Posts Tagged ‘Stress Test’

QE2 Won’t Save Our Sinking Ship

Randall’s portrayal of Ben Bernanke’s thinking reminds me of a professor I knew who was trying to prove his own version of the Krebs Cycle.  He designed experiments that would theoretically prove he was correct, but – strangely – the students in his lab kept failing to achieve the proper results.  Rather than changing his theory, he realized that something must have gone wrong in the experiment, and he would have the students do it over, and over, until the right results were obtained.  A lot of rats were killed in the process, but no matter--no one really cared about the rats. – Ilene 

QE2 Won’t Save Our Sinking Ship

economy, ship By L. Randall Wray, courtesy of New Deal 2.0

The Fed is between a rock and a hard economic outlook.

Fed Chairman Bernanke is signaling that a second round of quantitative easing will soon begin. In the first round, the Fed’s balance sheet nearly tripled to nearly $2.3 trillion as it bought $1.7 trillion in Treasury securities and mortgage-related securities. Since the Fed appears to want to unwind its position in mortgages, QE2 will probably target federal government debt.

During Japan’s long stagnation, Bernanke was famous for arguing that the Bank of Japan could have done far more to fight deflation. Since the BOJ’s overnight interest rate target was effectively at zero, the conventional policy of lowering its interest rate target was not an option. Hence, Bernanke advocated quantitative, rather than price, activity — the BOJ would purchase assets from banks, driving up their excess reserves, until they would finally make loans to stimulate spending that would reverse the trend of prices.

So when he had the opportunity, he put theory into practice in the US, driving short-term interest rates effectively to zero and filling bank balance sheets with excess reserves by purchasing their assets. So far, the impact has not been significantly different than Japan’s experience. Indeed, Bernanke has been publicly warning of the dangers of a Japanese-style deflation, as US inflation has dropped nearly to zero, well below the Fed’s informal target of two percent.

And so we are now set for round two of QE — more of the same old, same old.

In truth, the Fed has done only two helpful things. First, during the liquidity crisis of 2007 and 2008, it lent reserves to financial institutions that faced a liquidity crisis.…
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Jim Rogers Calls CNBC Bullsh*t On CNBC

Jim Rogers Calls CNBC Bullsh*t On CNBC

Courtesy of Jr. Deputy Accountant 

No seriously.

"It is PR, they got the stocks up, that’s the whole purpose of PR, make the stocks go higher. That’s what CNBC and many many PR agencies are all about."

[Daily Bail]


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7 Out of 91 European Banks Fail Toothless (Read: Useless) Stress Tests

7 Out of 91 European Banks Fail Toothless (Read: Useless) Stress Tests

Courtesy of Jr. Deputy Accountant 

First the results.

NYT:

Seven of Europe’s 91 largest banks would struggle to survive an unexpected decline in economic growth or a sharp deterioration in the value of European government bonds, and will need to raise more capital, regulators said Friday in releasing results of closely watched bank stress tests.

Banks to flunk were Hypo Real Estate, a bank based in Munich that is already government-owned after a bailout, ATEBank of Greece and five Spanish savings banks.

Several other banks passed the test, but narrowly enough that they may also face market pressure to increase their reserves. That group included Postbank, one of Germany’s biggest publicly traded banks, which is 25 percent owned by Deutsche Bank.

Like our own stress tests last year, European regulators came up with a few different scenarios, one of which was supposed to mirror sovereign default. The problem being it doesn’t exactly do that. 

Business Week:

In the last scenario, banks will publish their estimated losses on sovereign debt held in their trading book as well as “additional impairment losses on the banking book” that they may suffer after a sovereign debt crisis, according to the document dated July 15.

Under accounting rules, banks have to adjust the value of sovereign bonds held in the trading book according to changes in market prices, said Konrad Becker, a financial analyst at Merck Finck & Co. in Munich. For government debt held in the banking book, lenders must write down their value only if there is serious doubt about a state’s ability to repay its debt in full or make interest payments, he said.

The sovereign-shock scenario doesn’t assume a European nation will default, said a person with knowledge of the matter, who spoke on the condition of anonymity because the information is private. Instead, it will assume that rising government-bond yields will push up borrowing costs, spurring defaults in the private sector that would lead to losses in lenders’ banking books, said the person.

Ambrose Evans-Pritchard already called the tests toothless over at the Telegraph. I say that’s being kind.

Again, when we did the whole stress test thing last year the numbers were strange and scenarios incredibly optimistic. Since Treasury had to act sketchy about what they were up to,…
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Pass/Fail Friday – Europe’s Stress Test at High Noon!

What a way to end the week!

