New York Fed
The US national debt continues to spiral out of control, seemingly without any plan to ever rein it in.
Compared to this time last year, the national debt has grown by over $1 trillion. At the end of September 2013, the cumulative debt stood at $16.74 trillion. Now it is over $17.76 trillion.
Getting out of a Liquidity Trap with monetary policy playing the lead role necessarily involves a Dornbuschian sequence of rational overshooting: The Fed must drive up Wall Street prices, which move quickly, so as to get to Main Street prices that move up slowly, most importantly, wages. This sequencing implies that Wall Street prices must become very rich relative to Main Street prices in order to achieve so-called escape velocity from the Liquidity Trap. At the transition point, Wall Street prices will be rationally “overvalued” relative to their long-term “fair value.” The dominant risk for Wall Street is not bursting bubbles, but rather a long slow grind down in profit’s share of GDP/national income. And you can stick that into a Gordon Model, too! Bonds and stocks may at present be rationally valued, but borrowing from the lyrics of Procol Harum’s Keith Reid: Expected long-term returns are turning a more ghostly whiter shade of pale.
As regular readers are well aware, when it comes to "more than arms length" equity market intervention in New Normal markets, the New York Fed's preferred "intermediary" of choice to, how should one say, boost investor sentiment aka "protect from a plunge", is none other than Chicago HFT powerhouse, Citadel. Recently we discovered that the true culprit behind the May 2010 Flash Crash was not Waddell & Reed, but quote stuffing. The most recent revelation for Citadel is that quote stuffing is not just some byproduct of some "innocuous" HFT strategy, as none other than the Nasdaq has now stated on the record, that the most leveraged hedge fund (at 9x regulatory to net assets), and the third largest after Bridgewater and Millennium, used quote stuffing as a "trading strategy." The following 2 clips give a sense of what goes on from day to day inside the firm that trades more volume than the NYSE every day...
Yesterday it was Ambrose Evans Pritchard, today, in this 2nd of a series of London interviews that Lars Schall conducted for Matterhorn Asset Management this summer, Lars has a City of London streetside conversation with Alasdair Macleod right outside the Dutch reform Church in Austin Friars near the Bank of England. Together they talked about, inter alia: the challenges for The London Bullion Market Association (LBMA); China’s appetite for gold; the Shanghai Cooperation Organization as THE future player in the gold market; and the problems related to Germany’s gold at the New York Fed.
The auto loan subprime bubble may be the latest to burst (after student loans) as the rate of car repossessions jumped 70.2 percent in the second quarter, with much of that increase coming from finance companies not run by automakers, banks or credit unions. "The number of delinquencies and repossessions rising is what we would expect as the auto industry sells more vehicles," "But this slight uptick is one to keep an eye on." The surge in delinquencies and repossessions is being driven primarily by borrowers with subprime and deep subprime credit scores.
When a tin-foil-hat-wearing blog full of digital dickweeds suggest the dollar's reserve currency status is at best diminishing, it is fobbed off as yet another conspiracy theory (yet to be proved conspiracy fact) too horrible to imagine for the status quo huggers. But when the VP of Research at the New York Fed asks "Could the dollar lose its status as the key international currency for international trade and international financial transactions," and further is unable to say why not, it is perhaps worth considering the principal contributing factors she warns of.
There is no reason rooted in the real world for today’s frothy stock market rally. In every single region of the planet, the post-crisis, central bank fueled expansion cycle - tepid as it was in the global aggregate - is faltering badly. So with the global expansion cycle faltering, profit ratios at all-time highs and PE multiples in the nose-bleed section of history - nearly 20X reported earnings for the S&P 500 - there is only one thing left for the Wall Street robots to do. Namely, vigorously buy the latest dip because the Fed has yet another new sheriff heading for Jackson Hole purportedly bearing dovish tidings. To wit, after 6 years of pinning money market rates to the economic floorboard at zero, Janet Yellen espies an economy still encumbered by “slack”, and will therefore be inclined to keep Wall Street gamblers in free money for a while longer.
