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BIS Warns The Fed Rate Hike May Unleash The Biggest Dollar Margin Call In History

Tyler Durden's picture




 

Over the past several months, one of the biggest conundrums stumping the financial community has been the record negative swap spread which we profiled first in September,  and which as Goldman most recently concluded, "has been driven by funding and balance sheet strains, especially since August."

 

Today, in its latest quarterly report, the Bank of International Settlement focused precisely on this latest market dislocation.  According to the central banks' central bank, "recent quarters have witnessed unusual price relationships in fixed income markets. US dollar swap spreads (ie the difference between the rate on the fixed leg of a swap and the corresponding Treasury yield) have turned negative, moving in the opposite direction from euro swap spreads (Graph A, left-hand panel)."

Given that counterparties in derivatives markets, typically banks, are less creditworthy than the government, swap rates are normally higher than Treasury yields because of the additional risk premium. Hence, the negative spreads point to a possible dislocation. One set of factors relates to supply and demand conditions in interest rate swap and Treasury bond markets. In the swap markets, forces that can compress swap rates include credit enhancements in swaps, hedging demand from corporate bond issuers, and investors seeking to lock in longer durations (eg insurers and pension funds) by securing fixed rates via swaps.

 

In cash markets, in turn, upward pressures on yields stemmed from the recent sales of US Treasury securities by EME reserve managers. The market impact of these Treasury bond sales may have been amplified by a second set of factors that curb arbitrage and impede smooth market functioning. First, the capacity of dealers’ balance sheets to absorb rising inventory may have been overwhelmed by the amount of US Treasury bonds reaching the secondary market in the third quarter (Graph A, centre panel), causing dealers to bid market yields above the corresponding swap rates. Second, balance sheet constraints may have made it more costly for intermediaries to engage in the speculative arbitrage needed to restore a positive swap spread. Such arbitrage is sensitive to balance sheet costs because it requires leverage, with a long Treasury position funded in the repo market.

Meanwhile, while US swap spreads hit record negative levels, in Europe the market tensions have been of a different nature:

Ten-year swap spreads started to widen in early 2015, around the time when the Swiss National Bank abandoned its currency peg, then increased further over subsequent months (Graph A, left-hand panel). While past episodes of widening swap spreads can be attributed to credit risk in the banking sector, the most recent developments may have more to do with hedging by institutional investors. While swap rates also fell (Graph A, right-hand panel), the swap spread widened, indicating that cash market yields fell by even more. One possible explanation is that, as yields fall amid expectations of ECB asset  purchases, institutional investors with long-duration liabilities, such as insurers and pension funds, would have been under pressure to extend their asset portfolio duration by purchasing additional longer-dated bonds, possibly compressing market yields below the swap rates.

And with cash markets rapidly depleting of physical inventory as a result of central bank monetization, investors have had to rely on derivatives markets, especially swaptions.

In addition to extending portfolio duration by purchasing longer-dated bonds or entering a long-term interest rate swap as a fixed rate receiver, investors may also hedge the risk of steeply falling yields by purchasing options to enter a swap contract at a future date (swaptions). Hence, swaptions tend to become more expensive in times of stress and when investors rush to hedge duration risk.

 

As 10-year swap rates were compressed in early 2015, the cost of such options written on euro swap rates rose by a factor of three by 20 April 2015 (Graph B, left-hand panel). Steeply rising euro rate hedging costs preceded the actual correction in yields, which started rebounding around the weekend of 18 April culminating in the so-called bund tantrum. This suggests that this year’s turbulence in fixed income markets may have had its origins in derivatives and hedging activity, with reduced market depth in cash markets exacerbating the spillover.

Why is there reduced market depth in cash markets? Simple: because of central banks intervention and soaking up of securities. So what the BIS is effectively saying is that as a result of central bank activity, investors have been forced to transact increasingly in the derivative arena as a result of which events like the Bund flash smash from April led to major market losses for those long Bund duration in either cash or derivative markets. Since then, volatility in European government bond markets has persisted culminating with the surge in yields this past Thursday in the aftermath of the ECB's dramatic and extensively discussed here previously "disappointment."

The BIS' conclusion:

Such volatile movements in euro area interest rate derivatives markets raise questions about smooth pricing responses in the face of possibly transient order imbalances. Of question is liquidity in hedging markets and the capacity of traditional options writers, such as banks, to provide adequate counterparty services to institutional hedgers. Looking back at the events of late April, the rise in demand to receive fixed rate payments via swaps by institutional hedgers may have run into a lack of counterparties willing to receive floating (pay fixed) rates amid sharply falling market yields. The emergence of one-sided hedging demand pressures can be gleaned from the skew in swaption pricing (Graph B, centre and right-hand panels). The skew observed for euro rates approaching the bund tantrum resembled the developments in US dollar rates in December 2008, when US pension funds rushed to hedge interest rate risk via swaptions as market yields tumbled.

But while the swap dislocation in the bond market can be attributed to anything from market illiquidity, to a shortage of cash market product, to lack of willing counterparties, to HFTs, and ultimately, to encroaching central bank intervention - something we have been warnings about since 2012 - perhaps an even more important question to emerge when observing broken swap markets are recent development in FX basis swaps.

