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The Death Of Risk, Or The Birth Of Risk Transfer
As Central Banker 'risk-asset' implied-puts are perceived as having higher and higher strike prices (i.e. allowed to fall to a lesser and lesser extent), this chart from Sean Corrigan, shows that markets are pricing risk with lower and lower concerns. Today's VIX opening near the recent five-year lows further reinforces the market's apparent complacency that there is nothing to fear but fear itself (even as Bernanke keeps his eagle-eye on data). But, just as everyone learned with CDOs and CMOs, risk doesn't just disappear. It is transformed or transferred or spread out and as is clear in the lower pane of the chart - risky-asset 'risk' has seemingly been transferred to safe-asset 'risk' as there is no drop in volatility among the 'safe-haven' assets of the world such as Gold and US Treasuries. It truly is the best of times and the worst of times as global risk takers embrace the anti-risk-reward trade with lower risk perceived as providing higher returns - we can only imagine how asset allocators and Modern Portfolio Theorists are coping with their spreadsheets as correlations regime-shift and risk and reward get flipped. Of course, we have seen this picture before and it doesn't end well as vols flaring nature always re-appears just when you don't expect it - but of course we will all be out before the next risk-flare erupts.
Chart: Bloomberg
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Just keep buying Apple.
The Capital Controls noose just got a little tighter!
"On February 8th, 2012, the IRS released the latest and long-awaited proposed regulations. On the same day, the US Treasury released a joint statement with the governments of the UK, France, Germany, Italy, and Spain announcing an intergovernmental framework for FATCA implementation and tax compliance.
Below, please find a summary of the key aspects of the new proposed regulations, the joint statement, plus a few comments on the potential implications.
FATCA in a Nutshell
Under FATCA, foreign entities are classified in two groups: (i) foreign financial institutions ("FFIs"), and (ii) non-financial foreign entities ("NFFEs"). A 30% withholding tax is imposed on "withholdable payments" to FFIs, unless the FFI enters into an agreement with the IRS to directly report information about financial accounts held by U.S. taxpayers, or foreign entities in which U.S. taxpayers hold a substantial ownership interest. The withholding tax is implemented via a group of enlisted U.S. ‘withholding agents´; in general, a select group of large commercial banks in America.
The rule may also affect entities and accounts that are held by foreign taxpayers (i.e. non-U.S. taxpayers) if they receive US sourced income or hold US investments (stocks or securities).
A "withholdable payment" can be (i) passive investment income from sources within the US, such as dividends, interest, rents, etc; and (ii) any gross proceeds from the sale of any property that could produce passive investment income from sources within the US. By "gross proceeds" it is understood that 30% will be imposed on the entire proceeds of the sale, even if such property was sold at a loss.
The Intergovernmental "FATCA Partner Framework"
Probably the most prominent note on the proposed regulations was a joint statement issued by the US Treasury together with the governments of the UK, France, Germany, Italy and Spain, in which they as entire countries enter into a "FATCA Partner" agreement. A copy of the joint statement is attached.
Under this agreement, instead of information collection and delivery being arranged between individual FFIs and the IRS, the information gathering and sharing will be effectuated at the national level. In other words, governments who enter the intergovernmental system - the so-called "FATCA Partners" - will domestically collect all client information from the financial institutions in their jurisdictions and automatically forward it to the IRS.
In exchange, FFI´s in those jurisdictions will have a lower burden for implementation of FATCA. Furthermore, the U.S. has promised to reciprocate by automatically sending their FATCA Partners the information of accounts of FATCA Partner taxpayers held with financial institutions in the US.
A World of ‘Good FFIs´ and ‘Bad FFIs´...
The trend seems to foreshadow that in order to avoid withholding taxes, FFIs will become a Participating Foreign Financial Institution (PFFI) either by (1) individually signing the agreement with the IRS, or (2) being domiciled in a jurisdiction that becomes a FATCA Partner.
Accounts held with a PFFI should (subject to audit and operational error risks) be able to avoid the 30% withholding tax. To be exempt from withholding, a PFFI must commit to a number of rules. In particular, a PFFI will be obliged to:
• obtain information on all accountholders to determine which accounts are US accounts, • report information on US accounts, • comply with required due diligence/verification procedures and certify completion of such procedures,•
comply with IRS information requests,
• attempt to obtain a privacy waiver if applicable bank secrecy or other information disclosure limitations exist, or close the US account, and •deduct and withhold a 30% tax on any pass-through payments to ‘recalcitrant accountholders´ (e.g. those not willing to give up client confidentiality) or to other FFI´s that are not PFFI´s." ........
http://www.mountainvision.com/newsletter.php?view=a8baa56554
Nice catch. Lots of capital controls in place already. Just try moving money around in amounts larger than 10K these days. When moving 100K or more out of a bank now, you damn near have to go through an inquisition. Total bullshit, the paper-pushers are getting very desparate.
