Archive for the ‘Uncategorized’ Category
Former Fed Advisor Asks "Has The Fed Bankrupted The Nation"
By Tyler Durden
Authored by Danielle DiMartino Booth, former adviser to Dallas Fed's Dick Fisher
Volcker, Greenspan, Bernanke and Yellen.
Which one does not belong? Logic dictates that Volcker should have been odd man out. After all, there is no legendary “Volcker Put.”
The towering monetarist made no bones about never being bound by the financial markets. The same can certainly not be said of his three successors. And yet, history contrarily suggests it is to Volcker above all others that the financial markets will forever be beholden.
Many of you will be familiar with Michael Lewis’ memoir, Liar’s Poker. Yours truly first read the book in a Wall Street training program much like the one Lewis survived to describe in his autobiographical work. The take-away then, in late 1996, was that Gordon Gekko was right — greed was good.
Recently, a second reading of Liar’s Poker, following nearly a decade inside the Federal Reserve, delivered a much different message than did that first youthful reading and was nothing short of an epiphany: Paul Volcker, albeit certainly inadvertently, created the bond market.
On Saturday, October 6, 1979. Volcker held a press conference and announced that interest rates would no longer be fixed and that further the Fed would begin to target the money supply in order to curb inflation and “speculative excesses in financial, foreign exchange and commodity markets.”
Alas, this new regime was not meant to be. In trying to introduce an alternative to interest rate targeting, the Fed replaced one guessing game with another. Predicting the demand for reserves and then buying or selling securities based on that demand proved to be just as dicey as a similar exercise to target a given level of interest rates had been.
Volcker’s experiment ended in 1982. But by then, the genie had escaped the proverbial bottle.
Michael Lewis explains: “Had Volcker never pushed through his radical change in policy, the world would be many bond traders and one memoir the poorer. For in practice, the shift in the focus of monetary policy meant that interest rates would swing wildly. Bond prices move inversely, lockstep, to rates of interest. Allowing interest rates to swing wildly meant allowing bond prices to swing wildly.
Before Volcker’s speech, bonds had been conservative investments, into which investors put their savings when they didn’t fancy a gamble in the stock market. After Volcker’s speech, bonds became objects of speculation, a means of creating wealth rather than merely storing it. Overnight the bond market was transformed from a backwater into a casino.”
What a casino. As Lewis points out in his book: In 1977, the total indebtedness of U.S. government, corporate and household borrowers was $323 billion. By 1985, that figure had grown to $7 trillion.
Volcker left the Fed in August of 1987 after handing the reins over to Alan Greenspan. Two short months later, there would be a celebrated birth, that of the Greenspan Put, a watershed that truly got the party started. At last check, that party’s still going strong though stress …read more
Source: Former Fed Advisor Asks "Has The Fed Bankrupted The Nation"
General Market Wrap 4-14-2016 (Video)
By EconMatters
By EconMatters
China Econ Data out tonight at 10:00 p.m. CST including a look at first quarter GDP.
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Source: General Market Wrap 4-14-2016 (Video)
Stock Short-Squeeze Party Ends After Wells Worries & Crude Crunch
By Tyler Durden
Is the party over?
In a shocking day for stock traders, US equity markets were unable to hold any gains today – despite a panic buying ramp in USDJPY at the close…
With VIX being slammed incessantly to try to keep S&P green…
Trannies & Small Caps rolled over today but remain big winner on the week…
The banks continue to lead the week…
As the short-squeeze seemed to run out of ammo…
Notably – not even the biggest quake since Fukushima was able to hold back the JPY carry-mongers…
Treasury yields rose on the day but with the week's bear-flattening continuing…
The USD Index eked out a gain for its biggest 3-day rise in 2 months (as China devalued the Yuan fix dramatically overnight)
Commodities all fell today, with copper best of the bad bunch…
Silver continues to outperform gold in the short-term…
Charts: Bloomberg
Bonus Chart: Wondering where The Fed “Put” lies? Simple – about 75-100 S&P points below the Fed Balance-sheet-implied level!
