Posts Tagged ‘Fractional Reserve Lending’

Mish “Hard Money” Goes Off The Rails

Here’s another installment in the debate between our friends Mish (Global Economic Trend Analysis) and Karl (The Market Ticker).  Confession – as a big fan of both Mish and Karl, each makes good arguments, I’m currently undecided.  What do you think?  Don’t forget, we have a comment section.  :-)   Ilene

Mish "Hard Money" Goes Off The Rails

Courtesy of Karl Denninger at The Market Ticker


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Fractional Reserve Lending Constitutes Fraud

Fractional Reserve Lending Constitutes Fraud

Courtesy of Mish

I was asked to reply to Karl Denninger’s Rebuttal To Mish On Fractional Reserve Lending.

Here goes: Denninger does not phrase my arguments correctly on points 2-5, however he thinks they are immaterial so the points are somewhat moot. The crux of the matter is not whether assets are backed by collateral as Denninger suggests, but rather whether the same money has been lent out multiple times.

Let’s follow through with a real life example.

Fannie Mae makes a loan of $1,000,000. Let’s be more than reasonably fair and assume Fannie Mae issued bonds for the entire amount, not borrowing a single cent into existence. So far there is no fraud.

$1,000,000 goes to the home builder. That home builder deposits $1,000,000 into a Bank of America checking account. Ignoring sweeps that would allow Bank of America to loan out every cent, let’s assume BofA keeps 10% in reserves and lends out $900,000 to a new furniture store on the corner strip mall.

The furniture store owner buys $900,000 of furniture from a wholesaler. The wholesaler deposits $900,000 into a Citigroup checking account. Again, ignoring the likelihood Citigroup sweeps the whole amount into a savings account thereby able to lend out the entire amount (savings accounts have no reserve requirements), let’s assume that Citigroup keeps 10% in reserves and lends out $810,000 to a High Roller who takes out a home equity loan on his house that is supposedly worth $3,000,000.

High Roller buys a yacht from a boating manufacturer for $810,000. The yacht manufacturer deposits $810,000 in a checking account at Wells Fargo. Following the same pattern, Wells Fargo keeps 10% in reserves and lends out $729,000 to a plumbing supply company, because home sales are going gangbusters and the plumbing supplier needs more supplies.

I think you can see where this is headed.

On the original $1,000,000 this is what FRL allows to be lent out.

$900,000
$810,000
$729,000
$656,000
$590,000
$531,000
$478,000
$430,000
$387,000
….

See where this is going?
I am going to arbitrarily stop the chain right there, but the total so far is $5,511,000 out of $1,000,000 was lent out.

Karl claims this is not fraudulent because "it’s all backed by assets".

Well for starters the value of those assets backing


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Rebuttal To Mish: FRL

Rebuttal To Mish: FRL

Courtesy of Karl Denninger at The Market Ticker


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Global Debt Bubble, Causes and Solutions

Global Debt Bubble, Causes and Solutions

Courtesy of Mish

Australian economist Steve Keen is one of the very few who have called this economic crisis correctly. What distinguishes Keen is that his economic forecasts are based on levels of debt and changes in levels of debt as opposed to money supply, output capacity and other things that led most economists astray.

The following video is about 19 minutes long but very much worth listening to in entirety, improving as it goes along. The video may take a while to load but it’s well worth it. Everything below in quotes, until the next bold title is a partial transcript from the video.

Steve Keen:

"If you have a sane economy, and by sane economy I mean one which is not addicted to debt, not a Ponzi economy, then the change in debt each year should contribute a minor amount to demand. Therefore, if you tried to correlate debt to the level of unemployment you would not find much of a correlation. Unfortunately that is not the economy we live in."

deleveraging driven downturn

"The red line shows the percent contribution that debt contributes to demand and the blue line which is inverted is the unemployment rate."

"There should be no correlation if the economy is operating sensibly. Correlation is now at the level of 83%. Because we have a debt driven economy, the change in debt levels each year is the major determinant in the change in economic performance."

"Neoclassical economic theory is dangerous. Neoclassical economists completely missed this crisis. My favorite statement comes from the OECD in its June 2007 report"

" A recent survey trying to find economists who predicted this found 12. And there are 10,000-15,000 economists in the US alone which is why I don’t particularly accept their assurances that everything is OK from now on."

"Now why are economists so ignorant? Two major reasons. First of all the type of modeling they do is static where you ignore time, or if you have dynamics you assume they are converging to some nice stable situation in the future. And they ignore almost completely the role of credit and debt."

"I probably win the Dr. Doom award around the planet these days now that Nouriel Roubini is expecting the recession will end in about 6 months time. I…
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Zero Hedge

"The Central Banker Asked Me What It All Meant"

Courtesy of ZeroHedge. View original post here.

Submitted by Eric Peters of One River Asset Management, authored by Lindsay Politi

Triumph of the Machines

We were his last stop. The central banker had toured NY area investment shops. He described a fascinating trip; so much happening in algorithmic trading. The only thing keeping it from completely revolutionizing investing is getting enough data.

