Posts Tagged ‘Bailout’

“If These Allegations Are Correct, It Appears To Have Been A Direct Transfer Of Wealth From The United States Treasury To Goldman Sachs Shareholders”: Josh Rosner

Courtesy of The Daily Bail 

"If These Allegations Are Correct, It Appears To Have Been A Direct Transfer Of Wealth From The United States Treasury To Goldman Sachs Shareholders": Josh Rosner

 

 

 

Our favorite quotes so far from today’s FCIC report and reaction from analysts…

  • "Less than a 3 percent drop in asset values could wipe out a firm." – FCIC Report
  • "The AIG counterparty bailout, which was spun as necessary to protect the public, seems to have protected the institution at the expense of the public." – Josh Rosner
  • "The total was for proprietary trades," the report asserts. "Unlike the $14 billion received from AIG on trades in which Goldman owed the money to its own counterparties, this $2.9 billion was retained by Goldman."
  • "At the time, the idea was the sucker could go down because there wasn’t enough liquidity in the system, money wasn’t moving, and you could see a domino effect," said Ann Rutledge, a principal at R&R Consulting in New York, which specializes in structured finance.  In reality, she contends, those fears were overblown: There was ample money in the financial system.  Rather, individual institutions did not have enough cash on hand to survive their losses, she asserts. But the fear of a broader liquidity crisis was used as justification for what now appears to have been a backdoor means of bailing out Goldman, said Rutledge.
  • The details in the commission’s report leave Goldman "naked," she added. "It doesn’t have the fig leaf of a systemic risk argument. Normally what happens when you have a sophisticated institution that’s doing stupid credit stuff is you let them eat it, but that didn’t happen in the bailout."
  • "If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman’s shareholders." – Josh Rosner

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What Most People Don’t Realize About The Fed’s Superpowers

Bob Prechter’s Conquer The Crash reveals whether the Fed really can rescue the US economy 

By Elliott Wave International

Since its creation in 1913, the primary intended role of the U.S. Federal Reserve Bank has been that of protector. In theory, the central bank was bestowed with the power to shape monetary policy in a way that would keep both booms and busts in check. The two main tools at its disposal — interest rates and money creation — would provide a "ceiling of normalcy" above expansions AND a "net of safety" below contractions.

To this day, the financial mainstream holds great faith in the Fed’s ability to fulfill its save-the-day duties — as these recent news items make plain:

  • "Why Raising Fed Funds Rate Is Positive For Equities." (Seeking Alpha)
  • "Fed’s Moves Lift All Asset Classes." (Associated Press)
  • "US Stocks Erasing Losses: The aggressive moves of the Fed have been an important driver for the stabilization of stock prices." (Bloomberg)

But of all the variables the Fed creators took into account, there’s one glaring factor they neglected to consider: Namely, it cannot force consumers to spend, creditors to lend, or businesses to borrow. The events of 2007-2009 "credit crunch" and the subsequent "Great Recession" made that obvious. Remember how the government was upset at banks for sitting on the bailout funds instead of lending them out to consumers? And consumers weren’t exactly lining up on the street to get a loan, either.

The Fed’s inability to change social mood is the central theme in Chapter 13 of EWI President Bob Prechter’s NY Times business bestseller book Conquer the Crash. There, Bob describes the Fed’s strategy of lowering the federal funds rate to stimulate spending to be as effective as "pushing on a string." Writes Bob:

"The primary basis for today’s belief in perpetual prosperity and inflation with an occasional recession is what I call the ‘Potent Directors Fallacy.’ It is nearly impossible to find a treatise on macroeconomics today that does not assert or assume that the Federal Reserve Board has learned to control both our money and our economy. Many believe that it also possesses the immense power to manipulate the stock market. The very idea that it can do these things is false."

And so begins one of the most groundbreaking studies into the very real INABILITY of the Fed to fell the great bears of economic declines, or…
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Hugh Hendry On The “Near Certainty” Of European Interest Rate Rises

Courtesy of Zero Hedge

Europe risks getting it wrong again on rate rises

From European Central Bank, posted first in the FT

The euro project has not gone according to plan. It reminds me of the story of the James Bond character Q, based on the British intelligence officer Charles Fraser-Smith. It was he who invented a compass for spies hidden in a button that unscrewed clockwise. The contraption was based on the simple yet brilliant theory that the unswerving logic of the German mind would never guess that something might unscrew the wrong way. This is really what happened with the euro. New member states were supposed to take lower German interest rates and invest their resources wisely to improve and deepen their productive capacity. Instead, they used the advantage to finance speculative asset bubbles. The peripheral nations of Europe turned the wrong way. The Germans are unhappy.