Recall our coverage of one particular and very prominent dislocation in the space, one which we covered first in March and then again in October when we noted that the "Global Dollar Funding Shortage Intesifies To Worst Level Since 2012".

This is how JPM explained most recently the phenomenon which can simply be ascribed to a global dollar funding shortage:

"continued monetary policy divergence between the US and the rest of the world as well as retrenchment of EM corporates from dollar funding markets are sustaining an imbalance in funding markets making it likely that the current episode of dollar funding shortage will persist."

The BIS also touched on this topic in its quarterly review, when it picked up the "policy divergence" torch from JPM and describing the ongoing USD funding shortage as follows:

The increased likelihood of policy divergence between the US, the euro area and other major currency areas also rippled through global US dollar funding markets. Historically, cross-currency basis swap spreads – a measure of tensions in global funding markets – were virtually zero, consistent with the absence of arbitrage opportunities. Since 2008, the basis has widened repeatedly in favour of the US dollar lender, ie there is a higher cost for borrowing in dollars than in other currencies even after hedging the corresponding foreign exchange risk – conventionally recorded on a negative basis (Graph 5, left-hand panel). As such, negative basis swap spreads indicate the absence of arbitrageurs to meet heightened demand for US dollar liquidity.

Visually:

To be sure, our readers were aware of this implication of diverging monetary policy. However, thanks to the BIS, we now can add a quantitative dimension to what until recently what mostly a qualitative problem: i.e., how much is the dollar shortage as implied by the near record negative USDJPY currency basis swap spreads.

The US dollar premium in FX swap markets widened substantially – in particular vis-à-vis the Japanese yen – after the odds of Fed tightening reached 70%. At the end of November, the basis swap spread of the Japanese yen versus the US dollar was minus 90 basis points, possibly reflecting in part the more than $300 billion US dollar funding gap at Japanese banks.

The BIS does its best not to sound the alarm at this stunning observation:

While funding continued to be available, such a large negative basis indicates potential market dislocations. And this may call into question how smoothly US dollar funding conditions will adjust in the event of an increase in US onshore interest rates. Similar pricing anomalies have also emerged in interest rate swap markets recently, raising related concerns.

Indeed, once the Fed does hike rates as it now seems almost certain it will do in 10 days time, we will find out just how profound the USD funding shortage truly is. Readers may recall that in 2009 we cited a BIS report which said that "were all liabilities to non-banks treated as short-term funding, the upper-bound estimate [of the dollar short] would be $6.5 trillion".

 

This time around, as a result of the dramatic increase in USD-funded debt around the globe in the past 5 years, it will certainly be far greater.

And, as a further reminder, the last time a global USD margin call was launched with the failure of Lehman, the Fed had to unleash an unprecedented global bailout by way of virtually limitless swap lines opened with every central bank that has a shortfall in USD exposure.

 

As a result, our only question for the upcoming Fed rate hike is how long it will take before the Fed, shortly after increasing rates by a modest 25 bps to "prove" to itself if not so much anyone else that the US economy is fine, will be forced to mainline trillions of dollars around the globe via swap lines for the second time in a row as the world experiences the biggest USD margin call in history.

 

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Sun, 12/06/2015 - 18:06 | 6884597 SILVERGEDDON
SILVERGEDDON's picture

I poop on paper,

And au contraire,

Silver is the suit I wear,

US dollar isn't even there.

Sun, 12/06/2015 - 18:25 | 6884695 HedgeAccordingly
HedgeAccordingly's picture

Its coming... tick tock tick tock.. 

Reverse the chart.. instead of fracture to downside, fracture to upside..

FLASH CRASH via US Dollar Index.. The Next Chernobyl?
Sun, 12/06/2015 - 18:30 | 6884717 malek
malek's picture

Finally, Yellen's first excuse for not hiking has arrived on the scene!

Sun, 12/06/2015 - 18:33 | 6884732 bigkahuna
bigkahuna's picture

FEDs not hiking anything.

Sun, 12/06/2015 - 19:16 | 6884913 GrowerJohn
GrowerJohn's picture

It's a great time to learn about Bitcoin!

http://bitcointeaching.com/ 

Sun, 12/06/2015 - 19:51 | 6885080 Macchendra
Macchendra's picture

BIS is saying this to weaken the dollar before a planned short.

Sun, 12/06/2015 - 21:00 | 6885364 GrowerJohn
GrowerJohn's picture

I think Bitcoins will hit a price of $100,000 each long before the Fed hikes the interest rate!

Sun, 12/06/2015 - 21:23 | 6885515 Dr. Spin
Dr. Spin's picture

*** OFF TOPIC ***

SIC GORGIANOS ALLOS SUBJECTATUS NUNC
We gladly feast on those who would subdue us. 

The first black president:  William Jefferson Clinton
The first woman president:  Barack Hussein Obama

Bwahahaha, urp, urk, koff, koff

Just finished watching "Zeitgeist".  WOW!  This is a fine explication of the current state of affairs...

Topics covered:  Religion, War, Money, Social Manipulation.

