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Presenting Kyle Bass' Analysis On Shortening Collateral Chains; Or The Gradual Evisceration Of Shadow Banking
Kyle Bass presented us with a preview of what to expect in his monthly letter in a David Faber interview yesterday; today he delivers the full monty with his extended analysis of "shortening collateral chains" in his latest investor letter - a topic that we have been discussing broadly ever since we starting focusing on Shadow Banking two years ago (and why, as we have been pounding the table, it is the central bankers' primary prerogative to offset the collapse in the shadow banking system more than anything), and narrowly, since the realization of how tenuous the rehypothecation system is. The below analysis leads Bass to come to the one logical conclusion: "As European leaders press forward with failed attempt after failed attempt to suppress borrowing costs, control spending, reduce deficits and prop up what the markets have already told us is a broken monetary system, the data tells us that the citizens of the most troubled and profligate nations are losing confidence in the Euro dream. Trust has been lost, confidence in the system is being lost, and the ultimate consequence of this break down - sovereign defaults —are imminent. We continue to move ever closer to a great restructuring of sovereign debt."
Highlights from "Collateral Chains Shortening - Prima Facie Evidence Of Distrust"
The IMF released a working paper in November highlighting the significant decline in source collateral for large dealers in the Post-Lehman world. In other words, dealers' clients (sovereign wealth funds, asset managers, etc.) are not making their excess collateral available for use and re-use by their prime brokers for securities lending or repo activities. The author, Manmohan Singh, is particularly insightful with regard to the length of the collateral chains and how they have shortened over the last few years. This shortening effectively reduces the amount of "grease" needed to keep a highly-levered financial system operating smoothly and is undoubtedly closely connected to the de-leveraging that is beginning in the European banks. Basically, participants no longer trust dealers (which is not surprising, considering the behavior cif players like MF Global?) to re-hypothecate collateral. The chart below neatly displays the new paradigm with regard to collateral movements and the increasing awareness by financial markets participants that their excess collateral is safer in the hands of a third-party custodian than in the hands cif their prime brokers. This is quite a statement given that up to an incremental 200 bps can be earned on excess collateral kept at a prime broker. Some large European funds are even beginning to shun European banks in the OTC marketplace. This pre-emptive action by asset managers is, in part, a natural response to the European Banking Association's failure to conducted [sic] truly robust stress tests. Case in point: Dexia, a Franco-Belgian bank, passed a prior stress test with flying colors and approximately 90 days later failed miserably. In fact, 190 billion euros was needed for Daxia's bad bank alone. The most recent stress tests proved to be meaningless even sooner than last year's tests.
Below is an illustration provided in the IMF paper which shows the traditional flow of collateral (on the left) versus the structure currently employed by many large market participants. The reference to "churn" in the Chart refers to a dealers ability to re-use (i.e. risk) excess collateral to generate positive yield for themselves.
The recent announcement of a coordinated G7 central bank action to increase the availability of currency swap lines at cheaper rates was an attempt to put into place facilities that will act as airbags for a marketplace that will likely disintegrate into a formless void of investor action, once multiple sovereign defaults begin. We believe the timing of the swap facilities announcement was specifically designed to forestall the impending failure of a large Eurozone bank facing a funding crisis. The announcement provided temporary relief to the funding markets, and the mini-crisis was seemingly averted. However, this soft of relief simply allows Europe's banks continue to pick the flowers while allowing the weeds to grow, by preventing any failure and restructuring but forcing ongoing deleveraging across the systEm. The majority of "good" collateral is already posted at the ECB for repo funding, so facing a dearth of available collateral, what would you expect the ECB to do? Naturally, they announced an expansion of eligible or "Tiffany" collateral and provided some relief on the cost of the repo transactions. The constant lowering of collateral requirements has encouraged European banks to pledge lower and lower quality collateral to the ECB which, over time, has seen its balance sheet expand to provide more than half a trillion euros of loans; placing the ECB's tiny capital sliver of 5 billion euros at ever greater risk.
As European leaders press forward with failed attempt after failed attempt to suppress borrowing costs, control spending, reduce deficits and prop up what the markets have already told us is a broken monetary system, the data tells us that the citizens of the most troubled and profligate nations are losing confidence in the Euro dream. Trust has been lost, confidence in the system is being lost, and the ultimate consequence of this break down - sovereign defaults —are imminent.
We continue to move ever closer to a great restructuring of sovereign debt.
