Posts Tagged ‘ratings’

Shadow Banking Makes a Comeback

Shadow Banking Makes a Comeback

Oil being poured into water, studio shot

Courtesy of MIKE WHITNEY writing at CounterPunch 

Credit conditions are improving for speculators and bubblemakers, but they continue to worsen for households, consumers and small businesses. An article in the Wall Street Journal confirms that the Fed’s efforts to revive the so-called shadow banking system is showing signs of progress. Financial intermediaries have been taking advantage of low rates and easy terms to fund corporate bonds, stocks and mortgage-backed securities. Thus, the reflating of high-risk financial assets has resumed, thanks to the Fed’s crisis-engendering monetary policy and extraordinary rescue operations.

Here’s an excerpt from the Wall Street Journal:

"A new quarterly survey of lending by the Federal Reserve found that hedge funds and private-equity funds are getting better terms from lenders and that big banks have loosened lending standards generally in recent months. The survey, called the Senior Credit Officer Opinion Survey, focuses on wholesale credit markets, which the Fed said functioned better over the past quarter." ("Survey shows credit flows more freely", Sudeep Reddy, Wall Street Journal)

In contrast, bank lending and consumer loans continue to shrink at a rate of nearly 5 per cent per year. According to economist John Makin, there was a "sharp drop in credit growth, to a negative 9.7 per cent annual rate over the three months ending in May." Bottom line; the real economy is being strangled while unregulated shadow banks are re-leveraging their portfolios and skimming profits.  Here’s more from the WSJ:

"Two-thirds of dealers said hedge funds in particular pushed harder for better rates and looser nonprice terms, and they said some of the funds got better deals as a result….(while) The funding market for key consumer loans remained under stress, with a quarter of dealers reporting that liquidity and functioning in the market had deteriorated in recent months."  ("Survey shows credit flows more freely", Sudeep Reddy, Wall Street Journal)

As the policymaking arm of the nation’s biggest banks, the Fed’s job is to enhance the profit-generating activities of its constituents. That’s why Fed chair Ben Bernanke has worked tirelessly to restore the crisis-prone shadow banking system. As inequality grows and the depression deepens for working people, securitization and derivatives offer a viable way to increase earnings and drive up shares for financial institutions. The banks continue to post record profits even while the underlying economy is…
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A Series Of Lucky Coincidences Involving Goldman Sachs And BP plc

A Series Of Lucky Coincidences Involving Goldman Sachs And BP plc

Courtesy of Tyler Durden

Earlier, when observing the US AG disclosure of a civil and criminal investigation into BP plc, we noted in passing that BP’s former Chairman, Peter Sutherland, who left the firm is a Chairman of Goldman Sachs International. Mr. Sutherland holds some other interesting titles, including a position on the Trilateral Commission, he was a chairman of the London School of Economics in 2008, he is a UN special representative for migration and development; he was the founding director-general of the World Trade Organisation, he had previously served as director general of GATT since July 1993 and was instrumental in concluding the Uruguay GATT Round Negotiations. Needless to say, we focused on the Goldman relationship. When digging deeper, we uncovered some amusing correlations, most notably between the BP plc sellside ratings by Goldman BP analyst Michelle della Vigna and the Goldman Sachs Asset Management holdings of BP plc. These are summarized on the attached chart.

And in case this is not enough, another way to visualize Goldman’s rating history, together with price targets on BP is presented below, straight from GS itself:

As the first chart above demonstrates, there is an "odd" correlation between Goldman’s sellside sentiment on the stock, and the amount of stock held by Goldman’s asset management arm, especially evident in the days between December 31, 2009 and March 31, 2010, when despite a recent Buy rating attached to the firm, GSAM sold off more than 40% of its stake in the name. On December 31, Goldman held 71 million BP shares, and three months later this number went down 42.5 million. Another oddity is that back in 2008, when GS had the stock at Neutral, GSAM doubled its stake in the firm from 28.8 million shares to 57.3 million days before Ms. della Vigna raised the stock to a Buy, albeit if only for just over a month. Oddly enough, in the half year period when Goldman was telling its clients to Sell the stock, between 3/31/2009 and 10/28/2009, GSAM holdings declined by a whopping -3.9%.

Yet while the fact that GSAM did not follow the recommendations of its very own analyst is not peculiar. We have long pointed out that Goldman does precisely the opposite of what it advises its "clients" to do. What…
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The Silver Curtain

The Silver Curtain

Courtesy of Marla Singer, Zero Hedge 

On the 5th of March in 1946, in Fulton Missouri, at Westminster College, Winston Churchill delivered an address (since christened the "Sinews of Peace") lamenting the burgeoning power and influence being slowly but surely gathered up by the Soviet Union.  Perhaps the address will be familiar to some of you owing to its most famous passage:

From Stettin in the Baltic to Trieste in the Adriatic, an iron curtain has descended across the Continent. Behind that line lie all the capitals of the ancient states of Central and Eastern Europe. Warsaw, Berlin, Prague, Vienna, Budapest, Belgrade, Bucharest and Sofia, all these famous cities and the populations around them lie in what I must call the Soviet sphere, and all are subject in one form or another, not only to Soviet influence but to a very high and, in many cases, increasing measure of control from Moscow. Athens alone — Greece with its immortal glories — is free to decide its future at an election under British, American and French observation.

