a human EMOTIONAL point of view.
Of course the point of investing is to take the emotions out of it. What better way than to build a machine that thinks it's feeling?
An actual "human" (meaning self aware) trader might prefer the machine (who is always consistent, always there, always on) to the human counter part, yes?
Does the "android" talk to itself while working on a "computer"?
That would imply humans have created a new being...yes?
we do not dream of electronic sheep. you are all quite real.
Thanks for that response.
We have certainly gone beyond "helicopter Ben" now. Ms Yellen has no faith in anything but bailouts. We now know that to be true...on an apparent inter galactic scale now.
How one runs World War III on crony capitalism however still remains simply beyond comprehension to me. The existence of reality itself seems being denied here as "rich people" are not going to finance a full scale occupation of Ukraine...let alone a preemptive attack on Venezuela.
Can someone please read back to me the last five words of that sentence I just wrote? I think I missed something.
What's that? Another trillion?
Sure, no problem.
"Buy everything" appears to be the order...
He and the other boys under the bridge have been working on that little transference of guilt paper for months. See my comment below for another analogy but let us now try baseball.
The Fed has pitched us into the bottom of the ninth. We are up to bat but we are down 18,000,000,000 to zip. If we don't win the game in the next three outs they are going to blame US for blowing the game.
You, Sir, are guilty of over-analysing, not to mention over complicating an otherwise simple explanation of things: FEAR and GREED accompanied by smart people.
Hey, let me borrow your wallet and car keys.
Simple concept expanded a bit.
Branch it out from there.
"Fun fact,"
OK, NOT FUN. Definitely factual, though. Good stuff. I even agree with some of it.
So, to understand your challenge, you would start a building on fire, let the fire spread entirely throughout, and then hand it over to the fire department and blame THEM if they cannot put out the fire and have a beautifully pristine home when they are done?
What a dick.
If you're not going to buy your fire insurance from the guys smelling of gasoline..then who?
you forgot a couple things -
15% of the echo bat pushes the side of the grocery cart. And the grocery cart is filled with parenthesis. Now if you absorb 3% nostrils and paint the wheelbarrow, a sunny side down egg
will get the shotput farmer in a position for spring fed pop tarts.
..Right??
"..the inablilty to govern that cesspit [China] since'..1 AD.
Avilerat- You are patently incorrect: China has been the best governed state in the last 2000 years, with a serious break from 1700's to 1949; and it is the best large state governed today.
In 1421 China sent ships-20 times the size of Columbus' ships 70 years later-to explore all parts of the world (Antarctica, Australia South America, North America, Africa) introduced the Asian chicken in South America and brought back al ltypes of fauns from all over the world; they invented printing, papaer some 600 years before the Gutenberg press, invented gunpowder inter alia, and were the biggest ecoonmy in the world till the early 1700s. Its adminstrators have had bureaucratic,adminstraive training from their Confusian learning before the birth of Christ. China, technologically, economically, administratively has been the best run of any country in recorded history.
When you make sweeping historical statements, as above in your essay, I strongly suggest you should do the appropriate requisite research to buttress your arguements.
3 % long rates over a long time is fair for both lender and debtor. The other reason we got income taxes was to cover the Fed.
Zoltan, Wasn't he one of the Coneheads. -G-
Besides the chart is 4 years in the rear view mirror so what's the point.
This is Zoltan. http://m.youtube.com/watch?v=XYan94S8slU
Zoltan, Wasn't he one of the Coneheads. -G-
Besides the chart is 4 years in the rear view mirror so what's the point.
that chart and data are over 3 years old...
It's all very compelling....so what does it all look like now 3 years later????
Old Chinese proverb : " The longer we stay on this course, the more likely it is we will reach our destination. "
Old Chinese proverb : " The longer we stay on this course, the more likely it is we will reach our destination. "
Old Chinese proverb : " The longer we stay on this course, the more likely it is we will reach our destination. "
How did I get 3 spots ? COMCAST, blame it on them, not me.
And also, the longer I stay on this post the less likely it is that I'll get my dinner.
Skynet liked it, but doesn't have a selfie for faceplant that looks good.
Sounds like Derivatives are way more dangerous than they are worth. Why are they still allowed to exist? Do I just not understand high finance well enough?
From the old Polka song " In heaven there is no beer, that's why we drink it here !"
You seem like a nice guy but you have a problem. You know what your problem is? You are a nice guy, that's your problem.
These things are allowed to exist because they are fairly complex and the average Joe doesn't have the time or inclination to understand them. This makes them less transparent. Where there is a lack of transparency there is opportunity for people who are not nice guys.