Full letter can be read and downloaded here.
h/t Matt
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Now leaders are turning the ECB into a zombie bank, by allowing it to take questionable collateral from Euro banks, so they don't fire sale assets [1].
[1] http://ftalphaville.ft.com/blog/2011/12/15/802381/let-there-be-credit-cl...
ECB (taxpayers) will be holding bank trash on their balance sheet. All your private trash belong to us.
privatizing profit, and socializing losses continues writ large.
shut it down.
Not sure how that is a surprise: we have been saying since July 2010 that "shadow" (and real) collateral is evaporating, due to the ever decreasing cash flow generated by amortizing and depreciating (and not renewed due to CapEx cuts) assets.
The whole game is merely one where the declining asset base has to support an ever greater pillar of liabilities, which means the implied leverage assumed on assets (via Shadow banking transformation) is getting bigger and bigger.
To summarize: traditional banking cap ratios may be declining (to keep Basel III happy) at the expense of shadow leverage ratios which are exploding.
As simple as it gets.
Tyler are Commerzbank and DB up today because Germany Nationalizing them is a good thing? That means Germany is insulating themselves instead of bailing out Europe? If this fear that ZH and Bass speak of that is taking grip and this realization is taking place what affects will it have on the big investment Banks?
Germany nationalizing is a briefly good thing for DB and CB - it was the reason why we suggested to close the Dexia CDS short risk position (incidentally one day ahead of the nationalization) as it creates a brief knee jerk risk on in the company. Naturally, all nationalization does is a last ditch method to fix a liquidity issue by merging the balance sheet of the sovereign and the bank. It also makes the solvency problem far worse by pushing toxic assets to the balance sheet of Belgium or Germany or France etc, which is why sov cds keep blowing out wider. This just happens to be the endgame for Europe.
It will be the endgame for all (not enough collateral on earth to cover 707 trillion). The currency wars are in mid phase, the trades wars are finally getting started, we have got some time before the real shooting starts, hedge accordingly.
The music has stopped; time to grab a chair.
Russia Pledges to Support Euro Zone:http://online.wsj.com/article/SB10001424052970203893404577100033828566606.html
Hello TD.
I wrote an article about this years ago. I called it "evaporflation". It's still 100% accurate. AND SHOULD BE THE PHRASE PEOPLE USE TO DESCRIBE OUR CURRENT CLUSTERF$CK!
I also wrote years ago about how the EU was F'd based on their excessive leverage/Frax-res. (I said as bad as the US was 30x/10%, the EU had 30to50/0-10%, so the multiplying factor on their debt growth was far greater. ...and to boot, I regularly wrote about the fact that they never had a central bank or cross-border contracts.) I want to say that I was screaming this stuff in 2008 to the RGE crowd.
It's amazing how loing it takes everyone to catch up.
all the best, RH/MA
Here's the Evaporflation link:
http://www.economonitor.com/blog/2009/03/evaporflation/
"We continue to move ever closer to a great restructuring of sovereign debt."
This shit is going to be epic.
Once again I think using a tsunami analogy, we are at the stage where the tide rolls way out. Most people are standing around looking at all the fish flopping around in the newly exposed beach. Some smart people (and most animals) are running for the hills. Soon we will see the wall of water that will crush and wash away everything it reaches.
Epic is the correct word, and devastating will be one of the words to describe the aftermath.
The suggestion is that lengthening the chains of collateral is a natural expression of business when the only collateral that matters is that which represents a so-called 'productive enterprise'.
Shortening (or shorting) collateral is the unraveling of superfluous claims as nothing real is pledged, there really IS NO COLLATERAL AT ALL.
As long as people believe in fairies, there is collateral, just don't ask to see it.
Two things to keep in mind:
- the finance issues are the drool on the dog's tongue. The ponzi only matters to those who are gulled into is false promise of a free lunch. Nobody -- except for fee collectors -- has profited by it yet! (Doesn't look like anyone is going to profit by it either ...) Nobody was EVER supposed to profit by it.
- The problem lies within the so-called 'productive' or Main Street economy which isn't at all productive. The entire structure of loans and borrowed profits has been erected upon a mirage. Our factories, China, shipping companies, automobiles, jet airliners, etc destroy value as part of their everyday operation.
Otherwise there would be NO NEED FOR THE CREDIT in the first place.
Sit in the corner, Kyle Bass. The 'system' cannot be reformed, it must be destroyed with a stake through its heart. Whence done there is NO PLACE in this world for any more Kyle Basses.
If this is not done, the ongoing deleveraging will destroy the system utterly as a conseqence of its own operation with nothing to be done to apprehend it. Consequently, there will be no place in this world for any more Kyle Basses.
