Global financial system implosion begins

[teqniq]

Bankers are considering ‘dropping money from the sky’ to prop up the economy

 

[yield]

Five banks sued in U.S. for rigging $9 trillion agency bond market
May 18, 2016

Bank of America Corp (BAC.N), Credit Agricole SA (CAGR.PA), Credit Suisse Group AG (CSGN.S), Deutsche Bank AG (DBKGn.DE) and Nomura Holdings Inc (8604.T) were accused of secretly agreeing to widen the "bid-ask" spreads they quoted customers of supranational, sub-sovereign and agency (SSA) bonds.

The lawsuit filed in Manhattan federal court by the Boston Retirement System said the collusion dates to at least 2005, was conducted through chatrooms and instant messaging, and caused investors to overpay for bonds they bought or accept low prices for bonds they sold.

China Steelmakers Attack US 522% Tariff Move; Say Need More Time
May 19, 2016

Chinese steelmakers attacked new U.S. import duties on the country's steel products as "trade protectionism" on Thursday, saying the world's biggest producer needs time to address its excess capacity.

"There's too much trade friction and it's not good for the market," Liu Zhenjiang, secretary general of the China Iron and Steel Association told Reuters when asked if China will appeal U.S. anti-dumping duties at the World Trade Organization.

Mass Layoffs Are Looming in South Korea
May 18, 2016

In Korea, losing a permanent, full-time job often means sliding toward poverty, one reason why labor unions stage strikes that at times lead to violent confrontations with employers and police. A preference for hiring and training young employees, rather than recruiting experienced hands, means that many workers who get laid off drift into day labor or low-wage, temporary contracts that lack insurance and pension benefits, according to Lee Jun Hyup, a research fellow for Hyundai Research Institute.

 

[gosub]

EU officials hail deal to release billions in bailout loans for Greece

Round the ragged rocks. There was talk of this being a we'll next address in 2018. Any one know? got so much else to do.


Sails definitely beating. Gybe@ 7/6 or flounder.

 

[gosub]

Portugal and the Awkward Power of Credit Ratings

Portugal is Europe's next looming economic disaster

 

[yield]

A misplaced mea culpa for neoliberalism
The International Monetary Fund should stick to its knitting and tackle the decline in productivity
FT 30/05/16

As an all-purpose insult, “neoliberalism” has lost any meaning it might once have had. Whether it is a supposed sin of commission, such as privatisation; one of omission, such as allowing a bankrupt company to close; or just an outcome with some losers, neoliberalism has become the catch-all criticism of unthinking radicals who lack the skills of empirical argument.

The greatest insult of all, however, is that to our intelligence when august international institutions hitch their wagon to these noisy criticisms. This sorry spectacle befell the International Monetary Fund last week when it published an article in its flagship magazine questioning its own neoliberal tendencies and concluding that “instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardising durable expansion”.

The word “some” did a lot of work in that sentence. When it came to favoured IMF policies, the authors from the fund’s research department conclude that competition, global free trade, privatisation, foreign direct investment and sound public finances in the vast majority of countries all pass muster. That exonerates most of what passes as neoliberalism.

Instead of this vast array of settled good practice, the article calls into question two policies: unfettered international flows of hot money, and excessively rapid efforts to reduce public deficits. None of this navel-gazing is remotely new or innovative. The IMF has queried the value of international portfolio investment since the Asian crisis almost two decades ago, while a horses-for-courses approach to fiscal deficits has been the global consensus for nigh on a decade.

It may appear easy to forgive and forget the criticisms as the childish rhetoric of the parts of the IMF which stand aloof from the nitty gritty of helping real countries in terrible circumstances. But the attack on neoliberalism is far more dangerous than that. It gives succour to oppressive regimes around the world which also position themselves as crusaders against neoliberalism, subjugating their populations with inefficient economic policy and extreme inequality using the full power of the state.
"In seeking to be trendy, the IMF instead looks as out of date as a middle-aged man wearing a baseball cap backwards"

Against this risk, what has the IMF achieved? Some raised eyebrows from those unaware of the fund’s work, a lot of eye-rolling from the better informed, and not even the grudging approval of Naomi Klein on Twitter. In seeking to be trendy, the IMF instead looks as out of date as a middle-aged man wearing a baseball cap backwards.