This could be the "wake up" tool you've been looking for...

http://www.zeitgeistmovie.com/

Spoctor Din

Mon, 12/07/2015 - 07:41 | 6886936 Dr. Spin
Dr. Spin's picture

You know, it's pretty lazy and chickenshit to downvote a post and not say why.  How many of you naysayers have actually seen the movie and can pan it intelligently???

Spoctor Din

Mon, 12/07/2015 - 08:20 | 6886981 Beowulf55
Beowulf55's picture

your only 6 years behind the curve..............welcome to the real world..............

Mon, 12/07/2015 - 10:24 | 6887410 Dr. Spin
Dr. Spin's picture

Just dredging tools to help wake the sheeple up...

SD

Fri, 12/11/2015 - 14:32 | 6911198 Papi_Al-Mahdi
Papi_Al-Mahdi's picture

The piece on Christianity in that doc is malarky and it threatens to take away from the other 2 sections that actually are quite good. I think there are better documentaries to refer people to.

The Arrivals - if you can find this, it is amazing. It's taken down often, but a current link is https://www.youtube.com/watch?v=a6dJNBvvTTs&list=PLJnJbNpEqDUSUJWcra2ILA...

America Freedom to Facism

The books - The Creature from Jekyll Island, Confessions of an Economic Hitman, Hegemony or Survival.

 

Sun, 12/06/2015 - 21:11 | 6885449 OutaTime43
OutaTime43's picture

I heard Dutch Tulips were better than cash. You should check it out.

Sun, 12/06/2015 - 22:25 | 6885814 fockewulf190
fockewulf190's picture

Is there an ETF for them?  I don´t want the biological, just the paper equivalent.

Sun, 12/06/2015 - 22:56 | 6885950 bookofenoch
bookofenoch's picture

Snorted egg nog through my nose on this comment!

Sun, 12/06/2015 - 21:08 | 6885414 WhackoWarner
WhackoWarner's picture

USD will soar,  Then Chernobyl, Ushered in by many coordinated false flags that distract.  USD will soar as it is now.  Anyone here believe USD is backed by anything?  So why soaring last week?  this game, this game. And this game is analysed like somehow evil and greed could be charted.

 

Flash crash?  Maybe in time but not right now.  This game, this game.   I think the perps need to really think about hiding.  Sooner than later more people will start to connect the dots.  IF NOT we are lost. Kiss the earth goodbye.

 

It is the senseless deaths of so many that are going to be lost in the prelude.

 

 

Sun, 12/06/2015 - 23:09 | 6886003 sun tzu
sun tzu's picture

The stock market is like Wiley Coyote. Don't look down.

Sun, 12/06/2015 - 18:07 | 6884603 I Write Code
I Write Code's picture

bring it on

Sun, 12/06/2015 - 21:15 | 6885468 WhackoWarner
WhackoWarner's picture

In many ways part of every world problem at the moment is the inability of US (God=given super yahoo) to see beyond their own ego.   I Write Code I suspect you are US born and bred.

 

Bring it on is the USA propaganda.

Sun, 12/06/2015 - 18:07 | 6884607 Quinvarius
Quinvarius's picture

They still can't come to grips with the fact the Fed and Treasury are taking the USD lower.  Nothing will change that. The USD didn't do anything in 2009.  It won't do anything now.  You'll be able to get all the cheaper dollars you want in a few months.  I am not a GS retard calling for some instant apocalyptic tail event.  I am just saying, they are taking it lower.  The USD is incredibly over priced.  It is wrecking the economy.

Sun, 12/06/2015 - 18:39 | 6884758 DontWorry
DontWorry's picture

Help me out - how will raising rates take the dollar lower?

Sun, 12/06/2015 - 18:46 | 6884776 two hoots
two hoots's picture

Better than that, tell me what that article even said ?   Reminds me of the old saying:  "what's that got to do with the price eggs?"

Sun, 12/06/2015 - 20:03 | 6885129 Slarti Bartfast
Slarti Bartfast's picture

It means the price of USD will spike up in terms of other currencies.

Another reason to buy some USD for the short term.

Mon, 12/07/2015 - 05:46 | 6886821 Tall Tom
Tall Tom's picture

It means massive Bank Failures and a Global Credit Freeze due to a lack of liquidity.

 

There is not enough US Dollars in existence to bail it out this time.

 

Last time they had toshit out $6.5 Trillion to stabilize the Global Banking System.

 

There is no political will here in the USA to do it again.

 

Raise those rates Yellen...Pleeeeeeeeze

 

It is just a thin wafer...a very thin wafer.

Sun, 12/06/2015 - 19:14 | 6884904 TheFutureReset
TheFutureReset's picture

The same way the last card on a castle causes it to tumble. We don't know exactly which card, but keep putting them on and it's going to happen. The interest rate hike is a gigantic oversized card.

Mon, 12/07/2015 - 05:48 | 6886826 Tall Tom
Tall Tom's picture

It is stable. It is only a small snowflake.

 

It is just a very small snowflake compared to all of that snow...

 

Raise those rates Yellen...Pleeeeeeeeeze?.

Sun, 12/06/2015 - 21:21 | 6885503 WhackoWarner
WhackoWarner's picture

WHAT DELUSION do you retain that allows that the completely immoral FED has your interest at heart? PLEASE AMUSE YOURSELF AND PLOT A CHART.  Ever plotted a psychopathic's logic?  Wish you luck.