Thanks for pointing that out. Many of us completely forget what credit was developed for in the first place. Hey! The Feds could suggest a new "depreciating asset" class for the TBTFs. They could write off the "value" of the disappearing so-called assets and reduce even further the lack of taxes they pay. Or am I behind the curve on this one? With all the generous legal and policy benefits the TBTFs have been getting they might have already covered this one.
Oh, come on...you're not thinking like a good central banker. If I just print a few trillion dollars/euros (or quadrillions of yen) then the numerator looks much better. All the sudden I'm over 10% in Tier1 capital. Basel is happy. Everyone is happy that matters. The shits who are buying food in order to live, well fuck them!
We all know they are going to print. That's why there is this big deflationary whoosh going on right now. My wife even found a few food items at reasonable prices at the grocery store yesterday. Me, I'm loading up on more foodstuffs and on my PMs. There's no way all the central bankers are going to be able to bluff and not print. And as soon as one does, hello John Nash. All of our paper currencies are going to return to their intrinsic value, thank you very much M. Voltaire.
.
indeed,... think of it as a controlled nuclear reaction - when the atom is compressed to it's ambient melting point, it explodes [not an implosion] - but first it has to be bombarded by ignites' [$?] for the process to be inacted - there are many applicable variances[variables x^] in order for this to occur - pin`point laser ignition, etc.,etc., - thus,... what you're talking about, simply doesn't happen overnight in any real world situation or experiment. the laws of physics are also applicable in the financial world, 'conservation of energy' [wealth], states emphatically that the total amount of energy [$?] remains constant. thus energy [wealth] cannot be created or destroyed. when exponential pressure and high temperatures [real world volatility without fail-safe release mechanisms?] compress [short / margin calls etc.,] squeeze molten`d metal [uranium or $$$'s - pick your poison] to set off this [a] ]nuclear [financial stultification?] blast!
remember, tyler has been pounding on the table for years - has wrapped his head about this seemingly false-dichotomy model,... which says [states] explicitly [or]/ implicitly that you can never see inside the process or its origins, for the very simplistic fact of a working neo-darwinian evolution that feeds off itself - think of the laws of physic's again and how they all parallel todays algo's & robo's maturity of the 'NWO'?
Thank you
TD, the Corzine show is soon to begin ;)
Corzine, you gots a lotta esplanin' to doooo....
I can see nationalisation of Commerzbank as it is deadbeat after swallowing Dresdner after Allianz SE offloaded the first of the disastrous Achleitner Deals. But Deutsche Bank I doubt. They have already injected funds into Deutsche by the strange case of the Postbank Sale which allowed Deutsche to pay in Shares on a lengthy timetable thus acquiring cheap deposits. Deutsche represents the paymaster of the CDU and the only German entry at I-Banking level globally having been Alfred Herrhausen's creation. There will be no overt nationalisation of Deutsche Bank, it carries the name of the nation and was founded by a Siemens.
The basic fact is that Deutsche - Assets =84% GDP - would mean there is no way Germany could prop up the Euro. We know that's the case but the politicos will wipe out every private sector real asset before letting a bank go. It is Endgame, and who knows what political system comes next. It is clear this one is at an end
I can see nationalisation of Commerzbank as it is deadbeat after swallowing Dresdner after Allianz SE offloaded the first of the disastrous Achleitner Deals. But Deutsche Bank I doubt. They have already injected funds into Deutsche by the strange case of the Postbank Sale which allowed Deutsche to pay in Shares on a lengthy timetable thus acquiring cheap deposits. Deutsche represents the paymaster of the CDU and the only German entry at I-Banking level globally having been Alfred Herrhausen's creation. There will be no overt nationalisation of Deutsche Bank, it carries the name of the nation and was founded by a Siemens.
The basic fact is that Deutsche - Assets =84% GDP - would mean there is no way Germany could prop up the Euro. We know that's the case but the politicos will wipe out every private sector real asset before letting a bank go. It is Endgame, and who knows what political system comes next. It is clear this one is at an end
"To summarize: traditional banking cap ratios may be declining (to keep Basel III happy) at the expense of shadow leverage ratios which are exploding."
the summary is even better than the article, congrats
now I have to nurse an headache until hopefully I wrap my mind around it...
Is cash somewhat safest at the custodian's? You can't rehypothecate to infinity and expect even semblance of realistic accounting, since at that point anything goes and the blurring of "shadow", traditional bank books and reality can and will be leveraged into any disasterous financial scenario. Ratios explode and ratios implode.