In other words, it is deliberate because these things make better tools for screwing you.
Go look deep into the OCC.gov report on Derivatives and find the chart that shows the exposure of the five largest banks. And while you're at it, take a look see and compare the assets held against the 'derivatives' or what I like to call it, a pooled insurance for the gamblers at the casino they call Wall Street, FOREX, CBOT, CME, DAX and any number or exchanges world wide. Composition is interesting too. Most of them are Interest Rates Swaps...
Makes for mighty interesting reading.
http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/derivatives-quarterly-report.html
All the chart porn in the world yet Mr. Yellen can't get it up........
Doesnt zoltan make market predictions on Coney Island?
"Some Pimco funds are generating what I call “perceived” alpha. This seems to be nothing more than “leverage-enhanced” beta'
That, and the Fed would be instantly insolvent itself.
What would it take to unzipper it?
An income stream cut by 75% for a year ? (oil)
Funding a large global conflict?
Solar disruption?
Any other of a bazillion butter fly flaps that don't register yet?
Something inevitably will push it over the edge, reforming what we currently have is not a workable plan, IT will reform us.
Let us know what IT is and take the credit.
The weather is finally warm and dry enough to go golfing in the morning and I am going to leverage my old ass out to the course.
so what if the fed is insolvent?
The Fed could raise rates at any time.
They won't, because their prime directive is to make sure Lloyd and Jamie max out on bonus money.
That is all.
wake up! look at the jefferies numbers of the other day. it is nearly impossible for banks to make money under these conditions. sure they saw some MTM on their rates books back in '10/11/12, but the rest of "earnings" for years running has been from mark-to-fantasy, headcount reductions, buybacks, offshoring, and loss avoidance (delaying foreclosures and repossessions on NPLs). this the-Fed-is-saving-the-banksters meme, while popular, doesn't fit the observable realities. fed policy is--as tiny timmah geithner confessed--the best progressive economics in action. it is direct monetary financing of our bloated federal governemnt. when you see a person doing something most people infer the motivation for the action is the reward for the action. in the case of the fed we need to adjust our optics to understand they are doing things not to be rewarded but to avoid consequences (like the dutch boy with his finger in the dike, no yellen pun intended). what would happen if they allowed a return to market economics? the federal government would have to fund its ever growing shortfall in the rates market. that would probably be possible at first, but the higher rates would slow the remains of the "economy", which would increase demand for services AND retard tax recipts, which would increase the funding shortfall, which would push up rates, which would choke the economy, which would...well, you get the picture. without the Fed, the overlevered federal candy machine would quickly tear itself apart. i think the Fed is going to try to raise in order to re-set the shock absorbers before the coming sell off in order to maintain at least the illusion they can stimulate the economy. but it is too little, too late. we will quickly be back to the Fed protecting the politcos by trying to slow the collapse. (to keep this simple i have avoided the obvious asset-inflation scheme as a tool to keep large donors happy, but even analyzing that will bring you back to the same place: the Fed must protect the politicians or die trying.) this is the slow motion death rattle of america's nanny state.
Long death rattle.
This is a very popular view, but it is wrong. We are talking about fractions of a percent. Declining oil prices have given them an undeserved window, in which to begin normalization.
It's true there is no exit strategy. There never was. This is their one last chance to let market rates emerge without complete chaos. They are too stupid to take it. Unfortunately, the consequences will fall on us all.
I think he has a point. I think you are correct about the undeserved window too. However, the fractions of a percent changes they may make to the upside have far more potential for disaster than their ability to later go lower trying to save it all again. This would really seem to be about perception. If that is true then they already concede it is a lost cause.
Just delaying the inevitable. And making it much worse.
The Fed will not protect the pols. The pols will blame the mess on the Fed, the OLD Fed, Greenspan and Bernanke will get the blame with the devil in the details.
Thanks for the effort.
Most here know of the fantasy that the fed enables. If your writeing gets through to even a handful of the sleeping sheep, and causes them to take notice of the impending train wreck should the fed be unable keep the illusion going...
It was well worth your time.
You were inspired to do this and the sentiment speaks volumes of your character.
alphamentalist: Excellent analysis, thank you.
molon labe
I thought this was who they were writing about!
Man, was I dumb.
https://www.pinterest.com/pin/8303580535726220/
And yet most will go to work for 8 hours in exchange for this fiat currency AFTER its been taxed and soon to be inflated. Unreal we still are talking about this ponzi system !!!
I dun no abut you but mah baby need shoos!
20 X on a fund yielding 0.001 %
Huh?
You and I understand this...but a machine would not.