Mon, 12/07/2015 - 02:16 | 6886593 Nexus789
Nexus789's picture

The only dice left for the fed to roll is to protect the Dollar to continue the empire. Everything and everyone else is disposable.

Sun, 12/06/2015 - 18:08 | 6884613 order66
order66's picture

And outside of this nightmare, this is what global finance currently looks like:

http://41.media.tumblr.com/tumblr_lyiusw1gQS1qb0p52o1_500.jpg

Sun, 12/06/2015 - 18:43 | 6884626 Unix
Unix's picture

https://www.facebook.com/jeremy.m.tooley/posts/10204919284284164

It will never be raised, period...talk about armageddon bwahahahaarg

Sun, 12/06/2015 - 18:15 | 6884647 Montani Semper ...
Montani Semper Liberi's picture

  But, but the markets have the fed rate hike already priced in, right?

 What difference does it make anyway? The DAX will probably have a nice bump tomorrow morning, plus gold and silver will be smacked down for having the audacity to gain 2% last Friday. Some pissed off paper shorts out there will rule the day.

 Same as it ever was.

Sun, 12/06/2015 - 18:17 | 6884656 Crabshacker
Crabshacker's picture

Never going to happen while Bathhouse Barry's in office..

Sun, 12/06/2015 - 18:31 | 6884718 Unix
Unix's picture

wont matter who's in da house, never gonna happen now...

Sun, 12/06/2015 - 19:31 | 6884979 WonderDawg
WonderDawg's picture

It makes not one fucking bit of difference who is in office. This has absolutely nothing to do with politics, this is about maintaining the global financial system.

Mon, 12/07/2015 - 00:15 | 6886289 Barrack Chavez
Barrack Chavez's picture

--> "Never going to happen while Bathhouse Barry's in office.."

Oooohhh.. Maybe the fascist Nobel peace prize winner will draw a red line across the sand in Syria..

Or will he blame a YouTube video for starting riots outside the Fed/ECB headquarters?

Obama: "If you like your current health insurance, you can shove it..."

Sun, 12/06/2015 - 18:21 | 6884675 falak pema
falak pema's picture

The currency wars pit China against weakest head of three headed Cerberus : The euro !

Sun, 12/06/2015 - 22:30 | 6885799 lasvegaspersona
lasvegaspersona's picture

There is wide spread failure to understand how the structure of the Euro will allow it to survive while all other currencies fail.

Let me explain. Most here understand that gold is still the underlying asset that provides currency with legitimacy. Almost every currency on the planet uses treasuries to perform this function now. The US would like to keep it that way but for the past 44 years the US has been printing way more than it should and until recently the central banks of the world helped the US by using the excess dollars they acquired through trade to buy treasuries and they kept those dollars on their balance sheet. In a sensible world most of those dollars would have been sent back to the US to buy goods and services. The monetary system we have at present encourages this insanity.

The Euro did something different. It used gold in addition to treasuries as a primary asset on the ECB balance sheet. Not only that but instead of holding gold at a fixed price, as it was done under the gold standard, the ECB marks its 10,800 tons of gold to market. When we finally see the dollar drop and the price of gold rise, the balance sheet of the ECB will rise as all the others fail. 

In the end every other country will have to redesign their currencies to be like the Euro. The use of gold in this way allows gold to function as treasuries do now. Countries can intervene in the Forex markets to stabilize their currencies if they wish and they can use gold to do this. At present the US has no gold on the balance sheet of the Fed. Most other countries do not either. Most nations that buy gold do it for their treasuries and not for their central banks. If the dollar fails the Fed will not have to surrender any gold. (It might to defend the dollar in a panic but the 8134 tons on the treasury's book will be safe. It can be used to structure a new currency, the 'New Dollar, if you will.

The same process will happen to all other major currencies. They will eventually become mere medium of exchange and used mostly for local sales. Internationally gold will be used for settlement by nations and for saving by individuals.

This is very difficult to see in a world in which all monetary thoughts are in dollars. When the dollar finally goes though, many will wonder why they did not see this coming. By many I mean all of us and all the gold experts (Fofoa excepted).

What sounds insane today will make sense later. I'm amazed that so many understand the value of gold and the frailty of the dollar but they can't see this.

Sun, 12/06/2015 - 23:00 | 6885965 bookofenoch
bookofenoch's picture

Ok. You're on.

Meet me here in 2018 and let's see if the Euro shit the bed.

Mon, 12/07/2015 - 00:12 | 6886280 Barrack Chavez
Barrack Chavez's picture

Let me explain how smart I am sitting in my academic chair, and how dumb all you people out in the real world are...

Its like listening to the lecture/speech from Peter Pan...

Mon, 12/07/2015 - 01:51 | 6886565 Not My Real Name
Not My Real Name's picture

FOFOA: The euro is doomed whether the EU marks its gold to market or not. It's a political problem; you can't have a single currency representing the disparate cultures and interests of all the countries in the Euro Zone. It is untenable.

Mon, 12/07/2015 - 04:42 | 6886765 Womb Service
Womb Service's picture

Not to mention the goofy idea that they actually have real Gold backing it. As the world crashes those vaults will be mysteriously empty. Paper is paper is paper...