Worst of all, in seeking a public relations coup from relabelling existing policies, the fund has taken its eye off the ball. By far the most important global economic issue is the persistent decline in productivity growth that threatens to undermine progress for all. This does not get a mention.

"The IMF should stick to its knitting"

You’re witnessing the death of neoliberalism – from within
Aditya Chakrabortty. 31 May 2016

The Untold Story Behind Saudi Arabia’s 41-Year U.S. Debt Secret
How a legendary bond trader from Salomon Brothers brokered a do-or-die deal that reshaped U.S.-Saudi relations for generations.
May 31, 2016

 

[not-bono-ever]

I was reading china daily on the bog today. Apparently they are not responsible for the overproduction and sale of steel. its all our fault.

in other news, Shanghai Flash crash the other day

China Futures Exchange Says Client’s Hedging Caused Flash Crash

Apparently a large order fucked the market. That's 398 lots of generic stock index futures at market. A piffling 398 lots of the most vanilla, non deliverable, non threatening contract on the exchanges spooked the market and forced a selloff. And you want further confirmation of how flimsy things are ?

 

[phildwyer]

essentially, the volatility of the implied volatility index is causing ..erm...uncertainty about volatility. which can impact the prices of the stock derivatives on which the index is derived. which can impact the price of the stock itself down the line.

Which means that volatility is the ultimate source of financial value in a derivatives-dominated market, yes? No wonder it's smiling.

 

[phildwyer]

The globalist left who aim at destroying the nation-state through mass immigration and multiculturalism... and the globalist capitalist right who's determined to bring cheap labor into the West to drive down wages can only blame themselves and their policies for disrupting Europe's social cohesion. Now there no longer is a left and a right. There are nationalists who want sovereignty and to preserve their indigenous cultures, identities, and demographic compositions and there are globalists.

You're right concerning the obsolescence of the left/right metaphor, I don't think many people would disagree with you there.

However the nationalist/globalist dichotomy was more important in the 1920s-30s than it is today. Today, the pertinent opposition is pro- and anti-capitalist. Or rather, since today's capitalism has few defenders, the contradiction is simply capital v. people. In reality I suppose that's what it always was.

 

[not-bono-ever]

Which means that volatility is the ultimate source of financial value in a derivatives-dominated market, yes? No wonder it's smiling.

I am not going to defend derivatives- and that is a very wide all encompassing term to hoy about - but in their purest form derivs are a risk management tool with a practical use. I have to admit that 99% of derivatives will not form a physical relationship with their underlying upon maturity. So yes. and no. ish.

 

[yield]

This Fannie-Freddie resurrection needs to die
Editorial June 3

IT’S BEEN said that Washington is where good ideas go to die. We don’t know about that, but some bad ideas are certainly hard to get rid of.

Consider the persistent non-solution to the zombie-like status of Fannie Mae and Freddie Mac known as “recap and release.” The plan is to return the two mortgage-finance giants to their pre-financial-crisis status as privately owned but “government-sponsored” enterprises. That is to say, to recreate the private-gain, public-risk conflict that helped sink them in the first place. Their income would recapitalize the entities, rather than be funneled to the treasury, as is currently the case. Then they could exit the regulatory control known as “conservatorship” that has constrained them since 2008 — and resume bundling home loans and selling them, as if it had never been necessary to bail them out to the tune of $187 billion in the first place.

Congress last year effectively barred recap and release, at least for the next two years. Coupled with the Obama administration’s firm opposition, you’d think that would put a stake through its heart. But “no” is not an acceptable answer for the handful of Wall Street hedge funds that scooped up Fannie and Freddie’s beaten-down common stock for pennies a share after the bailout — and would realize a massive windfall if the government suddenly decided to let shareholders have access to company profits again.

With megabillions on the line, the hedge funds have been arguing high-mindedly that their true concerns are property rights and the rule of law; they have also made common cause with certain low-income-housing advocates who see a resurrected Fan-Fred as a potential source of funds for their programs. Left unexplained, because it’s inexplicable, is how the hedge funds’ arguments square with the fact that there wouldn’t even be a pair of corporate carcasses to fight over but for the massive infusion of taxpayer dollars and the public risk that represented.

