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Coming as a replacement to perhaps the biggest dove in Fed history, few were expecting former Goldman and Pimco staffer Neel Kashkari to be as vocally outspoken on a topic that is so near and dear to regulators everywhere: their own cluelessness, and more importantly, the topic of “too big to fail” banks, which according to the Fed are a pillar of stability in an unstable world, and which according to Kashkari are anything but.

It is doubly surprising because it was none other than Kashkari himself who served as one of the key architects of the bank bailout plan in the aftermath of the financial crisis.

As MarketNews reports, “having seen the financial crisis first-hand while at the U.S. Treasury Department, the Federal Reserve’s newest regional bank president Neel Kashkari Tuesday said he is concerned that the largest banks are still too big to fail and perhaps should be broken up into smaller units.”

Kashkari, who assumed the leadership of the Minneapolis Federal Reserve Bank in November, said his bank is drafting a plan by the end of the year to end the threat he sees posed by the largest banks to bring down the financial system.

If anyone should know, Neel it is: he worked at two of the most systematically important firms in history: first Goldman, then Pimco.

Kashkari also oversaw the Treasury Department’s Troubled Asset Relief Program, known as the TARP, which parceled out bail-out funds to recapitalize many banks large and small, even to some critics said did not need the help. Originally an aerospace engineer, Kashkari lost his bid to unseat Jerry Brown as governor of California in 2014.

As Marketnews continues, Kashkari expressed skepticism that the Dodd-Frank array of banking reforms goes far enough, Kashkari told  the Brookings Institution, in prepared remarks, “that despite these best efforts, banks will still sometimes make mistakes and run into trouble.”

Kashkari, joining FDIC Vice Chairman and former Fed bank president Thomas Hoenig as a foe of the idea that big is better, said, “I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy.“He said that the Dodd-Frank regulator apparatus, with its bank stress tests being assembled and partially implemented in the past six years, is proving insufficient.

Here are some of the key highlights from his speech:

• “We won’t see the next crisis coming, and it won’t look like what we might be expecting.”
• “Failures of large financial institutions pose massively asymmetric risks to society that policymakers must consider.”
• “A very crude analogy is that of a nuclear reactor. The cost to society of letting a reactor melt down is astronomical. Given that cost, governments will do whatever they can to stabilize the reactor before they lose control.”

And the punchline:

Unfortunately, I am far more skeptical that these tools will be useful to policymakers in the second scenario of a stressed economic environment. Given the massive externalities on Main Street of large bank failures in terms of lost jobs, lost income and lost wealth, no rational policymaker would risk restructuring large firms and forcing losses on creditors and counterparties using the new tools in a risky environment, let alone in a crisis environment like we experienced in 2008. They will be forced to bail out failing institutions—as we were.

It appears we may have found one more avid reader of this website. Which makes us wonder two things i) how long until he is fired, or ii) just like in the case of Kocherlakota, who started of as an uber-hawk and ended up as a permadove, how long until Kashkari has a similar moment of involuntary “epiphany” and begins cheering for even more mega-TBTF mergers…

via Zero Hedge http://ift.tt/1KnBbJ4 Tyler Durden

The race for the Republican presidential nomination went from circus to melee over the weekend.

The latest debate saw the candidates hurling insults at one another on stage in a truly epic (if absurd) verbal grudge match that at times appeared as though it might devolve into a fist fight. As Donald Trump acknowledged in an interview with CNN, the hopelessly contentious nature of the race threatens to weaken the GOP going into the national elections.

Of course Trump is right at home with controversy and offensive rhetoric. Cruz has proven to be quite adept at trading insults as well, but the mainstream candidates like Marco Rubio and especially Jeb Bush have been caught flat-footed. John Kasich has managed to gain a bit of momentum by casting himself as the only candidate running a positive campaign while Ben Carson is, well, asleep at the wheel.

With South Carolina just days away, the latest NBC poll shows Trump holding a commanding 20 point national lead. “With contests in two states completed, the most recent NBC News|SurveyMonkey poll finds some slight shifts in the national standings of the Republican candidates,” NBC writes. “This week’s tracking poll finds Marco Rubio dropping 3 points and John Kasich rising 4 points to a two-month high of 7 points.”

