Posts Tagged ‘“too big too fail”’

Are Pig Farmers Doing All The Trading? “The Top Five Prop Desks Are Buying And Selling Securities With Leverage … To Each Other!”

Are Pig Farmers Doing All The Trading? "The Top Five Prop Desks Are Buying And Selling Securities With Leverage … To Each Other!"

Courtesy of Tyler Durden at Zero Hedge 

Swine Flu Threat Reaches Indonesia

A suitable follow up to our earlier post on domestic equity fund flows (which have been negative year to date), and our conclusion that Primary Dealers are merely taking advantage of the ZIRP carry trade, is Rosie’s observation that the only entities doing any relevant trading are the prop desks of the Big Five TBTFs. If that is indeed the case, the market, which Rosenberg concludes optimistically is 25% overvalued will certainly face a Black Monday-type correction as soon as the elusive "unpredictable" occurs and the Prop desks as always scurry for cover, with no volume consolidation to the upside.

It would be such a wonderful time to truly implement the Volcker Rule as the bank’s prop desks, if David is correct, are about to cause some major damage to the market… Of course, it is these very prop desks that are the staunchest opposition to the Volcker Rule and its negative implication on prop trading.

From David Rosenberg and Gluskin-Sheff:

Well, well, the theory that the stock market has turned in a double top may not have gone the way of the Dodo after all, following the reversals we saw in the last two trading days of last week. Negative reversals and distribution days in three of the last six sessions is something to be concerned about if you are long this market — and volume remains tepid at best.

The market is now overvalued by over 25% but is also extremely overbought having gone 24 sessions without a decline of 1% or more, and 89% of the stocks in the S&P 500 are now trading above their 50-day moving averages (see page M3 of Barron’s). The Dow has advanced in 17 of the past 21 days. I mean, even if you are bullish on the outlook, one would have to admit that such a parabolic move is vulnerable to at least a modest pullback… or more. I know what a broken record sounds like and this has been a confounding and confusing market — for both the bears and many (though not all) of the bulls.

Looking at the fund flows, there is only one conclusion that can be reached:
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Senator: Which Part Of “Too Big To Fail” Do You Not Understand?

Senator: Which Part Of “Too Big To Fail” Do You Not Understand?

Courtesy of Simon Johnson at Baseline Scenario

When a company wants to fend off a hostile takeover, its board may seek to put in place so-called “poison pill” defenses – i.e., measures that will make the firm less desirable if purchased, but which ideally will not encumber its operations if it stays independent.

Large complex cross-border financial institutions run with exactly such a structure in place, but it has the effect of making it very expensive for the government to takeover or shut down such firms, i.e., to push them into any form of bankruptcy.

To understand this more clearly you can,

The Citigroup situation is simple.  They would like to downsize slightly, and are under some pressure to do so.  It is hard to sell assets at a decent price in this environment, so why don’t they just spin off companies – e.g., quickly create five companies in which each original shareholder gets a commensurate stake?

The answer is that Citi’s debt is generally cross-guaranteed across various parts of the company.  US and foreign creditors have a claim on the whole thing, more or less (including the international parts), and you can’t break it apart without upsetting them.  The cross-border dimensions make everything that much more knotty.

Senator Kaufman explains what this means – essentially the “resolution authority” proposed in the Dodd legislation is meaningless.  How would any administration put a huge bank into any kind of “resolution” (a FDIC-type bank closure, scaled up to big banks) when it knows that doing so would trigger default across all the complex pieces of this multinational empire?

You could do it if you are willing to accept the costs – and if you understand there are big drawbacks to providing an unconditional bailout of the 2009 variety.  But will a future administration be willing to take that decision?  The Obama administration was not – and big finance will only become bigger and more complex as we move forward.

If you look into the eyes of the decision-makers from spring 2009, they honestly believe that taking over Citi or Bank of America would have caused greater financial trouble and a worse recession.  You can argue about their true motivation all you want; this…
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Oh I Feel So Safe Back in the Arms of Our Dear Leaders!