Hello TD.
I wrote an article about this years ago. I called it "evaporflation". It's still 100% accurate. AND SHOULD BE THE PHRASE PEOPLE USE TO DESCRIBE OUR CURRENT CLUSTERF$CK!
I also wrote years ago about how the EU was F'd based on their excessive leverage/Frax-res. (I said as bad as the US was 30x/10%, the EU had 30to50/0-10%, so the multiplying factor on their debt growth was far greater. ...and to boot, I regularly wrote about the fact that they never had a central bank or cross-border contracts.) I want to say that I was screaming this stuff in 2008 to the RGE crowd.
It's amazing how loing it takes everyone to catch up.
all the best, RH/MA
Bad money drives out good money.
It's monkey see..monkey do! As the ECB follows the Fed which followed the BOJ.
It's gonna be a party, especially if some supra-national entity joins in and sucks up the trash from central banks. And finances it with indentured servitude contracts for citizens and their offspring
'privatizing profit, and socializing losses continues writ large.
shut it down.'
To paraphrase Bass: " what this means is war"
last time a war started where everybody thought that the losers would pick the tab was WWI
there is no country left to invade that could pick the tab! Russia is needed to supply the troops in Afghanistan, China is part of the Industrial Complex, even Iran's oil is needed for the Chinese production...
and MAD still applies
the new incarnation of the Roman Wolf has no prey left, for criminy
'there is no country left to invade that could pick the tab! Russia is needed to supply the troops in Afghanistan, China is part of the Industrial Complex, even Iran's oil is needed for the Chinese production...'
Doesn't necessarily mean war between sovereigns. We could have a global civil war.
Default is what we will get, jubilee is what we need. I've seen no example through modern history of global debt forgiveness, which is exactly what we need in Europe. Too bad every country on the planet has sociopaths in charge.
Think of this market w/out Greece and Portugal = uber bullish!!
Who started holding trash on their balance sheet first? The Fed.
Is the market god? Who controls the market? The media. Then the media is god. Who controles the media? Some of the Wall Street thieves. What happened to elected constitutional democracy. The thieves stole it.
i heart kyle bass. is that wrong?
Man love is OK as long as there is no battle of the bulge.
Since he lost weight he's morphed from a guy who had a very good chance of winning a Tony Soprano lookalike contest (see http://bit.ly/vyUp5o ), to an almost Affleckian level of telegenicity. It's staggering - we all know fat chick who would be totally hot if they shed a couple stone, but to see it happen to a guy in the media spotlight is pretty enlightening - made me add another 5 minutes to my tri-weekly HIIT and do more dips (and start doing pullups again).
One thing that's astounding to me though - Hayman has less than a full "bar" in FUM (it's up around $970m FUM, IIRC - 0.97bar on the OPM scale); how does a guy with that little FUM get that much access and exposure?
It can't just be because he's been right - others (including me) have been right for at least ten years. Bonner, Fry, Wiggin, Faber (Marc, not fuckwit David), Richebacher [RIP], and (again) me... all have been writing about this shit since before Enron and WorldCom - before ZH existed - and yet only Faber really has any media presence (Schiff used to get air, but he bit the hand that fed).
Yet Bass appears with his microfund, and all of a sudden he's everywhere at once.
Griping and envy aside: it is GREAT that a good contrarian is getting play - even with all that spray tan and Just For Men.
Could have something to do with his command of the facts and deadpan delivery. Case in point: watch Bass shut down Simon Hobbs during the CNBC interview on Dec. 14th, when Hobbs (again) insisted that the euro-zone will somehow persevere, never mind how, just because it has to and because it's unthinkable if it didn't.
There is a great article on the web: I dreamed of the future and woke up screaming by Paul McGuire. If this doesn't wake folks up nothing will.
lets define "restructuring"
restructuring = taking the chamber pots of the wealthy and feeding the contents to the less fortunate, BiCheZ!
Cognitive Dissonance: I just hosed down my monitor with coffee. Well done. Thanks, I needed that laugh today.
Not that there is anything wrong with that.................
http://www.youtube.com/watch?v=GZPcGapl2dM
While not directly related, the content of the following article by Jim Willie will shed light on all the interconnected issues and I hope Tyler will turn it into a main article post. Pathogenesis of Central Bank Ruin - Gold Seek
Why is the 'Steve Liesman' block missing on this diagram?
