Draining the Swamp: The Fed’s Tri Party Repo Machine
by ilene - November 30th, 2009 11:32 pm
Draining the Swamp: The Fed’s Tri Party Repo Machine
Courtesy of Jesse’s Café Américain
In this case as outlined by the New York Fed memo below, a triparty repo transaction is a transaction among three parties: a cash lender acting on behalf of all holders of dollars (the Fed), a borrower that will provide collateral (dodgy debt holder in shaky financial condition), and a clearing bank, most likely a primary dealer like J.P. Morgan, which is only too happy to collect its fees as an agent of the Fed.
The triparty clearing bank provides custody (agency) accounts for parties to the repo deal and collateral management services. These services include ensuring that pledged collateral meets the cash lenders’ requirements, pricing collateral, ensuring collateral sufficiency, and moving cash and collateral between the parties’ accounts. What if any liabilities the clearing bank such as J.P.Morgan or Goldman Sachs might obtain for the mispricing of risk remain undisclosed, but are probably negligible at worst.
This is the method of obtaining toxic assets from the books of non-primary dealers, and providing stability and liquidity from the aggregate value of all dollar holders to cover the misdeeds of diverse financial institutions and other favored parties.
In other words, the Fed is draining the financial debt swamp and toxic waste dumps into your basement, if you hold Federal Reserve Notes. Your IRA’s, your 401k’s, your savings, as long as you hold Federal Reserve Notes, which are claims on their balance sheet loosely backed by the Treasury. When the Fed’s balance sheet contained nothing but Treasuries and explicity backed agencies that relationship was firmer. Now, we are into the realm of make believe and Timmy’s credibility.
The Fed pledges that Goldman and Morgan assure them that there will be no radioactive material in the sludge pond headed your way, and levels of carcinogenic and toxic contamination will be within levels that they believe are adequate based on the non-binding estimates.
In practice the Fed has a defaults account on its book for the shortfalls from fat valuations due to the toxic debt it has already assumed on your behalf.
The source and composition of the sludge will remain a secret among the bankers, without oversight. This seems like taxation without representation, at least for holders of dollars that are US citizens, since the Fed is engaging in the expenditure of public money…
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DiggQuantifying The USD-JPY Carry Trade Ratio Following Australia’s Interest Rate Announcement
by Zero Hedge - November 30th, 2009 11:09 pm
Courtesy of Tyler Durden
The earlier announcement of a 25 bps rate hike by the RBA was not a big surprise. What was, however, was the knee-jerk reaction by both the USD and the JPY, and specifically the relative sizes of said jerk. As both currencies are funding currencies to AUD longs, the relative reactions provide a good, if crude, way to quantify the relative concentration of shorts in any given currencies (USD and JPY). Then again, it may merely indicate that tonight’s USD-trading night shift at Goldman had much more Red Bull than the OZ one. In either way, both the initial knee jerk reaction as well as the subsequent follow through, indicate a roughly 50-100% greater concentration of dollar than yen-based shorts: in other words: the carry ratio funded in USD and JPY is between 2:1 and 3:2.
Chart 1 below presents the relative reaction following the immediate announcement (aka the kneejerk). The drop in the Yen was -0.2% compared to the dollar’s -0.4%.
Chart 2 presents the stabilized follow through. While the Yen was still at -0.2%, the dollar had tapered off to -0.3%.
A 50-100% greater carry funding in USD vs JPY would not be surprising, especially since the dollar is backed entirely by rapidly deflating housing assets. However, any announcement by the BOJ that would even hint the country is adopting QE, and expect the carry ratio to shift significantly back in the traditional, Yen-based, direction.
Quantifying The USD-JPY Carry Trade Ratio Following Australia's Interest Rate Announcement
by Zero Hedge - November 30th, 2009 11:09 pm
Courtesy of Tyler Durden
The earlier announcement of a 25 bps rate hike by the RBA was not a big surprise. What was, however, was the knee-jerk reaction by both the USD and the JPY, and specifically the relative sizes of said jerk. As both currencies are funding currencies to AUD longs, the relative reactions provide a good, if crude, way to quantify the relative concentration of shorts in any given currencies (USD and JPY). Then again, it may merely indicate that tonight’s USD-trading night shift at Goldman had much more Red Bull than the OZ one. In either way, both the initial knee jerk reaction as well as the subsequent follow through, indicate a roughly 50-100% greater concentration of dollar than yen-based shorts: in other words: the carry ratio funded in USD and JPY is between 2:1 and 3:2.
Chart 1 below presents the relative reaction following the immediate announcement (aka the kneejerk). The drop in the Yen was -0.2% compared to the dollar’s -0.4%.
Chart 2 presents the stabilized follow through. While the Yen was still at -0.2%, the dollar had tapered off to -0.3%.