The EU has decided to leave us hanging until the last moment as they hold off on releasing their bank stress test results until after the markets close (11:30 EST) which leads me to believe the results may not be good or they wouldn't be waiting until the markets are closed and then giving investors the weekend to digest the results.  If the tests are good, then the US will rally and Asia will rally and the EU would have to gap open on Monday and that would annoy investors over there (kind of like we were annoyed yesterday) but, if the results are bad, then we can drop back to 10,200 or lower and Asia can sell off and they will gap down on Monday but perhaps less of a panic sell-off than if they got hit with the news on a Friday morning

So, because the results were already delayed and because the ECB has chosen to wait until Friday afternoon – I'm going to have to at least make a small bet that we have a failure.  We already hedged the Dow in yesterday's Member Chat as we weren't sure of the timing and we wanted to lock in our gains for the week but now let's look at a nice, profitable way to play a sell-off in the financials.  

  • FAZ is the 3x Ultra Short ETF on the financials and you can just buy that ETF for $14.62 a share and a 3.3% move down in XLF should translate to a 9% gain to $15.94, not a bad day's work right there!  Thanks to the uncertainty we now have, this trade can be augmented with the sale of the August $14 puts and calls for $2.65 and that drops the net purchase price to $11.97.  If XLF finishes below $14, another round of stock would be put to you at $14 for an average entry of $12.99, which is 12% lower than the current price so this trade assumes the financials don't go UP 4% by August 20th.  If FAZ finishes over $14 (.62 lower than it is now) the net return on the $11.97 is 17%, not bad for 3 week's work….
  • Since XLF is also $14.45, we can also have some


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More Stress Test Shenanigans

More Stress Test Shenanigans

Magician performing trick on stage

Courtesy of Washington’s Blog

AFP reports:

The Federal Reserve will expand its so-called stress tests of the banking system to ensure they have enough capital during difficult periods, Fed chairman Ben Bernanke said Friday.

Bernanke highlighted the positive impact of stress tests conducted earlier this year on major banks, a move aimed at ensuring their financial health and building confidence.

"Building on the success of this initiative, we will conduct more frequent, broader, and more comprehensive horizontal examinations, evaluating both the overall risk profiles of institutions as well as specific risks and risk-management issues," Bernanke told a conference organized by the Boston Federal Reserve.

The highly publicized stress tests conducted earlier this year focused on 19 major banks, and indicated 10 needed additional capital.

Bernanke said the Fed would step up efforts to review bank capital requirements to avoid a recurrence of the credit crisis that has spread around the world.

"Additional steps are necessary to ensure that all banking organizations hold adequate capital," he said.

He noted that the Financial Stability Board — a global watchdog made up of senior representatives of national financial authorities — had called for "significantly stronger capital standards," and that the Group of 20 "has committed to develop rules to improve both the quantity and quality of bank capital."

"The Federal Reserve supports these initiatives. The structure of capital requirements should also be reviewed," Bernanke said.

Should we be reassured by the new round of stress tests?

Well, let’s take a look:

  • Time Magazine called the previous stress tests a "confidence game" and Geithner a "con man" for running them deceptively
  • Paul Krugman called the stress tests a mere "self-esteem class" for banks that no bank would be allowed to fail
  • Nouriel Roubini said the stress tests "fail the basic criterion of a reality check"
  • William K. Black called them "a complete sham"
  • FDIC head Sheila Bair didn’t believe they were credible
  • The stress tests were a P.R. stunt devised by the banks themselves
  • The government has more or less admitted that the stress tests were meaningless (see this and this)

In addition, AFP quotes Bernanke as saying:

"For example, to reduce the tendency of current capital requirements to


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Geithner To Allow Banks To Repay Tarp Although TARP Panel Says Stress Test Was Flawed

Geithner To Allow Banks To Repay Tarp Although TARP Panel Says Stress Test Was Flawed

Courtesy of Mish

In another case straight out of the Twilight Zone, Geithner will allow banks to repay TARP funds although a TARP panel advises running the tests again because the tests were so flawed.

Bloomberg is reporting JPMorgan, Morgan Stanley Among 10 Banks Repaying TARP.

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley were among 10 lenders that won U.S. Treasury approval to buy back $68 billion of government shares, freeing them from added oversight that curbed lending practices, hiring and pay.

“These repayments are an encouraging sign of financial repair,” Treasury Secretary Timothy Geithner said in a statement today. “But we still have work to do.”

The decision to allow the biggest repayments to the Troubled Asset Relief Program reflects surging financial stocks and rising pressure from banks to free themselves of political interference. U.S. firms unveiled plans to raise more than $100 billion since government stress tests of the 19 largest banks found that 10 needed $74.6 billion of additional capital to weather a more severe recession.

In addition to JPMorgan, Goldman Sachs and Morgan Stanley, American Express Co., Bank of New York Mellon Corp., BB&T Corp., Capital One Financial Corp., Northern Trust Corp., State Street Corp. and U.S. Bancorp all said today they are repaying the funds.

