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Posts Tagged ‘FASB’

EXTEND & PRETEND IS WALL STREET’S FRIEND

Courtesy of Jim Quinn, The Burning Platform

“We now have an economy in which five banks control over 50 percent of the entire banking industry, four or five corporations own most of the mainstream media, and the top one percent of families hold a greater share of the nation’s wealth than any time since 1930.   This sort of concentration of wealth and power is a classic setup for the failure of a democratic republic and the stifling of organic economic growth.” - Jesse –http://jessescrossroadscafe.blogspot.com/

Source: Barry Ritholtz

“All of the old-timers knew that subprime mortgages were what we called neutron loans — they killed the people and left the houses.” - Louis S. Barnes, 58, a partner at Boulder West, a mortgage banking firm in Lafayette, Colo


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THOSE WHO IGNORE HISTORY….

THOSE WHO IGNORE HISTORY….

Courtesy of The Pragmatic Capitalist 

Elderly Asian woman in kimono standing on bridge

My position over the last 2 years has been as follows: this is a Main Street debt crisis.  I have been highly critical of the government’s incessant interventionist policies over the last few years largely because they ignore the actual problems at hand.  First it was Mr. Bernanke saving the banks because he believed the credit crisis started with the banking sector.  The great monetarist gaffe ensued.  Tim Geithner piled on with the PPIP.  FASB jumped on board the bank rescue plan by altering the accounting rules.  And then the icing on the cake was the Recovery Act, which, in my opinion, just shoveled money into the hole that had become the output gap, without actually trying to target the real cause of the crisis – those burdened by the debt.  In essence, the various bailouts primarily targeted everyone except the people who really needed it.

A year ago I posted a story citing the many reasons why we were sinking into the deflationary Japanese trap.  The primary flaw with the US response to the crisis was that we never actually confronted the problem at hand.  I have often cited Japanese economists such as Richard Koo who appear to have a good grasp on the problems in Japan and now in the USA.  In this case, I cited Keiichiro Kobayashi who is now looking most prescient:

We continue to ignore our past and the warnings from those who have dealt with similar financial crises. Keiichiro Kobayashi, Senior Fellow at the Research Institute of Economy, Trade and Industry is the latest economist with an in-depth understanding of Japan, who says the U.S. and U.K. are making all the same mistakes:

“Bad debt is the root of the crisis. Fiscal stimulus may help economies for a couple of years but once the “painkilling” effect wears off, US and European economies will plunge back into crisis. The crisis won’t be over until the nonperforming assets are off the balance sheets of US and European banks.”

Read that last paragraph again.  These are scarily accurate comments.  While the USA claims to have many economists who understand the Japan disease and/or the Great Depression the policy actions we’ve undertaken do not appear to be in line with any understanding of this history.

What we’ve done over the last few years is repeat the mistakes…
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Death-Spiral Intercept

Death-Spiral Intercept

Tiffany & Co. Grand Opening Cocktail Party

Courtesy of Karl Denninger at The Market Ticker 

Well well well….

In essence, White was saying: "it’s the debt, stupid."  When aggregate debt levels build up across business cycles, economists focused on managingwithin business cycles miss the key ingredient that leads to systemic crisis. It should be expected that politicians or private sector participants worried about the day-to-day exhibit short-termism. But White says it is particularly troubling that economists and their models exhibit the same tendency because it means there is no long-term oriented systemic counterweight guiding the economy.

This short-termism that White refers to is what I call the asset-based economic model. And, quite frankly, it works – especially when interest rates are declining as they have over the past quarter century. The problem, however, is that you reach a critical state when the accumulation of debt and the misallocation of resources is so large that the same old policies just don’t work anymore. And that’s when the next crisis occurs.

It seems that Mr. [Edward] Harrison has it figured out.  He goes on to spend a lot of digital ink on the periphery of the bottom line, which is that we continue to think of debt in terms of service costs (indeed, you’ll hear Bernanke talk about it, but never about the actual gross financial system debt outstanding.)

When you boil all this down, however, you get to the following chart (trendline added by moi):

You can see what’s going on here – each "crisis" leads to lower lows and lower highs. 

This presents two problems:

  • Lower lows have run into the zero boundary.  That wasn’t sufficient this time, which of course is why we got "Quantitative Easing" and other similar abortions intended to distort market rates – like guarantees on bank debt, for example.  Ultimately this devolves into The Fed or The Government (as if there’s a real difference) guaranteeing everything to prevent spreads from blowing out.
     