A 50-100% greater carry funding in USD vs JPY would not be surprising, especially since the dollar is backed entirely by rapidly deflating housing assets. However, any announcement by the BOJ that would even hint the country is adopting QE, and expect the carry ratio to shift significantly back in the traditional, Yen-based, direction.
Realpoint October CMBS Update: $32.6 Billion In October Delinquencies (504% YoY Increase), Forecasts $65 Billion By June 2010
by Zero Hedge - November 30th, 2009 10:30 pm
Courtesy of Tyler Durden
The October delinquent loan balance of $32.55 billion is a 504% increase from the $5.39 in October 2008. Additionally, RealPoint presents a scenario in which the delinquencies in June 2010 would hit $65 billion (8.3% total delinquency rate): a doubling from the most recent level and unprecedented pain for any form of CRE exposure.
In October 2009, the delinquent unpaid balance for CMBS increased slightly to $32.55 billion from $31.73 billion a month prior. Such delinquent unpaid balance is up an astounding 504% from one-year ago (when only $5.39 billion of delinquent balance was reported for October 2008), and is now over 14 times the low point of $2.21 billion in March 2007. An increase in four of five delinquent loan categories was noted in September, with a decline experienced in the 60-day bucket. Despite such decline, the distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 23rd straight month – up by $2.36 billion (12%) from the previous month and over $18.77 billion (572%) in the past year (up from only $3.283 billion in October 2008).
Overall, following the correction of the GGP-sponsored loans in July and the average growth month-over-month, we now expect the delinquent unpaid CMBS balance to continue along its current trend and grow between $40 and $50 billion before the end of 2009 / first quarter of 2010. Based upon an updated trend analysis, we now project the delinquency percentage to grow between 5% and 6% through the first quarter of 2010 (potentially approaching and surpassing 7-8% under more heavily stressed scenarios through the mid-2010). This outlook is mostly due to the reporting of several large loans from recent vintage transactions that continue to show signs of stress and default, along with continued balloon maturity defaults from more seasoned transactions. In addition, while we maintain our negative outlook for both the retail and hotel sectors for the remainder of 2009 and into 2010, we are closely monitoring the negative trends surrounding several large struggling multifamily loans that have near-term default risk, and the lack of steady new issuance to offset the continued increases in delinquent unpaid balance.
In addition to this growth scenario, if we add-in the potential default of two very large Realpoint High Risk Loans under review (namely the now specially-serviced $3 billion Peter Cooper
…
Developing: Bank Of Japan Announces Special Monetary Policy Meeting At 05:00 GMT, Likely QE Announcement Pending
by Zero Hedge - November 30th, 2009 9:15 pm
Courtesy of Tyler Durden
Yen drops, Dollar, Euro surge. Yen – The Carry Currency, the sequel coming to a theater near you.
TOKYO (Dow Jones)--The Bank of Japan policy board will hold an unscheduled monetary policy meeting from 0500 GMT “to discuss monetary control matters based on recent economic and financial developments,” the central bank said Tuesday. BOJ Gov. Masaaki Shirakawa will also meet the press from 0730 GMT.
One assumes the narcolpetics at the ECB will be next with comparable “spotaneous announcements,” once they understand they are about to get crucified if the citizens of the Eurozone wake up and realize the US and Japan have both had their way with them all night any which way, after the most recent G20 roofie session.
Interview with Commercial Real Estate Developer
by ilene - November 30th, 2009 9:15 pm
Interview with a Commercial Real Estate Developer about the CRE Industry
Developer and commercial real estate (CRE) investor Mr. Solomon discusses how the once overheated CRE market froze over.
By Ilene
Mr. Solomon (name changed) is a CRE veteran with 40 years of experience developing commercial real estate in 15 states and has kindly agreed to be interviewed about the current conditions in the CRE market.
Ilene: Thanks for doing this interview with me. Like global warming, rumors of continuous heating up in the CRE market, didn’t exactly pan out. What are you seeing in the CRE market now?
Mr. Solomon: CRE is undergoing deleveraging with the rest of the economy, debts are being reduced or going into default. Large numbers of projects are not cash flowing and will have to be liquidated, or ownership will have to be transferred. Concurrently, there’s an oversupply caused by the same ill advised financing that led to the overbuilding.
Ilene: Did you see this happening?
Mr. Solomon: Yes we knew, and so did everyone else. Most people make a decision based on what they can get out of it in the short term. It’s the collective crowd behavior problem. Why do the lemmings jump over the cliff? It seems like a good idea till they get to the cliff – they keep being rewarded, till they’re not. Like the stock market, people invest because it keeps going up, without knowing when to get out, when the market’s going to crash. It’s a justifiable course of action as long as the market goes up and there are no losses. You can argue that the players didn’t really lose because the government bailed out a lot of the participants. Taxpayers lost the most.
Ilene: How far into the decline are we now?