But, desperate to cling to monetary union, the other European sovereigns have opted to default on their spending promises to voters rather than impose a haircut on their financial creditors. In the 1920s the pay-off structure had been very different. The first world war took an intolerable toll on the typical household both in terms of the loss of life and financial well-being; everyone had become poorer. Accordingly, there was little willingness on the part of the ruling political class to force austerity measures to redress the fiscal imbalances. The people had suffered long enough. Consequently, there was much procrastination and fiscal deficits persisted way beyond the end of the war, making capital markets reluctant to accept the waning security of government paper and forcing the sovereign to rely on the central bank’s printing press.

This time around, however, the political class has concluded that the Greeks (especially the Greeks!) and the other peripheral states have done so well off the back of the euro project that it is their turn to shoulder the burden. They calculate that the social pain would be less severe than the financial costs of a debt default and/or a euro exit. Of course, this is to neglect the financial consequences of bailing out the financial sector in 2008 and its ensuing impact on the ordinary household. Can an analogy be drawn between the first world…
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Settling Prosecutions For Pennies on the Dollar Is a Type of Bailout

Courtesy of Washington’s Blog 

The following is an excerpt of my much longer roundup of the many covert ways the government is bailing out the giant banks.

Fraud As a Business Model

If you stop and think for a moment, it is obvious that failing to prosecute fraud is a bailout.

Nobel prize-winning economist George Akerlof demonstrated that if big companies aren’t held responsible for their actions, the government ends up bailing them out. So failure to prosecute directly leads to a bailout.

Moreover, as I noted last month: 

Fraud benefits the wealthy more than the poor, because the big banks and big companies have the inside knowledge and the resources to leverage fraud into profits. Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market. The giants (especially Goldman Sachs) have also used high-frequency program trading (representing up to 70% of all stock trades) and high proportions of other trades as well). This not only distorts the markets, but which also lets the program trading giants take a sneak peak at what the real traders are buying and selling, and then trade on the insider information. See this,thisthisthis and this.

Similarly, JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country’s derivatives risk, and 96% of the exposure to credit derivatives. They use their dominance to manipulate the market

Fraud disproportionally benefits the big players (and helps them to become big in the first place), increasing inequality and warping the market.

[And] Professor Black says that fraud is a large part of the mechanism through which bubbles are blown.

***

Finally, failure to prosecute


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“The Fed No Longer Even Denies that the Purpose of Its Latest Blast of Bond Purchases … Is To Drive Up Wall Street”

Courtesy of Washington’s Blog

The stated purpose of quantitative easing was to drive down interest rates on U.S. treasury bonds.

But as U.S. News and World Reported noted last month:

By now, you’ve probably heard that the Fed is purchasing $600 billion in treasuries in hopes that it will push interest rates even lower, spur lending, and help jump-start the economy. Two years ago, the Fed set the federal funds rate (the interest rate at which banks lend to each other) to virtually zero, and this second round of quantitative easing--commonly referred to as QE2--is one of the few tools it has left to help boost economic growth. In spite of all this, a funny thing has happened. Treasury yields have actually risen since the Fed’s announcement.

The following charts from Doug Short update this trend:

Click to View

Click to View

Click to View

 
Of course, rather than admit that the Fed is failing at driving down rates, rising rates are now being heralded as a sign of success. As the New York Times reported Monday:

The trouble is [rates] they have risen since it was formally announced in November, leaving many in the markets puzzled about the value of the Fed’s bond-buying program.

***

But the biggest reason for the rise in interest rates was probably that the economy was, at last, growing faster. And that’s good news.

“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”

Last November, after it started to become apparent that rates were moving in the wrong direction, Bernanke pulled a bait-and-switch, defending quantitative easing on other grounds:


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Fed Releases New POMO Schedule, To Monetize $112 Billion In Bonds And Prop Up Stocks On 18 Out Of 19 Trading Days

Courtesy of Tyler Durden

The New York Fed’s equity crash prevention team of Sack-Frost has just released its most recent POMO schedule. Over the next month, ending on February 9, the Fed will purchase about $112 billion in debt in 18 discrete operations. And for the first time unlike the prior two QE2 monthly schedules, there is not one dual POMO day. From the release: "Across all operations in the schedule listed below, the Desk plans to purchase approximately $112 billion. This represents $80 billion in purchases of the announced $600 billion purchase program and $32 billion in purchases associated with principal payments from agency debt and agency MBS expected to be received between mid-January and mid-February." The days when there is no POMO will be Monday, January 17 and Wednesday, January 26. All other days have a POMO operation scheduled.

