I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let's try one.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone's delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy.
Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn.
Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory — ironically now made fact — the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don't care if they're free. They can't find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can't afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars — at best — returns to the level it was before the program began.
The same thing can happen with credit.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal,…
My friend Adam Feuerstein is out with a highly provocative piece on TheStreet.com today about a new deal that could potentially change the entire drug pricing dynamic for the biotech sector…
The exclusive hepatitis C pharmacy deal struck between Express Scripts(ESRX) and AbbVie (ABBV) is a serious, perhaps permanent, blow to the multi-year biotech stock bull market.
The power to control drug prices in the U.S. now has shifted firmly to cost-cutting insurance carriers and pharmacy benefit managers. This means biotech companies, especially those facing competition, can’t guarantee the outsized profits investors have come to expect and crave.
After today, investors are no longer going to ask biotech executives, “What will you charge for your new drug?” Instead, the new question becomes: “What will Express Scripts — or any other pharmacy benefit manager — allow you to charge for your new drug?”
A bill in Parliament proposes new regulations on family insolvencies and will protect from eviction all those individuals who have suspended mortgage payments. The reform centers around rights of the 'consumer debtor' which will have full legal guarantees to negotiate funding agreements with creditors for half of the accrued liability and take up to fifteen years to pay.
The measure is justified by the massive overhang of family suffering in Spain, currently condemning many to full settlement and consequent total ruin of those who go through a bankruptcy process.
Currently, citizens drowned by their financial situation are usually first evicted from their homes and then have to drag existing debt perpetually throughout their working and social life.
The key amendment is on the table prior work involves a negotiation process that empowers the consumer to inform the Court their willingness to reach an agreement with its creditors. The deadline to apply this voluntary refinancing process is two months from the date it becomes impossible for someone to meet payment obligations.
The mere communication to the court of the start of negotiations suspends any eviction proceedings, including those declaratory judgments that may already be in process.
The law also amends substantial aspects of the settlement process in cases where a person fails to reach an agreement with creditors.
The liquidation plan will take into consideration assets of 'consumer debtor' while prioritizing the essential livelihood of the affected person.
The bill has an aim of preserving basic necessities and will also guarantee a 'fresh start' or second chance for people doomed to a dramatic insolvency. To that end, and in the worst case, the court may totally wipe out all existing debts including that portion not covered by asset liquidation. This is a radical change from the current procedural process.
Issues and Questions
How many will stop paying their mortgage simply to start a negotiation process?
How much harder will it be for someone to get a mortgage? …
Oh, that sweet black gold won’t leave us alone, will it? West Texas Intermediate went through some speedbumps Friday, but ended over +5%, though still only at $57. Think them buyers know something we don’t? I don’t either. I see people covering lousy bets. And PPT (and that’s not the one we used to spray our crops with).
The damage done must be epic by now, throughout the financial system, but we’re not hearing much about that yet, are we? We will in time, not to worry. Everyone’s invested in oil, and big time too, and they’ve all just become party to a loss of about half of what both oil itself and oil stocks were worth just this summer.
There’s those who can ride it out and wait for sunnier days, but many funds don’t have that luxury. Who wants to be manager of Norway’s huge oil-based sovereign fund these days? With all these long-term obligations entered into when oil was selling for $110, no questions asked? The Vikings must be selling assets east, west, left and right. But they’re not going to tell us, not if they can help it.
Just like all the other money managers who pray every morning and night on their weak knees for this nightmare to pass. Your pension fund, your government, they’re all losing. BIG. They’ll try and hide those losses as long as they can. But trust me on this one: all major funds have oil in a prominent place in their portfolios. And there’s a Bloomberg index that says the average share values of 76 North American oil companies, i.e. not just the price of oil, have lost 49% of their value since June. There will be Blood with a capital B.
The discussions over the past few weeks have all been about OPEC, whether they would cut output or not. And I’m not really getting that. There are 3 major producers today, you might even label them swing producers: Saudi Arabia, Russia, and the US. But all the talk is always about OPEC cutting. What about Russia? Well, they can’t really, can they, with all the sanctions and the threat they are to…
“our reported results will be down in the high-teens, which is a lot, but… our core performance, in terms of year-over-year performance is 4% down”
– JPM CFO Marianne Lake
“the environment right now … we expect to be down this quarter and versus last year, we expect to be down in this business, but it's consistent with the opportunities that we see our customers are taking”.
– BAC CEO Brian Moynihan
It appears that the Q4 earnings season "bloodbath" predicted by harbinger Jefferies is right on track. According to Citigroup, Q4 is shaping up to be nothing short of a disaster for bank earnings. To wit:
Based on Dealogic, primary revenues over Oct-Nov were down 17% yoy, impacted by a sharp decline in lending revenues while underwriting revenue were mixed with stronger DCM, offsetting weaker ECM. Nonetheless, the advisory pipeline strengthened boding well for future revenues.