  • Far more sinister, however, is what happens to the top line.  The top line – that is, the maximum rate between crises, declines because it becomes impossible to normalize rates - nobody can afford to pay "normal" rates with the amount of leverage they have.

This is where the ultimate failure in policy arrives, and it…
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Did The Fed Just (Surreptitiously) Bail Out Europe?

Did The Fed Just (Surreptitiously) Bail Out Europe?

Courtesy of Karl Denninger at The Market Ticker 

No, not just Greece – all of Europe.  Without Congressional authorization or notice, of course.

Hattip to a nice emailer….

Or if you prefer it on a one-year time scale…

That nice little vertical line is a gain of $421.8 billion dollars of outstanding loans and leases in one week’s time.

WHERE THE HELL DID THAT MONEY GO AND WHAT COLLATERAL WAS TAKEN AGAINST A FOUR HUNDRED BILLION DOLLAR INCREASE IN OUTSTANDING LOANS?

You won’t find anything like that in the records – because it’s never happened before.  That’s beyond unprecedented, it’s ridiculous, and assuming it’s also accurate, someone has some ‘splaining to do on what clearly appears to be some sort of back-door game being run.

Update: It has been suggested that this may be related to the FASB changes and securitized loans coming back on the balance sheet.  If so, where’s the alleged memorandum items on the other side and the footnote on FRED?  The latter is missing, but the necessary data on FRED to confirm that is not yet updated.

Nonetheless, if this is the case, it’s still bad (just not catastrophic) as this will directly hit capital ratios.  Or, put another way, where’s the additional capital that "should" be there to support what is now on balance sheet and was previously off (never mind that it was crooked as hell to have it off in the first place!) 

****

Karl’s follow-up post:

What The Hell? (Outstanding Credit)

Go read this Ticker first (it’s right below this one on the top page)

Some more digging around FRED has found additional disturbing data.  Specifically:

WHAT? 

An $84.2 billion increase in one month, or annualized, a significantly more than 100% run rate?

Something’s not right here folks. I can’t find the rest of the one-week ramp yet, as the data is not current enough for me to do so, but that’s an insane increase.

C&I loans picked up a bit (614 .vs. 591.8) which is a significant move as well, but then again it also dropped a lot between 3-17 and 3-24 (605 to 591.8), so in context it’s not nearly as material.

Where did the more than $400 billion go that was "borrowed"? 


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Most Wall Street Banks Using Lehman Style Accounting Trickery Enabled by the Fed to Hide Their Risk

Most Wall Street Banks Using Lehman Style Accounting Trickery Enabled by the Fed to Hide Their Risk

Courtesy of  JESSE’S CAFÉ AMÉRICAIN

This analysis from the Wall Street Journal indicates that most of the big US Banks are engaging in the same kind of repo accounting at the end of the quarter that Lehman Brothers was doing to hide their financial instability until deteriorating credit conditions and liquidity problems made them precipitously collapse, as all ponzi schemes and financial frauds do when the truth becomes known.

The basic exercise is to hold big leverage and dodgy debt, but swap it off your books with the Fed at the end of each quarter for a short period of time when you have to report your holdings.

This could easily be corrected by requiring banks to report four week averages of their holdings for example, rather than a snapshot when they can hide their true risk profiles so easily, compliments of that protector of consumers and investors, the Fed.

This is nothing new to us. Many of us have noted this sort of accounting trickery and market manipulation at key events especially at end of quarter.

It is facilitated by the Federal Reserve, and FASB, and the agencies.

"Their Fraud doth rarely falter, and is subsidized, instead, 
for none dare call it bank fraud, if it’s sanctioned by the Fed."
(apologies to Ovid)

The US is Lehman Brothers on a scale writ large. And when it is exposed by some series of events, the implosion could be more sudden than any can imagine. But in the meantime the US is still the ‘superpower’ of the world’s financial system, through its currency, its banks, and its ratings agencies.

WSJ
Big Banks Mask Risk Levels
By KATE KELLY, TOM MCGINTY and DAN FITZPATRICK
April 9, 2010

Quarter-End Loan Figures Sit 42% Below Peak, Then Rise as New Period Progresses; SEC Review

Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs


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Big Banks: “You Will Cancel FASB 166 So We Can Continue Pretending All Is Good… Or We Will Kill Lending Even More”

Big Banks: "You Will Cancel FASB 166 So We Can Continue Pretending All Is Good… Or We Will Kill Lending Even More"

threatsCourtesy of Zero Hedge

At first it was just the smaller banks, but now the big boys have joined the collective cry against FASB 166 and 167, according to which beginning January 1, banks will likely see up to $900 billion in off-balance sheet assets being onboarded to bank balance sheets. This would likely mean banks need to dramatically increase their Tangible and Tier 1 Capital to offset the capital needed to account for possible asset deterioration. And that, of course, is unacceptable to banks who know too well the deep shit they still find themselves in.

