Category: zerohedge

Submitted by Howard Kunstler of Kunstler.com,

“Federal Reserve officials are closer to winding down their controversial $85 billion-a-month bond-purchase program, possibly as early as December, in the wake of Friday’s encouraging jobs report.”

That from the much-deservedly maligned John Hilsenrath, widely regarded to be the Federal Reserve’s ventrioloquist dummy over at the Wall Street Journal, as in, from God’s mouth to the jittery multitudes. Of course the jobs number was just another highly seasoned and over-leavened cupcake from the Bureau of Labor Statistic’s magic hedonic oven, so you can be sure that the predicate of that statement is… how to put it delicately…  the latest arrant lie with hypothetical icing on top.

Everybody knows that the Federal Reserve’s money-pumping operations have become a replacement for what used to be an economy. Therefore, no more money pumping = no more so-called economy. It’s that simple. But it doesn’t mean that the Federal Reserve won’t make a gesture and I wouldn’t be surprised if they try it during the season that Santa Claus hovers over the national consciousness — or what little of that remains when you subtract the methedrine, the Kanye downloads, the fear of an $11,000 bill for an emergency room visit requiring three stitches, and all the other epic distractions of our time.

The next meeting of the Fed’s Open Market Committee (FOMC), where such things as taper-or-not are considered, is Dec. 17. The Fed has to make some kind of gesture to retain any credibility, so I suspect they’ll go for a symbolic shaving of five or ten billion a month off the current official bond-buying operation number of $85 billion a month (or $1.2 trillion a year). If they don’t do it, no one will ever believe them again. I call it the “head-fake” taper, because it is essentially a false move.

The catch is that the Fed has more than one back door for vacuuming up all sorts of other miscellaneous financial trash paper securitized by promises already broken, moldy sheet-rock housing, college loans defaulted on, car payments that stopped arriving eighteen months ago, credit cards maxed to oblivion, sovereign foreign economies visibly whirling down the drain, and untold casino bet derivative hedges. Loose talk has it that the Fed is buying up way more dodgy debt than the official number of $85 billion a month. And why not? They bailed out way more than the $700 billion official TARP figure back in 2009 — everything from insolvent European banks to Floridian motels on the REO junk-pile — so nobody should take any particular taper number seriously. They’ll just backfill as necessary.

But even in a world of seemingly no consequence, things happen. One pretty sure thing is rising interest rates, especially when, at the same time as a head-fake taper, foreigners send a torrent of US Treasury paper back to the redemption window. This paper is what other nations, especially in Asia, have been trading to hose up hard assets, including gold and real estate, around the world, and the traders of last resort — the chumps who took US T bonds for boatloads of copper ore or cocoa pods — now have nowhere else to go. China alone announced very loudly last month that US Treasury debt paper was giving them a migraine and they were done buying anymore of it. Japan is in a financial psychotic delirium scarfing up its own debt paper to infinity. Who’s left out there?  Burkina Faso and the Kyrgystan Cobblers’ Union Pension Fund?

The interest rate on the US 10-year bond is close to bumping up on the ominous 3.0 percent level again. Apart from the effect on car and house loans, readers have pointed out to dim-little-me that the real action will be around the interest rate swaps. Last time this happened, in late summer, the too-big-to-fail banks wobbled from their losses on these bets, providing a glimpse into the aperture of a black hole compressive deflation where cascading chains of unmet promises blow financial systems past the event horizon of universal default and paralysis where money stops moving anywhere and people must seriously reevaluate what money actually is.