The approved firms didn’t include Bank of America Corp., the biggest U.S. bank by assets, and Citigroup Inc., each of which have accepted $45 billion from the government. Wells Fargo & Co., the nation’s largest mortgage lender and the recipient of $25 billion in government aid, also wasn’t on the list.

“There will be a question that potentially overhangs some of those names that haven’t returned TARP,” said Scott Siefers, an analyst at Sandler O’Neill & Partners LP in New York. “How are you going to get out from under it and what will it mean for me? Are you going to issue more shares somewhere down the road?”

Firms buying back the government’s preferred shares also have the right to repurchase warrants the Treasury holds “at fair market value,” today’s statement said.

Of the 10 Banks approved, all but Northern Trust was on the list stress test banks. I called it a cake walk not a stress test at the time. See


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Zero Hedge

German Official Warns Risk Of Electric Vehicle Fires Is "Completely Unaddressed" 

Courtesy of ZeroHedge View original post here.

Last month, a massive fire broke out at a German bus depot, destroying 20 electric buses. First responders weren't prepared nor properly trained in extinguishing lithium-ion fires. The fire prompted one German official to question the zero-emissions vehicles as the "spontaneously" combustion of the batteries "is completely unaddressed," according to RT News

"The risk of these fires, including in other locations ...



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Phil's Favorites

Leveling the Playing Field With Cloud Gaming

 

Leveling the Playing Field With Cloud Gaming

Everyone Needs Access To Games

Courtesy of Reed Berkowitz at CuriouserInstitute

A friend of mine noticed something interesting. His teen was playing a game online with a group of other kids, but no one was actually “playing.” The characters were just kind of standing around chatting with each other as the game went on without them. The game had become secondary to the conversation. He mentioned it in our group chat and everyone with teens had noticed something similar. We had all seen our kids chatting on Discord or some other software and hanging out in-game.

It turns out that, without much fanfare, gaming has become one ...



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Politics

Trump wants the National Archives to keep his papers away from investigators - post-Watergate laws and executive orders may not let him

 

Trump wants the National Archives to keep his papers away from investigators – post-Watergate laws and executive orders may not let him

Nixon resigned after tapes he had fought making public incriminated him in the Watergate coverup. Bettmann/Getty

Courtesy of Shannon Bow O'Brien, The University of Texas at Austin College of Liberal Arts

The National Archives is the United States’ memory, a repository of artifacts that includes everything from half-fo...



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Biotech/COVID-19

An infectious disease expert explains new federal rules on 'mix-and-match' vaccine booster shots

 

An infectious disease expert explains new federal rules on ‘mix-and-match’ vaccine booster shots

Discuss with your doctor whether or not you need a booster – and if so, which vaccine will work best for you. Justin Sullivan/Getty Images News via Getty Images

Courtesy of Glenn J. Rapsinski, University of Pittsburgh Health Sciences

Many Americans now have the green light to get a COVID-19 vaccine booster – and the flexibility to receive a different brand than the ori...



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Digital Currencies

Bitcoin: why its value has rocketed once again

 

Bitcoin: why its value has rocketed once again

Shutterstock/rzoze19

Courtesy of Andrew Urquhart, University of Reading

Bitcoin’s journey into mainstream finance has reached another major milestone – and another record price. The cryptocurrency was trading at US$66,975 (£48,456) following the launch of an exchange traded fund (ETF) in the US w...



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Chart School

Price and Volume Swing Analysis on Bitcoin and Silver

Courtesy of Read the Ticker

Many take guidance from news, pundits or advisors. Well sometimes the swings of price and volume are a better measure of what happens next.

The big boys do not accumulate or distribute in single 1 second trade, they build positions over weeks, months and years. They use price swings in the market to build or reduce positions, and you can see their intent by studying swings of price and volume and applying Tim Ord logic as written in his book called 'The Secret Science of Price and Volume: Techniques for Spotting Market Trends, Hot Sectors, and the Best Stocks'.

Tim Ord is a follower of Richard Wyckoff logic, his book has added to the studies of Richard Wyckoff, Richard Ney and Bob Evans.

Richard Wyckoff after years of...

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Promotions

Phil's Interview on Options Trading with TD Bank

TD Bank's host Bryan Rogers interviewed Phil on June 10 as part of TD's Options Education Month. If you missed the program, be sure to watch the video below. It should be required viewing for anyone trading or thinking about trading using options. 

Watch here:

TD's webinar with Phil (link) or right here at PSW

Screenshots of TD's slides illustrating Phil's examples:

 

 

&n...



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Kimble Charting Solutions

Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

Crude Oil has created lower highs over the past 13-years, since peaking back in 2008, along line (1).

It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

The countertrend rally in Crude Oil has it attempting to break above its 13-year falling resistance as well as its double top at (3).

A successful breakout at (3) would suggest Crude Oil is about to mo...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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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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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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