If Friday's session is any indication of what to expect in a few minutes when JGB trading resumes, we are about to have a doozy of a session on our hands (especially with Interactive Brokers already announcing all intraday margins on all Japanese products for Monday trading have been lifted). As a reminder, the 10Y JGB suffered only its second most volatile trading day ever this past Friday when the yield plunged by half (!) to 0.30%, then doubled in a matter of minutes to 0.60% - a 13 sigma move - and the bond trading session was interrupted by two trading halts when it seemed for a minute that the BOJ may lose all control of the bond market. Well, judging by the absolutely ridiculous moves in the USDJPY as of this moment, with the pair soaring 70 pips in a matter of seconds, we are about to have precisely the kind of insanely volatile session that the Japanese Finance Ministry itself warned may lead to a wholesale selloff in JGBs, offsetting even the New Normal Mrs Watanabe kneejerk which is to merely frontrun the BOJ in buying JGBs. Why? Because with implied vol exploding, VaR-driven models will tell banks to just dump bonds as they have become too volatile to hold on their books. The problem is that with trillions and trillions of JGBs held by banks, insurance companies and pension firms, there just not may be anyone out there to buy them.
Thanks to the Fed's ZIRP, the investing world is on a constant reach for yield; and due to the fact that the last bubble of investor largesse (ignoring leverage and reality) was not 'punished' but in fact 'bailed-out', participants in the financial markets learned nothing. Just as the last crisis was formed on the back of an insatiable mortgage-backed security market desperate for new loans (any loans) of increasingly dubious quality to securitize, so this time it is subprime auto loans that have taken over. As a Reuters review of court records shows, subprime auto lenders are showing up in a lot of personal bankruptcy filings. At car dealers across the United States, loans to subprime borrowers are surging - up 18% in 2012 YoY, to 6.6 million borrowers. Subprime auto lending is just one of several mini-bubbles the bond-buying program has created across a range of assets; "it's the same sort of thing we saw in 2007, people get driven to do riskier and riskier things." Of course, with auto production having been the backbone of so many macro data points that are used to 'show' the real economy recovering (despite the channel-stuffing), now that the growth in auto-sales are stalling, it is for the subprime originators "under extreme pressure to hit goals" in their boiler-room-like dealings to extend loans (at ever higher rates) and securitize while the Fed 'music' is still playing. It seems we truly never learn.
When Mary Schapiro quit the laughing stock US stock market regulator, the only question was which Wall Street firm the latest SEC "revolving door" migrant would end up with, with most bets being on, naturally, Goldman and JPM. Today, to some surprise, the news hit that the former head of the internet porn-addicted regulator (which like clockwork always complains about its low budget: maybe get a refund for that bangbus.com subscription?) has decided to join none other than the revolving door extraordinaire consulting firm Promontory Financial. Per the WSJ: "Ms. Schapiro will work full-time in Promontory's office in Washington as a managing director leading the consulting firm's governance and markets practice and advising clients on risk management and compliance. Ms. Schapiro and a Promontory spokesman declined to say how much she will be paid in the new job." So who is Promontory? Nothing short of an "expert network" of all former government workers who having moved on, are willing to spill the beans about all the secrets of government operations... for a fee of between $1000 and $10,000 per hour. The chart below shows a sampling of all current and former employees of Promontory, explaining why it is a perfect fit for anyone intent on justifying the allegations of those who claim all the SEC does is provide a revolving door opportunity for ex-government workers.
The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out BanksSubmitted by Reggie Middleton on 03/30/2013 11:12 -0400
It's not just Cyprus, and no - it's not just Canada either. I'm preparing a list of specific banks that I have 1st hand knowledge that would prevent me from keeping my money in them. Get "Cyprus'd"!!!
Events in Cyprus stem from precisely the same source as the surge in US home prices, namely monetary expansion by the Fed.
Hopefully the memory of the new Eurogroup head, who in a one day lost more credibility than his admittedly lying predecessor Juncker ever had, will be jogged courtesy of this full transcript provided by Reuters and the FT of what he told two reporters - on the record - and for the whole world to read. Because, by now, we are confident everyone has had more than enough with watching the entire Eurozone rapidly and tragically turn itself into a complete and utter mythomaniac, kletpocratic circus.
For those curious about the timeline of the world's biggest prop-desk blow up, here it is day by day and, pardon the pun, blow by blow.
"Since my departure I have learned of the deceptive conduct by members of the London team, and I was, and remain, deeply disappointed and saddened to learn of such conduct and the extent to which the London team let me, and the Company, down."
