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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ValueWalk

Azerbaijan: Energy Hopes vs. Italian Olive Groves

By EurasiaNet. Originally published at ValueWalk.

The Trans-Adriatic Pipeline is a key element of Azerbaijan’s efforts to export its greatest source of wealth, its Caspian Sea natural gas deposits, to European markets. It is also a cornerstone of the European Union’s strategy to weaken Russia’s hold on European gas markets.

The pipeline’s route, however, passes through ancient olive groves and over pristine beaches in the Italian region of Puglia, which relies on that bucolic landscape for its major industry, tourism.

Azerbaijan

That has set up a standoff between global energy interests and local environmental activists. And with a December referendum in Italy that reinforced local governments’ auton...



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Zero Hedge

Billionaire Dem Donor Thinks His Party Needs A New Message - "No One Votes For Polar Bears"

Courtesy of ZeroHedge. View original post here.

Tom Steyer, the Billionaire founder of the hedge fund Farallon Capital, spent $87mm funding liberal campaigns and ballot measures all across the country in 2016 and got absolutely nothing in return but a Republican-controlled Congress and White House.  Something tells us the 2016 election cycle was one of the worst "investment" ROI's of Steyer's life.

But despite his stunning losses, like Obama, Steyer is convinced that Americans still overwhelming agree with liberal policies...it's just that those policies aren't being explained we...



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Phil's Favorites

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

OPEC and Friends Agree on Way to Monitor Oil Cut to End Glut (Bloomberg)

OPEC and other oil producers agreed on a way to monitor their compliance with last month’s historic supply deal, putting global markets on track to re-balance after more than two years of oversupply.

Wall Street stocks set to slip as Trump keeps investors on the back foot (Market Watch)

U.S. stock futures tilted south on Monday as global markets grappled with uncertainty over the policies of U.S. President Dona...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

OPEC and Friends Agree on Way to Monitor Oil Cut to End Glut (Bloomberg)

OPEC and other oil producers agreed on a way to monitor their compliance with last month’s historic supply deal, putting global markets on track to re-balance after more than two years of oversupply.

Wall Street stocks set to slip as Trump keeps investors on the back foot (Market Watch)

U.S. stock futures tilted south on Monday as global markets grappled with uncertainty over the policies of U.S. President Dona...



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OpTrader

Swing trading portfolio - week of January 23rd, 2017

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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Kimble Charting Solutions

Post Christmas- Gold Miners & Metals the place to be!

Courtesy of Chris Kimble.

Christmas is now nearly one month ago, how time flies. Ole Santa has been taking a rest and so far over the past month, the S&P 500 has done the same. Not so much for a few other high flying assets!

CLICK ON CHART TO ENLARGE

Since the first day of trading after the Christmas break, the broad market has been pretty quiet, up .23%. Bonds (TLT) and the Euro (FXE) have made a little bit more than the broad markets.

The Metals Sector has done pretty well since Christmas, as Gold ...



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Chart School

Weekly Market Recap Jan 22, 2017

Courtesy of Blain.

The week that was…

This rally is getting long in the tooth so simply from a duration standpoint some caution is merited. There are other reasons which we will outline later. That said this particular week was a quiet group of sessions with mild gains and losses mixed in; the market was closed on Monday. Earnings were the focus of the week as was the Trump speech Friday where investors may begin to start pivoting off hope for everything to be perfect, and start looking at the reality of Washington D.C. doing Washington D.C. things. Even with 1 party controlling both major branches.

Overseas, the European Central Bank, as expected, left interest rates unchanged Thursday. The decision was expected after the ECB last month decided to extend its bond buying program through the end of 2017. ECB head Mario Draghi said...



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Digital Currencies

Bitcoin and Gold - Outlook and Safe Haven?

Courtesy of ZeroHedge. View original post here.

Bitcoin and Gold – Outlook, Volatility and Safe Haven Diversification

Recent performance of bitcoin and gold

What does the recent volatility and surging price of bitcoin mean for the future of the crypto-currency and does its recent outperformance mean that it may supplant gold as a safe haven currency? Can bitcoin rival gold as a safe haven? Do bitcoin’s recent price gains herald gains for gold in 2017?

...



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Members' Corner

How To Poop At Work?

Courtesy of Nattering Naybob.

Once again it's "in the Toilet Thursday" or "Thursday's in the Loo". 

In our last episode, How to Poop On A Date? we were graced with a delicate shituation: what ever to do when your finally back at her place, snuggling in for a little "brown chicken brown cow" and you get hit with "Love Potion #2".

This week in How to Poop At Work? ,what to do when your at a big fancy pants meeting, when out of nowhere, you need to download a brown load?



...

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Mapping The Market

If we try it enough, it will work.

Via Jean-Luc

Brownback wants Trump to emulate what he did in Kansas because it worked so well:

Sam Brownback Calls on Donald Trump to Mimic His Kansas Tax Plan

By RICHARD RUBIN and  WILL CONNORS

Sam Brownback, the Kansas governor whose tax cuts brought him political turmoil, recurring budget holes and sparse evidence of economic success, has a message for President-elect Donald Trump: Do what I did.

In 2013, Mr. Brownback set out to create a lean, business-friendly government in his state that other Republicans could replicate. He now faces a $350 million deficit when the Kansas legislature convenes in January and projections of a larger one in 2018. The state’s economy is flat and his party is fractured...

...

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Biotech

The Medicines Company: Insider Buying

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

I'm seeing huge insider buying in the biotech company The Medicines Company (MDCO). The price has already moved up around 7%, but these buys are significant, in the millions of dollars range. ~ Ilene

 

 

 

Insider transaction table and buying vs. selling graphic above from insidercow.com.

Chart below from Yahoo.com

...

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Promotions

Phil's Stock World's Las Vegas Conference!

 

Come join us for the Phil's Stock World's Conference in Las Vegas!

Date:  Sunday, Feb 12, 2017 and Monday Feb 13, 2017.            

Beginning Time:  8:00 am Sunday morning

Location: Caesar's Palace in Las Vegas

Notes

Caesar's has tentatively offered us rooms for $189 on Saturday night and $129 for Sunday night. However, we have to sign the contract ASAP. We need at least 10 people to pay me via Paypal or we may lose the best rate for the rooms. (Once we are guaranteed ten attendees, I will put up instructions to call the hotel for individual rooms.)

The more people who sign up,...



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All About Trends

Mid-Day Update

Reminder: Harlan 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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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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