Anyone still holding equity in European banks has lost their f'n mind
To your point Stax...why are the German Banks up today? Why are US financial rallying? This is quite the cunundrum
Can some help me find a chart. It was from a thread within the past month. It had a quad chart set up. In the bottom left was the pmi I believe from major international countries. In the top right was the US data.
It just showed how unlikely the positive beats w ere.
I think it was from Golan but could be wrong. Search isn't working for me and I'm not having much luck on Google.
Thanks. And go get em Kyle!
"confidence in the system is being lost"
Send in Team CONfidence at once!
http://www.youtube.com/watch?v=2xCaouXc9dE
Global QE is the rising tide.
Its wonderful to have someone cut through the BS and tell it like it is. It would behoove Kyle to speak in simpler language, however what he says seems always on target and always well thought out.
I thought that golf analogy he made about repubs and dems each with a 100 ft putt, and saying good - good was a riot. It fits perfectly. Kyle must be a golfer cuz he knows the lingo.
Lets not forget about the 16 TRILLION DOLLARS HR1207 uncovered when the FED had to disclose its off balance sheet loans to the very same CRONIES. Seems like many of the Hogs are back for some more slop. Imagine only a few short years later the money is simply gone and the next round is being freshly printed to distribute once again. The largest heist in Global history continues as the sucking sound gets louder and louder everyday. Can you hear it yet?
But they told me that was Tinnitus and I should take Quietus for relief.
Yes we can
If the Fed is not abolished, now, we as a viable nation will be abolished.
The international bankers who own and control the Congress and the “Federal” “Reserve” “System,” i.e., central banking control cum world reserve currency, have proven they cannot be trusted. Congress, by giving these men additional power as in the bailout plans, cannot be trusted. Greenspan and Bernanke and Paulson and Geithner have proven beyond doubt they cannot be trusted.
Then why do we trust them? Why do we treat them as legitimate?
Congress must be stopped. It is time.
They are liars and cheats and betrayers. They are the men who make slave-labor camps possible.
America is the financial elites’ chief target; already they have destroyed her financial and political infrastructures.
As Helen MacInnes has said: To spread their empire and their world, they “will plot dissension, destruction and hate. They won’t do the dying or risk the dying. Oh, no! They must stay alive in order to control the peace that follows.”
Why can't the governments of the world just let the economies fall apart as they should?
-John
http://www.youtube.com/CarMarketer
Because then thats their ass.
So thats why they opt for world war instead every time, thats coming soon.
An even more cynical take: because that's half their already obscene wealth. They already know they got the war thing in the bag. They want it all
Yes
Markets seem like they are waiting to see if the S&P shoe is going to drop. Guess we will have a good idea by mid day tomorrow.
Can you imagine the political pressure on those guys right now?
TD says, ...To summarize: traditional banking cap ratios may be declining (to keep Basel III happy) at the expense of shadow leverage ratios which are exploding. As simple as it gets....
The next down grade of Euro zone; France, is probably programmed for this week end. S&P know their psychology.
So if the churning has created more burning than yearning who will pay the piper when the bank run becomes an Olympic style event? Somebody has to pick up the tab. Assuming that some sovereigns tank and take down a bunch of banks; and then they get nationalised, does the home government honour ALL those who hold credit with these banks or only partialy or none at all?
WHat portion of the bank's lousy BS, owed to others, gets passed on to the tax holder and what part if any stays in the lap of the private investor. Is there a rule on this based on past examples?
As we all know Greece can NEVER pay back its debts; If Spain were to tank, what portion would the tax payer have to carry and what portion stays with private investor in case the private banks of Spain tank?
Karl Denninger warned of the “very real” risk for customers with money in U.S. banks of losing it all, insured or not, in Let’s Make the Clawback Risk REAL:
Now pay very careful attention, because part of the bankruptcy "reform" law in 2005 placed derivative claims in front of depositors in a business failure - including a bank failure.
What JP Morgan is claiming in the MF Global case is that the derivative trade (which is exactly what a "Repo to Maturity" trade is - it's a derivative) is entitled to preference in the case of MF Global over those who had cash there for safekeeping either as a margin deposit or just as free cash as you would hold free cash in a bank.
If a major bank blows up this very same claim, supported in existing Bankruptcy Law with the changes signed by George Bush in 2005, will be used to steal the entirety of your bank account, and if you detect the impending blowup shortly before it happens -- say, 90 days before -- you're still exposed to the risk through clawback!
