Posts Tagged ‘Collateral’

Credit Storm in Europe

Credit Storm in Europe

By MIKE WHITNEY writing at CounterPunch 

Munich Oktoberfest Preparations

Credit market turmoil in the Eurozone has ignited frenzied trading on global markets. On Tuesday, shares tumbled nearly 300 points on the Dow Jones before launching an unconvincing 257-point late-day comeback. Wednesday the mayhem continued; all the major indexes seesawed wildly as positive news on durable goods was nixed by  reports on wobbly EU banks. Erratic selling pushed the S&P down to 1,067 while the Dow slipped below 10,000 for the first time since February 7.  The rise in Libor (the London Interbank Offered Rate) is increasing volatility, a red flag indicating trouble in interbank lending. Banks are wary of each other’s collateral as Greece and other underwater Club Med members appear to be headed for debt-restructuring. Libor is not yet at pre-Lehman levels, but the rate that banks charge each other for short-term loans has rocketed to a 10-month high. Improving economic data have not eased fears of another meltdown or removed the rot at the heart of the system. The banks are still loaded with loans and assets that are losing value. The credit system is breaking down. 

When banks post collateral overnight for short-term loans, the collateral is effectively downgraded, limiting the banks’ access to capital. This is what triggered the financial crisis two years ago, a run on repo. Regulated "depository" institutions now rely on a funding system that operates beyond government oversight, a shadow banking system.  The banks exchange collateral, in the form of bundled securities and  bonds with institutional investors (aka—"shadow banks"; investment banks, hedge funds, insurers) via repurchase agreements (repo) for short-term loans. The repo market now rivals the  traditional banking system in terms of size but lacks the guard rails and stop signs that make the regulated system safe. The system is inherently unstable and crisis-prone as a recently released paper by the Federal Reserve Bank of New York  (FRBNY) admits. Moody’s rating agency summarized the paper’s findings like this: the tri-party repo market “will remain a major source of systemic risk, especially given the current market volatility and the fact that the Federal Reserve’s primary dealer emergency lending facilities are no longer in place…… the market remains structurally vulnerable to a repo run…… If cash investors pulled away in a stressed environment, the clearing banks would be faced with a choice (as they were several times in 2008)…
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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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Zero Hedge

Fed Unveils New Bailout Program, Will Provide Up To $2.3 Trillion In Loans To "Support Economy"

Courtesy of ZeroHedge View original post here.

In our report from last night that JPM has halted all non-government guaranteed small business loans on what we surmised was fears of a default tsunami set to hit America's companies, we asked "just how bad is it going to get" and implicitly, if not commercial banks, then who will fund America's "main street" businesses?

We got the answer this morning when ...



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Phil's Favorites

The Fed finds another kitchen sink to throw at us

 

The Fed finds another kitchen sink to throw at us

Courtesy of 

This morning, Federal Reserve Chairman Jerome Powell will be speaking on the just-unveiled $2.3 trillion plan to get more money flowing throughout our shutdown economy.

The Fed’s dual mandate is stable prices and full employment. This morning we learned that another 6 million people have filed for unemployment insurance last week, which is on top of the 10 million cumulative from the previous two weeks. Small and midsize enterprises account for more than 40% of all economic activity and employment – so going directly to Main Str...



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Biotech/COVID-19

COVID-19 is hitting black and poor communities the hardest, underscoring fault lines in access and care for those on margins

 

COVID-19 is hitting black and poor communities the hardest, underscoring fault lines in access and care for those on margins

Nurse Shelia Rickman participates in an after-shift demonstration on Monday, April 6, 2020, in Chicago’s Hyde Park neighborhood, after media reports of disproportionate numbers of black people dying from COVID-19 in the city. AP Photo/Charles Rex Arbogast

Grace A. Noppert, University of North Carolina at Chapel Hill

As the COVID-19 epidemic continues to ravage the American public, an unsurprisin...



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ValueWalk

Coronavirus symptoms, causes, prevention and cure

By Jacob Wolinsky. Originally published at ValueWalk.

The best case situation for Coronavirus or COVID-19 is that in a few weeks it dies down and things get back to normal. However, we must entertain the possibility of a far more frightening scenario.

COVID-19 models continue to change for the better

April 9, 2020 Update: More than 1.5 million people around the world have been infected by the novel coronavirus, and nearly 90,000 have died. In the U.S., the death toll surpassed 14,000 on Wednesday. Tuesday alone saw a record 1,858 deaths. So far, approximately 425,000 people in the U.S. have tested positive for COVID-19.

Although researchers say the peak hasn’t been reached yet, the model in use by the White House and many other agencies was updated on Wednesday. The number of projected deaths from the virus in the U.S. declined to 60,415 by August, compared...



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Kimble Charting Solutions

Silver/Gold Indicator Creates Largest Bullish Pattern In Decades!

Courtesy of Chris Kimble

Is an important metals indicator sending one of the largest bullish messages in nearly 50-years? Very Possible!

This chart looks at the Silver/Gold ratio on a monthly basis since the mid-1970s. Historically metals bulls want to see the ratio heading up, to send the metals complex a solid bullish message.

The ratio hit the top of the falling channel (A) back in 2011, where it created a large bearish reversal pattern. Since creating the bearish pattern at resistance, the ratio has experienced a significant decline.

9 years after hitting the top of the channel the ratio hit the bottom of the channel at (1) last month, where it looks to have created one of the largest monthly b...



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The Technical Traders

Adaptive Fibonacci Suggests Much Lower Prices Yet To Come - Part I

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system suggests a much deeper price move is in the works and the current price rally will likely end near resistance levels identified by the Adaptive Fibonacci Price Modeling system.  We are posting this research post for friends and followers to help them understand the true structure of price and to allow them to prepare for what we believe will become a much deeper downside price move in the future.

Fibonacci Price Theory teaches us that price moves in waves within up and down price cycles. The recent peak in price, near February 25, 2020, has resulted in a very deep -36% price collapse in the S&P 500 (ES) recently. This dow...



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Chart School

The Big Short movie guides us to what is next for the stock market

Courtesy of Read the Ticker

There is nothing new in WallStreet, it is only the players that change. Sometimes a market player or an event gets ahead of the crowd and WallStreet has to play catch up.

Previous Post Dow 2020 Crash Watch Dow, Three strikes and your out!

It is important to understand major WallStreet players do not want to miss out on a money making moves.  







...

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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Members' Corner

10 ways to spot online misinformation

 

10 ways to spot online misinformation

When you share information online, do it responsibly. Sitthiphong/Getty Images

Courtesy of H. Colleen Sinclair, Mississippi State University

Propagandists are already working to sow disinformation and social discord in the run-up to the November elections.

Many of their efforts have focused on social media, where people’s limited attention spans push them to ...



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Digital Currencies

While coronavirus rages, bitcoin has made a leap towards the mainstream

 

While coronavirus rages, bitcoin has made a leap towards the mainstream

Get used to it. Anastasiia Bakai

Courtesy of Iwa Salami, University of East London

Anyone holding bitcoin would have watched the market with alarm in recent weeks. The virtual currency, whose price other cryptocurrencies like ethereum and litecoin largely follow, plummeted from more than US$10,000 (£8,206) in mid-February to briefly below US$4,000 on March 13. Despite recovering to the mid-US$6,000s at the time of writin...



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Promotions

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Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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