The irony is that banks, which have already virtually halted lending to those in need of credit, are threatening they will cut any available credit even futher. How anyone could admit to being stupid enough to believe this latest episode of Mutual Assured Destruction courtesy of the US banking system is a mystery. And yet this is precisely the type of "gun against the head" negotiating that Max Keiser was fulminating against, and that the banks are once again perpetrating:

“With any increase in required capital, a banking institution is likely to reduce the amount of lending using such securitization vehicles, as well as other lending,” the American Bankers Association wrote in a letter to regulators. The association, the nation’s biggest banking lobby, suggested that any transition period should be three years at least, with no change in regulatory capital impact in the first year.

Taking a cue from the ABA, the big 3 record earners have decided to join in: last thing one would want is JPMorgan not earning yet another record amount in Q4. First Citi chimes in:

Banks should be given three years to raise capital for offsetting assets and liabilities that must be brought onto their balance sheets, Citigroup Chief Financial Officer John Gerspach said yesterday in a letter to regulators. Requiring banks to “assume the risk-based capital effects immediately, or even over one year, is an undeniably severe penalty,” he wrote.

Then you have record earner JPMorgan:

The capital requirements “will have a significant and negative impact on the amount of consumer-conduit funding that will be made available by U.S. banks,” said


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WHY ISN’T THIS ON THE COVER OF EVERY NEWSPAPER?

WHY ISN’T THIS ON THE COVER OF EVERY NEWSPAPER?

not headline news FASB vs. financial industryCourtesy of The Pragmatic Capitalist

Okay, I can see how this story might not be a headliner, but we’ve heard practically nothing in the mainstream media about the upcoming battle between FASB and the financial industry with regards to accounting changes.  According to Bloomberg FASB is expected to expand the use of fair value accounting after the drastic changes that took place in Q1 – the same changes that have helped so many of the banks in the near-term.  FASB knows they made a mistake and got pressured by politicians and the Treasury to change the rules in the middle of the game.  Well, now they’re considering changing them back (kind of).  The rule change would have sweeping effects on the banks and as regular readers know, I believe would have an enormously positive impact on the long-term well being of the country.  Bloomberg reports:

The scope of the FASB’s initiative, which has received almost no attention in the press, is massive. All financial assets would have to be recorded at fair value on the balance sheet each quarter, under the board’s tentative plan.

This would mean an end to asset classifications such as held for investment, held to maturity and held for sale, along with their differing balance-sheet treatments. Most loans, for example, probably would be presented on the balance sheet at cost, with a line item below showing accumulated change in fair value, and then a net fair-value figure below that. For lenders, rule changes could mean faster recognition of loan losses, resulting in lower earnings and book values.

The board said financial instruments on the liabilities side of the balance sheet also would have to be recorded at fair-market values, though there could be exceptions for a company’s own debt or a bank’s customer deposits…

Differing Treatment

While balance sheets might be simplified, income statements would acquire new complexities. Some gains and losses would count in net income. These would include changes in the values of all equity securities and almost all derivatives. Interest payments, dividends and credit losses would go in net, too, as would realized gains and losses. So would fluctuations in all debt instruments with derivatives embedded in their structures…

Imagining the Impact

Think how the saga at CIT Group Inc. might have unfolded if loans already


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FASB Grows A Pair? Watch Those Stocks!

Click here for a FREE, 90-day trail subscription to our PSW Report!  

FASB Grows A Pair? Watch Those Stocks!

FASB, "Napoleon's exile to Elba3"Courtesy of Karl Denninger at The Market Ticker


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Zero Hedge

Dollar Bulls Bend, but Don't Break

Courtesy of ZeroHedge. View original post here.

Submitted by Marc To Market.

The US dollar fell against the major currencies and many emerging market currencies last week. Punished by disappointing data, it threatened to breakout of ranges that have confined it. However, the third consecutive upside surprises on core CPI helped the greenback stabilize ahead of the weekend. The price action reinforces our sense that after trending for several months, the dollar has entered a consolidative phase. Trading is choppy, and positioning is still stretched, but the divergence of monetary policy trajectories will likely prevent sharp dollar losses. 

The Canadian dollar may be an exception.  The combination of a less dovish central bank, higher than expected inflation and stronger than expected...