The latest iteration of recap and release is a hedge-fund-backed bill sponsored by Rep. Mick Mulvaney (R-S.C.), which would set Fannie and Freddie, unreformed, loose on the marketplace again and do so under terms wildly favorable to the hedge funds. Specifically, shareholders would be charged nothing for the government backing the entities would retain, supposedly to save scarce resources for the capital cushion. But as the Wall Street Journal recently noted, capital could be “risk-weighted” so forgivingly that the actual cushion required might be considerably less than headline numbers suggest. It’s true, as the bill’s backers say, that this could be tweaked in committee, but that would still mean expending precious political time and energy on resurrecting the old, failed business model.

This bad idea’s undeadness illustrates the risks inherent in perpetuating the institutional limbo around the U.S. housing finance system, which is, unfortunately, what Congress and the administration have done so far. Fundamental reform would be a good idea, but you already know what happens to that.

"as if it had never been necessary to bail them out to the tune of $187 billion in the first place."

Which Wall Street hedge funds? And who've they been making campaign contributions to?

 

[phildwyer]

I am not going to defend derivatives- and that is a very wide all encompassing term to hoy about - but in their purest form derivs are a risk management tool with a practical use. I have to admit that 99% of derivatives will not form a physical relationship with their underlying upon maturity. So yes. and no. ish.

Like I said on the other thread, the significant factor about derivatives is that profit from them does not depend on the price of the commodities they represent. Thus the derivative market has eliminated chance, probability, possibility, risk etc as factors in investment decisions. They have finally achieved the full independence of the market from reality.

 

[Coolfonz]

No, derivs have winners and losers like any other trade. They also provide liquidty in markets so people can actually buy and sell the commodity in question. They don't eliminate risk, if they did you wouldn't have teams of maths freaks trying to do just that. cf Nicholas Taleb etc

 

[gosub]

Pound Sterling V Euro FX Rate Bounces Back As Latest Brexit Polls Shift Opinion

I get that hedging happens (and is helpful to our balance of trade too) and it would take a while to sink in that all we did when leaving the EU was retrieve our EEA membership card from that drawer in the kitchen, so all we are arguing about for 2 years is actually ancillaries - enough lack of knowledge to cover that sort of thing - BUT - who the hell is fleeing pounds to get into EUros ? Makes no sense what so ever. Potential Brexit can't exactly instill confidence in the EUro as is.

Sorry looked for after glancing at mainstream press where the all FOREX is capital flight saner -http://www.currencywatch.co.uk/latest-news/910-the-pound-starts-the-week-lower-against-the-euro-and-the-dollar-breakout-targets-0-8000-vs-euro

 

[not-bono-ever]

Everything’s a Buy as Central Banks Keep on Greasing Markets

bad news is good news. More comment on the attention paid to the volatility indicators and the scrabbling to use volatility as a hedge to cut some of the risk out of a truly awful downside scenario that no one wants to take on board ( flat earthers and survivalists aside- maybe they are the only sane ones left?). Utterly fascinating and horrific stuff if viewed objectively, unfortunately, we have a stake in this circus and those are our monkeys ( to adapt the old polish saying).

Time to cash in the chips and buy that ruined farmhouse in Montenegro...

 

[yield]

Everything’s a Buy as Central Banks Keep on Greasing Markets

bad news is good news.

Welcome to bizarro world. Central banks are literally too big to fail though as they can print and repeat. Keep kicking the can down the road. Can't they?

Draghi buying junk bonds shows ECB will do whatever it takes
June 9, 2016

The bank’s entry into the corporate bond market on Wednesday was no exception: buying bonds with junk ratings. The second day didn’t disappoint either, with purchases of notes from troubled German carmaker Volkswagen AG.

By casting his net as wide as the program allows, Draghi ensured that the first day of corporate bond purchases made an impact. While the ECB has said it would buy bonds from companies with a single investment-grade rating, investors expected the central bank to start with the region’s highest-rated securities.

