...with one small interruption. Obama was in Greece today and the presser with the Greek Prime Minister Alex Tsipras, was something to behold. I never thought I would say it but Alex was the only one on the stage with a remote grasp of reality. The other guy...
Anyway back to basics. Things slowed down a bit today with the 10 year slipping slightly which was of course to be expected. Yet the two year closed over 1.00% and everything around the world was coming back into positive yields being dragged along by the U.S. market. Up were equities again with the NASDAQ the star performer as the rotation continues into the "Trump Economy" although if you really try to pin people down as to just what that may be things get a bit mushy except that everyone seems to agree that financials and especially banks are the place to be as the regulatory picture we almost certainly appear far brighter.
A harbinger for that view came today in the audit report on the Fed's "stress tests" requested by the House Banking and Finance Committee whose Chairman may just wind up as Secretary of the Treasury. While not as damning as some might have expected (or hoped), the report none-the-less did highlight that the Fed was far from transparent in it's approach. This is going to be argued for weeks but let's boil it down to what is really important. The objective measurements of the stress test are really no problem despite what the banking lobby would have you think. Basically, they concerned with capital adequacy and to be honest while some might think that the levels may be set too high the banks really have no problem in meeting anything that might be required. Do they infringe upon ROE? Sure, of course but not to the extent as do some of the other regulations in Dodd/Frank. But the subjective tests...ah, that's another deal entirely.
To say that the Fed can make these up as it goes along is very close to the truth. To begin, the banks have little idea as to what they are and NO idea as to the methodology by which these things have been invented. They are unique to each individual bank and can be as subjective as to the distribution of the risk assets. That is bad enough but think of it in the context of a nut job like Big Danny Tarullo running the show with crazy Lizzy looking over his shoulder. Subjective means subjective: if he doesn't like you, tough nuggies. This is exactly what happened to Citibank two years ago. You see, Danny doesn't like international exposure whether he understands it or not, and guess who is the only real international bank in his small world.
Bad? Yep, but it's not the biggest problem. As administered, what the Fed has supplied to itself is a legislatively approved power to--if they were so willing--distribute credit through the regulatory process..."We don't like this in your portfolio; we would like to see more of...say...non-prime housing loans, or green energy projects, or loans to make widgets." Now where have we seen that before? Do we really want these guys to--as we allowed Barney Frank to do while spitting all over the House conference room, "Roll the dice on this one?" A thought for your day.
And before we close a thought for the President Elect. Be careful for what you wish. China, your bete noir when it comes to currency manipulation announced today that they expect the Yuan to be in the 6.90 range by year end. A boon to Chinese exports? You bet. Currency manipulation? Only if one considers a Trump victory to be a manipulative tool in creating a roaring Dollar market. This stuff gets complicated, Donald. Don't move too fast.
Showing posts with label Stress tests. Show all posts
Showing posts with label Stress tests. Show all posts
Tuesday, November 15, 2016
Thursday, March 12, 2015
CURRENCIES
I might as well admit up front that I no longer believe any of the statistics released by the government which colors my view a bit. That is not meant to say that the number are deliberately false although in certain cases that would appear to be the case. Job numbers before the last election for example. If you were looking for a taker at above 6% you hadn't a chance. Not one. Today's jobs numbers are IMHO, SWAGS...Sophisticated Wild-Ass Guesses, to be bailed out by such things as "revisions" of increasingly shapes and sizes. So when the Fed hangs it's hat on "job creation" and "appropriate levels" for action on interest rates, I shudder. Now of course the "double mandate" is in my mind crap, but we are stuck with it for the time being leaving us with major decisions on imperfect data.
There is no doubt that the Fed interest rate policy has made people millions--albeit all the wrong people according to Il Duce. Any hint at a Fed tightening sends shivers down the back of Wall Street, and yet there are some out there who continue the fiction that the advance in stocks is related to the growth in the economy, job creation, confidence levels and only slightly because of rock bottom interest rates. Oddly, the same stock market phenomena is being witnessed in both Japan and in Euroland where the economies--save for Germany--stink but where interest rates have reached negative levels. If it walks, quacks, flies and floats, it's a duck, gang. And as the saying goes Over Here, ducks rupture.
