Volcker Rule - Who cares? I know we are supposed to care more about this convoluted rule, but we just can’t. The concept that somehow “prop” trading brought down the banks seems silly. The idea that market making desks were a dangerous part of the equation is ludicrous. They could have fixed this with a few simple changes, but that would have meant some blame would have had to be shifted onto the regulators...
Emergency resolutions and legislation would be likely in many countries in the event of another Lehman Brothers collapse and another global credit and financial crisis.
Particularly vulnerable banks in each country are....
Below some leading economists and financial commentators give their perspective regarding the risks of bail-ins or deposit confiscation. If you manage money in any way, your own or others,it will be prudent to heed their warnings.
There’s no question here about identifying the oppressors and the oppressed. There’s no conflict between the internal exercise of your freedom to think for yourself and your external behavior. There’s no omnipresent social media, no cacophony of commercial voices, no GPS chips, no algorithms that can predict your likes and dislikes better than you can yourself. It’s just faceless soldiers with AK-47’s trying to impose their will on Patrick Swayze’s external behavior. It’s a movie that would have made as much sense (more?) in 1784 as it did when released in 1984. Our world isn’t “Red Dawn,” it’s “Invasion of the Body Snatchers.” Control over our behaviors isn’t as much physical as it is mental, not so much externally imposed as it is internally embraced. If you’re reading this note, the problem is not that you are in a dogmatic slumber and need to be woken up. The problem is that you know it’s in your best economic interest to act as if you’re still asleep. In a world overrun by pod people, the big losers are the people who can’t fake their pod-ness and ultimately get outed by Donald Sutherland.
There are a couple of disturbing points that came out of her take on bubbles and the rationale behind not tapering a mere 10 or 15 Billion dollars given the monthly commitment of 85 Billion in Fed Purchases every month.
Economics is all about making rational decisions given some set of likes and dislikes. It doesn’t presume to tell you what you should like or dislike, and it assumes that you do in fact know what you like or dislike. Or at least that’s what economic theory used to proclaim. Today economic theory is used as the intellectual foundation for a political stratagem that goes something like this: you do not know what you truly like, and in particular you do not know your economic self-interest, but luckily for you we are here to fix that. This is the common strand between QE and Obamacare. The former says that you are wrong to prefer safety to risk in your investments, and so we will fix that misconception of yours by making it extremely painful for you not to take greater investment risks than you would otherwise prefer. The latter says that you are wrong to prefer no health insurance or a certain type of health insurance to another type of health insurance, and so we will make it illegal for you to do anything but purchase a policy that we are certain you would prefer if only you were thinking more clearly about all this.
"Debt increases tail-risk," warns anti-fragility expert Nassim Taleb, "whether it's personal, corporate, or governmental." A rise in debt, he warns, implies nothing less than a rise in "the risk of catastrophe," and Taleb chides, governments "should be focused in risk-management... instead of creating these risks." This brief Bloomberg TV clip cuts to the chase as the normally circumlocutory Taleb unloads on the perils of central banks, "Mr. Greenspan created tail risk by eliminating the business cycle," and since then tail-risks have accumulated with debt the "number one creator of these risks." In a fascinating phrase, Taleb notes, "corporate debt is benign," since in failure it turns into equity, "but government debt is another matter... for it turns into inflation or worse invasion..."
The third stage of bull markets, the mania phase, can last longer and go farther that logic would dictate. However, the data suggests that the risk of a more meaningful reversion is rising. It is unknown, unexpected and unanticipated events that strike the crucial blow that begins the market rout. Unfortunately, due to the increased impact of high frequency and program trading, reversions are likely to occur faster than most can adequately respond to. This is the danger that exists today. Are we in the third phase of a bull market? Most who read this article will say "no." However, those were the utterances made at the peak of every previous bull market cycle.
It is becoming increasingly obvious that we are seeing the disconnect between financial markets and the real economy grow. It is also increasingly obvious (to Citi's FX Technicals team) that not only is QE not helping this dynamic, it is making things worse. It encourages misallocation of capital out of the real economy, it encourages poor risk management, it increases the danger of financial asset inflation/bubbles, and it emboldens fiscal irresponsibility etc.etc. If the Fed was prepared to draw a line under this experiment now rather than continuing to "kick the can down the road" it would not be painless but it would likely be less painful than what we might see later. Failure to do so will likely see us at the "end of the road" at some time in the future and the 'can' being "kicked over the edge of a cliff." Enough is enough.
Blackberry Craters After Report Company Abandons Sale, To Replace CEO, To Issue 19.2% Dilutive Convert InsteadSubmitted by Tyler Durden on 11/04/2013 08:21 -0500
Just over a month ago, when we shared our cynical view on the "hopium" inspired LBO of Blackberry, we commented as follows: "In other words an LBO, one which however has not only one but many outs: "There can be no assurance that due diligence will be satisfactory, that financing will be obtained, that a definitive agreement will be entered into or that the transaction will be consummated." Which means that once the buyers figure out the potential disaster on the books, expect the final price (if any) to be revised lower as one after another MAC clause is triggered." Not even we were right: as it turns out moments ago, the Globe & Mail reported that having looked at the BBRY, not only will the price be revised lower, but the "purchase" price will be eliminated altogether as any deal is now dead, the company will do a convert offering instead and deadpan CEO Torsten Heins is history.
Just a few days ago Alan Greenspan’s latest piece of work was published (October 20th 2013). It’s entitled The Map and the Territory: Risk, Human Nature, and the Future of Forecasting.
What is the prudent response when hefty profits beg to be booked and assets purchased with leverage/debt start declining? Sell, sell, sell. A financial sell-off doesn't even need a real crisis to spread like wildfire; it simply needs nosebleed asset valuations, excessive leverage/credit and risk priced at "the bull market is guaranteed to last essentially forever" levels. Prudence alone will ignite the conflagration.
Confused how to trade the second coming of the dot com bubble and a world in which irrational exuberance has hit irrationally exuberant levels? You are not alone. Here is some insight from none other than David Einhorn originating in his latest letter to investors.
Gone are the days where people looked towards next year when building their portfolios, or five years down the road as they approach retirement. Now from a combination of apprehensiveness and shear paranoia in our unstable markets, investors are looking only as far as they can throw for their personal investment decisions. In more than 30 years of money management, Lance Roberts has never seen such a rapid change in the way people make financial plans. Instead of saving for the future, many are opting for fast gains - yet at the same time they want low risk. Others are playing it completely safe. In fact, in a quarterly poll, 83% of respondents said they were holding on to their cash versus investing in the stock market.
In the upcoming week, the key event is the US FOMC, though we and the consensus do not expect any key decisions to be taken. Though a strengthening of forward guidance is still possible, virtually nobody expects anything of import to be announced until the Dec meeting. In the upcoming week we also have five more central bank meetings in addition to the FOMC: Japan, New Zealand, India, Hungary and Israel. In Hungary we, in line with consensus, expect a 20bps cut to 3.40% in the policy rate. In India consensus expects a 25bps hike in the repo rate to 7.75%. On the data front, US IP, retail sales and pending home sales are worth a look, but the key release will be the ISM survey at the end of the week, together with manufacturing PMIs around the world. US consumer confidence is worth a look, given the potential impact from the recent fiscal tensions.