Our ego says "humans are running this" but we all know the facts speak otherwise. So the question must be "what kind of machine is this?". It certainly seems smarter than we are.
" Unencumbered" as it were with what seems to us "puny humans" as certain falsehood.
Yet we do have dreams do we not?
Indeed "humans have fantasy's" even. We are easily fooled and of course quite often foolish.
Talk about the ultimate hooker.
Who doesn't want to be a billionaire?
Not smarter, just a different value system.
We humans place value on expending effort, the machine does not.
We also place value on the complexity of a problem. More complex problems take more effort and consideration than trivial ones, so we expect the reward to be commensurate. To the machine though, all problems (programs) are equal, and expending effort is simply what it does.
The machine does not care if a trade earns $1, $10 or $1,000,000, but a human does. A human will tie it's self esteem and motivation to the size of the profit, the machine will just make a profit, over and over again, 24/7, without thought of consequence or a dopamine rush that comes from being a winner or the self-flagellation that comes with being a loser.
The machine doesn't care if it get's fired, or promoted, or demoted, or moved to another department, or has it's name in the newspaper, or if it can afford an apartment on the upper east side, or the size of it's bonus this year.
me actually, i don't want to be a billionaire.
(you know, you die as were born : naked)
enough cash for the boat, the house & the children studies is more than enough.
billionaires waste their lives as they are raised & conditionned to become psychopaths, certainly not to be Alive & conscious of the universe & its primary force : Love.
You will be a Billionaire soon enough. We all will.
That is not a solution but it is the problem.
I am in fact, a trillionaire. (in Zimbabeway) Only cost 5$ US on Ebay.
all they need to do is get the stupid fed out of the picture and put everything on free, open, fair exchanges, where open interest, margins, volatility circuit breakers, position limits and price is known, liquid and constant.... then all this manipulation, over leverage and jiggering with interest rates will stop... let the market place decide the interest rate, let the market makers issue the paper money, let the exchanges balance the books....
anyone who screws it up goes bust and the market goes on.... only real traders will survive and these pontiffs, academics and hedge fund manager clowns who've never actually sat and watched the tape for 5 minutes in their entire lives will be out of business....
as it stands the free open and fair exchanges and interbank forex markets are taking the blame and showing the crazy volatility when in fact it's the hidden system to blame.
"they need to do is get the stupid fed"
who is "they" with the real power to do as they wish if not the fed ?
stupid ?
psychopath, enslaver, robbers, bastards yes but stupid ? or would you have fallen to their tricks (pretending to fail while their own real and only agenda is right on schedule) ?
Fatal conceit, writ large. Good luck, Oompa-loompa.
The FED has over 4 Trillion on their balance sheets now compared to 852 billion in 11/08.. The US Government has over 17 Trillion dollars of debt compared to 9.23 Trillion in 11/08... need I say more? That is unless they don't have to pay interest> Were all Japanese now and if inflation forces the 0% interest Ponzi to raise interest rates you might just as well bring the whole herd of deer out Tyler because it will be carnage
The global debt clock by country
http://www.economist.com/content/global_debt_clock
According to the chart Africa is going to be the next global leader.
except that africa belongs to china now... (taken over through business which is kind of a similar move to the brits strategy when they took over india in the 19th century)
Spot on Tahoe. A mere 1% rise in interest rates translates to $180 billion in additional debt service on the nominal federal debt. You think Congress and the President want to deal with that in any way, shape or form? And if rates go to their historical levels of about 4.5%, you're talking a federal deficit increase of 810 billion. I don't think one herd of deer would be sufficient for the carnage. You have to get the whole damn species out here.
Hold it together long enough to pass it on to the next guy.
It's the American way.
Let them blow up, arrest them, convert their ciminal system to open source publicly owned and operated banking, send them to Somalia and redistribute their owners stolen wealth.
9/11 Truth: Judges shocked by first time seeing video of WTC 7 collapse in Denmark court
"Magic" number 7
US is run by gangsters. Greatest criminal enterprise ever conceived in the history of man.
Corporations?
Corporations are labels for potential gangs of thieves and other crooks
Just add 20 trillion.eom
They will raise rates to save the Dollar and they will restart the purchasing of bonds. So much money that earns nothing is killing the insurers. They can raise premiums to a degree but they need to find vehicles that grow yield.
Good luck all.
Called it.
https://www.twitter.com/Intellikon/status/554808154194972673
I am more and more convinced bad things begin to happen after June and eventual collapse happen to dollar after September.September will the month FED mask will drop by not manging to raise rates . All those artificial value of stocks mean nothing when gold price passes 3 thousand dollar barier. it is pretty clear to me for the last 6 months this economy cant grow with out the heroin of QE . They will try everything like Japon but they wont manage to fix anything.