Primary revenues decreased 17% yoy over Oct-Nov, notably impacted by weaker lending trends, per Dealogic industry data. Issuance revenues also declined while advisory revenues increased slightly.
Loans revenues fell 61% yoy over Oct-Nov with leveraged finance particularly lower, given weaker market conditions [ZH: uhm, market hit all time highs in both October and November?!]. By contrast, DCM revenues increased 11% over the same period, primarily driven by higher IG issuance (+27% yoy), partially offset by lower HY, down 12% (Figure 31-Figure 32).
Equity Issuance declined 16% yoy over Oct-Nov (Figure 30), due to tough comps and more challenging market conditions.
Which is odd: remember how everyone said banks are being punished for low volatility? Apparently the only thing worse for banks than zero/low vol was… high vol.
The sharp spike in UST volatility in mid-Oct as well as selloff in both credit & energy made for a more challenging backdrop…. Although a sharp spike in correlation and volatility drove a more challenging environment in equity derivatives, higher customer activity is likely to have made for performance consistent with prior quarters…. Although 4Q14 had its specific challenges, we believe that diverging
Present Franklin Delano Roosevelt Signing the Glass-Steagall Act on June 16, 1933
Last week members of both the House and Senate were issuing press releases to express their outrage over the sneaky repeal of a Dodd-Frank financial reform provision meant to stop giant Wall Street banks from using FDIC-insured bank affiliates to make wild gambles in derivatives, thus putting the U.S. economy in grave danger again and the taxpayer at risk for another behemoth bailout.
What was the Federal regulator of these very same banks doing? It was bragging in a press release issued at the end of the same week about the gargantuan risks these insured banks were taking in derivatives.
The press release was issued on Friday, December 19, 2014 by the Office of the Comptroller of the Currency (OCC), the regulator of all national banks which is mandated to make sure that insured banks “operate in a safe and sound manner.”
The press release begins with a bizarre sounding headline for a bank regulator: “OCC Reports Third Quarter Trading Revenue of $5.7 Billion.” It wasn’t actually the OCC that had this trading revenue, of course, it was that “Insured U.S. commercial banks and savings institutions reported trading revenue of $5.7 billion in the third quarter of 2014” and year-to-date trading revenue of $18.3 billion, as the press release explains.
In a sane financial world, of course, insured banks are not supposed to be trading; they are supposed to be receiving insured deposits backstopped by the U.S. taxpayer in return for making loans to worthy businesses and consumers in order to create jobs and grow our economy.
President Barack Obama is “recklessly” spreading rumours of a Pyongyang-orchestrated cyberattack of Sony Pictures, North Korea says, as it warns of strikes against the White House, Pentagon and “the whole US mainland, that cesspool of terrorism”.
A long statement from the powerful National Defense Commission late Sunday underscores Pyongyang’s sensitivity at a movie whose plot focuses on the assassination of its leader Kim Jong-un.
“Our toughest counteraction will be boldly taken against the White House, the Pentagon and the whole US mainland, the cesspool of terrorism, by far surpassing the ‘symmetric counteraction’ declared by Obama,” said the commission’s policy department in a statement carried by the official Korean Central News Agency.
US May Put North Korea Back on State Terror List
I never thought that I would agree with Kim Jong on anything significant, but his labeling the US a cesspool of terrorism seems an accurate description of US drone policy.
The United States may classify North Korea a state sponsor of terrorism after its “cybervandalism” of Sony Pictures, President Barack Obama has said.
The president said the hack on the Hollywood studio was not an act of war but was “very costly”, and could land Pyongyang back on the administration’s terror list, a designation lifted by the Bush administration in 2008 during nuclear talks.
“We’re going to review those [issues] through a process that’s already in place,” he told CNN in an interview broadcast on Sunday. “I’ll wait to review what the findings are.”
In case you are not in tune with what’s happening, Sony was about to release a film called “The Interview“.
The film stars Rogen and James Franco as journalists instructed to assassinate North Korean leader Kim Jong-un (played by Randall Park) after booking an interview with him. …
A retrace that fills open gaps and kisses the 50-day moving average surprises everyone who was confident oil was heading straight down to $40/barrel.
When the conventional media ordains oil inevitably dropping to $40/barrel, I start looking for something else to happen--like oil going to $70/barrel. There are number of reasons this isn't as farfetched as it might seem at the moment.
1. The huge gap begging to be filled on the chart of the Energy Select Sector exchange-traded fund XLE and a bunch of other energy-sector stocks and etfs. Gaps like this usually get filled sooner rather than later.
2. A bounce back to the 50-day moving average on the WTI oil index around $73 would be unsurprising. As the old saying has it, nothing goes down in a straight line, and since oil fell in a parabolic curve down, some sort of retrace to a key technical level of resistance is to be expected.