One thing about the currency market about which few people realize; it is a zero sum game. There is a long for every short, a loser for every winner, so when one starts messing with currencies in order to improve economic conditions, it may work but if it does it will surely be to the detriment of someone else. Because of the ECB's monetary policy, the Euro has lost 25% of it's value against the dollar in 5 months. We have never witnessed anything like this. Before the page is fully writ, Draghi is again being called a hero and the possible savior of Europe. I have somewhat of a different take. Germany, with it's efficient export oriented market is, to be sure, going great guns (no pun intended). The rest of Europe is a disaster, a condition, which, if allowed to continue...and it will continue unless Europe reforms it's economic and political institutions damn near overninght...could hasten the collapse of the EZ which is managing to head in that direction on it's own thank you very much indeed. (We will revisit Greece in a few days). Sr. Draghi, undoubtedly in conference with Ms. Yellen, has embarked on an extraordinary course of action, seemingly in direct opposition to the direction that the United States is presumed to be taking in regard to its own monetary policy. As a result, the Fed is forced to engage in all sorts of verbal gymnastics regarding intent, timing and purpose whilst in the background are these seemingly encouraging economic statistics which will call for a rise in interest rate sooner rather than later, thereby insuring the complete collapse of the Euro to certainly below par values, a beastly bite out of the U.S. economy--export and otherwise--the impossibility of any rise in inflation so desperately desired and the completion of the REAL realignment of Euroland. Uber Alles!
Now all this may not happen, but for a time way back when, I was a risk guy and I can only look at this week's goings-on with the stress tests and wonder how these clowns would "stress" the risk being taken in regard to a joint economy in excess of $35 TRILLION? Suppose the scenario I laid out just happens to become real. Or maybe my dark thoughts are correct, our economy is no where near as good as we think it is and a continued playing of the "Let's Make Money" game is called for. One thing for certain, it appears Ms. Yellen has gotten herself in a corner and is waiting for the paint to dry; problem is the drying process is taking a hell of a lot longer than anyone imagined primarily because the time for monetary solutions ended some time ago. Sloshing more paint on the floor from all over the world doesn't help much either.
I have another concern. Mr. Murphy hasn't left the house nor has his law. Commodities are very much like currencies only more so. You don't buy the dips in currencies and you sure as hell don't in commodities. There are no dips. Commodities move--when they move--in one direction. Crude at $47 a barrel and the Euro at $1.05 is one thing: crude moving upwards in price and the Euro at $0.90 is quite another. Wholesale economic slaughter. If we assume that the Euro continues it's downward spiral, one can be damn sure that Mr. Murphy will see to it that it reaches it's Nadir just when the oil market reverses. Mr. Murphy will guarantee it. It wouldn't be the first time I was wrong but I don't like anything about this picture. Nothing at all.
There is no doubt that the Fed interest rate policy has made people millions--albeit all the wrong people according to Il Duce. Any hint at a Fed tightening sends shivers down the back of Wall Street, and yet there are some out there who continue the fiction that the advance in stocks is related to the growth in the economy, job creation, confidence levels and only slightly because of rock bottom interest rates. Oddly, the same stock market phenomena is being witnessed in both Japan and in Euroland where the economies--save for Germany--stink but where interest rates have reached negative levels. If it walks, quacks, flies and floats, it's a duck, gang. And as the saying goes Over Here, ducks rupture.
