LGD - To Infinity and Beyond! What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?Submitted by Reggie Middleton on 06/22/2011 12:19 -0500
With mainstream acceptance of my presumptions of the potential of serial sovereign debt defaults, its time to take a more realistic look at how it may happen & the potential consequences.
1999, the year the Matrix was released and the year dot.com companies trampled on the rules of fundamentals in investing. A look at the sustainability of Groupon's valuation and business model...
According to Mebane Faber, by investing in a portfolio with uncertain outcomes, pension funds could experience increasingly volatile and even negative returns. Paradoxically, in an effort to chase the universal 8% rate, pension funds may be laying the groundwork for returns even lower than the risk free rate...
Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money WentSubmitted by Tyler Durden on 06/11/2011 23:25 -0500
Courtesy of the recently declassified Fed discount window documents, we now know that the biggest beneficiaries of the Fed's generosity during the peak of the credit crisis were foreign banks, among which Belgium's Dexia was the most troubled, and thus most lent to, bank. Having been thus exposed, many speculated that going forward the US central bank would primarily focus its "rescue" efforts on US banks, not US-based (or local branches) of foreign (read European) banks: after all that's what the ECB is for, while the Fed's role is to stimulate US employment and to keep US inflation modest. And furthermore, should the ECB need to bail out its banks, it could simply do what the Fed does, and monetize debt, thus boosting its assets, while concurrently expanding its excess reserves thus generating fungible capital which would go to European banks. Wrong. Below we present that not only has the Fed's bailout of foreign banks not terminated with the drop in discount window borrowings or the unwind of the Primary Dealer Credit Facility, but that the only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains not only why US banks have been unwilling and, far more importantly, unable to lend out these reserves, but that anyone retaining hopes that with the end of QE2 the reserves that hypothetically had been accumulated at US banks would be flipped to purchase Treasurys, has been dead wrong, therefore making the case for QE3 a done deal. In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!
Stocks outperformed credit at the index level today but there was a significant shift in internals in corporate credit that provides the context for continued weakness in risk assets.
Reggie Middleton’s Real Estate Recap: As I Have Clearly Illustrated, It’s a Real Estate Depression!!!Submitted by Reggie Middleton on 05/25/2011 12:14 -0500
I called it the coming RE Depression in 2007! I put MY money where my mouth was and sold off all of my investment real estate. I put YOUR money where my mouth was and shorted all that had to do with real estate (REITs, banks, builders, insurers). I called almost every major bank collapse months in advance. I warned the .gov bubble blowing does not = organic economic recovery. Now I'm saying we need to, and will, continue what's left of the crash of 2009, with ample global company. There will be no RE recovery this year, and there will be a crash. OK, you heard it here!
Now that, my friends, is how you buy yourself some good Government!
The “American Realist” Says: Past as Prologue – Re-blown Bubble to Pop Before the Previous Bubble Finishes Popping!!!!Submitted by Reggie Middleton on 05/18/2011 10:39 -0500
Last night, I spent an interesting time with the esteemed and world reknown macro economist, entrepreneur, NYU professor and strategist, Dr. Nouriel Roubini. Nouriel is a very, very bright guy. He has to be, he agrees with many of my viewpoints :-) On a more serious note, this article is the first installment of the valuation of real world, real assets and properties that are actually up for sale. I plan to walk my readers through the potential absurdity that is investing in a bubble that has not finished popping.
Richard Koo Explains Why An Unwind Of QE2, With Nothing To Replace It, Could Lead To The Biggest Depression YetSubmitted by Tyler Durden on 05/17/2011 17:09 -0500
Over the past several days, quite a few readers have been asking us why we are so confident that QE3 (in some format: it does not and likely will not be in the form of the Large Scale Asset Purchases that defined QE1 and 2 - the Fed could easily disclose that it will henceforth sell Treasury puts, a topic discussed previously, or engage any of the other proposals from Vince Reinhart disclosed in June of 2003) will eventually be implemented by the Fed. Luckily, instead of engaging in a lengthy explanation of the logical, Nomura's Richard Koo comes to our rescue with his latest research piece. While we disagree with Koo on various interpretations of his about monetary theory (namely that the Fed is not in effect "printing" money and thus creating inflation - this is semantics and leads to a paradoxical binary outcome, whereby if there Fed was successful in boosting the economy, the economy would indeed be flooded with the nearly $2 trillion in excess reserves held with reserve banks. And good luck trying to contain this surge by changing the IOER - if the Fed indeed pushed the IOER to the required 5%+ level it would immediately destroy money markets, leading to the same liquidity freeze that marked the post-Lehman days, confirming the "Catch 22" nature of Quantitative Easing that we have observed since its beginning) we do agree with his analysis of what would happen to the economy if either stocks or commodities are in a bubble (and judging by the violent opinions out there, most investors believe that either one or the other has indeed reached bubble territory), should QE2 end cold turkey: "Viewed objectively, the central banks are trying to push up asset prices using quantitative easing and the portfolio rebalancing effect. The resultant rise in asset prices based on this effect represented a potential bubble—or at least a liquidity-driven event—from the start. The question is whether the real economy can keep pace with asset prices formed in those liquidity-driven markets. If it cannot, higher asset prices will be considered a bubble and will collapse at some point. The resulting situation could be much more severe than if quantitative easing had never been implemented to begin with." Bingo.