POMO Schedule

 


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WILLIAM BLACK: THE EURO COULD COME UNDONE IN 3-4 YEARS

Courtesy of CULLEN ROCHE, The Pragmatic Capitalist 

William Black of UMKC believes the Euro could unravel in the coming 3-4 years as the political tension continues to increase and ultimately creates a divide between the core and periphery.  Black says the economies on the periphery are likely to remain very weak and will lead to civil unrest and political overhaul.  In the end the strains will be too much for the region to overcome.

Black also discusses the imbalances in China and why the Chinese are likely to experience their own crisis in the coming years.  (Video here.)

Source: Bloomberg


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Post Mortem for the World’s Reserve Currency

This is a thoughtful analysis by Mike Whitney showing what a financial mess we’re in – the proverbial rock and a hard place scenario. – Ilene 

Post Mortem for the World’s Reserve Currency

Courtesy of MIKE WHITNEY, originally published at CounterPunch and Global Research

money printingPaul Volcker is worried about the future of the dollar and for good reason. The Fed has initiated a program (Quantitative Easing) that presages an end to Bretton Woods 2 and replaces it with different system altogether. Naturally, that’s made trading partners pretty nervous. Despite the unfairness of the present system--where export-dependent countries recycle capital to US markets to sustain demand—most nations would rather stick with the "devil they know", then venture into the unknown.  But US allies weren’t consulted on the matter.  The Fed unilaterally decided that the only way to fight deflation and high unemployment in the US, was by weakening the dollar and making US exports more competitive. Hence QE2.

But that means that the US will be battling for the same export market as everyone else, which will inevitably shrink global demand for goods and services.  This is a major change in the Fed’s policy and there’s a good chance it will backfire. Here’s the deal: If US markets no longer provide sufficient demand for foreign exports, then there will be less incentive to trade in dollars. Thus, QE poses a real threat to the dollar’s position as the world’s reserve currency.   

Here’s what Volcker said:  “The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world. Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate…..The  question is whether the exceptional role of the dollar can be maintained." 

This is a good summary of the problems facing the dollar. Notice that Volcker did not invoke the doomsday scenario that one hears so often on the Internet, that China, which has more than $1 trillion in US Treasuries and dollar-backed assets, will one day pull the plug on the USA and send the dollar plunging.  While that’s technically possible, it’s not going to happen. China has no intention of crashing the dollar and thrusting its own economy into a long-term slump.  In fact, China has…
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Trillions In Secret Fed Bailouts

Michael Snyder writes of the "Trillions In Secret Fed Bailouts For Global Corporations And Foreign Banks – Has The Federal Reserve Become A Completely Unaccountable Global Bailout Machine?"

Courtesy of Michael Snyder at Economic Collapse

Has the Federal Reserve become the Central Bank of the World?  That is what some members of Congress are asking after the Federal Reserve revealed the details of 21,000 transactions stretching from December 2007 to July 2010 that totaled more than $3 trillion on Wednesday.  Most of these transactions involved giant loans that were nearly interest-free from the Federal Reserve to some of the largest banks, financial institutions and corporations all over the world. 

In fact, it turns out that foreign banks and foreign corporations received a very large share of these bailouts.  So has the Federal Reserve now become a completely unaccountable global bailout machine?  Sadly, the truth is that we would have never learned the details of these bailouts if Congress had not forced this information out of the Fed.  So what other kinds of jaw-dropping details would be revealed by a full audit of the Federal Reserve?

It is important to try to understand exactly what went on here.  Banks and corporations from all over the globe were allowed to borrow gigantic piles of money essentially for free.  Yes, when you are getting interest rates such as 0.25 percent, the money is essentially free.  These loans were not available to everyone.  You or I could not have run over to the Federal Reserve and walked away with tens of billions of dollars in loans that were nearly interest-free.  Rather, it was only the megabanks and megacorporations that are friendly with the Federal Reserve that were able to take advantage of these bailouts.

Money bag and coins

In this way, the Federal Reserve is now essentially acting like some kind of financial god.  They decide who survives and who fails.  Dozens and dozens and dozens of small to mid-size U.S. banks are failing, but the Federal Reserve does not seem to have much compassion for them.  It is only when the "too big to fail" establishment banks are in trouble that the Federal Reserve starts handing out gigantic sacks of nearly interest-free cash.

