Risk Management

Worst Case Scenario: 73% Down From Here

QE3 ended 17 months ago and shockingly the S&P 500 is exactly where it was 17 months ago. How many bull markets go flat for 17 months? As John Hussman accurately points out, we are experiencing a topping formation in the third and biggest bubble of the last 16 years. It’s a long way down from here.

America's Top Rogue Mercenary - Blackwater's Erik Prince Is Under Federal Investigation

"...the inquiry was abandoned after Blackwater’s top manager there issued a threat: “that he could kill” the government’s chief investigator and “no one could or would do anything about it as we were in Iraq," according to department reports. There’s only one way to stop a guy like this - lock him up. For once, do your job Department of Justice.

Stocks Tumble After Fed Plans Too-Big-To-Fail Bank Counterparty Risk Cap

US financials are tumbling after The Fed proposed a rule that would limit banks with $500 bln or more of assets from having net credit exposure to a “major counterparty” in excess of 15% of the lender’s tier 1 capital. Bloomberg reports that The Fed's governors plan to vote today on the proposal. The implications of this are significant in that it will force some banks to unwind exposures and delever against one another (most notably with potential affect the repo market which governs much of the liquidity transmission mechanisms). Guggenheim's Jaret Seiberg warns the proposal is likely to be "stringent," though less onerous than the Dec 2011 proposal... which Goldman Sachs more specifically warned that it could destroy 300,000 jobs.

Coal Mine Canary Or "Opportunity?" You Decide

Be our guest. Lever up in junior US CLO tranches. It should be fine. Of course if it turns out poorly you'll look like the biggest sucker on the planet because you should be able to divine something about the suitability of an investment by observing supply and demand dynamics.

G-20 Needs To "Man Up" Or Risk Sparking Market Chaos, Citi Warns

“Keeping the previous language would be very disappointing and would be viewed as either complacent or reflecting policy paralysis. [They need to] man up and tell member countries that monetary policy should be accompanied by fiscal expansion.”

The Selling Is Back: S&P Futures Tumble Below 1,900; Sterling Crashes, Gold Soars

On Monday, everyone was giddy that the rally is back on. Less than two days later, the dour fatalism of some HFT algo stop hunting price action and a few comments by the Saudi oil minister, and the markets have remember than nothing has changed and that nothing has been fixed. But at least the biggest shorts squeeze in 5 years is finally over.

Fannie, Freddie May Need Another Bailout As Washington Drags Feet On Housing Finance Reform

“The most serious risk and the one that has the most potential for escalating in the future is the enterprises’ lack of capital," Fannie's top regulator, Mel Watt says. The GSEs' capital buffer is being steadily depleted as the government sweeps the entirety of the businesses' profits, putting taxpayers in the absurd position of having to bail out two entities they've already bailed out due to the constraints imposed in an effort to recoup the first bailout.

Saudis, Russians Fail To Cut Oil Production, Will Freeze Output At Record January Level

Last night when previewing today's main event, the "secret" meeting between the Saudi and Russian oil ministers, we explicitly said this deal would not "lead to a cut in production", and sure enough just two hours ago the meeting between the two oil superpowers concluded and as expected the two failed to agree to any production cut; instead what they did agree on was to "freeze" production at January's already record levels, and furthermore make the agreement contingent on other OPEC members complying, something Iran has already said it would not agree to.

Finally, China’s Alan Greenspan Speaks Out

Finally, China’s Alan Greenspan, Mr. Zhou Xiaochuan speaks out in an interview with Caixin Magzine.  The market has been waiting for his comment on Yuan since the RMB exchange rate reform in Aug 2015.  However, he has been hiding and did not “give a clear message” as asked by IMF chief Lagarde.  Just before the lunar new year holiday, even the Chinese local media started to ask him to show up, which is really unusual in China.  And last Friday, Caixin published its 12000 words interview with Mr. Zhou Xiaochuan.  This is the most important interview for China’s economy and Yuan in 2016. 

Why Commercial Real Estate Is Next: 'Challenging Technicals' Are About To Become 'Weak Fundamentals'

There is a growing sense of tighter financial conditions, particularly to the commercial real estate sector. Late last year the regulators issued a joint statement on Prudent Risk Management for Commercial Real Estate Lending and the latest Senior Loan Officer Opinion Survey (SLOOS) shows that banks tightened their lending standards to commercial real estate meaningfully in 4Q15.... The growing sense of gathering clouds in terms of tightening financial conditions to commercial real estate translates into a more challenging road ahead for US commercial real estate.

"Buy High, Sell Low" - The Psychology Of Loss

The reality of loss will be more than most can stomach and sentiments of “time in the market” will go mostly unheeded. This is, of course, why many of the coveted millennial investors have already rejected much of the Wall Street rhetoric after watching the devastation that wrecked their parents over the last 15 years.