I have often referenced how that "reform" law in 2005 was used to screw you blind as a consumer, all under the name of the "ownership society" and "responsibility." The truth is that this "reform" law was a raw example of financial******that was intended to and did assault you, the common consumer in America, for the explicit purpose of benefiting large financial institutions. …
A cascade failure of several large banks would easily result in loss claims that would exceed the entire US GDP; for obvious reasons virtually none of that would actually be paid or recovered and in the case of you, the average person, your reasonable expectation of recovery in such an event is zero. … (Full details on The Market Ticker)
http://market-ticker.org/
As Tyler pointed out a few months back, It's a Ticking Time Bomb...
http://www.zerohedge.com/news/five-banks-account-96-250-trillion-outstan...
Now the Banks have already started putting the risk back on the people by having the exposure insured through the FDIC. You see just like AIG covered the losses with taxpayer money so will the FDIC when this synthetic ponzi implodes... The shift is happening and they will cover their losses at any expense..
http://thenewamerican.com/economy/markets-mainmenu-45/9536-big-banks-shi...
Hope & Change/
Good take, Holmes.
Should this scenario occur, excuse moi, when it occurs as it has recently occurred with MF Global/JP Morgan AND John Doe smells the smoke AND the US govt allows widespread seizures (is there a band by that name?) of assets by the likes of JP Morgan, then there will be blood and these firms will have to close their doors for the security of their personnel. At that moment, there will be a brief and very nasty bit of vigilante justice - to be quickly suppressed by the National Guard.
In another scenario, no one quite figures it out until the game is over in a 30 day nightmare of seizures, save for blogs like this, which may be shut down by the government in the name of security - John Doe doesn't follow the byzantine game going on - the media will be too numb and too far in the tank to describe accurately the scene - but there will be Congressional action - now let's guess what they will do - as runs on the banks begin in earnest - and pension funds dry up into dust - they will do nothing because they are wholly unable to act - then shazaam - the Fed will print money and hand it out on street corners by the hay bales - everyone wins. The Fat Guys and John Doe now hold a $100 Ben when last week they had $1 - not too bad, except a gallon of gas is now $800.
By then, alas, John and Mary Doe find the corner market has very little food even if you have the money. No one can transact. The statists, those who cannot get enough big government, will have their field day. But nothing really happens except meetings and hand wringing. And the National Guard goes home to take care of their own families.
In another scenario, the Prez decides he will embargo the seizures by the JP Morgans and now the credit system begins to fall and insolvency hits the banks and everyone else - Hank! Where the hell are you? Hank!
Now how much did you say you needed? A few hundred trillion? Please step to the window on your right. And jump out.
Or in another scenario - all of the above occurs - and John and Mary Doe eat their young - which they have been doing in one way or another for years.
Countries will progressively cannibalize themselves in order to preserve the banking cartel. Selling national treasures, lowering the living standard of 99% of citizens, going toward permissive laws that destroy the environment, expanding jails, surveillance and paramilitary law enforcement to make it all happen. Free speech? Who needs it when we have business to take care of!
just curious to what you all think is the best bet for when the soveriegns default....please dont say gold I am well aware of everyones opinion on gold....I am looking to see opinions on securities....ie stocks and futures
There will be no safe "stock" or "futures" market in a sorveriegn default.
I have been short euro's for some time now and am looking to add negative bias with other vehicles...any suggestions
Look at what the commercials are doing.
lil problem: any paper asset that constitutes a bet on default must be honored by a willing, solvent counterparty. When chaos reigns, as we've seen already in 08, all bets are quickly taken down unless you're golden..sax
looking to sell eufn as one avenue but would love to hear thoughts on corp debt like gm in 2008
Hold cash --> wait for collapse --> buy with both hands --> Profit!
Best stocks to buy, companies that make tanks, bombs, guns, coffins, Blackwater (Academy ?), bunkers, chocolate, army uniforms, orange jumpsuit manufacturers, bullets,
When all is said and done here, this time, this place, the only real assets left after everything else is corrupted to destruction is that which lies between the ears which understands the difference between wheat and chaff. Those who understand will survive.
Same as it has always been.
Well, the most important thing, stocks, arent liking any of this too much. They better come out with some bad news quick followed by 'Dont worry, theres rumors running around the FED' so that stocks have something to feed on.
Found it very interesting that Bernanke said yesterday that the Fed was unwilling to help out the EU. I'm not sure whether to believe him or not.
Is it an admission that the problem in Europe is too big even for the Fed right now. That an attempt to save Europe will make our own debt problems uncontrollable? Is it an admission that are banks are going to be exposed by the Euro collapse and that the Fed is preparing to throw money at our banks when the eventuality unfolds?
