Month: December 2014

As Zero Hedge first reported today, shortly before noon one (and subsequently more) FX brokers advised clients that any existing Ruble positions would be forcibly closed out because “western banks have stopped pricing USDRUB“, over concerns of Russian capital controls. Ironically, it was this forced liquidation of mostly short RUB positions that pushed the RUB higher, which in turn had a briefly favorably impact on energy commodities and risk assets, as the market had by then perceived the Ruble selloff as excessive. Of course, since nothing had actually changed aside from a temporary market technical, the selloff promptly resumed into the close of trading once the market finally understood what we had explained hours previously.

And unfortunately for the bulls, various falling knife-catchers, and those who hope the Russian situation will stabilize imminently with or without capital controls, it appears things in Russia are about to get a whole lot worse because as the WSJ reports, the next driver of the Russian crisis is likely to come from within the banking system itself because “global banks are curtailing the flow of cash to Russian entities, a response to the ruble’s sharpest selloff since the 1998 financial crisis.”

Presenting Russia’s banks: now cut off from the outside world as the second cold war goes nuclear, at least when it comes to the financial system: 

Such banks as Goldman Sachs Group Inc. this week started rejecting requests from institutional clients to engage in certain ruble-denominated repurchase agreements and other transactions designed to raise cash, according to people familiar with the matter.

 

Bankers and traders say the moves to restrict some ruble transactions have become increasingly widespread among major Western financial institutions this week, even as the same institutions continue to try to profit from the ruble’s wild swings. The moves, which the banks are deploying to protect themselves against further swings in the currency, have the potential to add to the strain on Russia’s financial system.

 

Goldman in recent days largely stopped doing longer-term ruble-denominated repurchase agreements, or repos, in which securities or other assets are swapped in exchange for cash, said a person familiar with the matter. The Wall Street bank is still doing short-duration ruble repos, those that mature in less than a year, this person said.

And where Goldman goes, everyone else follows, even though according to the WSJ this has not happened, yet:

Other banks, including Bank of America Corp. and Citigroup Inc., haven’t changed their trading with Russia or in rubles, according to people familiar with those banks.

They will, it is only a matter of time. Meanwhile, the entire Russian capital market, and not just its currency, is becoming isolated from the rest of the Western world:

In one sign of the banking industry’s hasty retreat, the London-based manager of an emerging-markets hedge fund said Tuesday that he couldn’t get any banks to trade Russian government bonds with him.

Of course, anyone who read our article in early November explaining “How The Petrodollar Quietly Died, And Nobody Noticed“, predicting the crunch in global intermarket liquidity as a result of the collapse in crude, would know this is coming. As for the death of the Petrodollar we warned about, a death which has resulted in the disintegration of market volume just as warned, suddenly everyone is noticing.

Regardless, what all of the above means is that Russia now has at best a few weeks in which to find an alternative source of short-term funding. One coming from the East.

The question is will Putin swallow his pride and proceed with the next logical step as the Eurasian axis realizes the time to abandon the dollar has long past, that now only actions matter and not words, and joins forces with China in a new monetary union, one which combines the Ruble and the Yuan, and is backed by China’s gold and Russia’s natural resources, as cheap as they may be for the time being… until one or more of the largest middle-east oil exporters experiences a major and “unexpected” geopoolitical incident, one which sends the price of oil soaring right back up.

via Zero Hedge http://ift.tt/1AjxKJd Tyler Durden

Martin Armstrong via Armstrong Economics, has some strong opinions…

Believe it or not, Citigroup announced on Friday that it would move its headquarters from New York to the actual U.S. Capitol Building, in Washington, D.C., in early 2015. Yes! They might as well had since they got everything they wanted… Could you imagine.

 

Citi outbid JP Morgan and Goldman Sachs to lease thirty thousand square feet of prime real estate on the floor of the House of Representatives.

 

This is just jumping off the cliff. Not only did these people grease enough palms to repeal Dodd Frank, they are now virtually leasing space right in the Capital Building and managed to increase the donation limitation from $32,400 to $324,000. They own Congress.

 

Well as they say – there goes the neighborhood. The real problem we face is when you take polls on the job performance on Capitol Hill, we will have to ask which group? Looks like the clouds are starting to gather for 2015.75 in a very dramatic way. Maybe it is just time to leave. Oh ya.

 

This is fulfilling the lyrics of the Eagle’s song Hotel California – where you can check out any time you like, but you can never leave.

And here is no lesser wit than The New Yorker’s Andy Borowitz satirical view on the stuning development…

The banking giant Citigroup announced on Friday that it would move its headquarters from New York to the U.S. Capitol Building, in Washington, D.C., in early 2015.