The poll surveyed 13,139 Americans, more than 11,000 of which are registered voters.

As NBC goes on to point out, Trump faces a more evangelical and conservative set of voters in South Carolina. That could play into the hands of Jeb Bush and Trump’s main rival, Ted Cruz who the brazen billionaire has called “unstable.”

Still, Trump is sitting on a big advantage. According to a PPP poll conducted on Sunday and Monday (so, after the debate), Trump has a 17 point lead on Cruz and Rubio, who are tied for second with 18% each.

Here’s a look at how Trump is polling nationally among white evangelicals as well as two additional charts that break things down further.

Meanwhile, “The Bern” is closing the gap on Hillary among Democratic voters after the Vermont senator’s big win in New Hampshire. 

In South Carolina, Clinton holds a 55% to 34% lead headed into the primary.

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

Hope for production cuts were dashed early on as producers agreed to no change from the record high levels of production January – which Barclays says means 1mm bpd excess supply at current levels. However, following a Genscape report suggesting a major 705k build in Cushing crude inventories, WTI just broke down to a $28 handle (down over 8.5% from overnight highs)…

 

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As we warned yesterday – no, Deutsche Bank is not fixed…

 

So, no, Deutsche Bank (and its $64 trilion derivatives book) is not “fixed” – far from it…

 

You Are Here…

 

US Financial stocks are holding “Dimon is buying” gains but their credit is leaking wider this morning.

via Zero Hedge http://ift.tt/1PZ3NIO Tyler Durden

Judging by all the bearish commentary unleashed in recent weeks, one would think that the S&P has lost half of its gains since the artificial central-bank driven levitation was unleashed in 2009. Instead it is just over 10% below its all time highs. Still, for many the lack of the low-volume, low-vol levitation they have grown to love so much over the past 7 years, is making them nervous. So nervous, in fact, that they have liquidating so many of their marginal holdings that according to the latest Bank of America Fund Managers Survey, the cash held by investors is now the highest it has been since November 2001.

 

Perhaps just as interesting, is that allocation to equities falls sharply to net 5% OW from net 21% OW last month. Current allocation is exactly 1.0 stdev below its long-term average, and is back at levels last seen in 2012.

Here is BofA Michael Hartnett’s take on this finding:

Top 10 FMS takeaways

1. Investors long cash: FMS cash @ 5.6% = highest since Nov’01 = unambiguous “buy” signal
2. Investors want capital preservation: Feb rotation to cash, utilities, bonds & telcos; out of banks & stocks
3. Global growth & profit expectations both negative for 1st time since Jul’12; weakest China growth expectations since Dec’08
4. Fed 2016 rate hike expectations: no hike 23%; one hike 33%; two hikes 34%
5. Baby bond bulls: 20% think 10y yields lower next 12 months…up from 4% last July
6. Investors remain long stocks: equity OW fell from net 21% to 5%
7. Paralysis not panic: limited investor capitulation in US$/EU/JP/Tech long positions
8. Big stubborn short positions in Energy, EM, Materials, Commod, Industrials continue
9. Most “crowded trades”: long US$ 30%, short oil 25%, short EM 16%, long FANG 12%
10. Capitulation in momentum as outperforming style factor; preference for quality, large cap, yield

And the implications:

1. FMS says SPX 1800 “floor” holds/tactical counter-trend rally in risk e.g. SPX back to 1950 “ceiling”; but FMS does not say great cyclical “entry point” back into risk assets (in 2002, 2009, 2011 investors went UW stocks first)
2. FMS says investors have “reset” expectations for macro & markets lower and see default/recession as risk rather than reality
3. FMS says another bout of risk-off more -ve for US$/EU/JP/Tech than Energy/EM/Materials/Commodities/Industrials…nb US$ “most overvalued” since Nov’06…right now investors are much more worried about what they own rather than what they don’t own

It is ironic how when central bankers take away the training wheels, nobody has any clue anymore how to trade this “market”

via Zero Hedge http://ift.tt/1R6gSPw Tyler Durden

Current sales and buyer traffic tumbled in February for homebuilders who downgraded their confidence index to 58 (from 61) missing expctations and at its worst level since May 2015. While futures sales hope rose very modestly, NAHB shows buyer traffic plunged to its lowest since March 2015 with every region seeing weakness (most notably The West).