Mon, 12/07/2015 - 06:03 | 6886838 Tall Tom
Tall Tom's picture

How much Eurogold has been rehypothecated?

 

How much German Gold "held" in American Banks has Germany pledged to the Euro?

 

How much actual Physical Gold does the ECB actually possess in Physical form and not pledged out, leased out, rehypothecated, Doctor?

 

My bet is that there is not 10,800 MT in their vaults as there is not 8134 MT in the USA vaults.

 

There has been a Gold Heist Doctor....the largest Gold Heist in History. It has happened right in front of you.

Sun, 12/06/2015 - 18:22 | 6884677 PoasterToaster
PoasterToaster's picture

Couldn't happen to a nicer group of assholes.

Sun, 12/06/2015 - 18:23 | 6884685 Johnny Horscaulk
Johnny Horscaulk's picture

in other words there's way too much debt and the us dollar has clay feet... but the banks want to keep the wealth transfer from workers to banks going on as long as possible.

pain now or more pain later.

Sun, 12/06/2015 - 18:25 | 6884692 ms8173
ms8173's picture

Will this make the USD go up or down?

Sun, 12/06/2015 - 18:28 | 6884707 Montani Semper ...
Montani Semper Liberi's picture

 Yes

Sun, 12/06/2015 - 18:30 | 6884714 Unix
Unix's picture

LOL....??????

Sun, 12/06/2015 - 20:14 | 6885174 Salah
Salah's picture

"margin call" ?? ZH--simplify this shit.

with an $11 TRILLION  dollar cary trade....it's more than a 'margin call'

"It's What's for Dinner"  (why one has a 'big stick' to begin with)

Sun, 12/06/2015 - 21:43 | 6885567 WhackoWarner
WhackoWarner's picture

USD wll go up to shine as the beacon of fools. 

for

There are way too many people across this planet who are simply wishing for a way to save the (excess profits) product of  labour in a stable venue.

 

The gambling, entitled psychopaths could not dig their own graves (they'd employ someone).   

 

IF there is synchronicity to our lives

Sun, 12/06/2015 - 18:41 | 6884764 bigkahuna
bigkahuna's picture

The FED will not do anything until the next decrease...  Reserves will cost the banks money - then the vaults (computers) will be stuffed with dollars (1s and 0s)

American public has made a run on firearms - apparantly people are waking up. This is going to get nasty.

Sun, 12/06/2015 - 19:17 | 6884917 TheFutureReset
TheFutureReset's picture

It'll be darkest right before dawn. 

Mon, 12/07/2015 - 06:05 | 6886841 Tall Tom
Tall Tom's picture

It is darkest at death.

Sun, 12/06/2015 - 18:52 | 6884799 V for ...
V for ...'s picture

What more warning do you need that they are getting ready to 'pull it' in a controlled demolition? Like a gangster fire bombs a building for the insurance payout, and destroys evidence of crime.

Time to leave the building, Elvis.  Traders should have taken more heed of Cable, and the significance of  the Rothschild's new best friend China placed above GBP in the new SDR rankings.

"Power tends to corrupt and absolute power corrupts absolutely." (Lord Acton), although I prefer the quote of King John of Scotland: 'I can make a lord, but only Lord Almighty can make a gentleman.'

Sun, 12/06/2015 - 18:55 | 6884825 hooligan2009
hooligan2009's picture

p and l on swaps is collateralized...to supposedly eliminate counterparty settlement risk...swaps are now centrally cleared to eliminate daylight risk...

what the article above doesn't highlight is the shortage of collateral caused by counteparties in a loss... it's a zero sum gain for p and l..until collateral is rehypothecated into the US Treasury money market funds via repo.. and one or two large (or 8 small counterparties) cannot fund their losses via repo..

then the clearer is bankrupt, the collateral becomes precious and the p and l (say 3-5% net exposure out of 700T gross or the odd 2-3T in profits and corresponding losses) wipes out swap counterparties - whether from options or outrights.

US money market funds will need around $300B in treasuries over the next year when SEC legislated US money market funds are compelled to use Treasuries via repo or T/Bill - removing that collateral will further exacerbate the shortage of collateral.

time for swap ladders to be downsized to lower limits.

just saying...

Sun, 12/06/2015 - 19:21 | 6884935 Unix
Unix's picture

so you are saying it's a liquidity trap?

Sun, 12/06/2015 - 19:53 | 6884976 hooligan2009
hooligan2009's picture

i think i am saying (though who the hell knows these days!) that this is reverse engineering of the removal of collateral with which to secure p/l in the swaps market...

that is.swap activity is now dominated by collateral quality and not hedging, or economic positioning

 

that is....p and l is $3T...treasury collateral removal is going to be $300b with a multiplier effect probably - meaning around 10-30% of current p/l can't be collateralized

the same is true for the ECB, BoE and BoJ...

Mon, 12/07/2015 - 03:52 | 6886698 damicol
damicol's picture

I estimate liquidity will need to be reduced by at least 350 bn and probably as much as 800 bn to get a 25bp rise.