 

Tracy Klugian, a spokesperson for Citi, said that the company had leased thirty thousand square feet of prime real estate on the floor of the House of Representatives and would be interviewing “world-class architects” to redesign the space to suit its needs.

 

According to sources, Citi successfully outbid other firms, including JPMorgan Chase and Goldman Sachs, for the right to move its headquarters to the House floor.

 

The Citi spokesperson acknowledged that the extensive makeover of the House is expected to cost “in the millions,” but added, “It’s always expensive to open a new branch.”

 

Explaining the rationale behind the move, Klugian told reporters, “Instead of constantly flying out from New York to give members of Congress their marching orders, Citigroup executives can be right on the floor with them, handing them legislation and telling them how to vote. This is going to result in tremendous cost savings going forward.”

 

Klugian said that Citi’s chairman, Michael E. O’Neill, will not occupy a corner office on the House floor, preferring instead an “open plan” that will allow him to mingle freely with members of Congress.

 

“He doesn’t want to come off like he’s their boss,” the spokesperson said. “Basically, he wants to send the message, ‘We’re all on the same team. Let’s roll up our sleeves and get stuff done.’ ”

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Source: Politico

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Via JPMorgan's Mike Feroli,

A quick Fed update

The recent increase in financial market volatility has raised some questions about any rhetorical response from the FOMC tomorrow. While we see some risk of this occurring, we think the most likely outcome is that the Committee refrains from highlighting the latest flare-up in the markets.

In particular, we think they will still drop the 'considerable time' language while also indicating they are in no rush to raise rates.

For a historical guide to the Fed's thinking, we don't have to go too far back; the minutes to the October 2014 meeting — which occurred shortly after a jump in market stress — laid out how they viewed the appropriate rhetorical response. The minutes read:

"members considered the advantages and disadvantages of adding language to the statement to acknowledge recent developments in financial markets. On the one hand, including a reference would show that the Committee was monitoring financial developments while also providing an opportunity to note that financial conditions remained highly supportive of growth. On the other hand, including a reference risked the possibility of suggesting greater concern on the part of the Committee than was actually the case, perhaps leading to the misimpression that monetary policy was likely to respond to increases in volatility. In the end, the Committee decided not to include such a reference."

Of course, if the recent move in asset prices does imply "greater concern on the part of the Committee," then the October comparison is inappropriate. Our best guess, however, is that their concerns have not materially increased. The ruble doesn't matter for the US economy. Lower oil prices and interest rates are good things. The most obvious bad thing is the widening in high-yield credit spreads. But note that in the most recent discussion of financial stability risks in the Monetary Policy Report, the Fed highlighted narrowing credit spreads as a sign of heightened risk-taking — a concern which was echoed in the staff's latest assessment of financial stability risks in the October minutes. We think it would be odd for the Fed to pivot from repeatedly warning of excessive risk-taking in corporate credit markets to warning about excessive risk aversion in those same markets. Thus we don't think this will merit a mention in the statement.

via Zero Hedge http://ift.tt/1wX1sXl Tyler Durden

Authored by Michael Lewis, originally posted at Bloomberg View,

It's a wonderful life on Wall Street, yet here is a holiday wish list to make it even better.

1. The financial sector rids itself of anyone with even the faintest reason to believe that he or she is unusually clever.

All those who have scored highly on standardized tests, or been invited to join Mensa, or finished in the top quartile of any graduating class will be banned. Most of our recent financial calamities — collateralized debt obligations, credit default swaps on subprime mortgage bonds, trading algorithms that prey on ordinary investors, the gaming of rating companies' models, the rigging of the Greek government's books so the country might disguise its true indebtedness — required a great deal of ingenuity. Lesser minds would have been incapable of causing so much damage.

Of course, it's not easy to prevent clever people from working in finance, or from doing anything else they want to do. Perhaps now more than ever, clever people are habituated to being paid to ignore the spirit of any rule — which is one reason they have become such a problem on Wall Street. Upon seeing a new rule they do not think, "What social purpose does this serve, and how can I help it to do the job?" They think, "How can I game it?" If it pays to disguise their intellects, clever people will do it better than anyone else. Without further regulation, our entire society would soon be operating in the spirit of the Philadelphia 76ers: Kids tanking the SAT, parents choosing high schools that guarantee failure, intellectual prodigies scheming to gain entry to Chico State. No single rule, by itself, is capable of protecting the rest of us from their intellects. We'll need more rules.