When we start seeing real price controls, then we will now that the U.S. is officially the U.S.S.A.
This is an over-statement.
It is easy to transfer money abroad. You are obligated to report all foreign assets and foreign source income to the IRS. What FATCA changes primarily is the obligation of the foreign receiving institution to report to the IRS and the real problem is that if they realize the true extent of their reporting obligations they may decide not to accept US money.
As for capital controls, it's really very simple. If more money goes out of the US than comes in, the US will be tempted to enact capital controls.
Apple is the new roach motel for hedge funds. They check in but they can't all check out in time if for some reason AAPL starts to drop. If I were an evil banker trying to capture the market with my HFT bots and the main source of resistance was these pesky hedge funds who all hopped into the same massively inflated stock what would I do? Hmmm, have to think on that.
Don't momo the hedge funds, they have a target drawn on their backs.
The AAPL fanatics out there are sickening. Maybe it's undervalued, maybe it's not. But the sheer infatuation with the stock makes me want to stay away.
Apple: A small does of reality
Most AAPL products are made under slave like conditions by Foxconn with 1.2 mm employees. Has anything changed since 1850. When will the youth and unions expose Foxconn and rally for real human and environmental rights??
Damn pretty charts and colors
'Mustard' is a nice touch. I wouldn't have thought of it.
So, is this the point to begin buying VIXY? I mean, if the news is "He's dead Jim", then it's time to go to town right?
For the love of God, please no.
Death of risk increases risk of death...tilting toward a meltdown here.
Yes. Hopefully the taxpayers realize that the risk has been transferred to their shoulders before it's too late, assuming it isn't already too late.
Too late. Way too late.
VIX is dying with a 1000 cuts, while the 30 day rolling VIX futures are hemorrhaging. Seems like everyone has wool on their eyes and are marching on - no black swans in sight, all clear mate.
Arguably, bubbles are the manifestation of a slow transfer of risk to a presumed "safe asset" - like housing, for example. I believe treasuries are going to be the "winner" in the next leg of the risk transfer game. And if that's the case, then the popping sound will be heard by all as the pinball machine goes into permanent tilt.
Kinda interesting that some crazy elliot wave guy I knew in 2008 prior to the crash said something huge was going to happen and his Nasdaq long term target was 3100. He said volume would drop to nothing. When the markets starting tanking he also said you were an idiot to not buy because the targets were still going to be hit. Of course no one did and now look at it. He also said he was going to short the piss out of 3100 and at that point in time the US economy is going to be total toast. Not a bad long term prediction so far.
Risk is an ephemeral subject for muppets, since all risk is now controlled by the risk cartels. Just be happy and googly-eyed.
What's that red color on my SPY chart? What the hell's going on?
Give it a few more minutes
Imagine a world... with endless money printing, a world where risk is immediatly transferred off the books onto the backs of unsuspecting taxpayers. Fueling the rise of the central banking structures momo euphoria and confidence in the new no risk trade. But something happened on the way to financial nirvana, risk called for reality back, for it was never with the now bankrupt taxpayers around the world. It was temporarily residing in another plane, in suspended animation... much like a famous cat. All that is left is for reality is to step through the door and see the world as it was shaped by risk in its absence, in the Twilight Zone........
I hope the 'Pros' out there get something from this.
Frankly, it's a bit over my head.
Is the idea that supression of volatility in 'risk assets' is causing heightened volatility of 'safe-haven assets', with the implication being that Vol is cheaper(a better value/trade) in risk assets?
uvxy (double vix) is a cheap way to hedge against the coming sell off.
When the Bernank's finger runs out of Preparation H, that's when things really erupt !
Speakling of CDOs
http://ftalphaville.ft.com/blog/2012/03/21/931821/re-securitising-commod...
French banks are stepping back into funding commodities trades, after pulling back on lending last year due to a dollar liquidity shortage.Is this new French initiative going to be some kind of collateralised commodity obligation? And how exactly are they going to make the cashflows attractive enough too woo over investors seeking commodity-style exposure?