I think we’ll see them try the head-fake taper. They must. It will be backstopped by and saturated in statistical lying, and everyone will have trouble parsing the probable effect because the chronic dishonesty loose in this land will have deformed and impaired all metrics of true value. At the heart of whatever remains of this economy is fire, and the officers of the Federal Reserve are playing with it. Pretty soon, we’ll get the un-taper, the final surrender to the crack-up boom that awaits before the western world has to go medieval.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/kGdFMhV0-i8/story01.htm Tyler Durden

Tapering may not be tightening, as the Fed will keep repeating until someone actually believes it (the Fed may be right, however it’s not what the Fed thinks or does, but the next most levered counterparty who is the risk factor, and whose potential selling is what is keeping everyone on their toes), but the just completed 3 Year auction just priced at a yield of 0.631%, precisely where it priced in August, the month before the last “consensus” taper announcement at the September FOMC, and above the 0.581% where the 3 Year was in June when the Taper Tantrum peaked. The short-end may not be panicking yet, but the enthusiasm for bonds is certainly not where it used to be, especially when one considers 3 Years priced in the mid-0.3% range from September 2011 until May 2013.

That said, the auction showed stable demand, with the High Yield pricing through the 0.637% When Issued. Demands was even stabler when one looks at the Bid to Cover, which at 3.553 was the highest since the 3.587% in February, and continues to break the trend of declining BTCs seen over the past year, until the sharp jump in November.

Finally, the allocation was as follows: Primary Dealers: 49.6%, promptly to be flipped to the Fed, Indirects 38.4%, well above the 29.1% TTM average, and Directs taking down just 12.0%, the lowest since June, and far below the 18.9% average.

While overall the auction priced without any glitches or complications, should the Fed indeed proceed to Taper, the January 3 Year will hardly be a cool, calm and collected.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/2uFrPQ_vFDA/story01.htm Tyler Durden

While much has been said about the benefits of Bernanke’s wealth effect to the asset-owning “10%”, just as much has been said about the ever deteriorating plight of the remaining debt-owning 90%, who are forced to resort to labor to provide for their families, and more specifically how their living condition has deteriorated over not only the past five years, since the start of the Fed’s great experiment, but over the past several decades as well. However, in the case of America’s “servant” class, Al Jazeera finds that their plight is now worse than it has been at any time over the past century, going back all the way to 1910!

According to Al Jazeera, “at least one class of American workers is having a much harder time today than a decade ago, than during the Great Depression and than a century ago: servants.  The reason for this, surprisingly enough, is outsourcing. Let me explain. Prosperous American families have adopted the same approach to wages for servants as big successful companies, hiring freelance outside contractors for all sorts of functions from child care and handyman chores to gardening and cleaning work to reduce costs. Instead of the live-in servants, who were common in the prosperous households of America before World War II, better off families now outsource the family cook, maid and nanny. It is part of a global problem in developed countries that is getting more attention worldwide than in the U.S.”

The reality is that the modern servant is also known as the minimum-wage burger flipper, whose recent weeks have been spent in valiant, if very much futile, strikes in an attempt to increase the minimum wage their are paid. Futile, because recall that in its first “national hiring day” McDonalds hired 62,000 workers…. and turned down 938,000! Such is the sad reality of the unskilled modern day worker at the bottom the labor pyramid.

Unfortunately, we anticipate many more strikes in the future of America’s disenfranchised poorest, especially once they realize that their conditions are worse even than compared to live in servants from the turn of the century.

Al Jazeera crunches the numbers:

Consider the family cook. Many family cooks now work at family restaurants and fast food joints. This means that instead of having to meet a weekly payroll, families can hire a cook only as needed.

 

A household cook typically earned $10 a week in 1910, century-old books on the etiquette of hiring servants show. That is $235 per week in today’s money, while the federal minimum wage for 40 hours now comes to $290 a week.

 

At first blush that looks like a real raise of $55 a week, or nearly a 25-percent increase in pay. But in fact, the 2013 minimum wage cook is much worse off than the 1910 cook. Here’s why:

• The 1910 cook earned tax-free pay, while 2013 cook pays 7.65 percent of his income in Social Security taxes as well as income taxes on more than a third of his pay, assuming full-time work every week of the year. For a single person, that’s about $29 of that $55 raise deducted for taxes.