Ironic, as I will address, that he should mention Greece.

Much less well known perhaps is this later passage:

Our difficulties and dangers will not be removed by closing our eyes to them. They will not be removed by mere waiting to see what happens; nor will they be removed by a policy of appeasement. What is needed is a settlement, and the longer this is delayed, the more difficult it will be and the greater our dangers will become.1

The "Iron Curtain" came, of course, to signify the cavernous ideological, and eventually concretely physical, divide between East and West.  It took some 43 years before it was lifted once more, first and haltingly, in the form of the removal of Hungary’s border fence in mid-1989 and then, of course, finally via the fall of the Berlin Wall in November that same year.

Not to be compared with a production of Italian Opera, the Iron Curtain did not describe a sudden, smooth, abrupt descent over the stages of Eastern Europe.  Quite the contrary, its drop was in stutters of discrete, fractional lowerings, such that it was a full fifteen years after Churchill used the term before its ultimate expression, the Berlin Wall, was finally…
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S&P: Whoops, We Wildly Overestimated Junk Bond Default Rates

S&P: Whoops, We Wildly Overestimated Junk Bond Default Rates (HYG)

Courtesy of Joe Weisenthal at Clusterstock

This once again goes to show that the ratings agencies like S&P aren’t biased in one way or another — they’re just behind the cycle. Case in point: S&P has just slashed its expected default rate on junk.

Reuters: S&P said it now expects defaults to decline to 6.9 percent a year from now from a September rate of 10.8 percent. On Oct 2, it had said it expected defaults to escalate to 13.9 percent by August 2010.

Of course, this is hardly news to the market, which has been bidding up junk like crazy for months now.

Here’s a pretty chart on the iShares iBoxx High Yield Corporate Bond ETF (HYG)

chart on the iShares iBoxx High Yield Corporate Bond ETF (HYG) - tbi

See Also:

Will The Junk Bond Shortage Help Business Credit Lines Open Up?

 


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EXCLUSIVE: Former Moody’s Insider Says “Moody’s Should Be Liquidated”

EXCLUSIVE: Former Moody’s Insider Says "Moody’s Should Be Liquidated"

Courtesy of Yael Bizouati at Clusterstock

riot police, liquidating moody's, tbiSylvain Raynes, an ex- Moody’s vice president of the ABS group, agrees with the agency’s whistleblower Eric Kolchinsky, who said that Moody’s is still issuing inflated ratings.

In an exclusive interview with The Business Insider, Raynes said that Kolchinsky is right on the money, and this pattern of behavior has been going for years at Moody’s. 

Raynes was fired from the firm for raising concerns about ratings on several deals.

“Moody’s should be liquidated right now. They need to be put out of their misery, and the CEO should resign now,” he says.

Talking about the deal Kolchinsky raised questions about, Raynes qualifies it as “bullshit” one.

"They needed a Baa2 rating to sell it--no one would buy a deal like that right now," he said.

Asked about why Moody’s-–which has come increasingly under fire in recent weeks--is still in business, Raynes says: "It’s like prostitution. It’s a crime but it’s feeding a need."

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S&P To Downgrade Most Of 2005-2008 CMBS Classes, Derails TALF For CMBS

Courtesy of Tyler Durden at Zero Hedge

S&P To Downgrade Most Of 2005-2008 CMBS Classes, Derails TALF For CMBS

The lives of the CMSA and Chris Hoeffel are about to get a whole lot more complicated. In a report issued today by S&P, titled "U.S. CMBS Rating Methodology And Assumptions For Conduit/Fusion Pools" Standard & Poors is issuing a Request For Comments on ‘its proposed changes to its methodology and assumptions for rating U.S. commercial mortgage-backed securities." Aside from the RFC, S&P goes into detail what the changes to its rating methodology will be, and the impact from these on CMBS. The latter will immediately cause many headaches for all who rode the CMBS AAA train from 1,200 bps to 600 bps, and potentially start a selling puke shortly. In S&P’s own words:

Impact On Ratings

It is likely that the proposed changes, which represent a significant change to the criteria for rating high investment-grade classes, will prompt a considerable amount of downgrades in recently issued (2005-2008 vintage) CMBS. Classes up through the most senior tranches of outstanding deals (so-called "A4s," "dupers," or "super-duper seniors") are likely to be affected. Our preliminary findings indicate that approximately 25%, 60%, and 90% of the most senior tranches (by count) within the 2005, 2006, and 2007 vintages, respectively, may be downgraded. We believe these transactions are characterized by increasingly more aggressive underwriting than prior vintages. Furthermore, recent vintage CMBS, particularly those issued since 2006, were originated during a time of peak rents and values, and as such, may be more affected by the proposed rental declines discussed in this RFC. We are currently evaluating the impact of the potential criteria changes on conduit/fusion CMBS transactions from all vintages. Once we evaluate the potential impact on existing ratings, we expect to issue a follow-up publication to this RFC.