Interesting that Ben would say that, having just said this:
http://www.reuters.com/article/2011/12/13/us-usa-fed-idUSTRE7BC0CW20111213
Is not the act of further 'easing' an indication that the fed 'stands ready to help' (save the eurozone so it doesn't take down the banking sector)? Not that it surprises me, given the only can-kicking tool the fed owns is a big fat PRINT button.
The USSA Central Planning Commission has established the new Five Year Plan demanding 250% increases in the newly established 'National Key Indicators'. These NKI are:
Despotism
Death
Destruction
Despair
Disbelief
Political Pundits and the Financial Press agree that these goals are easily attainable.
GUT the vampire squid!
Clawbacks of stolen money.
EVISCERATE the beasts!
Its all designed, the dollar is at war with the euro
http://article.wn.com/view/2011/12/13/Large_parts_of_Mars_are_habitable/
We have always been at war with the Euro
I'd volunteer to move to Mars, screw this planet its bullshit.
Paul/Bass/Bitchez 2012
What sort of assets are forming this collateral which is shrinking and being put in the hands of custodians other than prime brokers? Is this made up of consumer mortgage notes?, brokerage accounts?, what?
you have to buy them, to see what's in them
remembering retail pressures to make your month, deadline approaching by the hour, gross gross gross gotta go go go, the BM rattling the cages in the bullpens, squeezing every last oz of time and energy out of sales floor, working the phone to the late hours of the evening, wife at home keeping a missed dinner warm in the oven, got home too late to tell you kids a bedtime story and give them a kiss good night, no sex for this cowboy, waking at 3:00 am with heart palpitations worrying about your gross and that latest deal you jammed on your entire book, their were always a few of your buds in the pen who had a better understanding of the market chaos and had no conscience of a month that finished on the deadline with the attitude of churnum and burnum. oh the anxiety of it all, how I will never miss it.
sounds to me like "shortening collateral chains", in plainer english is preventing securities from being lent out i.e. pulling borrow. if that's the case, the middleman (broker) gets hurt by a little bit, as the income earned from standing between security borrowers and lenders can't be earned. borrow desks aren't critical to banks, and i would guess we can basically ignore the 100 or so people across the street that supports.
pulling borrow reduces the available leverage to the security lender, but it also reduces the artificial supply of securities i.e. those available to shorters who create supply by selling shares they don't actually own. lower supply with demand held constant ==> higher prices. if an investor who previously lent his securities uses the loan proceeds to buy more securities, then pulling borrow will cause a forced sale and cause the price to drop. if the investor is not using the proceeds then it has no effect on the market. however, if the investor is actually using borrowed securities to short and his borrow is pulled, then he will be forced to buy the security back i.e. forced short-covering.
the key is to identify which securities are likely to be held by investors who will not allow rehypothecation, and whether securities who are pulled tend to be shorted heavily or not. i agree with kyle bass that european sovereign debt is basically all held by european banks, and they will certainly NOT prevent rehypothecation as it would be equivalent to suicide. so we can ignore the effects of pulling borrow on european bonds, as it's not going to happen with the ECB providing free money for lending them. indeed, a wise thing for european banks to do would be to place their sovereign debt with the ECB to get cheap cash, and then retire their own corporate debt i.e. deleverage the traditional way and pocket the arb between their own cost of debt and the ECB rate. as for stocks and other shortable securities, i don't think it's clear that pulling borrow will cause selling pressure as the proportion of leveraged long investors is very very low now. i would guess it's more likely that pulling borrow would cause a forced short-covering instead.
1/2 of Americans now classified as poor or low income
http://www.cbsnews.com/8301-201_162-57343397/census-data-half-of-u.s-poor-or-low-income/
This is scary...the Printing presses are gonna burn out!
More on the topic here:
Revisiting Rehypothecation_ JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again) « naked capitalism
http://www.nakedcapitalism.com/2011/12/revisiting-rehypothecation-jp-mor...
Oh lordy, don't hit the refresh button my man...
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More on the topic here:
Revisiting Rehypothecation_ JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again) « naked capitalism
http://www.nakedcapitalism.com/2011/12/revisiting-rehypothecation-jp-mor...
More on the topic here:
Revisiting Rehypothecation_ JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again) « naked capitalism
http://www.nakedcapitalism.com/2011/12/revisiting-rehypothecation-jp-mor...
More on the topic here:
Revisiting Rehypothecation_ JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again) « naked capitalism
http://www.nakedcapitalism.com/2011/12/revisiting-rehypothecation-jp-mor...