I think the stupid cow will announce it and then watch in horror as fuck all happens and it stays at 25

That will be the end of fed fucking cred

Mon, 12/07/2015 - 06:28 | 6886857 Tall Tom
Tall Tom's picture

That type of restriction in liquidity will freeze the Credit Markets who are even now stressed and reliant upon swaptionss rather than currency. (That is the gist of what the BIS reported.)

 

The report states,

 

And with cash markets rapidly depleting of physical inventory as a result of central bank monetization, investors have had to rely on derivatives markets, especially swaptions.

 

Currencies are supposed to alleviate the problems due to barter as they were initially established for millenia for that purpose. If they no longer serve that purpose then the have become valueless, lacking utility, and need to be discarded. 

 

Squeezing liquidity out of an illiquid system will lead to...Gee...What is a good physical metaphor...Oh yes...I have got it...Dehydration wihich leads to dying of thirst, death?

 

That will be the end of some major Financial Institutions.

 

And that stupid short sighted cow will be butchered and slaughtered for her wrecklessness.

 

The other World Crime Families are not going to be too happy about losing their banks.

Sun, 12/06/2015 - 19:22 | 6884940 Rabbi Blitzstein
Rabbi Blitzstein's picture

Oy! Oy! Oy! Goyim kvetch. Hahaha! When we can’t dazzle stupid goyim with ‘brilliance’, i.e., deception, then we always baffle goyim with bullshit. Either way, jewry wins. We screw goyim coming and going. Keep you focused on mammon while we bleed you dry. We own both fighters in ring. We always win no matter who loses. Hike or no hike, the kike is right. LOL!!!

 

Sun, 12/06/2015 - 23:25 | 6886077 bunnyswanson
bunnyswanson's picture

It always ends badly historically when a whipping post is needed.  End of the money trail is where the perps can be found.  Prepare for blow back. 

Sun, 12/06/2015 - 19:37 | 6885013 Kirk2NCC1701
Kirk2NCC1701's picture

The "Biggest Dollar Margin Call" would be triggered when the Chinese and Russian version of BIS goes Operational with BRICS+

Their IT guys had beter get their butts in gear (go from Beta-Testing to Operational), and the bankers had better get the HW and Training in place ASAP.  They have no time to waste.

Mon, 12/07/2015 - 06:40 | 6886877 Tall Tom
Tall Tom's picture

Well that is the reason for an Interest Rate hike NOW.

 

The only instution that may be able to currently handle this is the IMF with the issuance of the SDR as the World Reserve Currency.

 

Do you think that may be the reason that China was allowed in...to stop the BRICS competition???

 

So we get a Global Currency...predicted by the Book that you do not believe,

 

It will be electronic...like BitCON.

 

The Beast will rule.

 

Will you take the Mark in your forearm or your forehead?

 

(Oh I know. I just had to take that dig. I still will chug that Beer with you any day. Is it cold up there yet?)

Sun, 12/06/2015 - 19:46 | 6885060 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

The dead FED will not raise rates, ever.

Sun, 12/06/2015 - 19:58 | 6885108 Thalamus
Thalamus's picture

$ denominated debt = short USD. USD rise make pain for borrower, as debt payment costs rise as cost of acquiring USD rises. Demand for USD increases as borrowers buy USD to pay off loans (margin call), further exasperating USD strength. Should see blow off top followed by financial destruction worldwide, then collapse of USD as debt is evaporated. Debt based monetary system unsustainable long term.

Sun, 12/06/2015 - 20:14 | 6885169 TheFutureReset
TheFutureReset's picture

Technically I agree, but it hasn't been working like that. Rising dollar doesn't hurt borrowers that can print money, it hurts borrowers that can't print money, ie main street since everyone (except some smart people like us here) are deep in debt. It's backwards, deflation is supposed to help mainstreet and hurt Uber leveraged beasts, but mainstreet is drowned in debt, too, and don't have access to the printing press. 

Sun, 12/06/2015 - 20:40 | 6885275 LawsofPhysics
LawsofPhysics's picture

Technicals have not mattered for quite some time.  The producers of real goods and services in many countries are already past a breaking point.  The monetary system is essentially a "let the majority eat cake" experiment with bankers/financiers being nothing but useless overcompensated middlemen between the computer/printer (where "money" is created) and the producer/consumer in the real economy.

Economies do evolve, not without real pain, but eventually they do execute the middlemen. I suggest getting a tribe of dependable people with real assets and real tradable skills together and start thinking/talking honestly about what kind of society and governance you can actually want to maintain as that which cannot be sustained, won't be, period. Just remember, the greatest assets are still skilled human labor and productive capacity.

Oh well, evolve or die.  Same as it ever was...

Sun, 12/06/2015 - 21:25 | 6885523 tarabel
tarabel's picture

 

 

The greatest assets are still skilled human labor and productive capacity...

What kind of a rebel Kardashian are you anyhow? You are spouting the purest heresy.

Sun, 12/06/2015 - 23:38 | 6886128 Crocodile
Crocodile's picture

It is adapt or die; man is devolving not evolving.

Sun, 12/06/2015 - 20:05 | 6885134 bentaxle
bentaxle's picture

The BIS and Central Banks have had it with commercial banks incompetence and their losses! They intend to throw commercial banks under the bus, meaning all citizens will have to become customers of....the CB's, if they want access to any kind of payments system.