And all this just days after the government had finally drafted what it hoped was the last and final version of its TALF term sheet. Lets rewind: in the May 19th version of TALF, in order the be eligible, CMBS "must not have a rating below the highest investment-grade rating category from any TALF CMBS-Eligibile Rating Agency." Throw in a downgrade of 90% of the 2007 vintage and it’s time to go back to the drawing board.

Basically, the impending


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Phil's Favorites

Ensuring the minimum wage keeps up with economic growth would be the best way to help workers and preserve FDR's legacy

 

What is raising the federal minimum wage likely to accomplish and not likely to accomplish?

Ensuring the minimum wage keeps up with economic growth would be the best way to help workers and preserve FDR's legacy

It may seem like a lot, but it’s not the most important change in the bill. AP Photo/J. Scott Applewhite

Courtesy of Felix Koenig, Carnegie Mellon University

The US$1.9 trillion pandemic relief bi...



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Zero Hedge

For Bonds, This Is Now The Second Worst Bear Market In 40 Years

Courtesy of ZeroHedge View original post here.

Last December, we predicted that the US was heading for a "titanic taper tantrum" in 2021, to an extent as a result of a sharp drop in bond demand as a result of reduced bond purchases by the Fed but also due to a spike in inflation which would lead to a sharp drop in demand for duration.

So fast forward to this week when the crash in US Treasurys, and especially the belly of the curve led by a plunge in 5Y prices...

...

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ValueWalk

There's A "Chip" Shortage: And TSM Holds All The Cards

By Mauldin Economics. Originally published at ValueWalk.

“You drove 1,000 miles just for this game?” Christmas 1988 was a stressful time for many American parents. Nintendo’s Super Mario Bros. 2 was the must-have toy that year. But copies of the hit videogame were as scarce as hen’s teeth.

Q4 2020 hedge fund letters, conferences and more

ABC News ran a 20/20 special on the shortage called “Nuts for Nintendo.” They chatted to one dad who drove 1,000 miles from Indiana to NYC in the hopes of grabbing a copy.

“I’ve tried 7 stores a day for 3 weeks and sti...



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Politics

What is fascism?

 

What is fascism?

A Donald Trump supporter wears a gas mask and holds a bust of him after he and hundreds of others stormed the Capitol building on Jan. 6, 2021. Roberto Schmidt/AFP via Getty Images

Courtesy of John Broich, Case Western Reserve University

Since before Donald Trump took office, historians have debated whether he is a fascist.

As a teacher of World War II history...



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Biotech/COVID-19

How does the Johnson & Johnson vaccine compare to other coronavirus vaccines? 4 questions answered

 

How does the Johnson & Johnson vaccine compare to other coronavirus vaccines? 4 questions answered

The Johnson & Johnson vaccine only requires one dose. Phill Magoke/AFP via Getty Images

Courtesy of Maureen Ferran, Rochester Institute of Technology

Editor’s note: On Tuesday, Feb. 24, the U.S. Food and Drug Administration released the results of its trial of the Johnson & Johnson coronavirus vaccine. The FDA found the vaccine to be safe...



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Chart School

The Fastest Money

Courtesy of Read the Ticker

The fast money happens near the end of the long trend.

Securities which attract a popular following by both the public and professionals investors tend to repeat the same sentiment over their bull phase. The chart below is the map of said sentiment.







Video on the subject.







Charts in the video


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Digital Currencies

Bridgewater Explains When It Will Invest In Bitcoin

Courtesy of ZeroHedge

Two weeks ago, Bridgewater founder Ray Dalio called Bitcoin "one hell of an invention" adding that:

"I expect Bridgewater to soon offer an alt-cash fund and a storehold of wealth fund in order to better deal with the devaluation of money and credit that we consider to be a major risk and opportunity, and Bitcoin won’t escape our scrutiny.”

And now, after significant attention that his comments received, Senior Portfolio Strategist Jim Haskel sits dow...



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Kimble Charting Solutions

Is Rising Inflation About To Hit U.S. Economy In Big Way?

Courtesy of Chris Kimble

Inflation seems to be a thing of the past… but current trading in bond and commodity markets tell us that it could become a thing of the future!

Inflation hasn’t been an issue, or even on our radar, since the 1980s. Sure, the 2007 surge in oil prices offered some concern but the financial crisis killed any thoughts of inflation.

So what’s got us concerned about inflation in 2021?

Today we take a look at long-term charts of two potential inflation indicators: Crude Oil ...



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Mapping The Market

The Countries With The Most COVID-19 Cases

 

The Countries With The Most COVID-19 Cases

By Martin Armstrong, Statista, Jan 12, 2021

This regularly updated infographic keeps track of the countries with the most confirmed Covid-19 cases. The United States is still at the top of the list, with a total now exceeding the 22 million mark, according to Johns Hopkins University figures. The total global figure is now over 85 million, while there have been more than 1.9 million deaths.

You will find more infographics at ...



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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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TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

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

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

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

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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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