Physical gold is migrating to the East (Russia, China) and, with it, power and influence. We see it with China and Russia progressively imposing their will, building consensus with a great many countries that wish to end American domination made possible by their capacity (privilege) of issuing the world reserve currency. The saying, “He who holds the (physical) gold makes the rules”, is truer than ever. The announcement of the creation of the BRICs development bank is just the first cornerstone in the new international monetary edifice. All we have to wait for is the first official announcement from the East of a new means of settlement of commercial trade based on one or more tangible assets, with gold. Afterwards, logically, an announcement of the convertibility of certain currencies into gold, or even the creation of a new currency that would be convertible to gold, should be made.
As always, for the best take of what the Fed was thinking, skip Hilsenrath and go straight to the people who provide it with its talking points. Here is Goldman's Jan Hatzius with hos post-mortem of the just released FOMC minutes.
Amazon is Exhibit A of how the Fed’s free money for Wall Street and corporate mastodons is destructive to the rest of the economy.
After all this time Greenspan still insists on blaming the people for the economic and financial havoc that he engendered from his perch in the Eccles Building. Indeed, posturing himself as some kind of latter day monetary Calvinist, he made it crystal clear in yesterday’s interview that the blame cannot be placed at his feet where it belongs:
"I have come to the conclusion that bubbles, as I noted, are a function of human nature."
NY Fed Slams Deutsche Bank (And Its €55 Trillion In Derivatives): Accuses It Of "Significant Operational Risk"Submitted by Tyler Durden on 07/22/2014 19:41 -0500
First it was French BNP that was punished with a $9 billion legal fee after France refused to cancel the Mistral warship shipment to Russia (which promptly led to French National Bank head Christian Noyer to warn that the days of the USD as a reserve currency are numbered), and now moments ago, none other than the 150x-levered NY Fed tapped Angela Merkel on the shoulder with a polite reminder to vote "Yes" on the next, "Level-3" round of Russia sanctions when it revealed, via the WSJ, that "Deutsche Bank's giant U.S. operations suffer from a litany of serious problems, including shoddy financial reporting, inadequate auditing and oversight and weak technology systems." The shortcomings amount to a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports," said the letter from Daniel Muccia, a New York Fed senior vice president responsible for supervising Deutsche Bank.
Well, if you take the US Supreme Court and representatives of the Federal Reserve System at their own words, the case is pretty clear: the member banks of the Federal Reserve System are private corporations / banks.
It appears that having pushed France forcefully into the Russia-China Eurasian, and anti-US camp, the US will now do the same with Germany. Because by infuriating the German population with first refusing to return their gold contained (the legend goes) at the New York Fed, and then with scandal after spying scandal, now the time has come to "punish" Germany's largest banks for the same kind of money laundering that BNP was engaged in. As the NYT and Reuters report, the time has come to shift away from the BNP scandal and focus on what will soon be the Commerzbank and Deutsche Bank fallout. According to the NYT, the money laundering crackdown is "bound for another European financial center: Germany. As NYT adds, correctly, "The Commerzbank investigation features an added twist: The bank is 17 percent owned by the German government. It is unclear whether — as in the BNP case, which led French authorities to intervene on the bank’s behalf — the settlement talks could inflame diplomatic tensions between Washington and Berlin."
According to a paper by economists at UC Northwestern University and UC Berkeley, Anna Cieslak and Adair Morse and Annette Vissing-Jørgensen, another, even more surprising trading pattern using FOMC announcement has emerged. Specifically, anyone who engaged in the simple "even" strategy of buying the stocks of the S&P 500 on the day before a Fed policy announcement, selling them a week later, then buying them again the following week and sticking with the pattern until the subsequent Fed meeting generated a whopping 650% return since 1994, far outperforming the inverse "odd" strategy which shocking had a negative return over the past two decades years, and jsut as surprisingly, outperforming the market's own 505% return during this period.