 

All this is odd given the surge in new and existing home sales…

 

Once again – hope appears not to be a strategy after all.

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Nearly two years after Victoria Nuland decided that “Yats” should be her puppet prime minister in Ukraine as part of the CIA-organized presidential coup, the latest embarrassment for the U.S. State Department is about to become a fact when moments ago Ukrainian billionaire president Petro Poroshenko called on Prime Minister Arseniy Yatsenyuk to resign and urged the formation of a technocratic government to end a political crisis and reignite an overhaul of the economy.

This follows just one week after the country’s foreign “technocratic” Economy minister Aivaras Abromavicius resigned saying he had no desire “to serve as a cover-up for covert corruption, or become puppets for those who, very much like the old government, are trying to exercise control over the flow of public funds.”

This suggests that it is not the “lack of technocrats” that is the reason for Ukraine’s endless government chaos; it is the pervasive corruption at all levels of government that is hobbling the nation which only exists due to day to day IMF generosity and funding.

Cite by Bloomberg, Poroshenko’s spokesman Svyatoslav Tsegolko said on Twitter that “in order to renew trust, therapy isn’t enough, surgery is needed. To renew trust in power, the President has asked the Prosecutor General and the Prime Minister to quit.” What he meant is that it is time for someone else to embezzle millions in IMF funds.

In a separate statement on his website, Poroshenko called for a “complete government reboot” and said he’s seeking to avoid early elections. He urged lawmakers to quickly decide on the fate of the government.

In short: Ukraine’s relapse into a government crisis is almost at hand.

via Zero Hedge http://ift.tt/1Sv8jkx Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If we collectively choose wishful thinking, catastrophic consequences are guaranteed.

Wishful thinking has been an integral driver of the "recovery" 2009-2015: asset bubbles aren't bubbles, central bank policies are brilliantly successful, unemployment has dropped to levels of full employment, and so on.

The problems with wishful thinking that I describe in my book A Radically Beneficial World are becoming more apparent by the day:

1. Elite/Technocrat self-confirmation: Those in the top technocrat/financial layer of the economy look at their own success and think since the status quo is working great for me and my peers, it's working for everyone.

2. This wishful thinking reinforces the positive bias of status quo institutions run by the technocrat caste and state apparatchiks: the mainstream financial media, government agencies, etc.

3. Wishful thinking appears less risky that gambling on new ideas that might not pay off; wishful thinking is thus viewed by those benefiting from the status quo as the safe bet.

4. When we face difficult problems, wishful thinking is counter-productive because it doesn’t generate solutions. Wishful thinking satisfies our preference for low-risk comfort, but it doesn’t solve problems.

If you’re running a real enterprise, i.e. one that will bankrupt you if you fail to solve problems, wishful thinking is catastrophic. There are few guarantees in life, but wishful thinking guarantees failure.

Consider a short list of conventional economic/financial beliefs that are shot through with wishful thinking:

— China will manage to slowly depreciate its currency without upsetting the apple carts of global growth and capital flows (never mind that China's leadership has no history of managing such a transition.)

 

— Unemployment in the U.S. is less than 5%, a rate that signals full employment and a robust, durable job market (never mind the number of full-time jobs that can support a household remains anemic.)

 

— Global stock markets will work off the few spots of overvaluation and soon return to across-the-board expansion.

 

— Stagnating revenues and profits are a temporary spot of bother that will vanish once consumers reap the benefits of lower energy prices.

 

— If global growth tanks, central banks will rescue the global economy with negative interest rates that punish savers so severely households and enterprises will spend every dime of cash they have.

 

— This surge of spending will grow borrowing, revenues, profits, etc. and best of all, fire up inflation–the ultimate goal of Keynesian economists (and don't forget "we're all keynesians now".)

 

— The race to devalue currencies to boost exports, i.e. the race to the bottom, is an excellent, surefire strategy for reinvigorating global growth (never mind everyone can't devalue their currency at the same time.)

The world faces a simple choice: do we continue to depend on wishful thinking, or do we actually start trying to solve problems? It's one or the other; there are no half-measure solutions. As Yoda might say, "either do or do not–there is no try."

If we collectively choose wishful thinking, catastrophic consequences are guaranteed.

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