That way the elites of the elite also survive. Now that's my kind of dog eat dog!

http://www.coppolacomment.com/2014/07/creeping-nationalisation.html

Sun, 12/06/2015 - 20:45 | 6885301 LawsofPhysics
LawsofPhysics's picture

Bullshit.  The Fed could easily increase the FFR without increasing the interest paid on reserves.  I don't know why this isn't being discussed.  At least not publicly

Sun, 12/06/2015 - 20:32 | 6885252 LawsofPhysics
LawsofPhysics's picture

Irrelevant.  The Fed will buy any and all bad/bullshit paper so long as people continue to accept the FRN in exchange for their labor.

Sun, 12/06/2015 - 20:43 | 6885293 Yen Cross
Yen Cross's picture

 We discussed .gov swap spreads last week.

 Hey, I'm getting ready to ad corporate debt trade. I'll probably stay away from that ccc paper.

  The beauty of shorting corporate, and MBS debt, is that you know when the intermediary is "bullshitting" you.

Sun, 12/06/2015 - 23:36 | 6886108 Crocodile
Crocodile's picture

What are the ETF plays on that bet?

Mon, 12/07/2015 - 00:26 | 6886334 Yen Cross
Yen Cross's picture

shorting corporate debt> everyone has different risk tolerances, and timelines.

 Doesn't have to be an ETF. You can do it through direct sector, and/or individual companies.

 I use the XLF and other banking sectors to create cross sections of lenders, then break down individual lending components.

  I'm also going to short the insurance side of the trade. Those bonds will be cheap. ;-)

Mon, 12/07/2015 - 10:22 | 6887400 Crocodile
Crocodile's picture

Thank you; seems to me that the yields "junk bonds" on junk bonds are already rising and thus the value of those bonds is declining...meaning there is already a "market awareness" that this is oversold, over inflated and some air is coming out. 

 

Is my understanding correct from your opinion?

Sun, 12/06/2015 - 20:47 | 6885315 Omega_Man
Omega_Man's picture

China has a lot of USD to lend, pay it back in yuan.. capture a huge share of the market. Yuan is fully in the system....China says FU Merica

Sun, 12/06/2015 - 20:48 | 6885316 squid
squid's picture

If a party (country or bank) was dumb enough to assume that rates would stay zero forever....

 

Then they deserve what's coming.

 

Squid

Sun, 12/06/2015 - 22:09 | 6885731 robertocarlos
robertocarlos's picture

Fortunately rates are going to less than zero and then they will pay us to borrow money.

Sun, 12/06/2015 - 21:03 | 6885390 Yen Cross
Yen Cross's picture

 Treasury 10 year spreads, on the "Foreign Treasuries Held" chart", is interesting."

 

Sun, 12/06/2015 - 21:10 | 6885415 eatthebanksters
eatthebanksters's picture

All the big banks, central banks and funds are scared shitless of the Fed raising rates because they have become as dependent on the tit of cheap money from the Fed as a junkie is on smack.  Fuck all these entities that have been making money hand over fist while Main Street has'nt made jack shit.  Time for the fucking tail to stop wagging the dog.  Fire it up, boost those fucking rates and let's clean out the posers.

Sun, 12/06/2015 - 21:32 | 6885556 conraddobler
conraddobler's picture

The BIS is the mouthpiece of the new financial order.

They are squawking about this to build credibility for later.  Our FED will be sacrificed for even greater controls to come afterwards.

Only a brain daad puppet would risk raising rates here as the trap was self constructed and they can never exit it in any meaningful way to raise rates now will only provoke a global meltdown which is the goal.

It's the same MO forever and always out of chaos comes more power and control.

Sun, 12/06/2015 - 22:23 | 6885802 optimator
optimator's picture

Mr. BIS is really Mr. BIG, the top boss.  

Sun, 12/06/2015 - 21:55 | 6885671 CHoward
CHoward's picture

Fuck this shit.  If a system is so fucking tightly wound and complicated that a damn lousy 0.25% increase in a rate can cause such catastrophic events to happen - then this system doesn't deserve to see the light of day.  Let it fucking implode and call it a day.

Sun, 12/06/2015 - 21:59 | 6885693 Soul Glow
Soul Glow's picture

Well luckily for the BIS there are trillions of worthless fiat dollars on call, go ahead, collect them all!

Sun, 12/06/2015 - 22:14 | 6885756 Yen Cross
Yen Cross's picture

 If "I'" said "what a cluster-fuck", the same dipshits from Squid & JPM would be pumping ZIRP kajinga/ Bitchez

 Answer> Zero Volume.

 Buybacks, mergers, NON-gaap, ect have.. pretty much<> stock dilution.

 Anyhow, the ponzi has run it's course.

Sun, 12/06/2015 - 22:15 | 6885765 Spungo
Spungo's picture

If doing so will crash the global economy, that means there's about a 98% chance they will do it.

Does anyone remember that Mr. Burke guy from Fallout 3? He worked for the fed.

Sun, 12/06/2015 - 22:24 | 6885801 Yen Cross
Yen Cross's picture

 Charts are starting to matter.

The markets are starting to price rates higher because of "perceived" risk.