- Dimon’s ‘Harpooned’ Whale Resurfaces With Senate Findings (BBG)
- Greece and lenders fall out over firings (FT) - as predicted 48 hours ago
- Dallas Fed Cap Seen Shrinking U.S. Banking Units by Half (BBG) - which is why it will never happen
- Xi elected Chinese president (Xinhua)
- Russia Bond Auction Bombs as ING Awaits Central Bank Clarity (BBG)
- U.S. and U.K. in Tussle Over Libor-manipulating Trader (WSJ)
- Chinese firm puts millions into U.S. natural gas stations (Reuters)
- In Rare Move, Apple Goes on the Defensive Against Samsung (WSJ)
- Berlin Airport Fiasco Shows Chinks in German Engineering Armor (BBG)
- Ex-PIMCO executive sues firm, says was fired for reporting misdeeds (Reuters)
- Bank of Italy Tells Banks in the Red Not to Pay Bonuses, Dividends (Reuters)
The Reserve Bank of Australia’s computer networks have been repeatedly and successfully hacked in a series of cyber-attacks to infiltrate sensitive internal information. The RBA disclosed to The Australian Financial Review (after their investigation) that multiple computers within the RBA’s network were had been infiltrated by a Chinese-developed malicious software. While no details were given on what information was stolen, a defense department official warned, that "the targeting of high profile events, such as the G20, by state-sponsored adversaries... is a real and persistent threat. Cyber intruders are looking for information on... the government’s intentions." The hack appears related to the 2011 G-20 summit, at which the French government have already confirmed over 150 computers were hacked for months with files "redirected to Chinese sites." Australia’s cyber-spy agency, the Defense Signals Directorate, said “there are many examples of [Australian] entities being targeted due to involvement in high profile events” like the G20. Currency wars meet cyber wars - or is it the other way around?
The State has monopolized all authority, giving it essentially unlimited power to make things worse. Since concentrations of centralized capital, authority and power does not relinquish control easily, if ever, the Status Quo will have to decay and implode before authority can be pushed down to more responsive, appropriate levels.
At Deutsche Bank, the job title “risk manager” might be more appropriately characterized as “campaign manager.” That is, Deutsche Bank is no more concerned with the active mitigation of risk than the unscrupulous politician is with actively avoiding extra marital affairs. Like campaign mangers then, risk managers at Deutsche Bank must accept the fact that occasionally (or perhaps quite often) messes will be made and spin campaigns will need to be devised and deployed in order to keep public opinion from turning sour and in order to keep the few regulators who aren’t on the payroll
Movements in equity prices are driven by many factors, such as the economy, government policy, earnings, interest rates and valuation. But we think tactical moves (<3 months) are often better explained by sentiment, positioning and technicals. While macro, policy and valuations matter, sentiment has worked well in recent years as a contrarian tool to identify short-term inflection points in asset prices. According to BofAML's new Bull & Bear Index investor sentiment toward risk assets is at a more bullish level today than 99% of all readings since 2002. The current reading of 9.6 (out of 10) is close to max bullish and thus triggers a contrarian "sell" signal for risk assets. In their view, the relative risk-reward of owning equities is unfavorable at this juncture. Since 2002 a "sell" signal of 8.0+ was on average followed by a 12% peak-to-trough correction in global equities within three months.
There have been several articles as of late discussing that the next great secular bull market has arrived. However, the reality is that this cycle is currently unlike anything that we have potentially witnessed in the past. With massive central bank interventions, artificially suppressed interest rates, sub-par economic growth, high unemployment and elevated stock market prices it is likely that the current secular bear market may be longer than the historical average. No matter how you slice the data - the simple fact is that we are still years away from the end of the current secular bear market. The mistake that analysts, economists and the media continue to make is that the current ebbs and flows of the economy are part of a natural, and organic, economic cycle. If this was the case then there would be no need for continued injections of liquidity into the system in an ongoing attempt to artificially suppress interest rates, boost housing or inflate asset markets. From market-to-GDP ratios, cyclical P/Es, misconstrued earnings yields, and the analogs to previous Fed-blow bubbles, we appear near levels more consistent with cyclical bull market peaks rather than where secular bear markets have ended.
The NY Fed is the single most powerful entity in charge of the Fed’s daily operations. How can any investor believe that the Fed can manage the system and restore trust when the NY Fed granted MF Global primary dealer status a mere nine months before the latter went bankrupt?