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Interbank Credit Risk Soars To 3 Year Highs - Is This Why Janet Folded?
Last week we warned of the ominously rising risks evident under the surface in US financials. Following Yellen's decision to chicken-out yesterday, it appears interbank counterparty risk is even ominous-er. With bank stocks prices tumbling, catching down to credit market's concerns, the TED Spread - implicitly measuring interbank credit risk - jumped over 21% yesterday - to its highest in 3 years.
Is this the real reason The Fed did not hike?

and now financial stocks tumble back to credit reality...
The question is - is this the tail that is wagging the Fed's dog? Given the Fed's ownership structure, any rise in the banks' cost of financing, in an era of surging counterparty risks may be the straw that break the "confidence camel's" back. Just see Nigeria.
If so - then we have a problem - The Fed's dovish inaction is not helping alleviate any concerns.
Charts: Bloomberg
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Yikes! 2008 here we come!
Obviously we are going to need a new method of measuring risk as the current one is defective and making things sound much worse than a healthy public perception dictates.
I always thought I was the king of cynicism. It is clear I found my master. Even worse, Oldwood: your comment might not be all that outrageous. Anything goes these days.
You can NEVER be too cynical. Interbank risk going up, well tsk and all that.......
Hell yes ... Worked for SAT scores ...
We have seen it in virtually everything, from how we measure GDP to unemployment. Plus we have invented new "adjustments" many recent and others longer in use, yet all have been "modified" over time to be more "accurate" while not hesitating to reference them back to older data sets that lack these new found "accuracies" for comparison. Look at how unemployment was calculated in Reagan's day compared to now, much less going back to depression days.
Government has massive data collection and processing capabilities and they use them every day to generate data sets for public consumption. I repeat...for public consumption. Supposedly to "inform" the public as to our current state of affairs, but in reality to form a more positive public perception of our circumstances.
We see our government publicly refuse to prosecute banking fraud as it would be too "damaging" to public opinion of these core institutions. Everything is dependent on our perceptions and as such all truth and fact stands in the shadows if it in any way compromises that confidence. While this might be understandable in some circumstances such as avoiding screaming fire in a crowded theater, we have far passed that point whereas now we have them quietly sneaking out of the burning theater telling us we are perfectly safe, only to discover that while our lives are in increasing peril, they have been out buying property and life insurance on the theater's occupants. Derivatives baby.
Nonsense........they've been doing God's work, making you safe and stuffing your mouth with GMO
Thanks, I feel better already.
The day the 'smart' people started thinking that models were the same as reality things started going down the toilet. Now they have to constantly adjust their models and yet the real world refuses to follow along. When Krugman is marched toward the gallows, he'll be screaming "WE DIDN'T SPEND ENOUGH MAGIC MONEY"........
Note also that these same "adjustments" have been used to push climate change, from how they decide to "measure" temperatures to adjusting temperatures higher in certain areas to "correct" to scientific perceptions. Many of these "scientists" have admitted that they have exaggerated and distorted their findings as a means to "motivate" people to their cause. Lying to us for our own good again.
What they fail to understand is that they are doing to us far more damage than they ever can hope to prevent by destroying our willingness...our ABILITY, to trust and believe them. The boy who cried wolf had devastating effects on his community.
You mean double seasonal adjustments aren't good? Now you have gone and done it, ruined my perceptions.
Yes, a TED spread spike on top of all this?! It's like getting surprised with a free premium shot.
It would be nice to have the graph back to 2007
http://www.macrotrends.net/1447/ted-spread-historical-chart
Thinking back to those long-ago days of Lehman, it wasn't a case of average people losing faith in the banks. The fireworks started when the banks lost faith in each other.
Well, the bankers know who not to trust....the public should learn from this.
"Banker trust" is an oxymoron.......
FRAUD meets reality. How ya like me now M'Fer. FAZ *4.84% today.
FAZ?
Lord, I just got a dystopian nostalgia blast seeing those 3 letters
FAZ faz faz faz!!! ALhough I have some small position in FAZ I tried to buy some TVIX yesterday and my my fucking broker didn't let me trade TVIX, and it went up 30%+ in the next 24 hrs. So I called and asked why. Their answer? It is too volatile of a security to be traded by retail investors. Told them I am very aware of the volatile nature of the security and have been trading securities for 10+ years and hold the CFA charter. So I asked them. Sir you do understand that TVIX is designed for just that specific purpose, to trade volatility? The guy had no answer for me. I was livid to say the least. Fuck u Merrill Lynch fuck u!
Gambit - you mean you don't appreciate big daddy doing what it takes to save you from yourself? LOL, this is all such a shit show. Time for an intermission so I can refill my beer mug and snack dish.
Extend & Pretend only works if everyone decides to look the other way and turn the other cheek. When Economists all over the world balk, the FED Chairman has to go along with it, or confidence deteriorates. With the FED at the lowest ebb of confidence in the history of FED influence it is not surprising that Old Yeller decided to capitalize on that lack of confidence. Who can argue that she took the wrong course of action?
Squid wanted it that way, she complied. That's all.
The Squid is only one voice, but I get your point, and can hardly argue against it given Blankfein's influence over the FED declarations.
q99x2,
I see you referencing FAZ often . Would you be willing to define for me ? I am not in Finance. Thanks, in advance.
Blue 51:
You ever seen the movie the Deer Hunter ? FAZ is the same premise. Put a bullet into the revolver and see how lucky you truly are....
The FAZ is a triple levered ETF on the financial stocks, mainly banks, that bets the value of those stocks will go down. It a nutshell, it's a triple money bet that financial stocks will go down.
The watch out is that with any of the levered ETF's is you hold them for more than a day you get your ass handed to you the way they are calculated. The levered ETF's are VERY SHORT TERM TRADING vehicles. Try not to hold them longer than a single trading day if you want to put a bullet in the revolver and put the gun to your head.
DirkDiggler 11 :
Thank you ! With such an articulate explanation, you must be WELL versed & experienced in dangerous Capital relms . Thanks again. Now I can enjoy q99's sarcasm a little better.
Although this trade isn't as cheap as when I started and kept putting it on (Dec 14 thru June 15), another way to play the short side on financials is the longer-dated out-of-the-money puts on the XLF (financial services index).
I've been buying June 16 and Jan 17 expiry 20-22 strikes. Some massive leverage to the downside now that I'm creeping into the money (convexity is picking up steam). But the vol is getting pretty expensive now, so the trade isn't as cheap....but still worth a flyer, imo.
Bombs away..!!
Tick tock, tick tock...
Or if you aren't into options or shorting a simple way to play the down side is inverse funds. Makes money when stocks go down. SH is the S & P version. I use the riskier 3 x SPXS. Also have Jan 17 calls on them.
"Yep, screw the inaction. QEn, bring it on!!!!"
You know you are going to do it.
Money freezes
The TED spread is the reason the banks started manipulating LIBOR which is the London Interbank Offered Rate! It isn't so easy to manipulate treasury bil yields so if the bankers and central banks want to hide the instability in the system they just make up a fictitious LIBOR in order to keep the TED spread from spiking.
All is ok. Have no fear. The banks underwent stress tests, recapitalized where necessary, limited risk exposure and reduced their grossly excessive leverage.
oh wait..
Bail-ins for everyone, bitchez!