Just think about it.  Which financial institution do you think is in a better competitive position – one that must survive on its own, or


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EURUSD Takes Out Day’s Lows After Irish Opposition Says Will Vote Against EU/IMF Bailout

Courtesy of Zero Hedge 

Remember Europe and that insolvent country which Ron Insana conclusively determined does not matter? It’s back on the scene after Reuters reports that the main Irish opposition Labor party has just announced it will vote against the IMF/EU bailout package. Just what spin Olli Rehn will have to use to calm markets after his latest vassal nation continually refuses to go quietly into that good night, remains to be seen.

From Reuters:

The euro extended declines on Thursday after a spokesperson from Ireland’s centre-left opposition Labour party said the party will vote against an 85 billion euro IMF/EU bailout package when it is put before parliament for approval next week.

"Labour would vote against it because we consider it a bad deal," she told Reuters. Ireland’s governing Fianna Fail party said on Thursday it would seek parliamentary approval for the rescue funds. 

 


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Zero Hedge

Electric Car-Owners Shocked: New Study Confirms EVs Considerably Worse For Climate Than Diesel Cars

Courtesy of ZeroHedge. View original post here.

The Brussel Times reports that a new German study exposes how electric vehicles will hardly decrease CO2 emissions in Europe over the coming years, as the introduction of electric vehicles won't lead to a reduction in CO2 emissions from highway traffic.

According to the study directed by Christoph Buch...



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Chart School

Weekly Market Recap Apr 21, 2019

Courtesy of Blain.

This past week was the definition of “consolidation” – a period of very little movement and volatility after a large move up to work off overbought conditions.  A slight gap up Tuesday was about it in terms of excitement for the week.  Bulls remain in full control.

We are in the midst of earnings season – it is not a great one but companies have lowered the bar enough that they will “beat”, everyone will clap and cheer, and we continue on.

The first-quarter earnings outlook has improved somewhat, according to CFRA, which said consensus estimates now call for a 2.3% fall in first-quarter operating earnings a share. That is up from the call for a 3% drop ahead of the kickoff of earnings season, but down from the 4.5% increase projected at the end of last year...



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Phil's Favorites

Visualizing The Happiest Country On Every Continent

Courtesy of Visual Capitalist's Imam Ghosh

The state of our world is shifting beneath our feet — economics alone no longer equate to satisfaction, let alone happiness.

Today’s visualization pulls data from the seventh World Happiness Report 2019, which ranks 156 countries by their happiness levels. We’ve previously shown the variables used to measure happiness in this report, but here, we break down rankings by continent and region for a clearer picture of where each country lies.

North America

Unhappy Americans have caused the country to tumble in rankings for a...



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Insider Scoop

Uber To Sell Minority Stake Of Its Autonomous Vehicle Unit To Japanese Consortium

Courtesy of Benzinga.

Uber Technologies is planning to sell a 14 percent stake in its autonomous vehicle unit to existing investor Softbank, Japanese automaker Toyota, and auto parts manufacturer Denso ahead of its much-anticipated initial public offering (IPO), which is expected to happen in May. Though...



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Digital Currencies

5 Cryptocurrency Tax Questions To Ask On April 15th

Courtesy of ZeroHedge. View original post here.

Authored by David Kemmerer via CoinTelegraph.com,

Depending on what country you live in, your cryptocurrency will be subject to different tax rules. The questions below address implications within the United States, but similar issues arise around the world. As always, check with a local tax professional to assess your own particular tax situation.

...



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Kimble Charting Solutions

Silver Bear Market Faces Big Price Support Test!

Courtesy of Chris Kimble.

When silver, gold, and the precious metals industry were red-hot bullish in the 2000’s, investors could do no wrong.

You could buy SILVER at just about any price and it would go higher.

In today’s chart, you can see three large green bullish ascending triangles from the 2000’s that lead to big gains. But that was the bull market before the current bear market.

The tables have turned since the 2011 price top. Silver quickly formed a bearish descending triangle and fell another 50 percent when that broke down. This sent a vicious bear mark...



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ValueWalk

More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...



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Biotech

Marijuana is a lot more than just THC - a pharmacologist looks at the untapped healing compounds

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

 

Marijuana is a lot more than just THC - a pharmacologist looks at the untapped healing compounds

Assorted cannabis bud strains. Roxana Gonzalez/Shutterstock.com

Courtesy of James David Adams, University of Southern California

Medical marijuana is legal in 33 states as of November 2018. Yet the federal government still insists marijuana has no legal u...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 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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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

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About Phil:

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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