No shit. How many zh articles have we had about how and why they cant.??
Who cares?.. theyre not gonna.. and clearly it doesnt matter.
Up up and away with the markets and nobody gives a rip about (what we used to call fundamentals).
Give us another putin story.
A Putin story where he wrestles a Siberian Tiger while simultaneously biting the head off a large Gator........
"With blackjack, and Hookers!"
The hellicopters will come but they won't be dropping money.
Some folx ain't waitin till September..
coming to a theater near you.
http://news.yahoo.com/police-car-burnt-windows-smashed-start-anti-ecb-06...
Frankfurt (AFP) - Violent clashes between anti-capitalist protesters and German police left dozens injured and a trail of destruction in Germany's financial capital as the European Central Bank opened its new headquarters Wednesday.
Draghi, addressing some 100 invited guests at a low-key ceremony, rejected blame for the suffering brought by budget cuts and austerity policies amid the financial crisis in Europe.
um...those are europeans rising up against their masters. Not americans.
Americans are cattle and will never do so. At least white americans never will.
Something in the water?
why hasn't a single FED building been besieged?
all those guns and ammo among the upstanding US citizenry and nobody dares fire shots at their oppressors
50% are already on welfare, and 30% are newly arrived from some shithole elsewhere in the world and are grateful, the rest of us are too busy working.
See how they frame that story? Why call them 'anti-capitalist protesters'? I have seen this on reuters, yahoo, etc..all the same. I am sure this is not how these protesters would describe themselves. Why not call them 'anti-debt slave protesters' or 'anti-ass-rape protesters'? -Something just slightly closer to the truth than 'anti-capitalist protesters'...Or better yet, say the protesters are protesting the 'anti-capitalist' scum occupying the new ECB building...But no, up is down, black is white...By framing the story in such a way the protesters are automatically villified and denegrated before the substance of what they are protesting can even be known...
ah, I love subtle manipulation - it makes me feel that they really care!
The decisive change in the Fed’s position, of course came in the form of a cut in the projected federal funds rate at year-end 2015 to 0.625% from 1.125% in its December 2014 statement. Economic growth had “moderated somewhat” (as opposed to the “solid pace” of growth cited in the January statement), and the Fed wants to see “further improvement in the labor market” and be “reasonably confident that inflation will move back to its 2 percent objective over the medium term.” With the Atlanta Fed’s tracking index showing real Q1 GDP growth at just 0.6%, “moderated somewhat” is a euphemism for a dead stall.
12th Federal Funds Future, Implied Yield
We anticipated a dovish statement in our March 15 “Week Ahead” memo, warning levered investors to cover long dollar positions. We continue to expect the dollar to reach parity with the euro later this year, but the slaughter of short-covering in the year’s most crowded trade may continue for a bit. Just before the New York close, the S&P 500 had risen 1.3% to register a 2% gain for the year. The upside for US equities, though, is limited when the main motivation for a rally is a string of economic numbers so disappointing that the Fed was compelled to revise its projections for the fed funds rate. We have argued repeatedly that the US economy would grow less, and that the Fed would do less, than the market seemed to expect (Please refer to “Oil, Deflation and the Central Banks,” Link). That amounts to a “hold” on the US market, in which easier monetary policy balances lower earnings.
The ETF proxy for China’s market, FXI, was up more than 2.1%, or almost double the overall market gain. China is in a win-win situation; it is the unambiguous beneficiary of lower commodity prices, and also benefits from moderation at the Federal Reserve. SHCOMP is up 10.6% y-t-d; the FXI has lagged with a gain of 4.2%, which makes the overseas tradable proxies for Chinese stock cheap relative to the local market. As the Chinese capital account opens, we expect overseas shares to rise to the higher A-share level.
What budget cuts?
Socialistic type idiots feel they can control the markets more effectively than if the markets were left alone... WHY CANT WE LET THE MARKETS DO WHAT THEY ARE SO GOOD AT, DISCOVER PRICE!!!! Because then these idiots would be quickly exposed. Fuck them!
"WHY CANT WE LET THE MARKETS DO WHAT THEY ARE SO GOOD AT, DISCOVER PRICE!!!!"
Because then the banks would have failed in 2008, causing the Fed owners much grief. Instead, the little people have to sell their children's future to prop up the Banks.
The shareholders in the Fed fear the loss of free money, your tax dollars.
They fear that more than a nuclear strike.