 

Sun, 12/06/2015 - 22:32 | 6885846 holdbuysell
holdbuysell's picture

Just as Jim Willie has been callilng it. Interesting.

Sun, 12/06/2015 - 22:43 | 6885900 buzzsaw99
buzzsaw99's picture

moot point. the fed won't hike.

Sun, 12/06/2015 - 22:57 | 6885955 combatsnoopy
combatsnoopy's picture

BIS = drama nuggetry
I've seen the huge margin calls after 9/11.

The reason why the bubble will burst IF there is a rate hike is because the economy really isn't that great to begin with. 

 

OMG these fiction writers are DUMB!  

 

Sun, 12/06/2015 - 23:28 | 6886082 g'kar
g&#039;kar's picture

7 years into the depression and the rate hike fairy tale is still being told (along with the recovery fairy tale)

Sun, 12/06/2015 - 23:31 | 6886095 Crocodile
Crocodile's picture

Remember in October it was the IMF warning the FED; now it is the Central Banking Hive sounding the warning more than once now...thus no rate hike unless it is to kill off many banks and implode the world financial system to enter the new paradigm.

Sun, 12/06/2015 - 23:42 | 6886140 Crocodile
Crocodile's picture

THE USD continues upward, then just vanishes...that is how it will play out.   Then we will be issued some form of "domestic fiat", which will be devalued almost instantly and then devalued again by at least 50% from today's devalued USD.  Wait & see.

Mon, 12/07/2015 - 00:04 | 6886247 Barrack Chavez
Barrack Chavez's picture

Ha Ha Ha Ha Ha!!!

A teeny tiny 25 basis points (0.25%) is all it would take to unleash total armageddon on Bernanke's Potemkin village economy.

Meanwhile, the average US consumer watches the rate on their credit card jump from 24% to 30%, and no one at the Fed or BIS even flinches.

.

Mon, 12/07/2015 - 00:29 | 6886346 Atomizer
Atomizer's picture

Don't forget about all the reward card benefits and selling your information to a 3rd party marketing slumbag in a telemarketing emerging market periphery deadend labor market. 

Mon, 12/07/2015 - 00:21 | 6886310 Atomizer
Atomizer's picture

Margin call party of five, your table is ready. Margin call your table is ready. 

Mon, 12/07/2015 - 04:28 | 6886755 Maestro Maestro
Maestro Maestro's picture

What a bunch of defeatist moronic pussies you all are...

The US dollar is a FRAUD and a CRIME according to the United States Constitution.

DEALING in it in any way, including repaying "debt" denominated in Federal Reserve Notes aka dollars

amounts to

being accessory to

THE CRIME!

Simply declare force majeure and stop crime by refusing to deal in dollars by reneging on dollar-denominated debt.

Take a bite out of crime.

(And don't forget to hang the bankers.)

Mon, 12/07/2015 - 04:30 | 6886757 JailBanksters
JailBanksters's picture

So the Bank of International Jewry doesn't want the Jewry Reserve to jack up rates. Shocker.

Does she or doesn't she, sounds like a shampoo commercial. All it means is, you break it now or you break it the years to come. Maybe they think the Banking Fairy will fix it sometime in the future.

 

Mon, 12/07/2015 - 06:02 | 6886836 JailBanksters
JailBanksters's picture

 

 

Mon, 12/07/2015 - 06:06 | 6886842 Atomizer
Atomizer's picture

Place a FRN under your pillow each night. It will debase to infinity. The pillow will cost more than the paper tucked away. 

Welcome to Jewish Economic School of Finance. Tiger fiat is a kosher hotdog of body parts. 

Mon, 12/07/2015 - 07:41 | 6886916 falak pema
falak pema's picture

haha, the BIS doen't know which way to piss.

To be or not to be; when infinite QE meets its Nemesis : negative QE, thanks to UST being dissolved in Yuan acid; all the while IMF sings : Yuan is our monetary saviour!

Three headed Cerberus is running around chasing its tail; let alone guarding the Gates of Fiat Hades !

Mon, 12/07/2015 - 07:44 | 6886939 Bopper09
Bopper09's picture

The BIS doesn't warn.  The BIS directs.

Mon, 12/07/2015 - 08:48 | 6887021 Crocodile
Crocodile's picture

Agreed and here is why.


Established on 17 May 1930, the Bank for International Settlements (BIS) is the world's oldest international financial organisation. The BIS has 60 member central banks, representing countries from around the world that together make up about 95% of world GDP.

The head office is in Basel, Switzerland and there are two representative offices: in the Hong Kong Special Administrative Region of the People's Republic of China and in Mexico City.

The mission of the BIS is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas (What areas?) and to act as a bank for central banks.

 

https://www.bis.org/about/index.htm?l=2&m=1|1

Mon, 12/07/2015 - 09:09 | 6887063 TK69
TK69's picture

And so? These governments can print there own money. If anything it will be good for there exports and cheaper prices for the American consumer. Its a bunch of noise and nonsense.

Oh, and what rates will the fed raise because it does not raise interest rates? More interest on ecess reserves purchases which would mean less loans? Or negative interest rates which would mean for sovereign debt dying? I wonder how many of you actually understand any of this?

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