Purchases on the first day included notes from Telecom Italia SpA, according to people familiar with the matter, who aren’t authorized to speak about it and asked not to be identified. Italy’s biggest phone company has speculative-grade ratings at both Moody’s Investors Service and S&P Global Ratings. The company’s bonds only qualify for the central bank’s purchase program because Fitch Ratings ranks it at investment grade.

The Deutsche Bundesbank can't complain too much as the ECB are buying Volkswagen. QE money to buy junk bonds!

Gross says negative rates are like ‘Supernova’ that will explode
June 9, 2016

“Global yields lowest in 500 years of recorded history,” Gross, 72, wrote Thursday on the Janus Capital Group Inc. Twitter site. “$10 trillion of neg. rate bonds. This is a supernova that will explode one day.”

Gross has argued for some time that the economy is at the end of a decades-long cycle of expanding credit that has culminated in negative interest rates, a situation he said is unsustainable. Rather than spurring economic growth, low rates are promoting asset bubbles as investors reach for higher yields while punishing individual savers and industries that rely on interest rates, such as bank and insurance companies, according to Gross.

“Global yields lowest in 500 years of recorded history,” “$10 trillion of neg. rate bonds. This is a supernova that will explode one day.”

Nope nothing to worry about. The Federal Reserve can raise interest rates anytime they want.

 

[Falcon]

Like I said on the other thread, the significant factor about derivatives is that profit from them does not depend on the price of the commodities they represent. Thus the derivative market has eliminated chance, probability, possibility, risk etc as factors in investment decisions. They have finally achieved the full independence of the market from reality.

This is simply wrong.

The 'innovation' (if the trick merits the term) in recent commodity trading is the practice of hedging physical commodity transactions with derivatives. They substitute flat price risk for the risk in the change in price between the physical commodity and its hedging instrument. They reduce risk. They do not eliminate risk.

They attempt to reduce risk further by diversifying - combining risks from different commodity markets. Rises in one market offset falls in other sectors. As we said in the other thread, provided the risks in different commodity markets are uncorrelated and normally distributed, the combined risk regresses to the mean.

But since energy is required in all commodity markets (try making copper and running industrial agriculture without it), commodity markets are correlated. They may not be correlated with each other, but each is correlated with energy. When energy costs rise, all markets fall and profit is extinguished.

Derivatives are fundamentally coupled to reality, through energy.

The chap you read unwittingly assumes the myth of the infinite acting energy supply (like fish unwittingly assume water) because those have been the conditions under which derivative trading stunts were dreamt up. The energy supply isn't infinite acting any more, so they are pursuing a cargo cult.

 

[phildwyer]

No, derivs have winners and losers like any other trade. They also provide liquidty in markets so people can actually buy and sell the commodity in question. They don't eliminate risk, if they did you wouldn't have teams of maths freaks trying to do just that. cf Nicholas Taleb etc

Yes they have winners and losers. But nevertheless there is a sense in which derivatives do indeed eliminate risk, chance, probability, possibility and all related concepts.

For example, a futures option takes something that may or may not happen--something that has a particular probability of happening--and gives it a price that remains constant whether or not the probability is realized.

And thus we see that probability has been removed as a factor in the profit from the derivative contract.

Or again, say we have a futures option that pays $100 if the price of wheat is over $2 per bushel on January 1, and we also have a futures option that pays $100 if the price of wheat is under $2 per bushel on January 1.

Both states of the world cannot possibly exist: that would be impossible. But both derivatives can and do exist. And thus we see that derivatives pay no attention to the laws of possibility.

Since derivatives are by far the most important part of the economy, such facts have profound philosophical implications.

ETA: oh hang on... actually, it would be more accurate to say that the risk is internalized within the market. This is so a forteriori when the underlier is itself a financial instrument or combination thereof.

 

[Coolfonz]

You have forward prices in any market. They change they don't stay the same, but there is only one forward price at a time. You can buy them or not. Go long and short if the market is big enough/liquid enough. Futures, which is what you talked about I think are just part of the mechanism of markets, they aren't good or bad per se. Where the profits go and who owns the profits is the problem.

 

[gosub]

Anarchic stock tip: If in the event of a Brexit vote algorithms crash stock markets.....Article 50 dictates >2 years for any potential human alignment.