“You say that like it’s a minor issue,” I countered, “but just about every financial crisis in my career was because something happened that wasn’t in the historical data set. The last was caused in no small pa...



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Phil's Favorites

Who are the Sikhs and what are their beliefs?

 

Who are the Sikhs and what are their beliefs?

New Jersey Attorney General Gurbir Grewal. AP Photo/Julio Cortez

Courtesy of Simran Jeet Singh, New York University

New Jersey’s first Sikh attorney general, Gurbir Singh Grewal, was a target of disparaging remarks recently. Two radio hosts commented on Grewal’s Sikh identity and repeatedly referred to him as “turban man.” When called out on the offensiveness of their comments, one of them stated, “Listen, and if that offends you, then don’t wear the turban and maybe I’ll remember your name.”

Listeners, ...



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Biotech

Approval of first 'RNA interference' drug - why the excitement?

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

 

Approval of first ‘RNA interference’ drug – why the excitement?

Single strands of ribonucleic acid (RNA) are now being used to treat disease. By nobeastsofierce / shutterstock.com

Courtesy of Thomas Schmittgen, University of Florida

Small interfering RNA sounds like something from a science fiction novel rather than a revolutionary type of medicine. But this odd-sounding new drug of...



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Chart School

The anatomy of the recent gold sell off

Courtesy of Read the Ticker.

For the arrow to fly, the bow must be pulled back. Gold is in a pullback at the moment.


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Main chart in video.


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Sure fundamentals do matter, and so does market timing (entry, stops and exit), here at readtheticker.com we believe a combination of Gann Angles, ...

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Digital Currencies

Bitcoin's rollercoaster ride reflects the biggest issue facing cryptocurrencies: regulation

 

Bitcoin's rollercoaster ride reflects the biggest issue facing cryptocurrencies: regulation

Shutterstock

Courtesy of Brian Lucey, Trinity College Dublin and Shaen Corbet, Dublin City University

The rollercoaster of cryptocurrency pricing is on the downward slope again. Bitcoin has fallen by a quarter in the past month, with other...



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ValueWalk

The Top 10 Wildest Campaigns Of 2018: Starboard's Stake In Symantec

By ActivistInsight. Originally published at ValueWalk.

This week’s column is a continuation of our 10 “wildest campaigns” of 2018. Find the first part here.

Q2 hedge fund letters, conference, scoops etc

Free-Photos / PixabayTop 10 Wildest Campaigns Of 2018

5. How often does an activist win a proxy contest without support from either of the two main proxy advisory firms? (...



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Kimble Charting Solutions

Small Caps attempting 20-year breakout, says Joe Friday

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

The Russell 2000 trend remains solidly higher, as it has created a series of higher lows and higher highs inside of rising channel (1) over the past 25-years.

Small caps have been an upside leader in 2018, as they are very near all-time highs.

We applied Fibonacci extension levels to the 2007 highs and 2009 lows at each (2).

Joe Friday Just The Facts Ma’am- Small caps are attempting a dual breakout at (3). 

This is a price point that small-cap bulls would LOVE to see strength and a breakout take place, as monthly momentum is lofty.

...

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Insider Scoop

Walmart Posts Standout Quarter, But Raymond James Downgrades On Flipkart Costs

Courtesy of Benzinga.

Related WMT 10 Biggest Price Target Changes For Friday Headlights On Deere: Mixed Results As Company Cites H...

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Members' Corner

There Are 3 Main Theories That Explain Trump's Approach to Putin and Russia-Which One Makes the Most Sense?

What do you think?

Thom Hartmann suggests that the "Manchurian Candidate theory" is the least likely explanation for Trump's pro-Russia behavior in "There Are 3 Main Theories That Explain Trump’s Approach to Putin and Russia—Which One Makes the Most Sense?" (below).  disagrees and suggests that Putin probably has "the goods" on Trump in "Trump’s Plot Against America". (To be fair, Hartmann acknowledges that his three theories are not mutually exclusive.) Jonathan Chait argues ...



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Mapping The Market

Mistakes were Made. (And, Yes, by Me.)

Via Jean-Luc:

Famed investor reflecting on his mistakes:

Mistakes were Made. (And, Yes, by Me.)

One that stands out for me:

Instead of focusing on how value factors in general did in identifying attractive stocks, I rushed to proclaim price-to-sales the winner. That was, until it wasn’t. I guess there’s a reason for the proclamation “The king is dead, long live the king” when a monarchy changes hands. As we continued to update the book, price-to-sales was no longer the “best” single value factor, replaced by others, depending upon the time frames examined. I had also become a lot more sophisticated in my analysis—thanks to criticism of my earlier work—and realized that everything, including factors, moves in and out of favor, depending upon the market environment. I also realized...



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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.

Some other great content in this free eBook includes:

 

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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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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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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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