Posts Tagged ‘extend and pretend’

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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Banks Recruit Investors to Oppose Honest Valuation of Assets; Just how Unprepared are Banks for Major Losses?

Banks Recruit Investors to Oppose Honest Valuation of Assets; Just how Unprepared are Banks for Major Losses?

Courtesy of Mish 

Reader "Henry" has a question on the loan loss provision chart I posted in Former Fed Vice Chairman vs. Mish: Is the Fed Out of Ammo?

Henry writes …

Hello Mish,

Thanks for writing and sharing your wonderful column. It has been very informative and educational.

Could you please help us mere mortals decipher the ALLL/LLRNPT chart in a follow up post?

I have difficulty reconciling the units, and I suspect I’m not the only one. Exactly what does that chart depict?

Thanks.

Henry

From my previous post …

Assets at Banks whose ALLL Exceeds their Nonperforming Loans

The ALLL is a bank’s best estimate of the amount it will not be able to collect on its loans and leases based on current information and events. To fund the ALLL, the bank takes a periodic charge against earnings. Such a charge is called a provision for loan and lease losses.

One look at the above chart in light of an economy headed back into recession and a housing market already back in the toilet should be enough to convince anyone that banks already have insufficient loan loss provisions.

That is one of the reasons banks are reluctant to lend. Lack of creditworthy customers is a second. Quite frankly would be idiotic to force more lending in such an environment.

To further clarify, the chart depicts the ratio of loan loss provisions to nonperforming loans across the entire banking system (all banks). There are 33 ALLL charts by bank size and region for inquiring minds to consider. The above chart is the aggregate.

The implication what the chart suggests is that banks believe nonperforming loans are NOT a problem (or alternatively they are simply ignoring expected losses to goose earnings).

The implication what I suggest is banks earnings have been overstated. Why? Because provisions for loan losses are a hit to earnings. I believe losses are coming for which there are no provisions.

The chart depicts a form of "extend and pretend" and overvaluation of assets on bank balance sheets. The Fed and the accounting board ignore this happening (encourage is probably a better word), hoping the problem will get better. With more foreclosures and bankruptcies on the horizon, I suggest it won’t.

Magnitude of the Problem

The above…
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EXTEND & PRETEND: Stage I Comes to an End!

EXTEND & PRETEND: Stage I Comes to an End!

The Dog Ate my Report Card

Courtesy of Gordon T. Long 

Both came to an end at the same time: the administration’s policy to Extend & Pretend has run out of time as has the patience of the US electorate with the government’s Keynesian economic policy responses. Desperate last gasp attempts are to be fully expected, but any chance of success is rapidly diminishing.

Whether an unimpressed and insufficiently loyal army general, a fleeing cabinet budget chief or G20 peers going the austerity route, all are non-confidence votes for the Obama administration’s present policies. A day after the courts slapped down President Obama’s six month gulf drilling moratorium, the markets were unpatriotically signaling a classic head and shoulders topping pattern. With an employment rebound still a non-starter, President Obama as expected was found to be asking for yet another $50B in unemployment extensions and state budget assistance to avoid teacher layoffs. However, the gig is up: the policy of Extend and Pretend has no time left on the shot clock nor for another round of unemployment benefit extensions. A congress that is now clearly frightened of what it sees looming in the fall midterm elections is running for cover on any further spending initiatives. The US electorate has been sending an unmistakable message in all elections nationwide.

The housing market is rolling over as fully expected and predicted by almost everyone except the White House and its lap-dog press corp. Noted analyst Meredith Whitney says a double dip in housing is a ‘no brainer’ with the government’s HAMP program clearly a bust as one third of participants are now dropping out. The leading economic indicator (ECRI) has abruptly turned lower, signaling the economy is slowing rapidly without the $1T per month stimulus addiction, which has kept the extend and pretend economy on life support.

The gulf oil spill that was initially stated as 1000 barrels per day has been revised upwards faster than the oil can reach the surface. It now appears to be north of 100,000 barrels per day. A 100 percent miss is about in line with the miss on how many jobs the American Recovery and Reinvestment Act of 2009 (ARRA) was going to create.  Also, it appears the administration can’t even get its hands around the basics of administration management during any crisis event.  Teleprompter politics…
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It’s unanimous: Propping up underwater mortgages is a bad idea

It’s unanimous: Propping up underwater mortgages is a bad idea

Courtesy of Edward Harrison at Credit Writedowns 

Families Are Evicted From Homes As Economic Crisis Worsens

What follows is a more comprehensive re-write of my take on the latest bailout proposals by the Obama Administration. I felt the original write-up was a bit rushed and one-sided. I have tried to outline the objectives of the bailout plans more dispassionately. And I have added some historical references from prior posts to demonstrate the basic merits of the idea.

Clearly the mindset will not change. It’s all bailouts, all the time in the Obama Administration, as it was at the end of the Bush Administration. I want to talk about the most recent bailouts, why they were proposed, what’s wrong with them and why bailouts generally don’t work. My remarks will concentrate on the principal reduction program since this is the newest bit.

Why bailouts won’t work

What should be clear to you as an observer by now is that these bailouts implicitly assume that government can stuff financial institutions full of taxpayer money and in so doing adequately recapitalize them so that they can lend again.