2. No person under the age of 35 will be allowed to work on Wall Street.

Upon leaving school, young people, no matter how persuasively dimwitted, will be required to earn their living in the so-called real economy. Any job will do: fracker, street performer, chief of marketing for a medical marijuana dispensary. If and when Americans turn 35, and still wish to work in finance, they will carry with them memories of ordinary market forces, and perhaps be grateful to our society for having created an industry that is not subjected to them. At the very least, they will know that some huge number of people — their former fellow street performers, say — will be seriously pissed off at them if they do risky things on Wall Street to undermine the real economy. No one wants a bunch of pissed-off street performers coming after them. To that end …

3. Women will henceforth make all Wall Street trading decisions.

Men are more prone to financial risk-taking, and overconfidence, and so will be banned from even secondary roles on Wall Street trading desks — though they will be permitted to do whatever damage they would like in their private investment accounts. Trading is a bit like pornography: Women may like it, but they don't like it nearly as much as men, and they certainly don't like it in ways that create difficulties for society. Put them in charge of all financial decision-making and the decisions will be more boring, but more sociable. Of course, this raises a practical question: How will our society find enough women older than 35, with no special intellectual ability, to fill all of Wall Street's trading jobs? Well …

4. Wall Street will take the resources it once hurled at Harvard and Yale universities, to recruit their students, and invest in America's leading retirement communities, to recruit their swelling population of elderly women, most of whom are currently wasting valuable trading hours.

I think that we can all agree that a human being is never too old to trade. Many of these ladies would no doubt love a chance to engage in a bit of risk management. Wheel 'em in! After all, there was a time, not very long ago, when very old men were allowed to linger in their Wall Street jobs until carried out, feet first. These old guys were useful; they improved the moral tone of the place. If nothing else, they reminded the young people around them of their own mortality. Which brings me to …

5. No firm shall be immortal — or rather, no firm shall be too big to fail.

No firm shall even be faintly suspected of being too big to fail, as the suspicion creates the reality. Of course, we here run the risk of destroying the spirit of Wall Street, and we don't wish to do that. Wall Street wouldn't be Wall Street without special privileges — without some special exemption from the rules. But the nature of that exemption must change: The too-big-to-fail Wall Street bank will be replaced by the Wall Street bank that is too old to fail. Firms whose employees exceed a certain average age will be allowed to get themselves in trouble as often as they like, and be bailed out each time by the government. Think of it as a new form of Social Security: the older you are, no matter how addled you might become, the more indiscriminately others will lend you money. Government policy will no longer encourage reckless speculation by the young, at the expense of the old. It will instead promote a bubble — a veritable feeding frenzy — in the market for senior citizens.

6. Strive to make the rest of society feel as if finance is something everyone can and should understand, by making it easily understandable.

The new crowd running Wall Street — a pleasant and sociable mix of old ladies and academically challenged middle-age men — will probably resist any addition of complexity to the financial system. Of what use is a predatory algorithm to a sane and happy 85-year-old woman? Still, it's better here to err on the side of caution. To put an end to the use of complexity to obfuscate, buffalo and deceive the public, any new financial idea — a new security, a new stock-market order type, a new market regulation — must be explained on a single sheet of paper, in clear language, understandable by whoever at the time happens to be the most prominent Kardashian. I don't imagine that this will put an end to financial innovation. But it will help. To further protect us from new ideas …

7. All new American financial inventions, before they are inflicted on the American economy, will first be tested upon foreigners.

What is needed is a society, roughly similar to our own, with some taste for risk-taking, in whose economic health we are not deeply invested. The French would be ideal for this job. But if the French won't try our new stuff before we do, we can always bribe the Greeks to do it.

8. Channel America's testosterone into financial regulation.

Our new financial system will probably be so well behaved that it will not require further regulation. It will be slower and more deliberate. It will be more focused on the longer term and its reputation with the public — as older people tend to be. It will probably even serve the economy, rather than be served by it. But as a final safeguard the Securities and Exchange Commission will need to be dismantled, and rebuilt as a for-profit enterprise. So that it might be at once feared and loathed, the regulator will be named "Goldman Sachs." Goldman Sachs will be paid by the government a finders' fee, for every little old lady it discovers in the act of a financial crime. Goldman Sachs will be allowed to pay as much as it wants to its employees — the alpha males who happen to get caught forging birth certificates and attempting to get jobs
on Wall Street before they turn 35.

Of course, in the beginning, when told they must become financial regulators, these ambitious young people will scream and holler, perhaps even weep. But they will figure out how to make their situation work for them; they always do. Before long we may find that our regulators are even better paid than people who work on Wall Street. Who knows — by the time they turn 35, and become eligible for Wall Street jobs, they may have decided there is no higher calling than to maintain order and fairness on Wall Street.

via Zero Hedge http://ift.tt/1uW8zZG Tyler Durden

Perhaps this sums up the day for many FX, bond, equity, and oil traders today…

 

Incredible Volatility today – 100 point roundtrip in the S&P, and 800 points in the Dow – all driven by a halt in Ruble Trading, the European close, and Kuwait pissing on the US market's fireworks…

 

And the volatility was incredible across the entire US equity market – as the S&P ramp ran stops to yesterday's highs then gave it all back...again around the EU close

 

A massive roeundtip in cash markets…

 

The Russian markets dominated headlines…

 

but the US credit markets were more worrisome as it appears the risk has finally started to appear in the investment-grade credit market.