• Unless he can walk to work, today’s outsourced family cook must cover commuting costs. A monthly transit pass costs $75 in Los Angeles, $95 in Atlanta and $122 in New York City, so bus fare alone runs $17 to $25 a week, eating up a third to almost half of the seeming increase in pay, making the apparent raise pretty much vanish.

• The 1910 cook got room and board, while the 2013 cook must provide his own living space and food.

More than half of fast food workers are on some form of welfare, labor economists at the University of California, Berkeley and the University of Illinois reported in October after analyzing government economic statistics.

 

Data on domestic workers is scant because Congress excludes them from both regular data gathering by the Bureau of Labor Statistics and laws giving workers rights to rest periods and collective bargaining.

 

Nevertheless, what we do know is troubling. These days 60 percent of domestic workers spend half of their income just on housing and a fifth run out of food some time each month.

 

A German study found that in New York City domestic workers pay ranges broadly, from an illegal $1.43 to $40 an hour, with a quarter of workers earning less than the legal minimum wage. The U.S. median pay for domestic servants was estimated at $10 an hour.

The conclusion?

We are falling backwards in America, back to the Gilded Age conditions a century and more ago when a few fortunate souls grew fabulously rich while a quarter of families had to take in paying boarders to make ends meet. Only back then, elites gave their servants a better deal.

 

Thorstein Veblen, in his classic 1899 book “The Theory of the Leisure Class,” observed that “the need of vicarious leisure, or conspicuous consumption of service, is a dominant incentive to the keeping of servants.” Nowadays, servants are just as important to elites, except that they are conspicuous in their competition to avoid paying servants decent wages.

But… but… how is that possible if the stock market is at all time highs and the wealth is US households just rose by $1.9 trillion in one short quarter. Oh wait, what they meant is “some” households.

And, of course if all else fails, America’s “free” servants, stuck in miserable lives working minimum wage jobs for corporations where the only focus in on shareholder returns and cutting overhead, can volunteer to return to a state of “semi-slavery” (while keeping the iPhones and apps of course, both paid on credit) and become live-in servants for America’s financial oligarchy and the like. We hear the numerous apartments of Wall Street’s CEOs have quite spacious servants’ quarters.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/VRZU_zGgSf0/story01.htm Tyler Durden

While much has been said about the benefits of Bernanke’s wealth effect to the asset-owning “10%”, just as much has been said about the ever deteriorating plight of the remaining debt-owning 90%, who are forced to resort to labor to provide for their families, and more specifically how their living condition has deteriorated over not only the past five years, since the start of the Fed’s great experiment, but over the past several decades as well. However, in the case of America’s “servant” class, Al Jazeera finds that their plight is now worse than it has been at any time over the past century, going back all the way to 1910!

According to Al Jazeera, “at least one class of American workers is having a much harder time today than a decade ago, than during the Great Depression and than a century ago: servants.  The reason for this, surprisingly enough, is outsourcing. Let me explain. Prosperous American families have adopted the same approach to wages for servants as big successful companies, hiring freelance outside contractors for all sorts of functions from child care and handyman chores to gardening and cleaning work to reduce costs. Instead of the live-in servants, who were common in the prosperous households of America before World War II, better off families now outsource the family cook, maid and nanny. It is part of a global problem in developed countries that is getting more attention worldwide than in the U.S.”

The reality is that the modern servant is also known as the minimum-wage burger flipper, whose recent weeks have been spent in valiant, if very much futile, strikes in an attempt to increase the minimum wage their are paid. Futile, because recall that in its first “national hiring day” McDonalds hired 62,000 workers…. and turned down 938,000! Such is the sad reality of the unskilled modern day worker at the bottom the labor pyramid.

Unfortunately, we anticipate many more strikes in the future of America’s disenfranchised poorest, especially once they realize that their conditions are worse even than compared to live in servants from the turn of the century.

Al Jazeera crunches the numbers:

Consider the family cook. Many family cooks now work at family restaurants and fast food joints. This means that instead of having to meet a weekly payroll, families can hire a cook only as needed.