The thinking is that, these policies, while "deeply unpopular, deeply hard to understand," are necessary to prevent another systemic breakdown and a deflationary spiral.

Also implicit is the assumption that economic weakness depends in large measure on supporting home price values by increasing the supply of credit via bank lending and securitizations. But, as I argued 14 months ago when Barack Obama came to the White House, the financial system is so fundamentally unsound that bailouts are like catching a falling knife. The writedowns that needed to be taken – in the absence of serious house price appreciation – are just too large to be handled quickly via bailouts.

Moreover, it is the demand for credit which is critical here because households are over-indebted and reluctant to take on further debt. While I do believe officialdom can be successful in creating mild but brief cyclical upticks in consumer demand, weak consumer spending will last for years. The secular trend is clearly going to be toward increasing savings and reducing debt.

So bailouts alone cannot address the debt problem which is behind the reduction in credit demand growth. Nor are they likely to be adequate to deal with the scale of unrealized losses on bank balance sheets.…
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Phil's Favorites

Homes are flooding outside FEMA's 100-year flood zones, and racial inequality is showing through

 

Homes are flooding outside FEMA's 100-year flood zones, and racial inequality is showing through

Hurricane Harvey showed the racial disparities in flood damage outside Houston’s 100-year flood zones. Joe Raedle/Getty Images

Courtesy of Kevin T. Smiley, Louisiana State University

When hurricanes and other extreme storms unleash downpours like Tropical Storm Beta has been doing in the South, the floodwater doesn’t always stay within the government’s flood risk zones.

New research suggests...



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Kimble Charting Solutions

Key Inflation Indicators Facing Big Test In September!

Courtesy of Chris Kimble

Inflation has long been a word that the Federal Reserve uses but the general markets have forgotten about.

Why? Well because it’s been virtually non-existent for years. Key indicators like commodities (i.e. copper) have been in a down-trends and the Materials Sector (XLB) has lagged… until this year.

In today’s chart 3-pack, we take a look at the Equal Weight Commodity Index, ...



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ValueWalk

How Leading From The Heart Can Propel Business Executives To Greatness

By Kimberly Roush. Originally published at ValueWalk.

A healthy ego can be a good thing, allowing someone to take pride in who they are and what they do.

Q2 2020 hedge fund letters, conferences and more

But when business executives allow an unhealthy ego to drive them, enormous problems are certain to follow, says Kimberly Roush, founder of All-Star Executive Coaching and co-author of Who Are You… When You Are Big?

“A big ego can...



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Zero Hedge

Sweden Dominates Drug-Deaths In Europe

Courtesy of ZeroHedge View original post here.

As highlighted by the latest edition of the European Drug Report, Sweden is the country with the most drug-induced deaths per million of the population in Europe.

In 2018, 81 people died per million inhabitants, ahead of the United Kingdom's 76 drug-induced deaths per million. Finland and Ireland jointly had the third-highest death rate with 72 deaths per million.

You will find more infographics ...



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Politics

'Colossal Backdoor Bailout': Outrage as Pentagon Funnels Hundreds of Millions Meant for Covid Supplies to Private Defense Contractors

 

'Colossal Backdoor Bailout': Outrage as Pentagon Funnels Hundreds of Millions Meant for Covid Supplies to Private Defense Contractors

"If you can't get a Covid test or find an N95, it’s because these contractors stole from the American people to make faster jets and fancy uniforms."

By Jake Johnson

Secretary of Defense Mark Esper and Chairman of the Joint Chiefs of Staff Army Gen. Mark Milley hold an end of year press conference at the Pentagon on December 20, 2019 in Arlington, Virginia. (Photo: Drew Angerer/Getty Images)

Instead of adhering to congressional inten...



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Biotech/COVID-19

How and when will we know that a COVID-19 vaccine is safe and effective?

 

How and when will we know that a COVID-19 vaccine is safe and effective?

How much longer must society wait for a vaccine? ANDRZEJ WOJCICKI/Getty Images

By William Petri, University of Virginia

With COVID-19 vaccines currently in the final phase of study, you’ve probably been wondering how the FDA will decide if a vaccine is safe and effective.

Based on the status of the Phase 3 trials currently underway, it i...



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Chart School

Stocks are not done yet - Update

Courtesy of Read the Ticker

There are a few times in history when a third party said this US paper (stocks, funds or bonds) is worthless.

Here is two.

1) 1965 Nixon Shock - The French said to US we do not want your paper dollars please pay us in gold. This of course led to the US going off the gold standard.

2) 2007 Bear Stern Fund Collapse - Investors said their funds collateral was worth much less than stated. This of course was the beginning of the great america housing bust of 2008.


In both cases it was stated .."look the Emperor is naked!"... (The Empe...

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Digital Currencies

Cryptocurrencies Rarely Used To Launder Money, Fiat Preferred

Courtesy of ZeroHedge View original post here.

Authored by Shaurya Malwa via Decrypt.io,

Traditional channels continue to dominate the estimated $2 trillion global money laundering racket instead of cryptocurrencies, a report says.

In brief
  • Money laundering via cryptocurrencies is not a preferred tool for criminals, a report said...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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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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Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

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Mike will show off the TradeExchange's new platform which you can try for free.  

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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