 

[coley]

Anarchic stock tip: If in the event of a Brexit vote algorithms crash stock markets.....Article 50 dictates >2 years for any potential human alignment.

Little unimportant UK could cause such damage to the worldwide stock markets?
Vote out and bankrupt the bastards
And let's be realistic, and honest, a high proportion of those institutions and corporations who are encouraging their workers to vote 'remain' have been actively in the forefront of relocating their business activities to cheaper 'non EU' areas.

 

[gosub]

Little unimportant UK could cause such damage to the worldwide stock markets?
Vote out and bankrupt the bastards

Algorithms may lack detail in their coding..... Safety catch would be off though (only appropriate out of consistency with previous use of metaphor) - Unfortunate hyperbole rendered tasteless by yesterday's tragedy.

 

[gosub]

Little unimportant UK could cause such damage to the worldwide stock markets?
Vote out and bankrupt the bastards
And let's be realistic, and honest, a high proportion of those institutions and corporations who are encouraging their workers to vote 'remain' have been actively in the forefront of relocating their business activities to cheaper 'non EU' areas.

Different thread I think.
Got in my head Kieran Prevdiville's big bang Tommorrow's world petrol pump prices (they don't instantly change... oil storage dampens) and the hacked tweet on the White House attack...

 

[coley]

Welcome to bizarro world. Central banks are literally too big to fail though as they can print and repeat. Keep kicking the can down the road. Can't they?

Draghi buying junk bonds shows ECB will do whatever it takes
June 9, 2016


The Deutsche Bundesbank can't complain too much as the ECB are buying Volkswagen. QE money to buy junk bonds!

Gross says negative rates are like ‘Supernova’ that will explode
June 9, 2016


“Global yields lowest in 500 years of recorded history,” “$10 trillion of neg. rate bonds. This is a supernova that will explode one day.”

Nope nothing to worry about. The Federal Reserve can raise interest rates anytime they want.

Keep coming to this thread in the hope there will be a posting I can come close to understanding
Though, "we are all doomed" seems to be the case

 

[gosub]

Keep coming to this thread in the hope there will be a posting I can come close to understanding
Though, "we are all doomed" seems to be the case

I imagine stock markets will give that impression for next four days- safer to retreat and watch from a global capital point of view. they'll come back on either outcome (only the short term nature of the bets would be different depending on the result), but its created a blindspot they can't see past.

 

[NoXion]

My understanding is that there's a segment of the financial markets that thinks that they'll be able to get rich no matter what happens, but in reality the eddies and flows of the global markets means that shit will hit the fan no matter what.

How long will it take until the players realise this, or is it the case that greedy fools will always think they can operate outside the bounds of the rules of the market?

 

[gosub]

My understanding is that there's a segment of the financial markets that thinks that they'll be able to get rich no matter what happens, but in reality the eddies and flows of the global markets means that shit will hit the fan no matter what.

How long will it take until the players realise this, or is it the case that greedy fools will always think they can operate outside the bounds of the rules of the market?

Investments: Orlando is the cat's whiskers of stock picking

 

[not-bono-ever]

My understanding is that there's a segment of the financial markets that thinks that they'll be able to get rich no matter what happens, but in reality the eddies and flows of the global markets means that shit will hit the fan no matter what.

How long will it take until the players realise this, or is it the case that greedy fools will always think they can operate outside the bounds of the rules of the market?

.

 

[yield]

Keep coming to this thread in the hope there will be a posting I can come close to understanding
Though, "we are all doomed" seems to be the case

Interest rates (yields) and bond prices have an inverse relationship. So when one goes up, the other goes down.

Many central banks are busy buying bonds depressing yields to the point where trillions of dollars worth have negative interest rates. You pay to hold them.

Pensions funds and other financial institutions used to depend on them. And therefore a lot of pensioners are going to be out of pocket.

 

[ska invita]

Pensions funds and other financial institutions used to depend on them. And therefore a lot of pensioners are going to be out of pocket.

Funnily enough it was predominantly pensioners who voted for Exit

 

[ska invita]

Is anyone on here a subscirber to the FT?
If so any chance you could copy and paste this article? Id really like to read it. Thanks!

Eastern Europe vulnerable to Brexit fallout - FT.com