 

A household cook typically earned $10 a week in 1910, century-old books on the etiquette of hiring servants show. That is $235 per week in today’s money, while the federal minimum wage for 40 hours now comes to $290 a week.

 

At first blush that looks like a real raise of $55 a week, or nearly a 25-percent increase in pay. But in fact, the 2013 minimum wage cook is much worse off than the 1910 cook. Here’s why:

• The 1910 cook earned tax-free pay, while 2013 cook pays 7.65 percent of his income in Social Security taxes as well as income taxes on more than a third of his pay, assuming full-time work every week of the year. For a single person, that’s about $29 of that $55 raise deducted for taxes.

• Unless he can walk to work, today’s outsourced family cook must cover commuting costs. A monthly transit pass costs $75 in Los Angeles, $95 in Atlanta and $122 in New York City, so bus fare alone runs $17 to $25 a week, eating up a third to almost half of the seeming increase in pay, making the apparent raise pretty much vanish.

• The 1910 cook got room and board, while the 2013 cook must provide his own living space and food.

More than half of fast food workers are on some form of welfare, labor economists at the University of California, Berkeley and the University of Illinois reported in October after analyzing government economic statistics.

 

Data on domestic workers is scant because Congress excludes them from both regular data gathering by the Bureau of Labor Statistics and laws giving workers rights to rest periods and collective bargaining.

 

Nevertheless, what we do know is troubling. These days 60 percent of domestic workers spend half of their income just on housing and a fifth run out of food some time each month.

 

A German study found that in New York City domestic workers pay ranges broadly, from an illegal $1.43 to $40 an hour, with a quarter of workers earning less than the legal minimum wage. The U.S. median pay for domestic servants was estimated at $10 an hour.

The conclusion?

We are falling backwards in America, back to the Gilded Age conditions a century and more ago when a few fortunate souls grew fabulously rich while a quarter of families had to take in paying boarders to make ends meet. Only back then, elites gave their servants a better deal.

 

Thorstein Veblen, in his classic 1899 book “The Theory of the Leisure Class,” observed that “the need of vicarious leisure, or conspicuous consumption of service, is a dominant incentive to the keeping of servants.” Nowadays, servants are just as important to elites, except that they are conspicuous in their competition to avoid paying servants decent wages.

But… but… how is that possible if the stock market is at all time highs and the wealth is US households just rose by $1.9 trillion in one short quarter. Oh wait, what they meant is “some” households.

And, of course if all else fails, America’s “free” servants, stuck in miserable lives working minimum wage jobs for corporations where the only focus in on shareholder returns and cutting overhead, can volunteer to return to a state of “semi-slavery” (while keeping the iPhones and apps of course, both paid on credit) and become live-in servants for America’s financial oligarchy and the like. We hear the numerous apartments of Wall Street’s CEOs have quite spacious servants’ quarters.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/VRZU_zGgSf0/story01.htm Tyler Durden

Same Shit, Different Day; yet again the S&P 500 is trading tick-for-tick with the all-important EURJPY cross rate. As the following chart shows, its all about fun-durr-mentals…

 

Fun-Durr-Mentals….

(h/t @Not_Jim_Cramer)

 

Same Shit Different Day…

 

and longer-term…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FM0LN-8avao/story01.htm Tyler Durden

If you can’t beat ’em, join ’em, copy ’em, and then beat ’em. While everyone’s attention has been glued to Bitcoin (and its various smaller and less viable for now alternative digital currencies), JPMorgan has submitted a patent which appears to set the scene for a competing centralized network to Bitcoin. As LetsTalkBitcoin noted first, the “Method and system for processing internet payments using the electronic funds transfer network,” states that Chase’s technology is a “new paradigm.” Moreover that it permits the creation of “virtual cash” (also referred to as “web cash”) with a “real-time digital exchange of value.”