Source: Stock Short-Squeeze Party Ends After Wells Worries & Crude Crunch
Bernanke’s New Helicopter Money Plan – Sheer Destructive Lunacy
By Tyler Durden
Submitted by David Stockman via Contra Corner blog,
If you don’t think the current central bank driven economic and financial bubble is going to end badly, recall a crucial historical fact. To wit, the worldwide race of central banks to the zero bound and NIRP and their $10 trillion bond-buying spree during the last seven years was the brain child of Ben S Bernanke.
He’s the one who falsely insisted that Great Depression 2.0 was just around the corner in September 2008. Along with Goldman’s plenipotentiary at the US Treasury, Hank Paulson, it was Bernanke who stampeded the entirety of Washington into tossing out the window the whole rule book of sound money, fiscal rectitude and free market discipline.
In fact, there was no extraordinary crisis. The Lehman failure essentially triggered a self-contained leverage and liquidity bust in the canyons of Wall Street, and it would have burned out there had the Fed allowed money market interest rates to do their work. That is, to rise sufficiently to force into liquidation the gambling houses like Lehman, Goldman and Morgan Stanley that had loaded their balance sheets with trillions of illiquid or long-duration assets and funded them with cheap overnight money.
There would have been no significant spillover effect. The notions that the financial system was imploding into a black hole and that ATMs would have gone dark and money market funds failed are complete urban legends. They were concocted by Wall Street to panic Washington into massive intervention to save their stocks and partnership shares.
The same is true of the claim that corporate payrolls would have been missed for want of revolving credit availability and that the entirety of AIG had to be bailed out to the tune of $185 billion in order to protect insurance and annuity holders.
In fact, the entire problem of the collateral call on AIG’s bogus CDS insurance was contained at the holding company. The latter could have been liquidated with less than $60 billion of losses distributed among the world’s 20 largest banks. These were mostly state-backed European behemoths—-like Deutsche Bank and BNP Paribas—-that between them had balance sheet footings of $20 trillion. The loss would have amounted to a couple of quarters net income and a big dent in year-end bonuses for top executives. Nothing more.
The most important point, however, is that there was never any danger of a run on main street banks by retail customers. To be sure, there would have been a temporary disruption in the real economy owing to the necessary curtailment of unsustainable activities related to the housing bubble and due to a downshift of household consumption that reflected unsustainable borrowing.
But as I demonstrated in detail in the Great Deformation, the necessary liquidation of excessive inventories and labor that had built-up during the housing boom had exhausted itself by September 2009. That was long before there was even a remote hint that Bernanke’s wild money pumping had caused households and business to increase their borrowing levels.
Stated differently, the US economy was already …read more
Source: Bernanke’s New Helicopter Money Plan – Sheer Destructive Lunacy
After Trump, The Deluge – What’s Next For The GOP?
By Tyler Durden
It’s hard to imagine at this point who will emerge from the mess the Republican party is making of itself to be the GOP standard-bearer in the fall.
Donald Trump’s opponents within the party unable to find a candidate who can excite the voters have spent $70 million so far on ads to tear the front-runner down, and they seem to be working: Trump’s momentum has been halted. But that could all change over the next couple weeks if the billionaire businessman hangs on to win the delegate-rich New York and Pennsylvania primaries.
Whatever the outcome in those states, Trump and his closest remaining rival, Senator Ted Cruz, are likely to enter the Republican National Convention in July short of the number of state delegates they need to win the nomination outright. In the meantime, who knows what games party officials will play with the rules to deny the voter-chosen favorite the nomination? One longtime party player has already signaled that Cruz will be discarded once he stops Trump.