More on the topic here:
Revisiting Rehypothecation_ JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again) « naked capitalism
http://www.nakedcapitalism.com/2011/12/revisiting-rehypothecation-jp-mor...
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Revisiting Rehypothecation_ JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again) « naked capitalism
http://www.nakedcapitalism.com/2011/12/revisiting-rehypothecation-jp-mor...
More on the topic here:
Revisiting Rehypothecation_ JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again) « naked capitalism
http://www.nakedcapitalism.com/2011/12/revisiting-rehypothecation-jp-mor...
More on the topic here:
Revisiting Rehypothecation_ JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again) « naked capitalism
http://www.nakedcapitalism.com/2011/12/revisiting-rehypothecation-jp-mor...
More on the topic here:
Revisiting Rehypothecation_ JP Morgan Markets Its Latest Doomsday Machine (or Why Repo May Blow Up the Financial System Again) « naked capitalism
http://www.nakedcapitalism.com/2011/12/revisiting-rehypothecation-jp-mor...
I'm starting a diary for 2012. I'm calling it "Another Journal of Another Plague Year". This financial disease could kill more people than Yersinia pestis.
What we really need is John "The Demolition Man" Spartan to end the Fed, Treasury, and Congress in one fell swoop...He would have it all taken care of and in ashes by dinner time...:) John Spartan for President!
The shadow banking system is the smoke and mirrors illusion that we have always heard about. It began as nothing, is underwritten by nothing, and will return to nothing, taking those who believe that fiat currency is money, with it. Behind the shadows is outer darkness. Relax. i'll save you a spot in line, at the soup kitchen.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Lack of confidence in the market could cause the mother of all bank runs.
The fedgov needs to fix this. Needs to inform the banksters that derivatives implosions are not to touch depositors' accounts ever, and MFingGlobal's screwing with retail customers' allocated assets shall not happen again.
Tell them to put in some kind of circuit breaker before a meltdown reaches depositor money--and if anything slips by, if some dude fails to take one for the team and thus depositors' funds are impacted, then people go to jail--a bunch of people.
Of course, I argued a similar point about the sanctity of recorded transfer of real estate title, yet asshat judges are still permitting mortgage defaultors to claw back properties already bought and occupied by innocent 3rd parties instead of limiting their recompense to cash awards from the offending bank as common sense would dictate.
The judges know something I don't? That it's all a charade anyway and therefore meaningless? We're living in the Matrix?
one of the biggest thieves, telling the lower thieves, to curb their thieving, even though anyone getting exposed, gets a free pass.
I watched a Kyle Bass Q&A session yesterday, seemed to be recorded in November. Bass suggested a key date in the Euro suidice socialist Calander is 19th December
there's a hell of alot of Greek debt due for rollover on that day that has a snowball in hells chance of being rolled unless some total moron (think central banker) comes in and buys the Greek Govts garbage ...not just some of it, ALL OF IT
I'd be very surprised if Brussels allows the Greek default to happen followed by the dominos kicking off around Europe (and the US) days before Christmas ...what turkey (Eurocrat or Bwanker) wants indigestion (and to scurry back to the office) over the Festivities?
If some insane fruitcake creditor doesn't come in for this Greek garbage be sure to buy lots of popcorn when you're out Christmas shopping this weekend
That was a great video.
http://www.youtube.com/watch?v=5V3kpKzd-Yw&feature=player_embedded
What about capital controls to combat capital flight? What about raiding pensions as well as private accounts "in the name" of terror?
Multiple re-hypothecations was never an issue. The recent restrictions on rehypothecation, or 'chain shortening' is a symptom of disintermediation, not a cause. I see little evidence in this thin piece to support Bass' claim to an understanding of the 'plumbing'. The misapplication of the word 'churn', which has negative connotations, is a source of misunderstanding.
The sovereign restructuring will be messy - you have these countries buying each other's debt the same way software companies would make their numbers in the 90s by "buying" and booking each other's software.
Those were called "Barney Deals" as in "I love you, you love me"
These are Barney Bonds
Tyler,
Thank you for posting this. I am a fan of KB since I read he is following his mother's advice and getting guns, gold...etc. And he has 20M nickles. My kind of guy.
Just a head's up...Scribd is doing something now to raise money involving Yahoo Toolbars, and some other add on stuff you can deny but will still download, requiring a delete software.
<a href="http://www.bloomberg.com/quote/BDIY:IND">test</a>