Via eCreditDaily,

Imagine paying for some product in a transaction directly with the seller that doesn’t include a costly third-party fee or the revelation of a personal account number — the current components that comprise credit card and debit card purchases. Imagine this system with a “real-time digital exchange of value.” And imagine that you can archive all the transactions in a personal digital wallet, with its own “Internet Pay Anyone (IPA)” account and inherent safeguards built-in, something that you could call “Virtual Private Lockbox (VPL),” according to JPMorgan’s patent.

 

If this “web cash” system — as JPMorgan Chase calls it — seems familiar, it should. It smacks of the peer-to-peer transactions of bitcoins and other cryptocurrencies that increasingly are making the world’s biggest banks uneasy about the future of e-commerce.

 

The patent, first revealed by LetsTalkBitcoin.com, is a fascinating look into JPMorgan’s veiled outlook on the evolving but growing bitcoin universe, and other more widely-accepted payment systems.

 

JPMorgan’s proposed system offers another eerily familiar component, which seemingly mimics “blockchain,” a publicly available, permanent ledger of bitcoin transactions.

 

…

 

Without naming the virtual currency or any competing payments system by name, the bank takes a swipe at the crytocurrency model.

 

“None of the emerging efforts to date have gotten more than a toehold in the market place and momentum continues to build in favor of credit cards,” according to Chase’s patent application published by The United States Patent and Trademark Office (USPTO). It was filed August 5th, 2013.

 

…

 

JPMorgan Chase sees “a new marketplace” emerging for “low dollar, high volume, real-time payments with payment surety for both consumers and producers.”

 

As LetsTalkBitcoin.com points out, “Bitcoin has also been ballyhooed for it use with micro-payments and payments under ten dollars due to its zero to negligible fee structure.”

 

JPMorgan Chase: “The present invention further enables small dollar financial transactions, allows for the creation of ‘web cash’ as well as provides facilities for customer service and record-keeping.”

While naming protocols for these vitual currencies is uncertain, we can’t help but think “Dimons” would be appropriate as the web cash becomes increasingly more trusted.

 

LetsTalkBitcoin discusses how JPMorgan’s proposed system works:

Under The Hood: Internet Pay Anyone

 

“…The structural components to the system of the present invention include:

 

    a Payment Portal Processor; a digital Wallet;
    an Internet Pay Anyone (IPA) Account;
    a Virtual Private Lockbox (VPL);
    an Account Reporter;
    the existing EFT networks;
    and a cash card.

 

“…The Payment Portal Processor (PPP) is a software application that augments any Internet browser with e-commerce capability. The PPP software sits in front of and provides a secure portal for accessing (finking to) the user’s. Demand Deposit Accounts (DDA) and IPA accounts. The PPP enables the user to push electronic credits from its DDA and IPA accounts to any other accounts through the EFT network…”

 

“…The {technology} …includes freely publishing the payment address and making it available to users of an internet portal or search engine…”

 

“…Currently, all Internet transactions use “pull” technology in which a merchant must receive the consumer’s account number (and in some cases PIN number) in order to complete a payment. The payment methods of the present invention conversely use “push” technology in which users (consumers or businesses) push an EFT credit from their IPA or DDA accounts to a merchant’s account, without having to provide their own sensitive account information…” 

 

A New Paradigm

 

“…The present invention represents a new paradigm for effectuating electronic payments that leverages existing platforms, conventional payment infrastructures and currently available web-based technology to enable e-commerce in both the virtual and physical marketplace. The concept provides a safe, sound, and secure method that allows users (consumers) to shop on the Internet, pay bills, and pay anyone virtually anywhere, all without the consumer having to share account number information with the payee. Merchants receive immediate payment confirmation through the Electronic Funds Transfer (EFT) network so they can ship their product with confidence that the payment has already been received. The present invention further enables small dollar financial transactions, allows for the creation of “web cash” as well as provides facilities for customer service and record-keeping…”

and the implications:

I view this technology and patent application as an overwhelming good thing.  Bitcoin is driving Innovation.  It has been said that credit cards and the legacy banking system in use today was never meant for use over the internet.  Chase’s updated Internet Pay Anyone technology appears to come head to head with Bitcoin.

