Insurance Companies

The issue at hand is: far more people have discovered whether by chance or direct analysis of their own, both the Fed., as well as their gaggle of cohorts throughout academia, as well as in the financial media, are all watching and gaining their clues – from the same “rock.” Furthermore: It’s now self-evident to anyone willing to look. It’s not to see if the rock is wet, dry, or anything else. It’s to make the rock wet, dry, or anything else needed for the narrative. Because today; narrative trumps reality in today’s economic disciplines.

When it came to the highly confidential TPP, it was unclear just which corporations were dominant in pulling the strings. Now thanks to more documents published by Wikileaks, and analyzed by the NYT, it appears that "big pharma" is the mastermind behind the Trans Pacific Partnership, which if passed will "empower big pharmaceutical firms to command higher reimbursement rates in the United States and abroad, at the expense of consumers" according to "public health professionals, generic-drug makers and activists opposed to the trade deal."

"We take issue with the widespread notion that the problem is solely due to regulators having raised the cost of dealer balance sheet, and could be ameliorated if only there were greater investment in e-trading or a rise in non-dealer-to-non dealer activity... illiquidity is a growing concern even in markets like equities and FX, which use barely any balance sheet at all, and where e-trading is the already the norm rather than the exception."

"It’s about time we start getting worried about possibly the next [financial crisis]," warns BlueMountain's James Staley explaining that, "the lack of liquidity that currently exists today, is something that people on the buy side, sell side and regulatory side need to be focused on." In an effort to quantify just how big that 'issue' is, Bloomberg reports that the U.S. corporate-bond market has ballooned by $3.7 trillion during the past decade, yet, as Citi's Stephen Antczak warns, almost all of that growth is concentrated in the hands of three types of buyers, "we used to have 23 types of investors in the market. Now we have three. In my mind, that’s the key driver."

While investor behavior hasn't sunk to the depths seen just before the crisis, Oaktree Capital's Howard marks warns, in many ways it has entered the zone of imprudence. "Today I feel it's important to pay more attention to loss prevention than to the pursuit of gain... Although I have no idea what could make the day of reckoning come sooner rather than later, I don’t think it’s too early to take today’s carefree market conditions into consideration. What I do know is that those conditions are creating a degree of risk for which there is no commensurate risk premium."

"Central bank distortions have forced investors into positions they would not have held otherwise, and forced them to be the ‘same way round’ to a much greater extent than previously... unless fundamentals move so as to justify current valuations, when central banks move towards the exit, investors will too.... The way out may not prove so easy; indeed, we are not sure there is any way out at all."

The carnage in Europe and US bonds is echoing on around the world as Aussie 10Y yields jump 15bps at the open (to 3.04% - the highest in 6 months) and the biggest 2-day spike in 2 years.  JGBs are also jumping, breaking to new 6-month highs above 50bps once again raising the spectre of VAR-Shock-driven vicious cycles...

No lesser establishment economist than Martin Feldstein - Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research - has some warning words of wisdom for The Fed today: "...the Fed’s unconventional monetary policies have also created dangerous risks to the financial sector and the economy as a whole." When even The Ivory Tower is losing faith, you know The Fed is in trouble...

"The sharp rise in bond volatility over the past week or so is reminiscent of the VaR shocks of October 2014 in US rates and April 2013 in Japanese rates," JP Morgan says, before explaining how volatility induced selling (i.e. a VaR shock) is behind the rout in German Bunds. Predictably, QE has helped create the conditions which make such episodes possible.

If you are an American, there is a 1 in 3 chance that you will get cancer during your lifetime.  If you are a man, the odds are closer to 1 in 2.  And almost everyone in America either knows someone who currently has cancer or who has already died from cancer.  But it wasn’t always this way.  Back in the 1940s, only one out of every sixteen Americans would develop cancer. Despite billions spent on research and all of the technological progress we have made over the years this plague just continues to spiral wildly out of control.  Why is that?

To paraphrase H.L. Mencken, anyone who wants the government and Federal Reserve to create a housing recovery, deserves to get it good and hard, like a four by four to the side of their head. Subprime mortgages, subprime auto loans, and subprime student loans driven by preposterously low interest rates are the liquefying foundation of this fake economic recovery. Most rational people would agree that loaning money to people who will eventually default is not a good idea. But it is the underpinning of everything the Fed and government apparatchiks have done to keep this farce going a little while longer. It will not end well – Again.

"From the BIS to BlackRock, and Jamie Dimon to Jose Vinals, everyone seems to be talking about market liquidity," Citi's Matt King writes, before taking an in-depth look at just how broken the 'markets' truly are. To summarize: no depth in the Treasury market, a duration mismatched powder keg in "long-term" mutual funds thanks to the fact that ZIRP has destroyed money market yields causing investors to find a new 'cash substitute,' and a magically shrinking repo market in the wake of new regulations ironically meant to promote stability.

October 15^th, 2014 wasn`t a market crash!

American banks have largely gained from low interest rates, British banks have suffered losses as a result and in the Eurozone they have been hugely detrimental to banks’ profitability. The ones who have undoubtedly lost out were those quintessential Keynesian villains: the savers. The medicine prescribed by the central banks to correct their “bad” ways has cost them billions. And given that yields have continued to go down since McKinsey's report was published, their misery has only increased. More high fives from Keynes! And yet, even within those groups the impact has been uneven. Who in the household segment is suffering the most because of ultra-low interest rates? The retirees, of course.

If you thought currency-wars were a problem, just wait until crony-wars begin. In a stunning show of disagreement among the omnipotent, The FT reports that a Freedom of Information Act request has confirmed The Bank of England wrote to US authorities seeking clarity about Berkshire’s absence from a provisional list of "systemically import" (Too Big To Fail) financial institutions (SIFIs). The US Treasury declined to comment...