I am a big fan of the law of unintended consequences. 

My thoughts on Michael Covel’s article: you can’t legislate away human nature, true, but if you define and enforce penalties for criminal behavior, you can decrease its occurrence.  It is part of human nature to be deferred by harsh penalties. We’ve seen a lot of fraud go un-prosecuted and even rewarded recently. As long as this persists, it is human nature that the human behavior will continue.

This is where good legislation vs. bad legislation comes in, and real law enforcement (rarely spotted in the financial kingdom) vs. non-enforcement makes a difference.  - Ilene 

Oh I Feel So Safe Back in the Arms of Our Dear Leaders!

We will see the law of unintended consequences arrise from this:

“[Senator] Dodd’s 1300-plus page proposal includes a laundry list of items: a new consumer financial protection agency, new supervision of hedge funds and derivatives trading, a reshuffling of banking industry regulators, investor protection, new federal authority to handle too-big-to-fail financial firms meant to limit taxpayer bailout funds and the creation of a systemic risk council as part of an early warning system.”

Kids, repeat after me and tap your ruby red slippers three times: you can’t legislate away human behavior, you can’t legislate away human behavior, you can’t legislate away human behavior…Followed by: bigger bubbles will follow, bigger bubbles will follow, bigger bubbles will follow…

Seriously, doesn’t it appear the United States federal government is attempting to strap a diaper on all of us? I get the idea of a diaper’s job, but guess what: When everyone shits away it might not hit the floor, but it will still smell awful — diaper or not.

 

See Also: 

Senator Kaufman Blasts Dodd Bill, Says It Gives Regulators "Reshuffled Set Of Regulatory Powers That Already Exist", Zero Hedge


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Reich Joins Those Calling for an End of “Too Big to Fail”

Reich Joins Those Calling for an End of "Too Big to Fail"

Courtesy of Washington’s Blog

Economics professor and former Labor Secretary Robert Reich today joined the growing ranks of top economists calling for an end to the too big to fail concept:

Visit msnbc.com for Breaking News, World News, and News about the Economy

If you don’t have time to watch, Huffington Post summarizes Reich’s statement:

Buchanan then asked Reich if he believed the government should have allowed a couple of the massive banks to fail like Lehman Brothers to teach them them the lesson that the government won’t always consider them too big to fail. Reich found himself unexpectedly agreeing once more:

"You know it’s interesting Pat Buchanan, I start worrying about my own convictions when I hear you repeating back to me exactly what I believe. We ought to have either had kind of a restructuring of all of these big banks based upon something like Chapter 11, or we should have had a kind of temporary receivership, but we have the worst of both worlds. Taxpayers bailed them out so right now they know they were going to get a bailout next time. Before they didn’t even know they were going to get a bailout, now they’re making these wild trades they’re doing the same risky stuff they were doing before, and now they know that if they get in trouble the government is going to bail them out because they are, quote, "too big to fail." Nothing in capitalism, no entity should be too big to fail."


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Phil's Favorites

Facebook's Libra cryptocurrency can still take off and revolutionise money

 

Facebook's Libra cryptocurrency can still take off and revolutionise money

Poring Studio / Shutterstock.com

Courtesy of Gavin Brown, Manchester Metropolitan University and Richard Whittle, Manchester Metropolitan University

Facebook’s Libra cryptocurrency has suffered a few setbacks recently. As well as facing ...



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Zero Hedge

Ray Dalio Warns Of Looming "Big Sag" That Will Rattle Global Markets

Courtesy of ZeroHedge

Ray Dalio never misses an opportunity to tell a room full of absurdly rich people how their unchecked greed and unwillingness to lift their heel from the throat of the poor could usher in a global revolution.

And what better venue for this than the IMF's annual meeting in Washington?