 

…

 

While it remains to be seen if this technology is a “Bitcoin Killer,” other players such as eBay/PayPal (which have been riding under Bitcoin’s coattails through marketing gimmicks) ought to pay close attention to this emerging technology.  If Bitcoin does get a “toehold” in the marketplace, we just might see this technology activated.  The Chase is on.

Finally, the patent application itself (source USPTO):

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sdGi5WoIMkg/story01.htm Tyler Durden

Since fundamentals have been irrelvant for years, the only possible (short-term) guide in a market in which the only thing that does matter is the Fed’s balance sheet, are trends (as Hugh Hendry put it so appropriately) here are some technical trade ideas from Bank of America, on the EURUSD, Treasurys, the S&P500 and WTI.

First, on FX:

Looking for the EURUSD Top:

 

As we recently wrote in our 2014 Year Ahead report, we are US $ bulls for the year ahead and look for €/$ to trade lower toward the Apr’12 lows, at 1.2746, and, potentially, the 200m avg. near 1.2173. In the nearer term, we continue to see the gains from the 1.3295 Nov 07 low as corrective and temporary. The impulsive decline from the 1.3833 high on Oct 25 says the trend has turned bearish for the 200d (now 1.3248) and, potentially, the 17m channel base at 1.3065. An impulsive decline below 1.3694 confirms the trend has resumed lower, while OUR BEARISH VIEW IS INCORRECT ON A BREAK OF 1.3833.

 

Next, on Treasurys :

Head and Shoulders base says stay bearish 5yrs.

 

Since the Friday NFP, we have seen a sizeable, bullish turn in US Treasuries. However, despite this turn, the bigger picture trend continues to say, “STAY BEARISH”. Our point of focus remains very much on the 5yr, where the 2m Head and Shoulders Base remains intact. Indeed, it is quite common to see a “re-test” of a Head and Shoulders neckline following the formation’s completion. That is likely what we are seeing here. With the neckline currently at 1.447%, further yield weakness, price strength should prove limited before the larger bear trend resumes. We have taken this counter-trend move as an opportunity to add to our TYH4 short (recall we recommended going short in last Thursday’s Liquid Technical Alert) at 124-20+ for an average of 124-17+. Our stop is 125-08 and our downside target is 122-06+.

 

Next, on the S&P500 (via ESZ3):

Watch SP500

 

Turning to ESZ3, the break of 1799.75 alleviates the correction risk and points to bull trend resumption. A break of 1812.50 confirms, targeting 1847/1850. Below 1799 means renewed range trading, while bears gain control below 1773.25

 

And finally, on crude:

Get ready to buy a WTI pullback

 

The CLF4 impulsive advance from 91.77 says the near-term and, POTENTIALLY, medium-term trend has turned bullish for WTI. In the sessions ahead, we will look to buy a pullback into 95.74 for 102.95/103.00 and, POTENTIALLY, the multi-year range highs near 110.55 and beyond. WTI bulls, GET READY.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Mw2M_ZocdWc/story01.htm Tyler Durden

Since fundamentals have been irrelvant for years, the only possible (short-term) guide in a market in which the only thing that does matter is the Fed’s balance sheet, are trends (as Hugh Hendry put it so appropriately) here are some technical trade ideas from Bank of America, on the EURUSD, Treasurys, the S&P500 and WTI.

First, on FX:

Looking for the EURUSD Top:

 

As we recently wrote in our 2014 Year Ahead report, we are US $ bulls for the year ahead and look for €/$ to trade lower toward the Apr’12 lows, at 1.2746, and, potentially, the 200m avg. near 1.2173. In the nearer term, we continue to see the gains from the 1.3295 Nov 07 low as corrective and temporary. The impulsive decline from the 1.3833 high on Oct 25 says the trend has turned bearish for the 200d (now 1.3248) and, potentially, the 17m channel base at 1.3065. An impulsive decline below 1.3694 confirms the trend has resumed lower, while OUR BEARISH VIEW IS INCORRECT ON A BREAK OF 1.3833.

