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

Thailand Monkey Wars Escalate As Rival Gangs Force Locals To Flee Homes

Courtesy of ZeroHedge View original post here.

Monkeys in the Thai city of Lopburi have become particularly aggressive since coronavirus lockdowns significantly cut into the supply of treat-throwing tourists which had been feeding the city's wild macaques.

The monkeys, numbering in the thousands, have set up shop in an abandoned local cinema - brawling with each other when they aren't aggressively attacking locals.

They're also super horny, according to ...



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Phil's Favorites

Presidents' panel: How COVID-19 will change higher education

 

Presidents' panel: How COVID-19 will change higher education

COVID-19 has altered nearly every aspect of higher education. Gerald Herbert/AP

Courtesy of Walter M. Kimbrough, Dillard University; Ana Mari Cauce, University of Washington, and Samuel L. Stanley, ...



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Biotech/COVID-19

Presidents' panel: How COVID-19 will change higher education

 

Presidents' panel: How COVID-19 will change higher education

COVID-19 has altered nearly every aspect of higher education. Gerald Herbert/AP

Courtesy of Walter M. Kimbrough, Dillard University; Ana Mari Cauce, University of Washington, and Samuel L. Stanley, ...



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The Technical Traders

Wild Volatility Continues As US Markets Attempt To Establish New Trend

Courtesy of Technical Traders

We’ve continued to attempt to warn investors of the risks ahead for the US and global markets by generating these research posts and by providing very clear data supporting our conclusions.  Throughout the entire months of May and June, we’ve seen various economic data points report very mixed results – and in some cases, surprise numbers as a result of the deep economic collapse related to the COVID-19 virus event.  This research post should help to clear things up going forward for most traders/investors.

As technical traders, we attempt to digest these economic data factors into technical and price analysis while determining where and what ...



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ValueWalk

Top 10 most valuable cities in the United States

By Vikas Shukla. Originally published at ValueWalk.

People have been flocking to big cities for decades, driving the prices of residential real estate up in big cities. The COVID-19 pandemic has accelerated the work-from-home trend, which would give people the freedom to live and work from anywhere. It could hurt the real estate prices in big cities such as New York, Los Angeles and San Francisco in the coming years. But for now, these three are the most valuable cities in the United States.

Q1 2020 hedge fund letters, conferences and more

How do you attach monetary value to a city? ...



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Kimble Charting Solutions

Nasdaq 100 Relative Strength Testing 2000 Highs

Courtesy of Chris Kimble

The tech bubble didn’t end well. BUT it did tell us that the world was shifting into the technology age…

Since the Nasdaq 100 bottomed in 2002, the broader markets have turned over leadership to the technology sector.

This can be seen in today’s chart, highlighting the ratio of Nasdaq 100 to S&P 500 performance (on a “monthly” basis).

As you can see, the bars are in a rising bullish channel and have turned sharply higher since the 2018 stock market lows. This highlights the strength of the Nasdaq 100 and large-cap tech stocks.

...

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Chart School

US Dollar with Ney and Gann Angles

Courtesy of Read the Ticker

Where is price going, is there strength or weakness in the chart?


Previous Post on the US Dollar : Where is the US Dollar trend headed ?


The question is always what will the future price action look like ?


This post will highlight the use of lines generated by angles. Not trend lines, as trend lines require two known points on a chart, where as angles require only one known point and a angle degree to draw a line. The question then becomes how is the angle degree determined.



There are two theories: ...

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Lee's Free Thinking

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

 

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

Courtesy of  

The COVID 19 pandemic is, predictably, worsening again in much of the US. Only the Northeast, and to a lesser extent some Midwestern states, have been consistently improving. And that trend could also reverse as those states fully reopen.

The problem in the US seems to be widespread public resistance to recommended practices of social distancing and mask wearing. In countries where these practices have been practi...



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Digital Currencies

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

 

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

App-etising? LDprod

Courtesy of Michael Rogerson, University of Bath and Glenn Parry, University of Surrey

Food supply chains were vulnerable long before the coronavirus pandemic. Recent scandals have ranged from modern slavery ...



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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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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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Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

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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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

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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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