There are many ways to calculate Fibonacci levels, but a retrace to the 38.2% level equates to the mid-$70s. By my reckoning, the natural starting place is the recent high around $116 in 2011 to the recent low around $53. The 38.2% level is $24 + $53 = $77.
Maybe price doesn't retrace all the way to the mid-$70s, but the possibility shouldn't be discounted.
3. Too many punters have bet on oil dropping straight to $40/barrel, and all those put options offer the big financial players an incentive to spark a short-covering rally that outruns stops and scoops all the money by options expiration on January 16, 2015.
The more puts there are at $70/barrel (and equivalent levels in energy etfs, oil services stocks, etc.) the greater the incentive to push the short-covering rally higher than expected.
4. The parabolic drop in oil resulted more from the panicky unwinding of a crowded and overleveraged trade than supply-demand. As I explained in my series on the financialization of oil, the financial pyramiding of oil is much less visible than supply and demand, so the mainstream media focuses on what's easy, i.e. supply and demand issues.
Michael Moore once famously – though by no means famously enough yet, because he was so dead-on – said that ‘you can’t declare war on a noun’. If only Americans had paid better attention. That would have shone a whole different light on, if not outright prevented, insane, expensive and terribly deadly concepts such as the ‘war on drugs’ and the ‘war on terrorism’. Now it looks as if John McCain is fishing for a fresh noun to declare war on.
Talking about Seth Rogen, Evan Goldberg and James Franco’s ‘The Interview’ movie, and the hackers known as ‘Guardians of the Peace’ who made Sony Pictures pull the movie’s Christmas release, McCain told CNN’s State of the Union that “It’s more than vandalism. It’s a new form of warfare that we’re involved in and we need to react, and react vigorously.” President Obama earlier said the opposite, that it’s not war, but vandalism.
I’d say it’s neither, it’s a bunch of hackers who penetrated Sony’s digital systems quite deeply, encouraged by the apparent lack of true security used to protect the systems. In essence, I don’t understand what either Obama or McCain are doing talking about the issue in the first place. The FBI claims they are certain the hackers are North Korean, but they have provided no proof of that claim. We have to trust them on their beautiful blue eyes.
I think if anything defines 2014 for me, it’s the advent of incessant claims for which no proof – apparently – needs to be provided. Everything related to Ukraine over the past year carries that trait. The year of ‘beautiful blue eyes’, in other words. Never no proof, you just have to believe what your government says.
But so, maybe they were/are North Korean hackers. And then? Is it such a bad thing that a group of people show us that the US is not the world’s sole master of technology, that there’s a certain degree of democracy, or of equality if you will, when it comes to computers and high tech? Doesn’t seem all that bad to me. It would seem much scarier if one party controls it all.…
Gulf oil officials on Sunday defended OPEC’s decision last month to keep its production ceiling intact, blaming producers outside of the group for the glut of oil on the market that has depressed prices.
Speaking at an energy conference in Abu Dhabi, Saudi Oil Minister Ali al-Naimi blamed a lack of coordination from producers outside the Organization of the Petroleum Exporting Countries—along with speculators and misleading information—for the slump.
OPEC officials have singled out American shale producers as a particular problem. U.S. oil production has soared as a result of the shale boom, reducing OPEC exports to the U.S.
Non-OPEC producers “will realize that it is in their interests to cooperate to ensure high prices for everyone,” Mr. Naimi said.
OPEC December Monthly Oil Market Report
Are US shale frackers really to blame for the price crash?
A second senior airline industry source has revealed his belief that there is some sort of conspiracy behind the disappearance of Malaysia Airlines flight MH370.As The Herald Sun reports, Emirates president and CEO Sir Tim Clark made world headlines in October when he revealed his doubts about the fate of the missing plane, which disappeared early in the morning of March 8 this year. Now a second sen...
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let's try one.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To...
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I will be keeping posts to a minimum until the New Year. Friday finished with a bit of a high volume flourish, which added a nice gloss to Thursday's big gains.
The Russell 2000 managed to go one step further with a breakout. Watch this index over the coming days; if it can hold the move it will bring other indices with it. The Russell 2000 has under-performed (relatively) all year, and if bulls are to maintain a broader market rally into a sixth year then the Russell 2000 will have to do most of the leg work. As an important side note, the Russell 2000 turned net bullish technically. The flip-side is to watch for a 'bull trap', but even here, this might instead widen the recent trading range handle as major resistance lives at 1,210/15 not at 1,190.
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
Stocks have needed a reason to take a breather and pull back in this long-standing ultra-bullish climate, with strong economic data and seasonality providing impressive tailwinds -- and plummeting oil prices certainly have given it to them. But this minor pullback was fully expected and indeed desirable for market health. The future remains bright for the U.S. economy and corporate profits despite the collapse in oil, and now the overbought technical condition has been relieved. While most sectors are gathering fundamental support and our sector rotation model remains bullish, the Energy sector looks fundamentally weak and continues to ran...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).
Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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