And now for something different. From Omid Malekan, the brains behind "the Bernank", and the xtranormal short clip cottage industry, comes this clip of proposed replacement sayings for that old adage of "Sell in May and go away." Alas, since the market is no longer, free, rational, or for lack of a better word, a market, but merely a plaything of the central banks, it is indeed time to provide a new set of slogans, especially since "BTFD" is getting a little stale. Among our favorite proposals: "Buy today's cause it's early May", "Buy tomorrow with funds you borrow", "Buy next week when the market is at a peak", "Buy like crazy when the outlook is crazy", "Buy all commodities without hesitation, but don't dare we have inflation", "Buy the REITs cause real estate is on fire, but don't you dare become an actual home buyer", and, without doubt the best: "Buy everything and laugh all the way to the bank, cause if any market ever goes down, you can sell to the Bernank." As usual, readers are encouraged to provide their own.
With the world's attention diverted to Japan for the past week, WTI managed to drop substantially trading just above $96. Well, just as we predicted a few days ago observing the ongoing developments in Bahrain and Libya, and the imminent realization that Japan will need to boost its petrochemical imports due to drop in nuclear power output, crude spike by the most in over a week, in what was virtually a straight line touching $102/bbl and closing just below. Mocking the concept of a perfectly efficient market is Reuters with the following update: "Oil prices recovered for a second day from three-week lows, which had been sparked by prospects of lower oil demand from earthquake-stricken Japan, and was part of an advance across markets on worries about increasing geopolitical risks, analysts said. "The focus is back on continuing unrest in the Middle East and what will be a lot of disruption in Libya for a long time," said Christopher Bellew, an oil trader at Bache Commodities. "The risk is more to the upside -- there was a lot of long liquidation on that sharp sell off at the beginning of the week," he added." Then again in describing some of the "bullish" reading in the economy, Reuters itself seems to be a little confused: "Data showing that inflation remained contained despite rising prices also helped boost investor mood." Uh, come again? Anyway, following the French invasion of Tripoli some time after 7 pm Eastern, when Paris finally reveals the undisputed military beast it has always been, against an air force consisting of 20 or so Mig-21s with one million air hours of service each, look for oil to attempt recreating the JPY melt up from last night.
The Japanese government has just authorized the BOJ to buy more ETFs and REITs in order to stabilize the market. In times like this apparently preserving the global "wealth effect" is of paramount importance. In the meantime the news is getting worse- according to the French Nuclear Watchdog the containment vessel on Reactor #2 is no longer sealed (meaning radiation can enter the environment freely), while according to Kyodo the radiation level is now too high for normal work at the Reactor #4 control room.
The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A VengeanceSubmitted by Reggie Middleton on 03/11/2011 13:16 -0500
I said it! Bill Gross said it (and put his money where his mouth was by selling off all US treasuries)! Common sense says it... Central Bank manipulated interest rates are too low. They will rise. What happens when they rise during a supply glut of real estate, foreclosure issues and a slow economy??? Put it this way... What made the markets crash in 2008: unemployment, slow economy, snow... Or real estate prices getting in touch with reality?
JP Morgan Purposely Downplayed Litigation Risk That Spiked 5,000% Last Year & Is Still Severely Under Reserved By Over $4 Billion!!! Shareholder Lawyers Should Be Scrambling NowSubmitted by Reggie Middleton on 03/02/2011 08:36 -0500
This has to be one of the biggest "I Told Ya So's" of the year! JP Morgan is forced to come clean on the legal liabilities that I have been pounding the table about for two years as Wall Streets sell side coterie and JPM management have managed to underplay for about as long. Now, it looks as if the chickens are coming home to roost...