Oddly enough, Dalio holds back on the Greta Thunberg-style chiding of his audience (fortunately for them, he has no childhood left to ruin), and instead touches how the US and Chin's efforts to battle the post-crisis slowdown continue to impact the global economy and the economies and their respective spheres of influence.

Once again, Dalio presents his views within the framework of his '1937' theory: That is, that there are a number of factors...



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Insider Scoop

48 Biggest Movers From Yesterday

Courtesy of Benzinga

Gainers
  • Hepion Pharmaceuticals, Inc. (NASDAQ: HEPA) shares climbed 43.2% to close at $3.58 on Thursday after the company announced the publication of a research article, "A Pan-Cyclophilin Inhibitor, CRV431, Decreases Fibrosis and Tumor Development in Chronic Liver Disease Models," in the peer-reviewed Journal of Pharmacology and Experimental Therapeutics.
  • Synthesis Energy Systems, Inc. (NASDAQ: SES) rose 26.9% to close at $9.20 after surging 12.24% on Wednesday.
  • Assembly Biosciences, Inc...


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Kimble Charting Solutions

Bank Index Breakout? Stock Market Bulls Sure Hope So

Courtesy of Chris Kimble

One of the most important sectors of the stock market is the banking industry and bank stocks.

When the banks are healthy, the economy is likely doing well. And when bank stocks are participating in a market rally, then it bodes well for the broader stock market.

In today’s chart, we look at the Bank Index (BKX).

As you can see, the banks have been in a falling channel for the past 20 months. As well, the banks have been lagging the broader market during this time as well – see the Ratio in the bottom half of the chart above.

That said, th...



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The Technical Traders

Currencies Show A Shift to Safety And Maturity - What Does It Mean?

Courtesy of Technical Traders

Recent rotation in multiple foreign currencies hints at the fact that a new stage of the “Capital Shift” process is taking place and that skilled technical investors need to pay very close attention to how these currencies continue to react over the next 3 to 6+ months.  In the recent past, most of the world’s foreign currencies were declining in value while the US Dollar continued to strengthen.  In fact, we authored many research articles about these trends and how weakness in foreign currencies will drive new foreign investment into the US stock markets for two simple reasons; strength and security. 

Now that a few of the world’s most ...



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Chart School

Review of Andrew CardWell RSI with Wyckoff price waves

Courtesy of Read the Ticker

RSI measures relative strength of price action of a set period versus prior set periods. It helps review the price swings or waves, the power of each price thrust into new ground, or lack of it. Price thrust like many things relies on energy, and energy is not a constant, it has a birth, a life and a death and relative strength helps us see that cycle. 

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Digital Currencies

Zuck Delays Libra Launch Date Due To Issues "Sensitive To Society"

Courtesy of ZeroHedge View original post here.

Authored by William Suberg via CoinTelegraph.com,

Facebook is taking a much more careful approach to Libra than its previous projects, CEO Mark Zuckerberg has confirmed. 

“Obviously we want to move forward at some point soon [and] not have this take many years to roll out,” he said. “But ...



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Lee's Free Thinking

Look Out Bears! Fed New QE Now Up to $165 Billion

Courtesy of Lee Adler

I have been warning for months that the Fed would need new QE to counter the impact of massive waves of Treasury supply. I thought that that would come later, rather than sooner. Sorry folks, wrong about that. The NY Fed announced another round of new TOMO (Temporary Open Market Operations) today.

In addition to the $75 billion in overnight repos that the Fed issued and has been rolling over since Tuesday, next week the Fed will issue another $90 billion. They’ll come in the form of three $30 billion, 14 day repos to be offered next week.

That brings the new Fed QE to a total of $165 billion. Even in the worst days of the financial crisis, I can’t remember the Fed ballooning its balance sheet by $165 bi...



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Biotech

The Big Pharma Takeover of Medical Cannabis

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

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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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.

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