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Phil's Favorites

Evening News, 4-17-15

From Bloomberg:

Greece's Main Creditors Said to Be Unwilling to Allow Euro Exit

Greece’s major creditors are not ready to let the country drop out of the euro as long as Prime Minister Alexis Tsipras shows willingness to meet at least some key demands, according to two people familiar with the discussions.

Chancellor Angela Merkel will go a long way to prevent a Greek exit from the single currency, though only so far, one of the people said. Every possibility is being considered in Berlin to pull Greece back from the brink and keep it in the 19-nation euro, the person said. (Read more)

...



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Chart School

Richard Wyckoff Stock Position Sheet - PART 2

Courtesy of Read the Ticker.

Richard Wyckoff used this tool for over 20 years, of course as readtheticker.com is a fan website of Richard Wyckoff here is our reproduction of his work.More from RTT Tv

NOTE: readtheticker.com does allow users to load objects and text on charts, however some annotations are by a free third party image tool named Paint.net Investing Quote...

..“The only way you get a real education in the market is to invest cash, track your trade, and study your mistakes…. The examination of a losing trade is tortuous but necessary to ensure that it will not happen again.”..Jesse Livermo...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Kimble Charting Solutions

S&P 500 vulnerable to a decline says Joe Friday!

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

When it comes to investing in the stock market, do you feel leadership can be important. If so, you might want to pay attention to price action from a key global stock index. China has been in the news for hot stock market performance that past couple of months. When it comes to the past couple of years, Germany has been stronger than China and the S&P 500. In the past two years the DAX index has gained 18% more than the S&P 500, which is a 60% greater return.

The chart below looks at conditions in the DAX at this time and what message is coming from this index.

...



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Sabrient

Sector Detector: Earnings and GDP temporarily take investor spotlight off the Fed

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Sabrient Systems and Gradient Analytics

As we get into the heart of earnings season and anticipate the GDP report for Q1, the investor spotlight has been taken off the Federal Reserve and timing of its first interest rate hike, at least temporarily. Even though Q1 economic growth will undoubtedly look weak, the future remains bright for the U.S economy – even though many multinationals will struggle with top-line growth due to the strong dollar – and any near-term selloff resulting from weak economic or earnings news should be bought yet again in expectation of better results for the balance of the year. High sector correlations remain a concern, reflectin...



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OpTrader

Swing trading portfolio - week of April 13th, 2015

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Digital Currencies

SkyNet Is Almost Sentient: HFTs To Start Trading Bitcoin

SkyNet Is Almost Sentient: HFTs To Start Trading Bitcoin

Courtesy of ZeroHedge. View original post here.

As noted earlier, with equities now a barren wasteland of volume (and liquidity), the last remaining HFT master (of whale order frontrunning) has been forced to go to those asset classes where organic flow is still abundant such as FX, courtesy of central banks engaged in global currency wars. However, HFTs rea...



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Promotions

Watch the Phil Davis Special on Money Talk on BNN TV!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene

 

The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here (discussing the macro outlook for the markets) Part 2 is here. (discussing our main trading strategies) Part 3 is here. (reviewing our pick of th...

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Market Shadows

Kimble Charts: South Korea's EWY

Kimble Charts: South Korea's EWY

By Ilene 

Chris Kimble likes the iShares MSCI South Korea Capped (EWY), but only if it breaks out of a pennant pattern. This South Korean equities ETF has underperformed the S&P 500 by 60% since 2011.

You're probably familiar with its largest holding, Samsung Electronics Co Ltd, and at least several other represented companies such as Hyundai Motor Co and Kia Motors Corp.

...



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Mapping The Market

S&P 500 Leverage and Hedges Options - Part 2

Courtesy of Jean-Luc Saillard.

In my last post (Part 1 of this article), I looked at alternative ETFs that could be used as hedges against the corrections that we have seen during that long 2 year bull run. Looking at the results, it seems that for short (less than a month) corrections, a VIX ETF like VXX could actually be a viable candidate to hedge or speculate on the way down. Another alternative ETF was TMF, a long Treasuries ETF which banks on the fact that when markets go down, money tends to pack into treasuries viewed as safe instruments. In some cases, TMF even outperformed the usual hedging instruments like leveraged ETFs. There could of course be other factors at play since some of 2014 corrections were related to geopolitical events which are certain...

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Pharmboy

2015 - Biotech Fever

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

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...



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Help One Of Our Own PSW Members

"Hello PSW Members –

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 jennifersurovy@yahoo.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.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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