High yield bond yields hit 2-year highs… and spreads to 18 month wides…

 

And Investment Grade credit has become infected…

 

Every asset class underwent a roller-coaster…

Treasury yields fell 10ps, rose 10bps then fell 8bps…

 

Silver and Gold pumped and dumped.. as oil dumped and pumped and dumped…

 

Across the asset classes today – these were the events…

 

 

Finally we wonder… who was this mysterious $3.7 billion trader today…

Take a look at these 31 $SPY trades today worth $3.7 billion. Anyone know what they are from? http://ift.tt/1ztecTo

— Eric Scott Hunsader (@nanexllc) December 16, 2014

But don;t forget…

http://ift.tt/1BT2JNg

— Not Jim Cramer (@Not_Jim_Cramer) December 16, 2014

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1A6QltP Tyler Durden

The myth of harsh lending conditions in the US is probably only matched in its disconnect from reality by the just as entertaining narrative of the “one-time, non-recurring” harsh winter crushing Q1 GDP. A narrative which even needed support from none other than former Fed Chairman Bernanke who allegedly was denied a mortgage refinancing on the $672K loan he still owes for his 3-bedroom, 2100 square foot home (a story which is about as credible as 17 year olds making $72 million by cornering the penny-stock market).

For the truth we go to the Office Of the Comptroller of the Currency, which just reported in its annual survey that for the third year in a row, U.S. banks relaxed loan underwriting standards, “a trend mirroring the lax lending just before the financial crisis.”

Those who blame the collapse in mortgage (and overall loan) volumes on strict supply limits – usually the same who say the crash in oil is entirely supply driven and has nothing to do with the Chinese slowdown, or the European triple dip, or the Japanese quadruple dip recessions – will be stunned to learn that according to the top US regulator, large banks in particular loosened lending standards as they tried to boost loan volumes.

But… that’s goes entirely against the fake and contrived narrative? Can’t they at least keep track of the lies they fabricate to boost confidence?

The answer is, clearly, no. But it gets worse, because not only are banks rushing to underwrite anything once again, the pace of underwriting is back to pre-subprime crash levels:

Banks still make high-quality loans, the regulator said, but credit risk, or the danger that borrowers will be unable to pay, is on the rise.

 

The survey looked at 91 banks and about 94 percent of loans in the federal banking system over the 12-month period that ended June 30.

 

“This year’s survey showed a continued easing in underwriting standards, with trends very similar to those seen from 2004 through 2006,” said Jennifer Kelly, senior deputy comptroller for bank supervision.

The surprise is that it took as long as it did to finally admit that it is not a supply issue, but one of demand, and specifically a completely lack thereof. The paradox is that while the OCC is concerned by the trends, it is none other than the Fed who is urging every single bank to become the Countrywide Financial of the New Abnormal: after all it is either lend the reserves, or use them to boost stocks ever higher into a market which even the BIS says is an unprecedented bubble.

Regulators said banks relaxed underwriting standards for credit cards, large corporate loans and leveraged loans, which go to entities that already have significant debt, because they faced more competition and struggled with low interest rates.

 

OCC examiners also said banks allowed exceptions to their own lending rules for some commercial products.

The punchline: “The combination of looser lending standards and policy exceptions adds extra risk that can crop up during crisis periods, the OCC said. Managers should look into the changing practices and try to reduce credit risk, regulators said.”

Yup, managers will get right on with reducing risk, even if – or especially if – it means writing off their bonus for this and however many years in the future, until the whole house of cards comes tumbling down all over again.

via Zero Hedge http://ift.tt/1uVPjeS Tyler Durden

We noted earlier the “noise” in VIX. We are starting to get a picture of what’s happening… and it’s not good. As Bloomberg reports, Group One Trading’s Dominic Salvino warns, inputs to the calculation are going skewy on the VIX in the past couple days because “safety parameters are set to hair triggers” and market makers are going wide more often than not. Yet another market – and The Fed’s direct manipulation tool – is now entirely broken.

 

 

As Bloomberg reports,

Inputs to the calculation are going skewy on the VIX in the past couple days because “safety parameters are set to hair triggers” and market makers are going wide more often than not, Group One Trading’s Dominic Salvino said.

 

CBOE may look at the issue to see if something “more reliable” can be used: Salvino, in phone interview

 

CBOE spokeswoman didn’t immediately have comment

 

Was happening, with smaller effects before; now that weeklies are in the calculation, spikes occurring more often

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