Mr. Solomon: So far about 25%. A lot has been recognized. And it’s no longer a surprise. Some properties have already been foreclosed out. There are a lot of vacancies. I think a further substantial group of commercial properties will get foreclosed. I don’t see it leveling off for another few years because of the problems of contraction, debt, and oversupply. Oversupply in real estate doesn’t get worked off, the buildings have to be used. Less consumption and less business mean less demand. Creative financing, excessive easy money caused the oversupply, caused hyped up prices. Now there’s less demand, less employment, less consumption, and on…
Kudlow: Bernanke Is The Tiger Woods Of Monetary Policy
by Zero Hedge - November 30th, 2009 8:46 pm
Courtesy of Tyler Durden
The one moniker that may just stick (7 minutes into the clip). And seeing how the Chairman is having illicit (and excess liquidity lubricated) liaisons with the entire US middle class, yet is sufficiently covert about it that TMZ will never figure it out, it is about time that Senators do the right thing and prevent Bernanke’s reappointment, as well as make the Federal Reserve fully transparent, even as they set it on a path to its ultimate dissolution. With fiat monetary systems and the entire Keynesian experiment proven to be one uncontrollable fiasco, leading to exponentially increasing bubbles and bursts, the last thing Central Bank countries can afford now is delay.
Stock Market Commentary: Markets Hold Their Ground
by Chart School - November 30th, 2009 8:29 pm
Stock Market Commentary: Markets Hold Their Ground
Courtesy of Fallond Stock Picks
There was a chance with the return of traders that Friday’s recovery would have been erased, instead buyers stepped in to protect the gains achieved following Friday’s gap down. The Nasdaq closed above its 50-day MA on higher volume accumulation.
[click on chart for larger view]
The Dow held its breakout for another day but also finished with a MACD trigger ‘sell’. Although the ‘sell’ was countered by an accumulation day.
The Russell 2000 did well to recover its early day losses, but it still finished the day below its 20-day MA albeit on a bullish hammer (however – stochastics are not oversold so the candlestick as a reversal line is weak).
The S&P hasn’t quite had the same strength as the Dow; a MACD ‘sell’ and a confirmed loss of the breakout is softened by support at the 20-day MA on an accumulation day.
Tuesday looks set to close a little more of Friday’s breakdown gap, but then the challenge for bulls begins.
SP 500 Futures Daily Chart
by Chart School - November 30th, 2009 8:21 pm
SP 500 Futures Daily Chart
Courtesy of Jesse’s Café Américain
Stocks are being managed on light volumes.
At most times the markets are price discovery and capital allocation mechanisms.
Under the current Bernanke-Summers regime, they have become instruments of financial engineering, the shaping of perception, and government influence.
The Dangerous US Financial Sector Is Still Smoldering and May Reignite
by ilene - November 30th, 2009 8:17 pm
The Dangerous US Financial Sector Is Still Smoldering and May Reignite
Courtesy of Jesse’s Café Américain
Timmy and the Merry Pranksters at the Treasury and the Fed are throwing taxpayer money at the financial sector with the same prudence with which Angelo Mozilo used sunblock.
Smothered by paper, the fire in the financials is still smoldering, and could reignite with the breezes of further credit contractions in commercial real estate, mortgage foreclosures, and frothy debt in the developing world.
When the US financial system tumbles there should be little doubt where Ben, Tim, Larry, and their Boss failed the American taxpayer and all holders of US debt.
The ratings fraud and accounting deception will continue until confidence is restored.
Barron’s
More Nasty Bank Surprises
By JIM MCTAGUE
November 28, 2009
THERE’S GROWING EVIDENCE THAT THE CASE FOR buying financial stocks is larded with "bulloney." Recent indications are that bank regulators from the Treasury to the Federal Reserve to the Federal Deposit Insurance Corporation and on to the state level remain in the dark about the quality of bank-loan portfolios — especially at small to midsize institutions. An estimated 21 publicly traded banks that have received TARP injections are on the ropes, according to published reports. The number likely will grow, leading to some nasty surprises for investors.
Because of the political antipathy toward Wall Street, the consensus is that any Congressional financial regulatory reform bill will be punitive in the extreme and consequently inhibit the growth and profitability of the sector for years to come. This hardly is a buy signal.
The latest and perhaps most startling evidence of endemic regulatory weakness is the failure this month of two banks and the bankruptcy of CIT, all recipients of TARP funds from Treasury after they were deemed earlier in the year by "expert" regulators to be safe and sound. CIT received $2.3 billion in taxpayers-financed TARP funds; UCBH Holdings, parent of San Francisco’s United Commerce Bank, received $299 million; and Pacific Coast National Bank, a San Clemente, Calif., lender, received $4.1 million. All were publicly traded.
The aforementioned 21 wobbly publicly traded companies that have received TARP money had zero or negative net income. They’ve suspended dividend payments to the Treasury. Regulators vetted all of these institutions, using the "CAMELS" rating system. CAMELS stands for "Capital, Asset quality, Management, Earnings, Liquidity, and…
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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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