One thing about the currency market about which few people realize; it is a zero sum game. There is a long for every short, a loser for every winner, so when one starts messing with currencies in order to improve economic conditions, it may work but if it does it will surely be to the detriment of someone else. Because of the ECB's monetary policy, the Euro has lost 25% of it's value against the dollar in 5 months. We have never witnessed anything like this. Before the page is fully writ, Draghi is again being called a hero and the possible savior of Europe. I have somewhat of a different take. Germany, with it's efficient export oriented market is, to be sure, going great guns (no pun intended). The rest of Europe is a disaster, a condition, which, if allowed to continue...and it will continue unless Europe reforms it's economic and political institutions damn near overninght...could hasten the collapse of the EZ which is managing to head in that direction on it's own thank you very much indeed. (We will revisit Greece in a few days). Sr. Draghi, undoubtedly in conference with Ms. Yellen, has embarked on an extraordinary course of action, seemingly in direct opposition to the direction that the United States is presumed to be taking in regard to its own monetary policy. As a result, the Fed is forced to engage in all sorts of verbal gymnastics regarding intent, timing and purpose whilst in the background are these seemingly encouraging economic statistics which will call for a rise in interest rate sooner rather than later, thereby insuring the complete collapse of the Euro to certainly below par values, a beastly bite out of the U.S. economy--export and otherwise--the impossibility of any rise in inflation so desperately desired and the completion of the REAL realignment of Euroland. Uber Alles!
Now all this may not happen, but for a time way back when, I was a risk guy and I can only look at this week's goings-on with the stress tests and wonder how these clowns would "stress" the risk being taken in regard to a joint economy in excess of $35 TRILLION? Suppose the scenario I laid out just happens to become real. Or maybe my dark thoughts are correct, our economy is no where near as good as we think it is and a continued playing of the "Let's Make Money" game is called for. One thing for certain, it appears Ms. Yellen has gotten herself in a corner and is waiting for the paint to dry; problem is the drying process is taking a hell of a lot longer than anyone imagined primarily because the time for monetary solutions ended some time ago. Sloshing more paint on the floor from all over the world doesn't help much either.
I have another concern. Mr. Murphy hasn't left the house nor has his law. Commodities are very much like currencies only more so. You don't buy the dips in currencies and you sure as hell don't in commodities. There are no dips. Commodities move--when they move--in one direction. Crude at $47 a barrel and the Euro at $1.05 is one thing: crude moving upwards in price and the Euro at $0.90 is quite another. Wholesale economic slaughter. If we assume that the Euro continues it's downward spiral, one can be damn sure that Mr. Murphy will see to it that it reaches it's Nadir just when the oil market reverses. Mr. Murphy will guarantee it. It wouldn't be the first time I was wrong but I don't like anything about this picture. Nothing at all.
Friday, October 24, 2014
COMES THE WEEKEND
…and for we, our quietus make with a bare can of Boddingtons. Best beer ever. Good footie starting this evening.
It was quiet today but with the continued Ebola scare and ISIS attacks all over the place, not to mention the release of the Euro "stress test" on Sunday, next week could be a bit volatile. There have already been leaks which seem to indicate that some 25 banks have failed but apparently few ever heard of by anyone. That could be a good thing but it will be very important to try to figure out on what basis the quality of assets is being judged. If Bank A is found with a gazillion Euros of Greek sovereign debt and that is given a credit weight of zero, there's trouble afoot for any omniscient observer. The depth of disclosure as to the rational and tests used is far more important that the bare, or even enhanced comment as to the results. But I'm not going to speculate. We will know in 48 hours and unless Billy the Dud does something else really stupid in that time period, that will be Monday's subject.
Have a great weekend.
It was quiet today but with the continued Ebola scare and ISIS attacks all over the place, not to mention the release of the Euro "stress test" on Sunday, next week could be a bit volatile. There have already been leaks which seem to indicate that some 25 banks have failed but apparently few ever heard of by anyone. That could be a good thing but it will be very important to try to figure out on what basis the quality of assets is being judged. If Bank A is found with a gazillion Euros of Greek sovereign debt and that is given a credit weight of zero, there's trouble afoot for any omniscient observer. The depth of disclosure as to the rational and tests used is far more important that the bare, or even enhanced comment as to the results. But I'm not going to speculate. We will know in 48 hours and unless Billy the Dud does something else really stupid in that time period, that will be Monday's subject.
Have a great weekend.
Subscribe to:
Posts (Atom)