 

Next, on Treasurys :

Head and Shoulders base says stay bearish 5yrs.

 

Since the Friday NFP, we have seen a sizeable, bullish turn in US Treasuries. However, despite this turn, the bigger picture trend continues to say, “STAY BEARISH”. Our point of focus remains very much on the 5yr, where the 2m Head and Shoulders Base remains intact. Indeed, it is quite common to see a “re-test” of a Head and Shoulders neckline following the formation’s completion. That is likely what we are seeing here. With the neckline currently at 1.447%, further yield weakness, price strength should prove limited before the larger bear trend resumes. We have taken this counter-trend move as an opportunity to add to our TYH4 short (recall we recommended going short in last Thursday’s Liquid Technical Alert) at 124-20+ for an average of 124-17+. Our stop is 125-08 and our downside target is 122-06+.

 

Next, on the S&P500 (via ESZ3):

Watch SP500

 

Turning to ESZ3, the break of 1799.75 alleviates the correction risk and points to bull trend resumption. A break of 1812.50 confirms, targeting 1847/1850. Below 1799 means renewed range trading, while bears gain control below 1773.25

 

And finally, on crude:

Get ready to buy a WTI pullback

 

The CLF4 impulsive advance from 91.77 says the near-term and, POTENTIALLY, medium-term trend has turned bullish for WTI. In the sessions ahead, we will look to buy a pullback into 95.74 for 102.95/103.00 and, POTENTIALLY, the multi-year range highs near 110.55 and beyond. WTI bulls, GET READY.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Mw2M_ZocdWc/story01.htm Tyler Durden

Submitted by Peter Tchir of TF Market Advisors,

Volcker Rule – Who cares?  I know we are supposed to care more about this convoluted rule, but we just can’t.

The concept that somehow “prop” trading brought down the banks seems silly.  The idea that market making desks were a dangerous part of the equation is ludicrous.

They could have fixed this with a few simple changes, but that would have meant some blame would have had to be shifted onto the regulators…

The inability of regulators to communicate and create consistent rules had more of an impact than anything else.  The single biggest problem was that the insurance rules and bank rules did not line up.  Banks could load up on AAA tranches of ABS CDO’s (including sub-prime) and buy protection for companies that could never hope to pay it off if it went wrong and attract almost no regulatory capital.  The entity that sold it would run some actuarial models and also have no regulatory capital.  At some point the regulators allowed some AAA risk, which should have attracted significant capital, to attract none.  Making the insurance regulators and bank regulators communicate and close loopholes would be a simpler and more effective solution than Volcker.

The rest could be fixed by a few simple hires.

First, hire a junior person from the risk management side of any mediocre hedge fund.  They would immediately want to put in place some limits on gross notionals.  Yes, hedging and relative value is potentially profitable, but you still want to limit the size.  That would reduce curve trades, the unnecessary proliferation of back to back derivative trades, etc.  It would help ensure that the “worst case” isn’t so bad or so convoluted that investors get too nervous.

 

Second, hire a junior level accountant.  They could quickly realize that when some massive percentage of the P&L is driven by model risk (correlation trading for example) you should be nervous.  Limit the amount of risk offset that can be derived from models and do the same with P&L.  It is great that banks can use their models for capital requirements and to a large degree it makes sense, but models are notoriously wrong – sometimes by accident, sometimes because no one knows better, and sometimes on purpose.  Don’t eliminate the use of models, but keep it to a size that is reasonable.

 

Third, hire someone from the IRS.  Make a “progressive” capital system.  Charge more as the size of a position increases.  Owning $25 million, $100 million and $250 million of the bond is not usually linear.  In most cases owning $250 million is more than 10 times riskier than owning just $25 million.  This applies to individual holdings and a portfolio.  Too big to fail would yelp but that is the reality and would be much simpler than what we got.