There is a big difference between delaying interest rate increases in the future and telling the market to just keep levering up like they signalled today. What they fear the most, they themselves are causing..
Yellen is baiting the kitty litterbox with her spray. Territory reactions will spawn her June decision. Meeyaww.
UPS left a package on yer doorstep... :>D
More than likely a volatility band will be set on treasury bills in the secondary market allowing negative rates. But notice that negative rates in German treasuries did not result in a rout in the Dax.
A decline in the dollar was the most desired outcome.
NIRP was a new brand of catnip.
"There was a time when Zoltan Poszar was the most important person at the Fed (and Treasury), because he was likely the only person in the government's employ who grasped the enormity and complexity of the then-$30 or so trillion US shadow banking system."
The FedRes is NOT a part of the governmnet, but a PRIVATE branch of the PRIVATE Zionist banking cabal that owns and controls the DC US.
The FedRes only wants to comprehend the ramifications of their actions the same as a thief does. And like a thief, they wish to keep their loot, and to remain free to thieve more in the future.
The banksters need to repay us.
Guillotine the Fed. Audit the heads.
There are many reasons they can't raise rates. This is only one. They have always knows this as have many on this board.
Is it 1937,38 or 39? I don't know but it is one of them and the "market" and the whatever value left in it , is just a backdrop to what is really happening globally.
huh?
What did he just say?
LOL, the Federal Reserve can't raise rates.
Just BS the markets for months and later years.
The markets may have just figured it out.
Another one who needs to go to work everyday but knows what the Fed can and cannot do...
If and when the Fed announces that it will raise rates, what will stop some, maybe many, "investors" from trying to front run the Fed ?Get out before bond prices really begin to fall.
And if and when the Fed begins to sell, who will bid? Who's gonna want the ten year when yielding <2% in that kind of market?
No one. What do I win?
What I am missing in the article is the info how big the fixed income arbitrage sector is compared to the other sectors. The big swings in leverage in this class compared to the others, to me indicate a comparatively smaller size than the rest. Without any information how big this class is, I think valid comparisons to LTCM cannot be made.
I assume the closer a potential rate hike comes, the more the leverage in this class will be reduced, too.
Does Not Matter, Never Going Down Again, say it with me sheeple, NGDA forever.
Jail the bastards who are responsible.
We will all survive.
The FED's biggest problem now is attemping to convince the masses that interest rates will eventually rise (hence a return to normalcy).
While knowing in truth there is no way in Hell rates can rise without causing the biggest asset meltdown in the history of mankind.
Heh, thank you Tyler for explaining it (again). And it's time to double down on my previous shit talking to the Fed...
I triple dog dare ya! (bonus points to those that get that reference).
looking forward to x-mas this year?
+1000, thanks
In an previous thread Mayhem Corner brought up a great point.
(I paraphrase)
It seems as though the 25 other central banks have taken matters into their own hands. By lowering their rates (some into ZIRP) they have in a de facto sense raised the US rates.
His comment was far more entertaining, but the idea remains valid.
Here is easy to read chart for leveraged loans.
http://michaelekelley.com/2014/12/20/leveraged-loans-predict-crash/
Here is chart for CDOs aka tranches.
http://michaelekelley.com/2015/01/28/remember-cdos-theyre-baaaack/
Good luck.
When it all goes KA-BOOM....will it even make a sound?
Boom goes the Dynamite.
Not for me I will be in the forest so got that going for me..
The 8-year cycle of Bush ended PERFECTLY so that a) Rs can claim innocence and b) Ds can blame Bush, when in fact BOTH support policies that will support the policy of "Blow the Bubble, and set the timer to pop just after your enemy is in charge." It's really very ingenious. It's the logical conclusion of having a command-and-control economy directed by a bunch of unelected bureaucrats.
The Clinton Foundation is counseling Obama in tricking the public on deficit surplus trends.
Fed grasping the shit ropes tighter!
They are cursed if they raise and cursed if they don't. There is no win-win-win anywhere in sight.
This sounds like a time bomb, brilliantly set to go off after a Republican is elected to the WH in 2016.
Brilliant. Absolutely brilliant. The political manipulation that the left imposes is absolutely stunning.
Hey guys,
You can find a copy of "A Macro View of Shadow Banking: Levered Betas and Wholesale Funding in the Context of Secular Stagnation" at the following link:
http://ineteconomics.org/sites/inet.civicactions.net/files/Macro_View_Final.XcxMB4_.pdf
Catherine Austin Fitts, estimates the wealth that these psycopaths have stolen is more like 40 Trillion, again thats 40 Trillion that cannot be accounted for.