So then what will party leaders do? Give the nomination to Ohio Governor John Kasich whose entire campaign is predicated on convention chaos? Will they trust their fortunes in a national election to a nominee who can’t even win Republican votes? Will they have any choice? House Speaker Paul Ryan, a man who definitely has an eye to the future, isn’t going to risk his brand by alienating angry Trump and Cruz voters forever, and most other ambitious Republicans are likely to share that view. So it may be Kasich by default or some other senior Republican like Mitt Romney who is willing to take one for the team. At this point, it seems clear that GOP leaders would rather lose the election than risk losing their place at the dinner table during a Trump presidency.
Democrats may find themselves in a similar place if Hillary Clinton is indicted for mishandling classified information while serving as secretary of State although that’s an increasingly unlikely scenario. Elizabeth Warren, the future queen of the party, isn’t going to risk that future on an election this chaotic, so since Democratic party leaders have made it clear that the nominee will not be Bernie Sanders, look for an old-timer like Joe Biden to jump in as a one-term alternative. This clears the way for Warren in 2020 who’ll face much clear sailing against the wreckage of what once was the Grand Old Party.
Source: After Trump, The Deluge – What’s Next For The GOP?
Hedge Funds Slammed: Tudor Hit With $1BN In Redemptions; NYC Pensions To Pull $1.5BN From Key Names
By Tyler Durden
In a world in which the average hedge fund has failed to outperform the stock market for 8 years running, many have asked themselves what is the point of paying 2 and (not so much 20) to consistently underperform a global asset class which is now actively micromanaged by central banks themselves. And while redemptions from hedge funds have been growing in recent months, coupled with the first year since the crisis in which more hedge funds shut down than were created, it all culminated moments ago when Bloomberg reported that clients of none other than hedge fund legend Paul Tudor Jones have asked to pull more than $1 billion after three years of lackluster returns.
As Bloomberg reports, “the investor redemption requests were made in recent weeks, according to two people with knowledge of the matter, and follow the exit of several money managers, some of whom spent decades at the firm. Another senior executive,Richard Puma, Tudor’s deputy chief operating officer, is planning to leave, the people said.”
The withdrawals mark a setback for the $13 billion firm, one of the oldest and well regarded in the industry. BVI Global, Tudor’s main fund, which makes wagers on macroeconomic events, added to losses in March, pushing its decline to 2.8 percent in the first quarter, according to an investor document. What is surprising is that PTJ’s returns have not been too bad: gains of 1.4 percent in 2015 and 3.5 percent in 2014.
Still that was not enough for his clients used to seeing double digit returns every year.
As Bloomberg reports, PTJ’s bets during the financial crisis helped investors dodge damage. Tudor’s Tensor Fund gained 36 percent in 2008, and BVI lost just 4.5 percent while stock markets plunged by 37 percent, including reinvested dividends.
Snidely, Bloomberg notes that like most hedge fund firms that make investments based on macroeconomic events, Tudor has had difficulty matching those outsized returns in the years since. The Tensor fund returned cash to investors in 2014 after three years of losses.
Thank the central banks for turning every the logic of finance on its head.
More troubling are the departures: Puma, who reported to Tudor Co-President Michael Riccardi, is leaving after three years, people said. He previously worked at Tudor from 1995 to 2003 as head of U.S. operations, according to his LinkedIn.com profile. Money managers Spencer Lampert and John De Palma left earlier this year, months after the retirement of Mark Heffernan, another money manager who’d spent decades at the firm.
* * *
Tudor is not alone. As Bloomberg also reported last night, New York City’s pension fund for civil employees is weighing exiting its $1.5 billion portfolio of hedge fund investments because of lagging performance, high fees and the riskiness of the asset class. The vote to terminate the funds may come as soon as today. Hedge funds make up 3 percent of the civil employees’ fund’s $51 billion portfolio.
Among the names who will be forced to liquidate are D.E. …read more
Source: Hedge Funds Slammed: Tudor Hit With $1BN In Redemptions; NYC Pensions To Pull $1.5BN From Key Names