 

Fourth, hire a retired mid-level commercial banker from the 80’s.  They can remind everyone that lending is risky and that banks have blown up in the past based on dumb loans, no mark to market accounting, and inadequate reserves.  Banks don’t need these newfangled inventions to blow themselves up – they were capable of blowing themselves up in the exact sort of environment Volcker seems intent on dragging them back into.

 

Five, fire 1,250 lawyers.  The ratio of lawyers to people who know their way around trading or risk is absurd.

In the end, banks are taking less risk because they don’t want to.  If and when they want to, they can probably find a way.  The Volcker rule is overly complex.  Banks will shy away from activities for now.  That is probably bad for bank stocks at the margin but remains good for bank credit as tail risk is pushed off (at least until they get bloated on bad loans, but that is years away).

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uZDcrVvV01o/story01.htm Tyler Durden

Submitted by Peter Tchir of TF Market Advisors,

Volcker Rule – Who cares?  I know we are supposed to care more about this convoluted rule, but we just can’t.

The concept that somehow “prop” trading brought down the banks seems silly.  The idea that market making desks were a dangerous part of the equation is ludicrous.

They could have fixed this with a few simple changes, but that would have meant some blame would have had to be shifted onto the regulators…

The inability of regulators to communicate and create consistent rules had more of an impact than anything else.  The single biggest problem was that the insurance rules and bank rules did not line up.  Banks could load up on AAA tranches of ABS CDO’s (including sub-prime) and buy protection for companies that could never hope to pay it off if it went wrong and attract almost no regulatory capital.  The entity that sold it would run some actuarial models and also have no regulatory capital.  At some point the regulators allowed some AAA risk, which should have attracted significant capital, to attract none.  Making the insurance regulators and bank regulators communicate and close loopholes would be a simpler and more effective solution than Volcker.

The rest could be fixed by a few simple hires.

First, hire a junior person from the risk management side of any mediocre hedge fund.  They would immediately want to put in place some limits on gross notionals.  Yes, hedging and relative value is potentially profitable, but you still want to limit the size.  That would reduce curve trades, the unnecessary proliferation of back to back derivative trades, etc.  It would help ensure that the “worst case” isn’t so bad or so convoluted that investors get too nervous.

 

Second, hire a junior level accountant.  They could quickly realize that when some massive percentage of the P&L is driven by model risk (correlation trading for example) you should be nervous.  Limit the amount of risk offset that can be derived from models and do the same with P&L.  It is great that banks can use their models for capital requirements and to a large degree it makes sense, but models are notoriously wrong – sometimes by accident, sometimes because no one knows better, and sometimes on purpose.  Don’t eliminate the use of models, but keep it to a size that is reasonable.

 

Third, hire someone from the IRS.  Make a “progressive” capital system.  Charge more as the size of a position increases.  Owning $25 million, $100 million and $250 million of the bond is not usually linear.  In most cases owning $250 million is more than 10 times riskier than owning just $25 million.  This applies to individual holdings and a portfolio.  Too big to fail would yelp but that is the reality and would be much simpler than what we got.

 

Fourth, hire a retired mid-level commercial banker from the 80’s.  They can remind everyone that lending is risky and that banks have blown up in the past based on dumb loans, no mark to market accounting, and inadequate reserves.  Banks don’t need these newfangled inventions to blow themselves up – they were capable of blowing themselves up in the exact sort of environment Volcker seems intent on dragging them back into.

 

Five, fire 1,250 lawyers.  The ratio of lawyers to people who know their way around trading or risk is absurd.

In the end, banks are taking less risk because they don’t want to.  If and when they want to, they can probably find a way.  The Volcker rule is overly complex.  Banks will shy away from activities for now.  That is probably bad for bank stocks at the margin but remains good for bank credit as tail risk is pushed off (at least until they get bloated on bad loans, but that is years away).

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uZDcrVvV01o/story01.htm Tyler Durden